Posted by Jonathan J. Miller -Thursday, February 16, 2012, 8:30 AM
I was invited to keynote the February 2012 dinner meeting for the Appraisal Institute: Long Island Chapter in Westbury, Long Island to talk about the Long Island, regional and US housing markets, the problem with housing finance, misdirection in the market etc. with an extended Q&A session. …90 minutes of valuation discussion bliss.
It was great to see friends and acquaintances, let alone be invited to speak on issues I am so passionate about. I generally rail quite a bit about our profession, but I am speaking about the 80%, largely enabled by the AMC industry. The 20% was represented by the meeting attendees who have local market knowledge and are striving to improve their craft.
It became apparent to me from attendee feedback that:
- AMCs account for most residential mortgage lending
- AMCs provide terrible quality valuations but bank staff are mandated to use them from above
- The industry is aging – not much new blood is entering the profession (of course I am excluding AMC “form-filler” types called “appraisers” in name only but don’t actually appraise in my view
- The expectation of 3-5 more years of current conditions was consensus
- Banks are looking to expand but are not going to be easing credit anytime soon
- Many appraisers there were busy working on distressed and refinance property assignments, not sales
All in all, a great time. I avoided sharing my lobster story again but obliged them about turtle litigation.
Posted by Jonathan J. Miller -Monday, February 6, 2012, 6:30 AM
My friend Teri Rogers founder of BrickUnderground described by the New York Times (she used to write for their real estate section) as a provider of practical advice for apartment living in New York, pens a column in amNY. She reached out to me on the topic of valuing views and floor levels.
Posted by Jonathan J. Miller -Monday, January 30, 2012, 8:42 AM
One of the last pieces of the 2009 Fannie Mae/Cuomo agreement, called HVCC, that essentially (but unintentionally) destroyed the bank appraisal industry is being worked out. A consumer hotline was created to handle complaints about real estate appraisals. These calls are being be directed to the appropriate state licensing board for action.
I’m all for giving people a way to fix a wrong, but there are a few things wrong with the hotline concept (all bark and no bite):
- The states have no additional money to manage their compliance/license departments. Usually a handful of people oversee a profession of thousands of licensees with constant turnover.
- Many states have syphoned off much of the licensing fees to other departments relegating many licensing departments as merely revenue sources.
- How does a state deal with an appraisal complaint effectively? Do they say your adjustments for view wasn’t high or low enough? You can see how challenging it is for them.
- How are the frivolous complaints weeded out? I understand many states have advisory committees from the industry to help process the paperwork but it is a conceptual nightmare.
Our firm has had a handful of complaints directed to the state over the years by individuals who didn’t get what they wanted from our services. Here are a few representative examples:
- A mortgage broker tried to use the appraisal of a property that we had appraised for both parties in a divorce and demanded we make changes to the report including change the client name so he could use it for a refinance by one of the parties (we are prevented by the licensing law to do this) and filed a complaint against us. He threatened us with a dozen phone calls to make the change he wanted and that he “knew people” of influence. The matter was dropped by the state once they received our response.
- A doctor who was buying out a partner of their joint practice looked to us to appraise the real estate. We did so. We found out later from our client that we had appraised the value at a similar amount as the other partner’s appraiser did (we didn’t know the other side got an appraisal or who did it). Our client filed a complaint because he claimed the “real” value was triple (of course!) The only justification in his mind (he provided no supporting sales data) was using a square footage estimate by a real estate broker saying the space was about 75 square feet larger than we measured (it was a few thousand sq ft) so we “must” have been conservative because that 75 square feet would have tipped the scale and tripled the value [sarcasm]. The matter was dropped by the state once we explained.
There are more examples like this but you get the idea – it is the cost of doing business today for an appraiser.
I see hotlines or complaint lines as they are currently handled as a way for erroneous complaints to occur and burden the profession with excessive costs. Yet I believe this is an important function but needs to be handled much more vigorously and intelligently to protect the public but there is no money to do so. Until state governments recognize that effective oversight preserves the integrity of the profession and ultimately keeps overall financing costs lower, then nothing will change. In fact, with the onslaught of the appraisal management company phenomenon of recent years, I’d say the prospect of improvement is nearly impossible.
Case in point, the hotline concept hasn’t kept the massive appraisal management company competency fraud from entering day to day conversations i.e. the common “the appraiser came from 3 hours away and had never been in our market before”.
In America, the accused are innocent until proven guilty but in the private sector, the small business bears the unending burden of cost for frivolous actions because government generally does not have the resources or understanding of how destructive it can be.
Posted by Jonathan J. Miller -Monday, January 23, 2012, 12:47 PM
Last week’s post on the “hole in the house” was picked up by Business Insider and the crossfire of coherent comments and righteous indignation ensued. I largely stayed out of it until today.
The threads on my original post on Matrix and Business Insider are worth a read.
Some observations and feedback as a result of my post were fascinating:
- One appraiser in Michigan who commented on the Business Insider repost tweeted me to say he was blacklisted by Rels, the firm cited in my original post.
- I was entertained by the diatribe of a couple of people who rambled about things that weren’t in or inferred by the post.
- One commenter “Ken” knew of the property so well I can only assume by his arrogance he was the appraiser or review appraiser on the assignment in question and was saving his bacon by reframing the conversation.
- It was interesting to see people respond to the post as if they were reviewing this as some sort of appraisal when I was simply pointing out that an AMC appraiser used a “comp” that was an outlier from other data available, that was condemned, had a notice visible from the street and would have at the minimum, raised a flag to the condition of the interior of the property.
- The defensiveness of some of the comments inferred that the homeowner was unrealistic and the market had declined. Doh!
An appraiser friend of mine forwarded me this response from an AMC who saw the post to get a chuckle:
A couple of comments:
*There is no mention of what the subject collateral is, it’s condition, or if there is any improvement – or the relevance of this comp – in other words, what was the Scope of Work? An appraiser is supposed to select comps that are similar, proximate and timely.
*The article states that the borrower did get the loan – which at least on the surface might indicate that the comp was sufficient for the lender’s needs.
*There is no mention of what kind of appraisal product was ordered – drive-by or other.
*The author suggests that the siding had not been removed – does that mean the hole is newer than the appraisal?
*and sometimes there are lousy appraisers
[redacted]: As candidly as possible, I receive an anecdote similar to this periodically and in almost all cases, after full review, it is an optics issue – the appraiser performed the work properly based on client instructions and the Scope of Work. Not always – but almost always.
Two final points:
*There continue to be complaints about quality but it nearly always ties back to someone not getting the value assigned that was hoped for. The market continues to slide and by nearly all estimates will continue to do so in 2012. The messenger continues to be shot and will be for another 1-2 years….
*Did you know that Freddie and Fannie have both stated publicly that appraisals that go through AMCs statistically are “better” than not going through AMCs?
Other than appraisers causing you misery, I hope all else is well in your world.
Thank you for checking in.
My favorite point made here was the comment:
As candidly as possible, I receive an anecdote similar to this periodically and in almost all cases, after full review, it is an optics issue – the appraiser performed the work properly based on client instructions and the Scope of Work. Not always – but almost always.
In other words, depending on the scope of the assignment, the appraisal may be meaningless and this type of quality would be reasonable. Throw comps denoted as “condemned” onto the report because it is a recent sale even though as a drive-by, the sale would be suspect.
Why go through the appraisal exercise if you can’t rely on it? Those entrenched in the AMC world, in terms of their business practices or quality say its just as good as non-AMC work. Given the decimated ranks of the good appraisers, it’s become a self fulfilling prophecy.
Posted by Jonathan J. Miller -Tuesday, January 17, 2012, 3:08 PM
My senior staff appraiser shared the following nightmare story – about a friend of his who is going through a mortgage refinance with one of the big US national banks regarding a house in Long Island, NY. Rather not say the bank name but a stagecoach comes to mind.
An appraisal was ordered through a big appraisal management company – Rels. Their appraiser used a condemned house with a big hole in the side of it – visible from the street – as a comparable sale presented in the report
Attached are the photos of the condemned house used by the appraiser in my friends appraisal…They are still fighting to have a new appraisal done. I will be honest the house was not this bad (when it was sold) as most of the siding has been removed. However, it was bought by a developer/LLC (not a person) and the condemned sign was on the door had the appraiser gotten out of the car. The hole in the side I believe was there as you can see that is the side with some siding still remaining.
The condemned house appears to have sold well under market value because a developer bought it to renovate and flip at market levels. No commentary or awareness of this was evident in the report. This condemned house is in the same neighborhood but the borrowers property happened to be updated and in good condition. Interestingly, I’m told the condemned sale was the outlier of the other sales presented in report that pulled the value well below the other “non-condemned” sales.
The slogan on the Rels web site is: Quality appraisals — and rapid turn times.
However I see the terms “quality” and “rapid” as mutually exclusive. “Quality” is more aligned with “timely” and “rapid” is more aligned with “fast and furious without review”.
The borrowers are peeved because although they can get a mortgage, the suspect report is in their file and they are worried it will haunt them later with a home equity application or something they haven’t thought of – after all – they paid for it. In fairness to Rels, it doesn’t sound like they are in the loop and the bank just wants to close the loan. The bank is making comments along the lines of “the appraisal won’t stay with your file, so just close” which seems to stray from my understanding of file documentation for lending.
Housing doesn’t recover until appraiser amateurism is eliminated from the lending process. Amazingly, large institutions still seem more interested in efficiency and a built-in “low” bias than getting valuation services that provide reliable results in order to make informed decisions to generate business with.
Posted by Jonathan J. Miller -Tuesday, January 17, 2012, 11:00 AM
Last fall, Vivian Toy of the New York Times wrote a good piece on combining apartments: Combine and Conquer: Your Place and Mine and used the phrase I coined in the first paragraph:
…referring to Manhattan’s premium for larger contiguous space on a price per square foot basis.
When I was contacted for last weekend’s article On Fifth Avenue, 1+1+1 = $25 Million? I had gleefully suggested a modification to my phrase:
…in reference a story about a triple-combination apartment and how all the sellers would likely benefit by allowing a buyer to return the apartment to its origination (or close to it’s) configuration. In combination sales, while the value of the total usually reaps a premium over the sum of the individual values, the resulting layout may turn out to be something less valuable as compared to an apartment similar in size that was originally designed that way.
When there is an opportunity to restore an apartment back to it’s original configuration before it was cut up (commonly during the housing shortage after WWII in Manhattan), the value of the apartment would likely be comparable to similar sized apartments originally designed to be single units.
Like domain parkers, I’m staking my claim to a third phrase:
Posted by Jonathan J. Miller -Tuesday, January 17, 2012, 6:00 AM
About a year and a half ago, I did a little side project for The Real Deal Magazine to explore the change in value per floor in Manhattan. This week, Brick Underground broached the subject of floor level but asked me to be more specific to our appraisal practice – how we generally look at the impact of floor level on apartment values. I call it:
When it comes to floor level adjustments, we separate floor height and view into two separate amenities.
The floor level adjustment reflects the actual/perceived changes in natural light, street noise and security. There are variations of this (ie bigger adjustments) for the first and second floor. And of course it all depends on what the market conditions show but a typical adjustment might be 1% per floor before considering view differences. That’s 1% of the price of the unit you are comparing the subject apartment to.
Once a property breaks the roof line of the adjacent building, a view adjustment, in addition to floor level adjustment would likely be warranted. I like to think of view adjustments in terms of percentages rather than dollar figures since there are such wide variations in sizes and types of apartments.
Of course if you live in a walk-up, the reverse logic applies plus the floor level adjustment would likely be a higher percentage of the value. Units above the fourth floor are often subject to more restrictive financing so that would another “break” to be adjusted for.
This amenity isn’t arrived at through a formulaic process – we are looking at comparable sales in Manhattan to extract how much of an adjustment is reasonable – and that amount may change over time.
How much is a higher floor worth? [BrickUnderground]
The cost of a view [TheRealDeal]
Posted by Jonathan J. Miller -Monday, January 16, 2012, 7:59 PM
These are a couple of screenshots from my friend, real estate agent and former appraiser, Mike Lefebvre in Massachusetts who always beats to a different real estate drum. Big on technology and marketing, he succeeds at getting under the skin of appraisers and real estate agents in search of the right answer for his clients.
While watching his video on his web site FSBOSherpa.com, I grabbed some screenshots (above) that struck a chord with my appraisal sentiments.
Posted by Jonathan J. Miller -Tuesday, January 10, 2012, 1:37 PM
Actually our birthday was last October 1st and I had grand plans to post this back then when this site was supposed to be relaunched. Well, like our 25 years, time passed quickly and I am posting 3 months later.
Miller Samuel was founded by my family including moi, my wife Cheryl, my sister Dina and my parents Donald and Ethel (who retired in 2002) it’s been fun, challenging, frustrating and rewarding but I think I speak for all of us – we wouldn’t trade the experience for anything.
My back-of-the-envelope estimate of the total market value of all properties appraised, adjusted for inflation (not for changing market conditions) is over $80 Billion, but who’s counting?
But I digress…
We were originally going to name our firm Appraisal Specialists (what were we thinking?) in 1986 and found out someone in New York State already had that name when we went to incorporate. We quickly appended the word “Group” to form Appraisal Specialists Group (another horrible name) but within the year we renamed our firm Miller Samuel with the latter name being a former partner early on. We originally worked out of our apartments and got a real office within the year. Went with Macs back in 1986, developed our own software to fill out the appraisal reports, incorporated bar code and scantron forms into our process and to top it off. I have to laugh when I think that we were the first appraisal firm to have a 2-line fax machine ’cause we were so “hi-tech” and our banking clients used to fax everything.
The Miller Samuel name stuck and we expanded, outgrowing 3 offices, launching a commercial affiliate Miller Cicero, shifting our client mix away from primary emphasis on banks and expanded our real estate market report coverage throughout the New York City region and Miami for brokerage Prudential Douglas Elliman and dabbled in report coverage in other housing markets such as Washington, DC and Baltimore. We’ve done a lot of blogging and podcasting, social media, magazine articles, research studies, data aggregation, seminars and other things to provide more transparency to the housing markets we cover.
We’ve got a really great appraisal staff, averaging 14 years of experience and it’s really a lot like an extended family.
After 25 years we have seen radical changes for the worse in our dysfunctional leaderless appraisal industry – appraisal quality for bank lending is at an historic low thanks to appraisal management companies, but yet we are well positioned for the future.
We live and die by our reputation of taking no quarter when it comes to:
providing a neutral valuation benchmark for our clients to enable them to make informed decisions.
Thanks for being there with us.
Here’s to another 25 years.
Posted by Jonathan J. Miller -Tuesday, November 29, 2011, 7:00 AM
Last summer I wrote an article for the now defunct Live Valuation Magazine. I attempted to explain to both appraisers and non-appraisers why our appraisal industry is so screwed up.
It was the cover story for one of the last issues – nearly a think tank of new ideas, the loss to the industry was a real setback.
In light of this change and the importance of the message to the industry, I have allowed Appraisal Buzz to republish it. Hope you enjoy it.
Neutral Valuation: Allowing appraisers to provide the service they were built for
As a real estate appraiser for the past 25 years, I’ve always viewed my role as a provider of a neutral valuation benchmark for clients to become empowered to make more informed decisions. Of course this is a fantasy-based, in-a-perfect-world depiction rather than an actual practice. In mortgage lending, residential real estate appraisers are not able to provide an independent market value without some sort of reprisal if the results do not match the client’s needs.
Since the credit crunch began with the Lehman Brothers bankruptcy that roiled the world economy in September 2008, our profession has actually strayed farther from being any sort of neutral valuation benchmark….[read more]
Like in the original publication, the comments on Appraisal Buzz reflect the fact that the article really touched a nerve.
- Neutral Valuation: Allowing appraisers to provide the service they were built for [Appraisal Buzz]
- Neutral Valuation: Allowing appraisers to provide the service they were built for [Live Valuation Magazine]
- Neutral Valuation: Allowing appraisers to provide the service they were built for [Miller Samuel [pdf]]
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