2012 in Review- An Appraiser’s Personal Perspective

December 24, 2012 at 7:44 pm | Posted in Uncategorized | 1 Comment
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In November 2011, after a long search for our next home, my family was in escrow with plans to close by Christmas.  We told the kids that we wouldn’t decorate our current house but would make that the first priority in the new house- a week before Christmas.  This was a resale home in a neighborhood that we had been eyeing for some time.  It needed minor updates but was ideal for many reasons.  As an appraiser who had been looking to move for the prior two years, this was the end of a long and painful process.  You see, I’m too smart for my own good…

As an appraiser, I’d like to think I have a pretty keen sense of the real estate market (like a financial planner does…).  I can quickly estimate the value range of a home and I know good neighborhoods.  As the real estate market was in its nadir in 2010, we were just looking for the right deal.  On top of that, besides appraising homes all over the valley, I worked for a servicer of Fannie Mae defaulted loans, doing nationwide appraisal fraud investigation- so I knew that the pipeline for distressed homes was endless- think the Sta-Puft Marshmallow man of shadow inventory. staypuft I would not overpay, and it was a buyer’s market.  I have friends who buy houses at auction- fix and flippers.  We weren’t looking to get in that game ourselves, just use those sorts of resources to get a home at auction.  But we don’t have the cash available to buy a houe outright.  We’d need traditional financing.

However, this proved to be more difficult than anticipated.  At first my wife and I were very particular about neighborhoods.  We’d research the homes coming to auction over the next 60 days, check them out and then put in a bid.  However, so many auctions were cancelled or postponed, that the ratio of homes actually going to auction on the dates scheduled was like one in ten.  So despite this arduous research and planning, we were only able to bid on four houses during a year’s span- and in every case, we lost out by just a few thousand dollars.

This process was made worse by the fact that we had previously seen short sale listings- that take forever to close, and they actually closes during the time that we had been searching through our process.  A friend of mine actually put in a bid on short sale and has subsequently moved in.  So with this in mind we decided to expand our search to the Multiple Listing Service.  Through this process, we actually found a home that fit our criteria and placed a full price offer on a home that appeared to be slightly undervalued.  Our good friend loan officer told us that we would have no problem with the loan- despite a HAMP loan mod in 2010- and we didn’t even need to rent out our current house (though we would)!

Well, as my wife worked at a bank, her in-house lender got wind of our move and asked “why don’t you do the loan through the bank?  It will essentially be a free loan since you’re an employee.”  At this we decided to have the in-house lender do our loan.  Our friend told us that he couldn’t beat that deal and we decided that it was the best route to take to save a few bucks…

We un enrolled the kids from their schools, their classmates threw them going away parties and gave them goodbye cards, we met up with some renting friends from the neighborhood for a little celebration, got a carpeting quote and placed a down payment through Home Depot, we had the inspection done and we had the appraisal done.  We even had a tenant lined up with rent several hundred above our mortgage payment.   All was well- until the loan officer told us that loan wouldn’t go through because of our loan modification- despite the fact that they were already aware of it and said it wouldn’t be a problem.  But not to fear she told us, she had another lender who said they could do the deal- it would just take another two weeks.  A week later and now the middle of December- the day after school let out for Christmas, we were told that this second lender had also balked at our loan.  We were devastated and slightly pissed off and we started venting about it with our friends.  Everybody and their brother heard of our plight and assured us that they knew someone who could do our loan- even our friend lender who we were supposed to work with from the get go.  He was astonished that our loan was dead and assured us that his in-house underwriter was already aware of our situation and was ready to fund our loan.

However, this would mean another three weeks minimum as we’d be starting from scratch.  We’d be pushed out to mid January, school would have already started, and still, we had doubts that it would go through.    The president of my wife’s bank actually approached us and offered to give us a private loan for 12 months until we could get conforming financing (they don’t keep residential loans in house).  We respectfully declined.  So after some praying and discussion, and insight from a local real estate expert… my wife and I decided to back out of our deal completely with the notion of starting from scratch in the new year.  Total out of pocket expenses- $250 for the inspection, $400 for the carpet down payment.  But we had already packed our entire house so our garage was filled with stuff- ready for the move.

Christmas was fine with a rush decorating job but we were happy nonetheless.  Kids were a little confused but started up school again in our district at their old schools.

In January, we found a remodeled house in the MLS.  We threw caution to the wind and placed a full price offer the day it was listed (through our original lender) and lost out to a cash bidder who offered less.

At about the same time, I appraised my first home in a brand new tract of a neighborhood that had been heavily depressed over the past several years.  This house was selling for $30,000 more than resales of the same utility!  I was astounded.  I subsequently did about 30 houses in that subdivision and whenever I went there, people were packed in the sales office.  Competitior sales offices were also packed.

In February, the loan officer from my wife’s bank WAS FIRED for INCOMPETENCE!!!!!!

We placed an offer on another MLS house- full price, lost out to a cash buyer.  A friend who fixes and flips and did over 50 deals in 2011 had gone through the first quarter of 2012 wihtout finding a single house.  Investors had started to pay 10 percent over “zestimate” on auction homes- simply to get the homes and in most cases rent them out immediately.  Another fix and flipper had reworked his margins but was having a slower year.  My wife started unpacking boxes in about April.  We discovered clothes that we forgot we had.  I appraised many more homes with increasing prices.  We found none for ourselves.  My work doing Fannie Mae Appraisal Fraud review continued robustly.  There was a never ending supply of bad loans.  Yet the talk of the press was “recovery” and it was legitimate.  Or was it?

Sales were up, but in most cases- at least in Phoenix, it was investors, and they were paying cash.  The common man (AKA me) couldn’t buy a house despite being qualified.  And we couldn’t exactly overbid because of the fear of the appraisal coming in low and not having the funds to make up the difference.

In our favor was the fact that we never had to move in the first place.  Our house is beautiful and big enough for us and more.  We have views of two mountain ranges, are on a golf course and have a beautiful oasis pool that my wife designed herself.  We have a very good (modified) loan and our payment will stay low throughout its duration.  By the way, our renter friends whom we celebrated with a year ago?  They literally justed moved into their new construction home last week.

Am I too cheap?  Am I too conservative?  Am I too “smart” for my own good- despite the countless lost opportunity costs associated with being frugal?  The answer is undoubtedly YES with a little sarcasm around the quoted “smart”.  The house we were in escrow with is now worth 20-percent more.  There are very few homes on the market that we like and now they are listed for 30-percent more than they were a year ago, and quite frankly, we can’t afford that.trend

The good news is that all our moving boxes are out of the garage so we can park our cars there, we painted some rooms that needed it badly, and our home value has also gone up about 30- percent- but we’re still $60k in the hole.  From a personal perspective, we ended up where we started, but from a professional perspective, I can confidently tell you that whatever reasons you use to explain this recovery, it has been legitimate in 2012.  Where will things go in 2013?  If you can’t figure me out already, I have faith that the combination of fiscal cliff, high unemployment, increasing entitlements and lack of “real” buyers will cause things to slow down if not reverse- sort of a dead cat bounce.  But since I’ve made that proclamation, you can rest assured that we’ll continue to go up!  Have a Merry Christmas and Wonderful New Year filled with happiness, and good fortune!

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page for you to “like” at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

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What Can a Homeowner do to Ensure a Better Appraisal?

September 16, 2011 at 6:11 am | Posted in Uncategorized | 4 Comments
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For the last few years, a divider really has been put in place that supposedly improves transparency in the appraisal process. And while it may have some supposed benefits that help to eliminate fraud and inflated values, it really has screwed things up for the consumer. Now don’t get me wrong, a home is worth what it’s worth and “better comps” are typically not “more appropriate” comps. So when the borrower truly doesn’t know his house’s worth and he relies on one of the popular real estate websites that magically estimates the value sight unseen, then a certain dollar amount is planted in that borrower’s head. Well, when they start the loan process and pay $400, or $450, or $500 for an appraisal that used to only cost $350, now they’ve gone down a road that resembles a casino in Vegas.

Why is it a gamble? Because you really never know what kind of appraisal you are going to get. First of all, most lenders utilize Appraisal Management Companies (I shudder at the idea of capitalizing that), which means a middleman who serves as the barrier between the lender and the appraiser. That appraisal fee is then paid to that AMC who then looks for the cheapest and fastest appraiser they can find. And I’m not kidding when I say that some of these AMCs would offer as little as $120 to an appraiser to do the job. So let’s estimate low on the consumer fee of $400, subtract $120 and that leaves the AMC with $280 for essentially being the barrier. Now I’m not saying that these AMCs shouldn’t make money; they do have staff and overhead and sales people. But the actual appraiser doing the work gets 30 percent of the total fee? Does that seem fair?

Well an HVAC company may charge like $60 per hour to work on your air conditioner and the technician may only get $20 per hour. So that’s a good parallel right? Actually, no, because if your AC causes a fire and burns your house down, you don’t sue the technician- you sue the company. The appraisal is still signed by the appraiser who has his state issued license and his mandatory errors and omission insurance. If you have an issue with your appraisal, the AMC doesn’t care about it at all.

Now I’m not complaining about this process except in spirit- you see the “good” appraisers don’t play this silly game. They won’t drive from one corner of a metropolitan area to the other corner simply to get some work. These good appraisers have a little more pride. They have branched out into non-lender appraisals like bankruptcies, divorce or estate settlement. They only work with small lenders who are exempt from the AMC process and thus can still get full fees. They only work with the reputable AMCs (yes there actually are reputable ones) who value the work of an appraiser. These AMCs collect $400 from the client and pay $325 to the appraiser.

But what about the (let’s not say “bad” because they’re not necessarily bad) inexperienced, desperate, low self-esteem appraisers who will do this work for less than full fee? Well, in many cases, these are the appraisers who come to appraise YOUR house… yes it’s true- not always, but often.

So if you’re buying a home, the appraiser will get a copy of the contract and will find the listing in MLS (if it’s available) At least that way he will have an idea of what value is “needed”. Now before you jump on me about hitting a value, let me explain… if your house is in a newer tract neighborhood where every other house is the same floor plan and there are lots of sales and there are no foreclosures or short sales and the economy is stable, etc. etc. then there’s an efficient market. But it’s not like that. Today you may have several sales that sell on the exact same day- a short sale that is immaculate and sells for $200,000, a bank owned plain Jane model that sells for $205,000, an investor flip that sells for $225,000 another short sale that sells for $180,000 and a fixer bank owned that also sells for $205,000. So how much is YOUR house worth? The point of knowing the contract price is to at least have a number to check your work against.

There have been PLENTY of times when I came in lower than the purchase price and guess what- a few days later, I get a revised contract with the purchase price now matching my appraised value. On the other hand I’ve also come in low and had angry Realtors, AMC underwriters and $10 per hour AMC processors getting all up in my Shiite for killing their deal- and this is AFTER HVCC which was built to eliminate pressure. Again, knowing the contract price is a good check for your work.

But with a refinance, it’s completely different. You don’t see an estimated value or loan amount- it’s just an appraisal request- it’s actually a little daunting at times because the appraiser is actually being asked to do his job without guidance. What a strange concept- I don’t mean hand holding, but actual free reign to appraise a home for what it’s worth. It’s sort of refreshing. However, I just had one last week- a refinance where the owner lived in another state so they were having their rental property appraised for refinance. The last loan amount was $250,000 and the house is now worth $180,000. Do I think that they will get their refinance? It’s none of my concern… I’m helping the bank make a decision by providing them with data. If they shouldn’t do the loan, then they shouldn’t do the loan. But then again, I do wonder what might go through that borrower’s head. How much did they pay (in this case, they paid $350 and I got $350), what gave them the idea that their home was worth more?

But refinances are such a rare bird nowadays and they make up a very small portion of my volume- I’d say less than 3 percent in 2011. So this is where I come to giving some advice to people looking to refinance.

First of all, I gave you the background on the appraisal ordering process to prove a point- you have no control over who appraises your house. However there are some precautions you can take.

  1. Check your home value on one of the popular websites. You can actually put in your address and they will give you a value based on their own proprietary system- whether or not it’s accurate, it’s a start.
  2. Get some perspective of your own house.  EVERYONE thinks their house is the nicest one around.  After all, they did pay for the lot premium and upgraded carpet padding, and upgraded vinyl flooring and they’ve got 2 extra feet in their garage and they have a soft water loop… WAKE UP!!!  You’ve been sold on BS!  You bought your house from a SALESperson.  So if you come down from you attitude that your house is awesome:
    1. Look at the sales in your neighborhood.  See what features they have.  If there is a rare open house, take a look- and then track if and when it sells and for how much.
    2. Make friends with your neighbors- only for the sake of getting into their house so you can compare it to yours.
    3. Find the close by neighborhoods that have homes similar to yours and see what they look like.  Are the common areas nicer?  Are the lots bigger?  Is the builder better?
  3. Are you ready for my pitch?  Are you ready for my angle and reason for writing this blog entry in the first place?  Here it is… Get some real data that an appraiser would use to appraise your house.

So how do you get real data that an appraiser would use to appraise your house?  Simple.  Call a local appraiser.  That’s right, go to Google or Bing and do a search for “your city appraiser” and you just might find a good appraiser.  Try it now.  Click this link and you’ll see what I’m talking about (and no it doesn’t go to porn!)  And when you get there, click on Advantage Appraisals- which of course is my company.  The point is that when you find that local appraiser in Cicero, Illinois or Hollywood, Florida or wherever you are, give him a call.  And be honest with him.  Let them know that you plan on refinancing and you want to know if you should proceed.  Here’s the possible outcomes:

  1. no answer (most common)- he’s out of business, which is an unfortunate reality of what HVCC did to my fellow appraisers across the country
  2. reply of “I can’t do that”- he’s clueless and is one of those $120 appraisers
  3. reply of “That’s illegal”- he thinks he knows what he’s talking about but he doesn’t.  Remember, you’re asking for data, not analysis
  4. reply of “I’d love to help you, but you’ve got to realize that regardless of what I provide for you, when you do get the actual appraisal, you might get some schmo who doesn’t know your neighborhood, drove 100 miles to get to your house and is only getting $120 to do all that work because he’s a loser appraiser”  That’s probably a good appraiser 😉 because that’s the exact conversation I had today.

The homeowner told me his situation and I told him “I will pull comparable sales based on what public records shows for your home.  Assuming that I am appraising your house today, I will pull comparable sales that a reasonable appraiser should find given your characteristics and typical lender guidelines for appraisal requirements (recent sales, similar style, similar age, actives, pendings, etc.  How the actual  appraiser (because it sure heck won’t be me) analyzes that information is up to him.  If you don’t get your appraisal for another 90 days then this information will be essentially worthless.  I won’t provide you with a report- just sales and listings.  But with that data, you can make a more informed decision on if you should proceed with your refinance.  Total cost- $55.”  To which he replied “Sounds like an easy decision and you should market this service to others”  After the call, the process was complete in an hour and the guy was ecstatic.  Guess what, I technically did an appraisal.  I created a workfile and I will keep it for the requisite number of years.

But here’s the next point of advice. The homeowner asked me if when the appraiser calls to set up the inspection appointment whether he should tell him that he has comparable sales for him.  My reply was “Heck no!  We appraisers are a proud bunch and if you happen to get a good appraiser and pull that line, you’ve immediately touched a nerve.  The “I know how to do your job” Realtor, borrower or loan officer is considered a douchebag to an appraiser.  As unprofessional as it may sound, and perhaps a generalization that is exaggerated, you don’t want to run the risk of offending an appraiser.  I told him that the best course of action is this.  When the appraiser calls to make the appointment, find out where he’s coming from- that’s it.  If he’s within 30 miles you should be ok.  But if he’s over 30 miles away, that’s a huge red flag.  You might want to google his name and look him up on the state licensing website to see if his license is in good standing.  Again, this applies to our world of cheap and fast appraisals.  If you’ve got a bad feeling, call your lender and tell him that the appraiser gave off bad vibes and you want another who is closer, or Certified, or designated or whatever it takes to put your mind at ease.  But you must do this before the appraiser actually comes to your house.  Once the inspection is done, if you get that vibe, you will probably have to pay extra for a second inspection.  I personally will drive over 30 miles for a full fee good client.  And if I don’t know the area well enough, I will get to know it (as I am legally required to do) before I appraise that home on the opposite side of Maricopa county.  Secondly, when he gets there, be cool.  Make small talk, and then you can present the data that you received from your local appraiser for only $50.  Stroke him first with “I don’t know how to do your job, but I’ve got some sales that you probably already have.  Just figured I could save you some paper by printing it out for you.  Some appraisers might refuse it, but again, the “good” appraisers will at least courteously thank you and  take the information.  Sure you might find it strewn across the community park later that afternoon, but the “good” appraiser will at the very least compare it to the data he already has.  Chances are he has the exact same sales, but he just might realize that you provided him with one or two good ones that he missed because the Realtor input it wrong in MLS.

Besides that, it really is a gamble.  But I’d sure as heck like to play a game with better odds- like Baccarat or Blackjack, than slot machines or Roulette.  Unfortunately, we live in a world with a lot of one-armed bandits- so watch out!

Visit our website at http://www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try http://www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude AND we just added a Facebook page for you to “like” at http://www.facebook.com/appraiserdude. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

Oops!!! I Did it Again!

October 14, 2010 at 9:58 pm | Posted in Uncategorized | Leave a comment
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I’m not a fan of Britney Spears, but I do know she had a big hit called “Oops I Did it Again” and I can hum the song but don’t know the words.  So despite not knowing her music, “the Brit” popped into my mind yesterday because of something I did, but at least it was appraisal related.

Back in the good ol’ days, when lender pressure was rampant, we appraisers would get assignments that would say things like “must hit $250k” or “$300k minimum”.  Well the bad appraisers would hit that value no matter what, and the good appraisers would hit that value if it was warranted.  But either way, future business was often dependent on how you did on your most recent appraisal.  Some loan officers would put feelers out before they actually ordered an appraisal- you know, do some research on if there were supportive sales before they took their borrower head first down the refinance path.

Now when an appraiser’s client base can come and go based on your last deal, it can be a bit stressful.  It used to be that whenever I’d get an order where I pulled the comps and knew before even going to the home that it wasn’t going to make their deal work I always get a lump in my stomach.  If it was a COD order, I wouldn’t feel too bad because at least I’d get paid, and sure I’d feel bad for the borrower, but if it was a bill through escrow situation, I was always wondering if I’d really get paid (assuming that the deal dies because of low appraisal value).  I actually had one of my longtime clients order an appraisal of a luxury home in North Scottsdale- gated, golf, gargantuan, and it took me 3 hours to measure the dang thing.  As property values were proven to be declining, I marked that on the appraisal, and next thing I know, I got an email from my client’s assistant railing on why I marked “declining”.   I never heard from that client again, and I was out $1,200.

So flash forward to HVCC- the Home Valuation Code of Conduct.  You know, the Anthony Cuomo contrived system to protect the transparency of the system.  Put in place to ensure that there was no undue pressure on appraisers from loan officers.  They say that it was put in place because some of the biggest lenders in the country actually owned their own appraisal companies thus causing conflicts of interest.  As a few real life examples so as not to sound biased, Countrywide/BofA owns Landsafe Appraisal, Wells Fargo owns RELS.  Now the operative word is “owns”, not “owned”.  So in other words, despite these changes which affected appraisers nationwide, the biggest lenders still have their appraisal companies working for them.  But in the meantime, a majority of appraisers have now been subjected to a major shift in business as appraisals must now be ordered through third party AMCs- Appraisal Management Companies.

If you’ve read any of my previous articles you can see my opinions on AMCs- and in case you don’t want to read it all, I’m generally in favor of the new system.  I won’t go into that here, but let’s just say that I didn’t work directly with any of those big banks, so all my clients went with AMCs that they didn’t own.  Now in this shakedown I lost some clients because they went with AMCs that I couldn’t effectively become an appraiser for, but I also gained some clients that truly ordered their appraisals randomly.  However, a few clients went with an alternative AMC solution- which was more of an electronic AMC.  Imagine that instead of having to contact a person to order an appraisal, you could go to a website which truly and somewhat randomly and anonymously selects the appropriate appraiser based on proximity, experience, etc.  I’ll talk more on that type of AMC some other time.  So because a few of my clients used that sort of system, I was able to get full or pretty close to full fees with transparency and lack of pressure.  Life was good.

But then one of my lenders started whining about deals that were killed because of low appraisals and their lack of control of the process.  I started getting calls from loan officers… I never wavered from my value, but still- a conversation that should never happen any more.  So what did they do?  That’s right, since they couldn’t fire the appraiser (assuming I’m not the only one who has come in low for them, they simply decided to change the AMC they used.  The new one was the human kind and guess what- it happened to have the same physical address as the lenders headquarters!  So this smaller lender decided to create their own AMC with employees who are paid essentially from the same revenues as the loan officers and they are now within walking distance of each other.  Does anyone see any potential problem here?  Here’s kicker number one- perfectly legal.  Here’s kicker number two- now that they had to go with a different AMC they claimed they had to cut the fees paid to the appraiser so that they could justify the cost of running their new AMC division.  The borrower was still getting charged $425+, but now the appraiser was getting paid less.

Let’s break it down to what prompted me to write this article since I’ve already engulfed a lot of your time.  If I do not hit the value needed by this AMC/lender, I inevitably get a call- but up until this point it had never been a call of value pressure.  But more of a “why didn’t you call me when you knew the value was going to be low?”  And as a reputable and reasonably articulate appraiser I would simply say, “I didn’t realize it was low”.  But in my mind was the question of whether I’d get further business from them.  And I always did.  But then it got down to the dread whenever an order would come over.  Before I actually accepted the order, I would look it up and do a quick search of comparables.  If I knew that the value wouldn’t be there, I’d simply decline the order.  That sounds pretty much like the life of an appraiser before HVCC went into effect doesn’t it.  Instead of calling it like it is, I would simply avoid appraisals that would make me look bad in the end.

Smash cut to a few weeks ago.  I got a request for this lender- purchase price of $350k.  I pulled comps and found everything similar selling for $220ish.  I was puzzled by this.  So I did (I’m so ashamed) a Zillow search and found that they thought it was worth around $250ish- still way below the contract price but emphasizing that something was fishy.  Since there is so little recent sales data, I did a “quick” paired sales analysis from the last time the subject sold and found that there was no reason for the home to be worth $130k more than its peers.  So as oftentimes today buyers use the appraisal as a bargaining chip, I accepted the order (40 minutes of unpaid work so far).  I then went and inspected the home- top of the line everything, best house on the block.  But the comps I had- although in most cases inferior, were not $130k inferior.  We’re not talking about a million dollar home here- we’re talking about a tract home.  The Realtor actually provided me with a handful of what she felt were good sales- but they were either 600-800SF bigger or in different neighborhoods or custom/semi custom homes.  I of course examined each one and realized that they were inappropriate sales.  So with what little but supportive data I had, I arrived at a value closer to what Zillow figured- based on the preponderance of similar utility homes, coupled with a recent sale of a larger home to warrant some upward adjustments.  I submitted my finished report and a few days later I got confirmation that my appraisal passed their QC standards and that the file was closed. Oh yeah, and I got paid on it a few days ago.

So this past Sunday- two weeks later, I’m at the park with my family and my email pops up from the head reviewer at the AMC with attached comparable sales (the same ones provided by the Realtor) and a message to call or email him.  So since he said call OR email, I immediately email back and ask what his concerns were so that I could answer any questions.  To which he replied, “you need to call me”, to which I replied “please inform me on what you need me to call you about so that I am adequately prepared to discuss it with you”, to which he replied in all caps and red, “YOU NEED TO CALL ME”.  So I’m not dumb.  I know why he wants to talk.  I call him on Monday morning to which he replied “you’ve got me at a disadvantage because I don’t have the file in front of me” to which I reply “if you would email me your concerns, I’ll be happy to address them professionally and promptly.”  His basic concern was why I included a sale of a much larger home that sold for $380k but still arrived at a value of $250k.  I explained that this sale was by the same builder and was on the same street and was used to bracket the subject’s GLA, thus justifying the appraised value coming in significantly higher than what would result in only the consideration of similar sized homes.  In other words, I gave that sale some weight, but by far the least weight.

Now remember, my appraisal has already passed their QC department 2 weeks prior, and I have subsequently been paid, so why is anyone calling me in the first place? Why would this reviewer care what the value was?  And how would this senior reviewer have the exact same MLS sheets as were provided to me by the Realtor with her exact handwritten notes on each one.  And why would anyone at all call to argue with my comparable selection when the bottom line is that my appraisal is used to help the lender make a financial decision on whether the underlying transaction makes sense for them.  I end the conversation with “Sir, I believe I understand what you want me to do, please email me your request through the proper channels and I’ll be happy to remove that sale and get the revised report back to you promptly”

Here it is, four days later, and I have yet to receive that request and I doubt I will.  Are you figuring out what is going on here?  Notice that this “senior reviewer” has not sent me any sort of documented request on what they want me to do?  So what is my recourse?  What proof do I have that I was being pressured into doing something that I didn’t want to do?  That’s right, I have no proof- and that’s how they like it.  Lender pressure is there, appraiser has to spend time defending his findings, dread on if further business will come from this source.

Getting back to Britney, I’ve learned my lesson.  I really wish I could go after this guy/these guys, but unfortunately I have no real evidence.  When my spider senses were tingling over whether I should even accept the order, I went against my better judgment based on past experience.  I can’t stand Britney.  And I can’t stand lender pressure- regardless of who the messenger might be.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

How to Prevent a Realtor-Appraiser Breakdown

July 31, 2010 at 3:36 pm | Posted in Uncategorized | Leave a comment
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It never ceases to amaze me that the various parties involved in a real estate transaction can have such little knowledge of what each other does and have the audacity to pull attitude with each other.  I can tell you stories of Realtors who refused to unlock a home for me because it was half an hour from their office. Or how about the loan officer who told me to trim my report size- not the file size but the number of pages- and when asked which part, they said “I don’t know, it’s just too much to read- remove like 8 pages”.  But today I’m not going to share war stories, but instead offer some constructive advice to my Realtor “friends”

The Home Valuation Code of Conduct (HVCC) was created to help eliminate pressure between appraisers and anyone who might try to influence them.  Yay!  But that’s like saying condoms protect you from pregnancy or venereal disease.  I can’t tell you how many times that in the heat of passion I’ve incorrectly tried to put on a… oh wait, where was I?  Ah yes, the HVCC creates more of a letter of the law vs. spirit of the law dilemma which has caused overreaction.  Should Realtors interact with appraisers?  If an appraisal’s value is below the contract price, should the Realtor try to fight it?  And if so, what is the right way to do it?  That’s what I’d like to help you with today.

When I want to inspect a home for purchase, I always call the listing agent- not to meet with them, but to ensure them that I am on task and to confirm accessibility to the home.  Plus, if it’s an FHA loan, I need to make sure that utilities are on.  And get ready for my taxicab confession- I do not own an electronic SUPRA key! 

Now you can criticize me for that little ditty, but when the industry slowed down a few years back, I simply couldn’t justify keeping it- 90% of the homes I appraised were either on combo box, were retrospective drive by assignments or by golly, the Realtor would be more than happy to meet me at the property to let me in.  My attitude was that Realtors involved in a transaction would be more than happy to help in the process.  And guess what- in two years I had a total of two Realtors actually give me attitude about me not having a SUPRA key.  I could have lied and said mine was broken, but I just say that I don’t have one.  In fact recently, I had an assignment where the Realtor just flat out said that she couldn’t drive the 15 minutes to the home- (I hadn’t even suggested an appointment time)- and she didn’t offer an alternate solution.  I could feel her “holier than thou” attitude through the phone, so when she asked why I didn’t have a SUPRA key, I was in a rare mood where I said “I’ve found that the better Realtors who care about their transaction will meet me at the property”.  Too bad that she wasn’t so dense to not get what I was saying, and when she said that the assignment would have to be reassigned, I was busy enough where I simply said “ok, have a nice day”.

But let’s move on to something else.  Should Realtors provide comparable sales for the appraiser?  Absolutely!  Print out a list, put your own notes on each one- not opinions but facts based on YOUR honest observations like “mold problem”, “similar upgrades”, etc.  But please, don’t lie.  Appraisers aren’t dumb.  But here is why you should do this.  Appraisers cover a region- for instance, I cover the Phoenix metropolitan area even though I’m based out of the Southeast Valley.  That’s a pretty big area to be an expert on.  I can honestly say that I have done a majority of neighborhoods in the region, but I don’t do them regularly.  The Realtor is supposed to be the local expert.  Also, as the local expert what about sales that were incorrectly input in MLS or were For Sale by Owner?  I’ve seen plenty of sales that don’t show up in a regular search because perhaps the Realtor misspelled the city name or the mapping software doesn’t plot it properly.  If the Realtor knows about relevant sales like this, they should be provided to the appraiser.  And put a note on the list that says “Hi George, I’m sure you already have data on all these comps, but I figured I could save you some paper and extra phone calls to Realtors”.  Worst case scenario- he throws them away.

WHAT ARE GOOD COMPS?

Now the key to understanding what “good” comps are is rooted in understanding the appraisal guidelines as set forth by Fannie Mae, HUD or specific lending institutions.  How old can comps be?  How far away can they be?  How much different can they be?  There are no definitive answers to any of these questions.  Sure you might have heard “one mile” or “six months”, but it all depends on the data available.  If the subject is a tract home built in 2000 and the Realtor thinks value should be based on 7 month old sales that are in a different neighborhood- but there are ten sales from a month ago in the subdivision, then that Realtor is in for a rude awakening.

But what about when the appraisal is already completed and the value is “killed”.  Well first of all, a Realtor needs to take on the attitude that the appraisal is now evidence that the home might be overpriced.  Perhaps the best course of action would be to try to negotiate a lower contract price- after all, you can now confidently say “an appraiser expert has proven that the home is overpriced, so you’ll never sell it for that much.” 

However, if the deal is potentially lost, then of course the Realtor might be upset but how should it be handled?  First and foremost, one must know what they are talking about so if you can see a copy of the appraisal, then look at the sales used and the property details.  Did the appraiser forget anything that significantly adds to value?  Maybe they forgot to mention the in-ground swimming pool, or maybe they didn’t notice the upgraded padding.  Now of course the pool is a glaring thing but let’s talk real quick about “upgrades”.  We’ve all seen the articles that tell you what home improvements add the most value to a home and guess what- most of them, don’t add dollar for dollar value.  So sunscreens, extended garages, updated carpet padding, 2 inch blinds, etc. don’t really matter in the grand scheme of things.  When Realtors tell their clients to make business decisions instead of emotional decisions, oftentimes they are just as guilty of thinking too much of their own listing.

Next, look at the comparable sales used.  Are they really similar properties?  Are they recent sales?  If you have three “better” sales but they’re older sales, or further away, or newer homes, then you’re fighting a losing battle.  Now put yourself in the shoes of an underwriter who sits in a cube in some high rise in Chicago.  When that decision maker looks at the data (whether it’s the appraiser’s or the Realtor’s), what will make more sense to them?  Remember, this isn’t 2005 anymore.  Some lenders are actually looking to make good business decisions instead of simply rubber stamping loans.

So if you really feel that the appraiser did something wrong, or ignored more appropriate comparables, how do you proceed?  I’ll tell you right now, that we appraisers are a proud race and we don’t like to be told that we are wrong, so you need to present this information in a loving, caring manner – I’m totally serious.  Write a letter- thank the appraiser for all his hard work, and mention that it was a pleasure meeting him.  Pat his back for his integrity and quality and admit that what you’re asking is not normal.  And then present your comparable sales.  Ask him if he wouldn’t mind helping you be a better Realtor so that you can do better on your next transaction.  Literally ask him to explain why he didn’t consider your “better” sales.  Maybe you’ll paint him into corner and he’ll understand that he screwed up- and that you know it.  But don’t get all accusatory.  Make it clear that you are not trying to influence value but that you want to make sure he has the necessary data.  You might even want to ask him what he’d recommend you do at this point- “should I request a second appraisal?”.  Thank him for his consideration and respect his response, and CC the loan officer as well…  What you’re doing is planting seeds of doubt in the appraiser’s head. 

Now remember, I’M an appraiser!!!  So why am I trying to teach you how to get your way with an appraiser?  Well that’s a perception issue.  I’m not trying to teach you to influence, I’m trying to explain how you can tactfully and ethically present your case and perhaps get an appraiser to reconsider his value.  There’s nothing wrong with that as long as your argument is based on fact.  But guess what?  He probably won’t do anything… but he might if you present a strong case.  If he ignores your letter, then you really have no recourse.  If you really do know that the appraiser was completely negligent or that he lied about something, then of course you can file a complaint with the state appraiser board.  But unless the complaint is about fraud, it’ll get dismissed.  Remember, above all else an appraisal is an opinion of value and it should be rooted in factual data, and if the appraiser presented his data clearly and accurately, you can’t dispute an opinion- you can only dispute facts.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

Life Cycle of a Home’s Value (2005-2009)

November 12, 2009 at 6:18 pm | Posted in Uncategorized | 3 Comments
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As we all know, the real estate boom of the past decade is over as we knew it.  Like many, I was fortunate to have bought my first house in 1999.  And 2005/2006 was the beginning of the end.  I mean, we all knew that things were out of control, but like dot coms and tulips, you just had to buy or you were labeled an idiot by those who were already making loads of money.

And similar to buying, people were able to custom build their dream homes- they’d get a construction loan from a local bank, buy a lot for a quarter million and then go nutso gonzo as they built the end all be all of custom homes- not personally for most, but we’re talking essentially a home built from step one with owner direction.

A few years ago, I was fortunate enough to work with a few local banks that were helping people build their dream homes.  And what they’d do is get an appraisal based on the finished product.  This is called a “proposed construction” appraisal.  And essentially it’s the same thing as a normal one, but it’s based on the hypothetical assumption that the home will be built as described in the blueprints and any other documentation that shows the finish of the home.  So even though the home wasn’t even started, I’d use current comparables to estimate the value of the finished product.

Now when it takes a year to build a home, the assumption (and bank business decision) is that the market values will stay the same or continue to go up…

Case in point:  I got an assignment to do an appraisal on a home that was just completed- this was in July of 2007.  It was a custom home on an acre in Queen Creek.  I go out there, do the normal appraisal and based on the closed sales from July 2007 or thereabouts, the home was worth $875,000.  Now the original construction appraisal had it pegged at right around a million dollars, so losing $125k in value is a big chunk of money.  Either way, based on what the owners put down, the loan went through.  And please keep in mind, I don’t know if every deal goes through.  It’s not the Appraiser’s job to care if a deal goes through.  This was more of a curiosity thing and I was friends with the loan officer.

Custom home I appraised in 2007

Custom home I appraised July 2007

Literally 3 months after this- we’re talking October 2007, the same loan officer called and said that they owners now wanted to take out a home equity line so that they could do their yard, put in their pool, etc.  Ironically, the owner owns a landscaping company so I figured he’d have an in- at least with the landscaping.  But anyway, I did the new appraisal and unfortunately, all the now new comparables painted a different picture.  Let’s describe this era as “the beginning of the end” or the “world of wishful thinking”.  Now, only 3 months later, the home appraised for $780k- that’s right, almost $100k lost in 3 months.  Needless to say, the homeowners did not get their home equity line.

And now is where I go into the mindset of that era.  Back then, I would get calls from loan officers- and I’m talking about the ones that I knew, and they would be in the process of taking a loan application for a borrower.  I would do a limited desk appraisal based on county records and present the loan officer with the applicable comparables in the neighborhood and invariably, the loan officer would ask if there was anything else (as if I’d be holding out the “good comparables” just to upset them).  When they realized that they couldn’t get a 80% loan, they would ALWAYS take the attitude of holding off for better comps…  Now my gut- based on my insight of the market, told me that there would not be any better comps, but it’s not my job to influence or predict.  So a month later when that same loan officer would call for the same property, let’s just say that my “told you so” news wasn’t always taken so well.  After all, it’s the Appraiser’s fault that home values were dropping right?  Shoot the messenger, etc.

So anyway, beyond seeing that deals aren’t going to happen (based on appraised value and my limited knowledge of either what they were hoping their home was worth coupled with what county records shows as their original mortgage amount), I simply move on with my life.  I’ve got enough of my own things to worry about to be concerned about every homeowner- that would drive a person insane.

So, let’s flash forward to 2009- November to be exact.  I just got an appraisal request for this same property that I’ve described to you above.  First off, let’s just say that that is such a statistical improbability that images of being struck by lightning- twice, come to mind.  Now back in the heyday of refinancing, I’d appraise the same home 3 or 4 times in a 2 year period.  But that was because the homeowner was refinancing with the same loan officer while rates went down and values went up.  But in today’s world of foreclosures and declining markets, it is now a statistical anomaly.

When I pulled up the county records of the home, I recognized the street name and neighborhood and wondered if by chance it was the same home, and  then I saw the owner’s name and it all came back to me.  As it turns out, the owners of said home couldn’t get their home equity line and have lived in the home for the past two years.  But now they are short selling the home.  Even though it’s not in any way my fault, I know that it was my appraisal that stopped their “progress” back in ’07.  So when I called the Realtor to go see the home, of course I asked if the homeowners still lived there- and of course they do.

Long story even longer… his mother was there when I inspected the home, so no uncomfortable conversation.  And at least I didn’t have to remeasure this bad boy as custom measures tend to take a little while.  But as you can see by the photo, nothing has changed- in fact the house is already a tad run down and neglected with uneven pavers, some of the stone accents missing, etc.

Custom Home 2009

Same Custom Home November 2009

So that’s my story.  Any questions you might have are welcome… oh wait, did you want to know what the home is selling for right now?  Do you really want to know what that “million dollar home” is worth today?  Alright, I’ll tell you- but you need to leave me a comment!

$342,000.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

What’s the Typical Appraisal Workload Nowadays?

October 1, 2009 at 5:27 pm | Posted in Uncategorized | Leave a comment
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As times change, lines of appraisal work shift.  Back in 2003-2004, my work was about 47% rate and term refinances, 47% purchases, 6% “other” which included review work, estate settlement, bankruptcy, divorce, and hard money (like the guy who needed to refinance so that he could raise enough money to post bail for his son)

When I moved to Phoenix in 2005, the chunk of purchases jumped up to about 60% and then starting around 3rd quarter of 2007, that ratio shifted to a lot fewer purchases and actually volume so low that I can now admit was too small to gague statistics.

But today, I can actually measure my work volume and it has shifted significantly.  I went back 90 days to itemize the work I’ve done and here’s the approximate rundown:

 

My Trailing 90 Days Volume Breakdown

What, were you expecting actual numbers? 

Anyway, keep in mind that of the refinances, a lot (I assume) ended up below what they “needed” to make their deal work, but at least now I don’t feel the lender pressure to hit some sort of value with the unspoken threat of losing future work.  How do I know this?  Let’s just say that if they bought the home in 2006 for $350k with a $320k first mortgage and now the home is worth $160k, I surmise that they didn’t pay down their mortgage by over $160k over those 3 years.

As you can see, I now do a lot of Review appraisals.  Back in the day, these would be reviews of recently completed appraisals.  I rarely get those now.  What these reviews are is typically foreclosed homes that were appraised in the 2005-2007 era back when values were very high.  Someone wants to know if that appraisal was inflated.  And for the sake of privacy, I’ll just leave it at that.  And of those that I review, I’d say 95% of them WERE inflated.  At first I was a little confused on the purpose of these assignments because I would assume that some of these Appraisers are now out of business with little or no possible recourse.  But in actuality, these are not for the purpose of hunting down bad Appraisers, but instead to determine the big picture of the original transaction.  These assignments are pretty low stress in that I never enter the home being appraised, but it’s pretty glum work as that’s a lot of assignments where I never step out of the car.  And as an aside, I often see the original appraisal from say 2006, which shows a beautiful home, and when I see it (from the street and perhaps a newer listing now that it’s foreclosed), it’s a completely thrashed home- complete with holes everywhere, nasty carpets, overgrown yards and green pools.

REO work is Real Estate Owned assignments.  These are an example of how appraisal volume has increased over recent years.  These assignments are essentially pre-listing reports requested by the bank that now owns a foreclosed home.  Take for example the bank based in South Dakota that now owns a foreclosed home in Arizona.  They don’t know the market out here.  They KNOW that these free online home valuation sites are a complete waste and completely unreliable.  So among other things, they order what is known as an REO appraisal.  Basically, they want to know the appraised value based on closed sales, but they are very interested in what it would take to make the property truly competitive with other homes for sale, so a very detailed list of things wrong with the home is required.  Also, the other available listings are paid very close attention to.  Basically, the bank wants to get rid of these non-performing assets so they want to know what it will take to get these homes sold in a relatively fast time.

Estate work is on the rise.   People are always dying and the estate needs assets valued.  But when you add in a bad economy, you unfortunately get a lot of personal issues that require appraisals.  Bankruptcy and divorce are prime reasons why homes are appraised, so that the parties know how to proceed.  It’s sad but reality.

So, let me paint an image of the volume of appraisal work that I’m seeing or that can affect a single property over a relatively short period.

  1. Family buys a home in early 2006- conventional appraisal
  2. Family refinances their home in late 2006 to take out money for improvements- FHA appraisal
  3. Family decides to sell home in 2008- listing appraisal (not required but often done)
  4. Family can’t sell home by late 2008 and lowers price to point to breakeven point, spouse loses job, couple decides to divorce- estate appraisal
  5. Owner negotiates with bank for a short sale- bank gets an offer below asking price in early 2009 and questions if it’s a good offer- REO appraisal
  6. Short offer falls through, home is foreclosed in March 2009, bank wants to relist it- REO appraisal
  7. Third party questions original refinance appraisal August 2009- Retrospective review appraisal
  8. New buyer comes in and buys home September 2009- FHA appraisal

That’s right, we’re talking 8 separate appraisals on the same home within a very short period, all for different reasons or for different parties.  That’s a lot of potential work for Appraisers nowadays.

Now don’t get me wrong, I don’t want anyone to get the idea that I’ve got more work than I can handle- after all, I just spent the past few hours writing this blog!  More on the socialization of the appraisal industry some other time.  Don’t even get me started on the 20 year veteran getting the same pay/volume as the newbie.  (I’m somewhere in between- just a squirrel trying to get a nut)

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

What’s a Zero Lot Line Home?

September 30, 2009 at 5:17 pm | Posted in Uncategorized | Leave a comment
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Well, since I’m doing one now and haven’t posted in a while, here’s a quickie. 

Sometimes you hear of a home being referred to as a “zero lot line” home.  While this might be somewhat self explanatory, I tried looking for a photo example online and came up dry. 

zero lot line homes

zero lot line homes

Notice on the right side of the main home in the photo, the wall lines up with the leftmost wall of the adjacent home.  These are zero lot line homes.  As you can guess, the lot size is smaller (3500SF in this case).  This is great for builders as they can cram more homes into an area and it’s a good option for homeowners.  Typically when you are moving up the housing chain you might rent an apartment, buy a condo and then buy a single family home.  But perhaps you’re not ready for a full on home with a big lot and the costs associated with maintenance.  Zero lot line homes are typically a tad less expensive and have less lawn/lot to maintain.  A win win for the “tweener” who is looking to buy their first single family home.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Or now you can follow us on Twitter at @appraiserdude.  Give me a call at 480-544-1217 if you have any questions. I look forward to working with you.

My Analysis on the HVCC

July 16, 2009 at 12:08 am | Posted in Uncategorized | 2 Comments
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Here’s the layman’s synopsis of the dreaded Home Valuation Code of Conduct and why it’s important to you- regardless of who you are.  I recently gave this presentation to a group of other local professionals, and now I’ve attempted to put it in some sort of written form.  Now that I’ve read it back, it’s downright boring!  But it is important and worth a few minutes of your time.

BACKGROUND

In the late 1980’s there was the great Savings and Loan collapse.  “Bad lending practices” is the 2 second synopsis.  And the US Goverment (taxpayers) bailed them out to the tune of $125 billionish.  In the wake of this, among other things, Appraisers were officially required to be licensed, follow universally accepted standard, etc.  In other words, rules and regulations were established.  Those rules included minimum education hours, minimum experience hours, testing standards, licensing procedures, background checks, etc.  Today, that means 2500 hours of experience, 120 hours of initial education, FBI check, nationally established test, a 4 year college degree, errors and omissions insurance, etc.

And every two years, Appraisers are required to repeat one specific class known as USPAP, which basically covers the methodology of appraising- including ETHICS.

Why so much to be an Appraiser?   Well after all, Appraisers are signing a legal document saying what the estimated value of a property is.  And that document is then used by decisionmakers on whether a loan should be given for a particular property.  Basically, the Appraiser is giving the diagnosis on a piece of property, and the bank then decides the course of action.

Every state has an Appraisal Board which consists of a group of professionals who enforce appraisal standards and licensing.  And when someone complains about an Appraiser for competence, ethics, or any other legitimate reason, that board investigates complaints against Appraisers.   The board reprimands Appraisers up to and including revocation of licenses and even pursuit of criminal charges to be carried out by the Attorney General or whomever else would pursue the matter (I’m not a lawyer).

All these things have been mandated or expanded since 1989 by what is known as FIRREA- you can google that on your own if you’d like.

Recent Housing Situation

So as we’ve all seen, over the past several years, the market has seen a significant decline, and by significant, I mean huge.  But rather than accept the fact that it’s normal for markets rise and fall, the tendency is to try and place blame. 

So whose fault was this big mess? 

  • Was it the homeowners- who saw prices going sky high and did whatever they could to buy a house, or two, or ten.  Or maybe they irresponsibly overleveraged themselves to get these homes.  Or maybe they even lied in order to get these loans.
  • Was it the Realtors, who took their clients to homes that were above their price range and “sold” them into going through with a purchase that they really didn’t feel comfortable with.
  • Was it the Appraiser’s fault for falsely estimating values because they were scared that they’d lose clients if they “killed” deals?  Or perhaps they were working in cahoots with lender in some sort of “straw buyer” scheme.
  • Was it the mortgage broker’s fault for putting borrowers in risky loans- or fudged the financials of the borrower to make them fit into a loan? 
  • Was it the lender’s fault for creating these risky loans in the first place- like stated income, no income no job, or negative amortization loans? 
  • Maybe it the politicians- who passed legislation and threatened to sue lenders if they didn’t provide more loans to unqualified borrowers simply for the sake of giving more minorities the chance to own a home.

The answer- it was everyone’s fault and more.

But now that the mess is made, sure we see the news stories of heartache and trashed homes and bankruptcy and divorce.  But the people who we hear and see most now are the politicians who represent us and are able to promote legislation (or mandate it).  But let’s just say that I am cynical and although I believe that many politicians have noble intensions, oftentimes they are only posturing in order to let the masses think that they are doing their job.  The politicians have to look like they care right?

So here’s the deal.  A few years ago, Washington Mutual got in trouble for putting pressure on Appraisers to get deals done.  Turns out that WAMU owned their very own appraisal company subsidiary.  So if you got a loan through WAMU, your appraisal was essentially done by an employee of WAMU.  So ultimately their staff Appraisers were caught inflating values to make deals work- even if they weren’t wise decisions for the bank.  People complained and it was uncovered that the “objective” Appraisers were anything but- and that they were pressured into inflating values.  WAMU is now in the process of being bought by Chase so we know how that worked out for WAMU. 

So about this time, the attorney general of New York- a single person named Anthony Cuomo took it upon himself to dictate that mortgage companies are not allowed to directly contact the Appraiser, but instead use a “neutral” Appraisal Management Company (AMC) who then selects Appraisers at random.  You can read the actual code here if you’d like.  Appraiser independence, no pressure.  Yay!… But does it really provide Appraiser independence and does it really eliminate lender pressure? 

Once the code was announced, these AMCs appeared out of nowhere in droves.  Everyone wanted a piece of the action.  I mean where else can you start a business that mortgage companies have to use?  And did I mention that these AMCs are unregulated?  Did I mention that these AMC’s are unregulated? (yes I meant to repeat myself).  So starting May 1st of 2009, it is now required that for any transaction backed by Fannie Mae or Freddie Mac, safeguards must be in place to eliminate any whiff of guidance by the loan officer on the Appraiser.

So… how do these AMC’s make money?  Well, it used to be that the borrower would pay the Appraiser- around $350 for a typical home appraisal.  Good lenders would insist that borrowers pay the Appraiser directly- that way, even if the deal fell through, the Appraiser got paid for services rendered.  So if the Appraiser gets $350, then  how does the AMC make money?  Two choices- charge more for the appraisal so the Appraiser can still get paid the same amount, or find an Appraiser who will do the work for less than $350.  Oh wait, three choices- charge more for the appraisal AND find an Appraiser who will do the work for less than $350.  So it’s now common for borrowers to get charged $500 for an appraisal and the Appraiser gets paid $250, $200, or even less- depending on how much the AMC is willing to pay and how desperate the Appraiser is.  And since lenders must now use AMC’s, Appraiser must now work with AMC’s.  So in a given market- say Phoenix, a single AMC might have 30 Appraisers to choose from to do an assignment.  And one AMC in particular will simply email an opportunity to all local Appraisers and the one who quotes the best combination of cheap and fast, gets the work.  Or the “better” AMCs will broadcast an assignment and the first one to reply will get the work.  Sounds sort of like a feeding frenzy eh?

Now before you start saying that Appraiser’s are sharks, please remember the sharks aren’t filming the video, and the sharks aren’t providing the fish.  These sharks are hanging around waiting for food because they are starving to death.  Meanwhile the smart shark has been out on his own, doing his own fishing- but now he’s not allowed to do so and he has to join in with the others or starve to death.  Sounds a bit like socialism doesn’t it?  And who are the starving Appraisers who are doing the work for very little compensation?  It’s the freshest and greenest Appraisers who aren’t necessarily the best at what they do.  Why do high end cancer specialists and baseball players and singers get paid so much?  Because they have proven themselves and their work speaks for itself.   What if you wanted to see a concert and when you got there it wasn’t someone you’ve heard of, and it was rock when you are a country fan and they weren’t very good?  Not very good for the consumer is it?

And what happens if the appraisal is bad and the lender isn’t happy?  Who can they take it out on?  Sure the Appraiser’s name is on the report.  It’s the Appraiser’s errors and ommissions insurance and license and phone number on the report.  But with a dead deal, what’s the simplest solution for the lender?  Go to a different AMC who will provide appraisals that make value.  So the “pressure” was perhaps on the Appraiser from the lender, but now the pressure is on the AMC who now puts pressure on the Appraiser- another layer of beauracracy.  So if an Appraiser comes in at a value that isn’t good enough, he might stop getting orders from the AMC- again, the unregulated AMC.

Who is benefitting from the HVCC?  It’s not the Appraiser.  It’s not the borrower.  In actuality it’s the lender and the AMCs that are benefitting most.  The lender can now charge a strange fee of say $500 that covers the appraisal.  The lender can pay the AMC $350, who then pays the Appraiser $200.  And even if the appraisal kills the deal, the lender makes $150.  So instead of the Appraiser charging a simple $350, two other entities make money out of the same transaction.  Now I know that this scenario is very simplistic, but it’s a perfect example of how some are taking advantage of the HVCC.

This rant has gone on pretty long so if you’ve even made it this far, I thank you and I will try to wrap it up.  I’ll actually give real examples later down the road.

What Can Be Done by YOU

Don’t get me wrong, clients come and go, so I still appreciate referrals of mortgage professionals, management companies, lawyers, Realtors and even homeowners.  But my request for you today is to take action against this legislation.  And here’s why it’s not a futile attempt.

  1. The appraisal industry has the weakest lobbying group in DC.  So it was easy for the HVCC to get crammed into action.
  2. The National Association of Realtors (NAR) has one of the biggest lobbying groups in DC and while they let this go into effect, the impact has been enormous in just two months.  Realtors and mortgage brokers are seeing their deals getting killed by inexperienced Appraisers and borrowers are seeing very high Appraisal fees and even second Appraisal fees for deals that go nowhere.
  3. So the president of the NAR is finally taking action against the HVCC and has met with Anthony Cuomo.
  4. Go to this website and watch the video which is very well done and explains much of what I have done in this blog.  (and sorry if you read it first and are now saying “you mean I could have watched the movie instead of reading this poorly written crap?!)
  5. Sign the petition on that same website.  Last I checked it had 52,000 signatures so far.
  6. Share that website with everyone you know.
  7. There is a bill in the US House of Representatives right now- HR 3044.  It already has 19 cosponsors.  Please contact your congressman and voice your support for this bill.  Hopefully he or she will want to cosponsor the bill.

Visit our website at www.advantageappraisalsllc.com, and if that doesn’t roll off the tongue, just try www.appraiserdude.com. Give me a call at 480-544-1217 if you have any questions. I look forward to working with you. Now serving the San Tan Valley community.

Faith in Humanity- Restored (for now)

July 3, 2009 at 6:19 pm | Posted in Uncategorized | 2 Comments
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Get ready for a long story and rant.  But there’s a lesson to be learned…

Ever since moving to Arizona, I’ve worked with a particular Realtor who has fed me all his appraisal deals- I golfed with him, we went to each others kids’ birthday parties and I considered him a friend.  As a business owner, you have to make executive decisions on getting paid and although sometimes slow, I’d always get paid for the appraisals I did for him.  He had his go to loan officer whom I never got along with, but it was a relationship with the Realtor that precluded anything else.  The loan officer (she) would often call me in a huff- either to whine about the value I came in at or otherwise second guessing my work.  I have confidence in my work so I always found it annoying that after 3 years she never lightened up.

In May 2008, I got an appraisal request for a property purchase.  The order- as always, said “COD” but all orders in this arrangement say COD.  As a small business, I always err on the side of COD if I am at all leary of whether I’ll get paid or not.  I’ll bill orders through escrow only if I have an established professional relationship.

So I finish the appraisal, the deal looks like it will work handily based on value and I submit the report.  Well about three weeks later I get a call from the loan officer.  She tells me that she’s changed companies midstream and needs the appraisal changed to show the new client (who is the company that is actually doing the loan).  I ask her to send that request via email so that I can have a record of it and then she asks for me to show the invoice as Paid.  I tell her that I can’t do that since I haven’t received payment yet and she said, “well the deal is closing this week, so just change it to Bill Through Escrow and everything will be fine.  Again, my own personal accounting practices are just that- my own.  I feel confident that if I don’t get paid through escrow, my Realtor friend will cut me the check, so I oblige the loan officer.

Fast forward another three weeks.  I notice a few unpaid appraisals and shoot an email to the loan officer asking for status.  She says that the loan closed and that she already got paid and that I should have as well.  I ask her to look into it for me and instead of doing so, she sends me the phone number for the escrow company- so now it’s my job to check up on my payment (typically, a loan officer will look out for their Appraiser and do this for them).  I give in and call the escrow officer who very nicely says that everything’s been distributed.  She shows that the appraisal fee was paid to the mortgage company as part of a lump sum.  I ask for documentation and she happily sends me a copy as well as what is known as a Disbursement Recap which shows my fee which is supposed to go to my company.  Here’s where the situation turns bad.

I call the loan officer back who sais that she doesn’t know what happened, and like the escrow officer, she gives me the main phone number of the mortgage company- no contact, no introduction, just a worthless level of help.  I call the office and speak with the “branch manager” who says that she will look into it and get back to me later that day.  Fast forward another call like this with no call back and I ask for her boss.  I leave him a voice mail, follow it up with an email and get no reply.  So now I’m getting a little bit upset (ok, I got upset a few days prior).  In the meantime, I had called my Realtor friend, the loan officer and even the borrower.  The borrower gladly sent me a copy of his settlement statement which clearly shows that he was charged for an appraisal fee.  He even offered to go down to the mortgage company and “kick someones ass” on my behalf.  I tell him to lay low.

In all this time, the owner of the mortgage company never called me back but then I got an email from him- that’s right, a saveable and printable conversation where he basically accuses me of trying to steal from their company and he even threatens to blacklist me for even trying to collect my fee.  I know my own integrity, and after googling his name I see that he’s at the other end of the spectrum.  I research and then find that I should file a complaint with the Arizona Board of Financial Institutions.  I’m skeptical of government beuracracy but I reply that I will file a complaint unless he sends me payment.  He then replies with an offer to pay me half my fee!

So about August of 2008, I print out numerous emails, copies of everything (the appraisal, the order, HUD-1 statement, etc), and send it all to the Arizona Board of Financial Institutions.  Within a month, I get a letter back- apparently they quickly sent the complaint to the mortgage company who had to reply rather quickly.  The response was that I was trying to double bill for the appraisal.  By this time, my energy level for this situation has been more than completely depleted, but I reply via another certified letter.

Fast forward to October of 2008.  I’m measuring a house and get a phone call from someone at the Arizona Board of Financial Institutions.  The gentleman is not some robotic turd, but instead he aks me to explain the situation (I guess they want to get a feel for my legitimacy) and he says that he will personally put this one at the top of his pile (of over 100 cases).  I sarcastically joke about beauracracy and he agrees completely.  Then he explains that his already short staff will be cut in half in November, so he might not even have a job.  Great guy, but I’m not feeling very confident in any resolution.

So the holidays pass, a new year begins, I do my taxes and see that this is the only outstanding bill for all of 2008 but I’m so far past caring that it’s no big deal.  I probably spent 20 hours “working” on this to no avail.

But in April of 2009 a call comes in.  A pleasant lady who says she works for the mortgage company in question.  She says she’s calling because of the complaint and tells me that.  She then tells me that the “owner” isn’t the owner and that he no longer works there.  In fact nobody still works there that did a year prior.  She asks me to confirm the details of the loan and then tells me… “we have no record of that loan”.  Now I’m not upset, because I couldn’t care less about what sort of Nixonesque mass shreading might have taken place when the prior regime left, but I got a little ill just thinking about all the other Appraisers who might have been ripped off here, or all the homeowners who might have done business with this company, or the fact that this company’s practices is NOT an isolated situation.  Yet it’s the lowly Appraiser and other professionals and homeowners who get hosed.  How many people do not take action and simply accept that they’ve been ripped off?

So, after sending copies of the appraisal, order, HUD-1, loan number, escrow number and more, what arrived in my mailbox literally 365 days after the inspection?  That’s right, my fee.  Was it worth it?  Well monetarily it absolutely was not worth it.  But coming from a cynical person like myself, the exercize served the purpose of giving me just a little bit of confidence in government entities, the power of documentation, the power of persistence, the power of knowing when you’re right, the power of foregiveness.

Lesson learned?  Always collect COD!

Changing the Marketing Focus

April 29, 2009 at 7:51 am | Posted in Uncategorized | Leave a comment
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It used to be that Appraisers wouldn’t market directly to homeowners. After all, when you purchase your house or get it refinanced, the loan officer orders the appraisal. Every year I’d get calls from the high school to sponsor the basketball team, or from the town asking if I wanted a booth at one of the town festivals, and I used to confidently say that my audience was not the individual homeowners.

But times have changed, and the Home Valuation Code of Conduct (HVCC) has eliminated the communication between Appraiser and loan officer (don’t get me started on that one). Quite coincidentally, the individual homeowner is finding out more frequently that they require an Appraisal for non-lender related issues. These situations include:

  • Bankruptcy
  • Divorce
  • Death in the family
  • Loan modification
  • Home equity line of credit line decrease
  • or various other reasons
  • If you find yourself in one of these situations, of course I’ll blatantly ask you to call me, but I’ll try and be a little more diplomatic about it. First off, call your Realtor because he or she should be able to recommend a good Appraiser. In fact, any good Realtor understands the importance of knowing a reliable team of professionals, which includes handymen, painters, lawyers, home inspectors and of course Appraisers. And find out if your Realtor really knows the person or is simply passing you a business card. If a Realtor wants to continue their relationship with you, they will make sure that they provide you with quality business referrals that will help you with your situation.

    To learn more about the Appraisal process, give me a call at 480-544-1217 or visit our website at www.advantageappraisalsllc.com. We look forward to helping you when the need arises.

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