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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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.

Do AMCs Really Eliminate Lender Pressure?

October 14, 2009 at 10:41 pm | Posted in Uncategorized | 1 Comment
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When HVCC mandated the use of Appraisal Management Companies (AMCs) earlier this year, the hope was to eliminate lender pressure on Appraisers.  Now as I’ve mentioned in previous posts, I’ve already worked with AMCs for a few years so the transition for my practice wasn’t as painful as it was for others who only had only done full fee work.  So the AMC’s I work with know the quality of my work, I understand their quirks and we’ve accepted the relationship.  I may have to work harder for less pay, but it’s something I’ve accepted as reality.  I now treat them like my client and I’d like to think that they respect the quality of my work.

I just did an assignment for an AMC.  This AMC provides services nationwide and their client list includes very prominant banks.  I know what each of these end clients require- whether it be specific verbiage or photos or additional forms.  We’ve worked together for a long time now.

So I received an appraisal request in San Tan Valley (which is a suburb of Phoenix) for the purchase of a custom home that is a short sale.  In other words, the sellers are financially unable to keep their home and they have to sell or face foreclosure, and their lender is negotiating the price for them.  I did the appraisal- it was  beautiful custom home built by the owner.  It had beautiful ornate wrough iron.  It had very nice upgrades.  It had a cool ramada.  It had a few stables.

I found the most appropriate comparables and did the report and finished with an appraised value.  The contract price was higher than the appraised value.  But I shouldn’t care right?  After all, I’m not in charge of making a deal happen am I?  Isn’t that called fraud if I appraised it for more that it’s worth?  Isn’t it lender pressure when I have to worry about future work depending on the results of current work?  But with HVCC and AMC’s I’m ok right?

So a few days later, I get a call from the AMC saying that the lender wants to reopen the assignment and that I should consider two additional “closed sales” that they provided.  Now some Appraisers might say “no way”, but I will NEVER be too cocky to think that I’m immune to errors.  So I look at these two “closed” sales.  One was a NON closed sale- in fact a home not even under contract that has been on the market for 670 days.  Oh yeah, and that home was in another county with a different city name.  The second one was a closed sale, was similar in size to the subject but was in a different city, wasn’t horse property and was actually part of a large tract home neighborhood.  I send an email back to my contact at the AMC and they agreed that this was a stupid request.  However, at their request, I filled out an addendum which explains why those two sales were not applicable for this assignment.

Fast forward to 24 hours later.  I now get an email condition saying that the lender wants me to now include two more closed sales, but that these sales must NOT be distressed situations.  Distressed situations include short sales, preforeclosures or bank owned.  So I redo my search and find nothing new.  Then I expand my search.  Then I expand my search more.  Here’s what I came up with:

I searched all closed sales from January 1, 2009 though October 13, 2009 with a size range of 1500 square feet smaller and 1500 square feet larger than the subject and I came up with 40 closed sales.  Of those 40 closed sales, 38 were “distressed” situations.  That’s right, only 2 sales were not distressed.  One of those two sales indicated a value significantly lower than what my appraisal was and the other was higher than my appraisal by $120,000.  This high transaction also was the highest transaction in the area by a very large amount.  So any “good” Appraiser would treat this oddball high comparable as an anomaly and eliminate it from consideration.

Bottom line is that with their newly requested two additional sales, the appraised value remained the same.  When all was said and done, I had now spent an additional two hours on this report.  Did I receive any additional fee for my services? No comment.

But my commentary is this: If you are a bank and you want a true appraisal for a home, then you accept the results as is.  If you don’t like the value because it doesn’t meet the contract purchase price, then you are not the bank- you are the specific morgtgage broker who has a vested interest in closing this specific loan.  And when you ask the Appraiser (through a third party) to jump through more hoops to try to find comparables that support the deal, then that’s lender pressure and that can lead to fraud and that can lead to more of what we are seeing every day in our country with defaults and broken families and more government bailouts.

But what is the Appraiser to do in situations like these?  Back in the day, if a loan officer pulled this sort of stuff, I could talk with him or her.  And if that wasn’t getting anywhere, I could talk with the manager or whomever it took to ensure that rules were being followed.  Or I could stop working with them altogether.  But that’s because I can speak intelligently and defend my work.  With HVCC and the new layer of AMC’s, I am now unable to speak with the client. I have to trust that the AMC understands my report and can speak intelligently about it.  And quite frankly, that’s a level of trust that most Appraiser’s simply don’t have.

Sure, they’ve set up what is known as the Independent Valuation Protection Institute– sounds good eh?  Well, if you visit the site you’ll see that it might as well be one of those “under construction” animated gifs.

animated construction gif

animated construction gif

And say that with one specific deal like this, the client is now so upset about the results that they now feel that they need to take some sort of recourse.  They can’t really fire the AMC in this situation since the AMC does so much work for their company as a whole, but what if the client now refuses to accept any more work from that one Appraiser.  And now what if that AMC cannot assign orders to that Appraiser from that specific client?  They might find that so inconvenient that they simply stop ordering appraisals through that one Appraiser- all rooted in the results of one assignment- not a sloppy report, not one fraught with errors, but one that a client was simply unhappy about because it killed their deal. 

Is lender pressure eliminated by HVCC?  You tell me.

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.

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