Home sales down: Kill the appraiser

The National Association of Realtors is spinning today's lackluster existing home sales news as a positive. Sales actually fell nationally when you compare May 2008 to May 2009.

(I expect Tampa Bay area sales in May to buck the national trend and show a year to year improvement. I'll post those numbers in an hour or two.)

Realtor economist Lawrence Yun is blaming appraisers for failing to value homes high enough:

First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.

Realtors said existing home sales came in at an annual rate of 4.77 million in May, 3.6 percent below the 4.95 million pace in May 2008.

That being said, appraisals ARE a problem. When appraisers include all the foreclosure sales, it makes it damned near impossible to refinance your house for anything near what you paid in 2005-2007. More Yun:

Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.

Comments

[Grant]

Mortgage brokers and realtors no longer can order appraisals directly, but instead must allow lenders or investors to use third-party "appraisal management companies" to assign the job to appraisers in their networks.

This garbage spewing from Yun's pie-hole is just sour grapes over the removal of appraisal manipulation from his organization and the MBA.

[Frank Lee]

Lenders are gun-shy of the previously typical lofty appraisal. They should be. The appraisal selection paradigm is, I think, flawed with *any* party to the transaction attached.

Yun is attempting to navigate unknown territory in how a true local market is defined. I don't think I would have taken his route, however, it does bring up the question of fair valuations in distressed neighborhoods. Just because a couple of your ex-neighbors had financial troubles or were irresponsible, shouldn't mean the same conditions for the sale of your home. Obviously, buyers would have an opposite argument as part of their agenda.

[Fuzzy Bear]

"Realtor economist Lawrence Yun is blaming appraisers for failing to value homes high enough:"

The new laws are in place that keeps them from having a significant influence on home prices.

[Carl Cronan]

I'm having a hard time trying to decide whether it's banks or appraisers that are really to blame. My wife and I spent $350 on a refi attempt and were told our house is worth substantially less than what we owe because foreclosures were included in the comps. Worse yet, the bank won't give us a copy of the appraisal report. Next time I wanna blow money like that, I'll go to Seminole Hard Rock.

[Jim Deitch]

In many cases the appraisers are taking the heat unfairly. There are two types of residential appraisal methods: sales comparison approach and cost approach.

Most often in lending you are going to see the sales comparison approach and this is where the appraisers hands are tied. He has to use three comps within a certain georgaphic distance and within a set time frame. In essence a snap shot of current market conditions for that community. What has changed though is that where value was given in the past for upgrades, comps are primarly on a square foot basis now. And upgrades have been significantly discounted. For example a $30K to $50K pool will only get you a credit of $15K on average regardless of what you paid for it.

There are two types of appraisers: Residential and General. It is best to demand a General as they are more qualified and accurate and will do the leg work to get the appraisal as accurate as possible. In addition appraisers are licensed and regulated so there is recourse if you feel the appraisal was negligent. That being said I have encountered few appraisals that in my career that were negligent.

Mr. Cronan, if you paid for your appraisal they are required to provide that to you. It is your property. The only reason they would keep it from you is if they have something to hide. (for example they did not do the minimum number of comps, used old comps, or went outside the accepted geographic area). I would insist or ask for a manager to ensure you got what your paid for.

Jim Deitch
Chief Operating Officer
Southern Crafted Homes

[Fuzzy Bear]

"Worse yet, the bank won't give us a copy of the appraisal report."

If you paid for the appraisal, you own it and the bank is required to provide you a copy. Send them a written request via certified mail for a copy of the request.

Foreclosures in any location alone can bring property values down nearly 20% in that given area.

[Frank Gregoire]

The problem Lawrence Yun refers to with respect to appraisers is the Home Valuation Code of Conduct (HVCC). This is an agreement between the New Yok Attorney General, Andrew Cuomo, and Fannie Mae and Freddie Mac. Fannie and Freddie accepted the agreement to avoid prosecution by Cuomo.

Cuomo's interest in Fannie and Freddie resulted from an investigation of shady loan and appraisal practices by Washington Mutual and an Appraisal Management Company (AMC), eAppraiseIT. The investigation produced evidence of WAMU and eAppraiseIT manipulating the assignment of appraisers to direct assignments to those willing to "hit the number".

Interestingly enough, one of the consequences of the HVCC agreement is the use of Appraisal Management Companies to comply with the appraiser independence requirements. This, despite the fact that Appraisal Management Companies are not regulated in Florida and improper, and possibly illegal AMC behavior prompted the investigation!

Susan Taylor Martin even wrote an article about a Clearwater based AMC owned an operated by an individual whose appraisal certification was revoked by the Florida Real Estate Appraisal Board. Although not all AMCs operate questionably, consumers should be aware that the appraisers doing AMC work are more likely to be less experienced, are under pressure to complete reports quickly (often within 24 - 48 hours after receiving the request) and often lack the geographic competence to produce a credible opinion of value.

I disagree with Jim's suggestion to seek a certified general appraiser. While a General Appraiser meets higher standards for certification, they often do not specialize in single family residential appraisals. An experienced Certified Residential Appraiser will produce work just as credible as a general appraiser.

One other point of disagreement. Although the borrower is entitled to a copy of the appraisal report under the HVCC and the Equal Credit Opportunity Act (ECOA), the client "owns" the report, regardless of who paid the appraisal fee.

Otherwise, good advice Jim

[Fuzzy Bear]

This NAR letter explains why the NAR wants control over appraisals and what they are saying:

TO: State Association Executive Officers
State Association Presidents
FROM: NAR Government Affairs
DATE: 19 June 2009
RE: Fly-In Head’s Up

Please note this notice is going to all state executive officers and state presidents. We will be sending Fly-In details on Monday June 22, 2009 to the states who have Members of Congress and/or United States Senators on the House Financial Services Committee or Senate Banking Committee. (list of states at end of memo)

There is growing concern in the real estate industry over the implementation of the Home Valuation Code of Conduct (HVCC) and its effect on the use of appraisal management companies (AMCs) by lenders.

NAR is taking the following actions: (Target dates in bold)

1. NAR is scheduling meetings with the Director of Federal Housing Finance Agency, Jim Lockhart to raise concerns about implementation of the HVCC and problems with AMCs and ask for an immediate 18 month moratorium. Director Lockhart is the conservator over Fannie and Freddie who entered the consent order with the NY Attorney General. ( June 22, 23, 24, or 25th)

2. Government Affairs will conduct a fly in the week of June 22. Two members from each Association (State AE/State President or FPC as appropriate) to meet with members/staff of the House and Senate Banking/Financial Services Committee. The ask will be to cosponsor the bill (item 3) and to support an 18 month moratorium.

3. Our legislative team will work on getting a bill introduced in Congress asking for a 18 month moratorium. (week of June 22)

4. We will ask the Chair and Ranking Members of the House and Senate Banking [ Reps Frank and Bachus/ Senators Dodd and Shelby] Committees to write Director Lockhart asking him to grant a 18 month moratorium (week of June 22)

5. We will try and get an 18 month moratorium attached to an immediate pending appropriation bill or other similar fast track bill. (June)

6. Staff will talk to the American Bankers Association who heretofore is fine with the AMC system to see if we can negotiate support.(June 19)

NAR will engage a coalition of Appraisal Institute, MBA, Home Builders and other appropriate trade groups.

7. NAR Research is conducting a survey so we have concrete data information to bring to the regulators and the NY Attorney General’s office . The survey will also be run through the State Association. EHS will be released next week and the appraisal issue will be mentioned front and center in NAR’s release. Survey release June 22

8. NAR is scheduling a meeting with NYS Attorney General Andrew Cuomo and representatives of NYSAR. (June 29. 30)

9. NAR will conduct a Call For Action if we do not get a moratorium in the next week to 10 days

NAR is aware of multiple petitions calling for an end to the HVCC. NAR is taking a more tempered and thoughtful approach of asking for a moratorium during this trouble housing economy.

States with Members of Congress and/or United States Senators on the House Financial Services Committee or Senate Banking Committee: AL, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, KS, KY, LA, MA, MI, MN, MO, MS, MT, NC, NE, NH, NJ, NY, OH, OK,OR
PA, RI, SC, SD, TN,TX, UT, VA, WI, WV

[Frank Gregoire]

Yo! NAR does not seek control over appraisals. Read their policy.

"In 2002, NAR adopted policy that would require lenders to disclose the appraisal, and the methods used to the borrower. In 2005, NAR adopted policy that would: 1. Prevent those involved in the real estate transaction from improperly influencing the appraisal; 2. require lenders to get a physical inspection of the property for higher cost loans; and 3. increase the Appraisal Subcommittee's accountability to Congress, while opposing the expansion of the subcommittee's regulatory authority."

If I could post a link, I would, but it's easily located on the NAR site.

Your mileage may vary.

[Someone sticking up for Appraisers]

This whole financial housing market problem is because of appraisers… yeah, that makes sense. Funny, I don’t remember hearing any complaints when mortgage people needed numbers 2 and 3 years ago. I don’t recall appraisers getting blamed for things when new home builders were raising the price of there homes monthly for “construction cost” fees. Funny how the financial problems of this big county, the number one country in the world goes back to appraisers, who make $300-$350 an appraisal (if there lucky). Let’s see… the realtor makes 3% or more and the loan officers were making 1%-3% on most deals. Yeah, makes sense to me, it must be the appraisers who got us into this mess. Now you have developments upside down and that’s the appraisers fault? Maybe, just maybe it was the greedy new home builders. And now, home values are crashing, neighborhoods are falling apart, and grass is as high as your waste. But, realtors want appraisers to appraise a home for say $120,000 when sold comps in the “neighborhood” are selling for $100,000. When I say comps I mean short sales, foreclosures, and maybe even bank owned homes. After all, who has equity now? So who can sell there home for a profit if you bought a few years ago? The one house you’re trying to sell for $120,000 might even be a short sale. Here’s a thought, nobody said your buyer can’t buy a $120,000 house when the appraisal is $100,000. It just means your buyer needs to come to the table with some cash. Hey, if they really like the house that much maybe they’ll have the extra cash to buy the home. Or, try doing your buyer a favor and sell him one of those $100,000 short sale homes instead, there’s defiantly enough of them to go around and most of them have never been lived in. Those are your options at this point in this market. How many homes are these realtors selling right now that aren’t short sale, foreclosure, or bank owned homes right now anyway? Appraisers reports are being looked over with a fine tooth comb, and while realtors with there BPO’s may think that’s an appraisal, it’s not. I hope this letter clears up the economic problem the county is having, over $300-$350 appraisals.

[Florida Friendly]

Here's an update:
http://www.realtor.org/rmodaily.nsf/pages/News2009071401?OpenDocument