The Real Deal – The Real Deal Weekly Interview

July 26, 2005 | 8:26 am |

The Real Deal – The Real Deal Weekly Interview

I suggested to Amir Korangy of the Real Deal that he begin Podcasting since his publication would be a perfect candidate for it. The Real Deal has access to many interesting people and their content is always changing.

Not only did he look into this technology right away, but he asked me to be the guninea pig…errr…the first interviewee. 😉

From The Real Deal’s Web Site…

Jonathan Miller at The Real Deal Magazine’s first Podcast on July 15, 2005

In The Real Deal’s inaugural interview in its new weekly audiocast series, we sat down with appraiser Jonathan Miller, president of Miller Samuel Real Estate Appraisers and Consultants. Miller’s reports on the Manhattan apartment market are the most widely cited in the industry, and he has been featured in The New York Times, the New York Post and countless other publications including The Real Deal.

With reports showing apartment prices hitting new peaks each quarter but often differing significantly in their findings we asked Miller how he collects his data, and his thoughts on the existence of a real estate bubble. To listen to the entire interview, click one of the links below.

MP3 Version

Podcast (RSS) Version

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Form-Fillers Wanted

July 18, 2005 | 9:29 pm |

Appraisers have been relegated to form-fillers. The easiest source of new business is the mortgage broker (wholesale lending) pipeline. I don’t want to stereotype all mortgage brokers because there are a number of good ones out there. The appraisers who deal with this client base are in a catch-22. Its simply common sense that an appraiser who comes in “low” on a refinance valuation or “kills” a sale, won’t get repeat business from that mortgage broker. Afterall, the mortgage broker is paid on commission. Appraiser makes number, gets more business. I often chuckle when appraisers are described as a “good” appraiser. That usually means that you “hit the number.”

Here’s a recent letter to the editor on this subject as seen in the New York Times:

July 3, 2005

A Disservice to Clients

To the Editor:

I am writing in response to the article that appeared in the Real Estate section concerning appraisals that don’t match the sales price (“When the Numbers Don’t Match,” May 29.).

Mortgage brokers who order appraisals until they get one that works for them are doing a disservice to their client, not to mention the lender.

It would be interesting to know how many mortgage brokers engage in this practice without disclosing their actions to their clients. If the appraisal comes in low and the mortgage broker orders another appraisal that makes the number, the question has to be asked why one appraiser could make the deal and the other couldn’t.

Is it possibly because one appraiser has taken sales outside the subject’s market in a higher-priced market or may have misrepresented the size or condition of the comparables?

The appraiser’s job is to provide the lender with an opinion of value supported by the market. The appraiser gets paid whether or not he makes the deal. The mortgage broker gets paid only if he makes the deal.

The appraiser does not have any interest in killing the deal. After all, when the appraiser makes the deal, he or she doesn’t have to take irate calls from the buyer, the seller, the sales broker or the mortgage broker. Plus, he doesn’t make any enemies, stays on the mortgage broker’s list of approved appraisers and remains on good terms with the sales broker.

Scott H. Gallant

Park Slope, Brooklyn

The author is a real estate appraiser and consultant.

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The beginning of the end, or how this mess got started.

July 18, 2005 | 9:13 pm |

It amazes me how flawed the structure of the wholesale lending process is. Someday during an economic downturn or future lending crises, this will come out with the wash. Until then, its status quo.

How it began…

As banks floundered in the early 1990’s during the recession, the non-revenue departments were cut back, which included…you guessed it…appraisal departments. The order and review function, which requires administrative overhead, was shifted to mortgage brokers who would bear the staffing risk. Mortgage brokers are generally paid a commission of 1 point, or 1% of the mortgage. The appraisal fee, which generally starts at $300 to $500, is either paid in the borrower’s application fee or the absorbed by the mortgage broker.

In relatively short order, the wall between the sales function and underwriting essentially went away and so did the buffer between bank loan reps driven by a commission incentives and the appraiser, who is supposed to be assessing the collateral for the lending institution.

Large appraisal factories sprang up across the country hiring trainees who would simply fill out appraisal forms and make the deals. Without inhouse appraisal departments to review these reports, they were essentially accepted at face value. Many experienced firms either shut down or moved into other areas of valuation.

Why does this matter?

Lets count the ways.

  1. The borrower is under the assumption that the licensed or certified appraiser is independently assessing the value.
  2. Lending institutions have no idea what their collateral is really worth and the implicit risk to their portfolio.
  3. These lending institutions are government insured.
  4. Guess who pays the bill in the next banking crises?

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