June 15, 2018

Like Housing, Raccoons Can Reach Their Peak In Full View of Spectators

Over the past 15 years, housing has become a full-fledged spectator sport, especially when prices are climbing. Hence, this raccoon-climbing-a-building analogy:

But I digress…

“Dovetail” – Elliman Report: May 2018 Manhattan, Brooklyn & Queens Rentals

I am the author of the expanding Elliman Report series since 1994, Douglas Elliman published our May 2018 rental research, and there was a noticeable change in pattern. As we know from the Q1 2018 Manhattan SalesReport, there was a 24.6% year over year drop in sales. It was attributed to the growing sense of uncertainty, new federal tax law, rising rates and a confusing economic policy landscape. The sales market has remained the weakest segment of the market in general with more oversupply and aspiration pricing in the mix than other segments. After several years of softening rental market conditions due to similar reasons, larger rentals are being snapped up as more buyers press the pause button.

Bloomberg went all 3-bedroom on the report with a video, chart and an article that was the number 1 read story on the Bloomberg Terminals worldwide (350K± subscribers). Of course, there was a lot of other great coverage on the report results through other outlets.

I Repeat: There Is No National Housing Market For Consumers

This feedback was sent to me from a broker friend who works in a high-cost housing market that is currently moving very slowly since the beginning of 2018.

A seller sent these links to articles, insists the market is strong and his house not being marketed enough. Aaaarrrrgggghhhh.

(here are 2 of them)

US house prices are going to rise at twice the speed of inflation and pay: Reuters poll [CNBC]

Home prices won’t slow down, stumping the experts and shutting out buyers [Marketwatch]

In this market, home sellers rely on national news to tell a stronger story and buyers rely on local news to tell a weaker story. In reality, local is all that matters. National report results don’t apply to your local market, and if they seem to correlate, that’s a coincidence.

Flattening Yield Curveball

Some analysts have been saying the flattening yield curve is not something to worry about – when short-term rates are the similar to long-term rates. But I still find it compelling now that we are seeing the fed aggressively raise rates – mortgage rates are now climbing, restraining housing sales levels. A flattening yield curve may suggest a recession ahead. So why is the fed being so aggressive in raising rates?

And what about Wile E. Coyote?

Here’s a great explainer from FT. The video might go behind their paywall at some point:

Zombie Homes on Long Island, The Apocolypse Decade

This is an old term from the foreclosure crisis a decade ago, but it still exists today. Nothing too deep in this Marketplace article and video but it does remind us that this is still a problem.

Plaques (Like Celebrities), Don’t Raise Home Values (Even the Blue Kind)

There was a good read in Mansion Global that addressed the fantasy many homeowners seem to have about plaques on their homes. We have one on our home and I know better (left). The blue plaques found around London essentially tag notable people who occupied the house for varying lengths of time. Like recent celebrity houses, the fact that a famous person wrote a famous poem, had dinner or went to the bathroom in the residence doesn’t impart value to the house. It may shorten marketing time because of the additional visibility, but for every example of some premium, there are the same or more examples of no impact or even a below-market sale.

This Week In Aspirational Pricing: A $760,000 Parking Space

In 2007, I analyzed Manhattan parking spaces that made page one of the NY Times (oh, and my wife broke her leg that day). The takeaway was that parking spaces sold for about the same price per square foot as a typical apartment in the same building. Typical parking spaces run about 150 square feet in size.

This US$760,000 Hong Kong parking space sale (a flip) was a little more than $5,000 per square foot in a luxury project. The average residential sale is US$3,182 per square foot. Based on what we see for Hong Kong housing prices, that price really doesn’t sound so crazy.

In the greater reality, it sounds absolutely nuts. Without the context of an HK$100M condo nearby, we are talking about this:

St. Louis Fed: The Housing Supply Puzzle

There’s a great 3 part series on the great housing supply shortage. It’s really worth a read. While its no secret that shortage pertains to existing homes, not new homes, there’s a bunch of great context presented.

The Housing Supply Puzzle, Divergent Markets: Part 1, Part 2, Part 3

Upcoming Speaking Events

June 19, 2018: I have the honor of speaking at the 8th Annual OCAP Real Estate Appraisal Seminar at The Fawcett Center of the Ohio State University (despite being a Michigan State Alumni).

It is great to see how our appraisal industry has broken through years of leadership apathy to raise our voices in the changes that we face. OCAP is one of at least 27 state coalitions that are making a difference.


Get Rich Quick? No, Go Out of Business

I saw that you registered on our site so I wanted to send you a quick email with some info on our program!
We would just ask you to go out to a property, take at least 4 exterior photos of the home and answer a short yes/no questionnaire, about 15 questions. It’s not a BPO and we don’t ask for any values or comps. I’ve attached the questionnaire and a set of sample photos.
We pay $25 per completed order and pay out once a month, the checks get processed on the 5th business day of the month and pay out for all of the previous months orders.
Turnaround time for orders is 2 business days. You would pick an address you would like to work out of and would also choose your own radius in miles (10 miles minimum) you would be willing to travel from that address. You would get an alert that there is an order available and can pick and choose the orders you would like to complete for us.
Please let me know if you are interested or have any more questions. Thanks!

Fannie Mae Has A Landing Page for Appraisers

They are now working to better communicate with our industry. We now have a landing page on the Fannie Mae site.

Bookmark it.

Also, the page contains a link to their new selling guide. This is where you can find their appraisal policy. Back in the day, I used to maintain their three-ring binders with periodic updates via US mail.

Ranting: When VA Appraisers Screw Up

My best friend from high school happens to be a very good appraiser. One of his strengths is that he is extremely meticulous in his approach to valuation which doesn’t align with the general AMC universe emphasis on cost and speed without emphasis on quality. He once took apart his mid-70s Pontiac Trans-Am to the individual bolt level. Yes, down to the bolts. My memory of this is that he only had about dozen bolts left when he put the car back together but he denies this. 😉

In this AMC low fee world and a family to support his skills don’t match the new reality so he flips foreclosed properties and does well at it. His home flipping business really leverages his local market expertise.

In one particular case, he reached out to me because he was very upset. He needed a sounding board.

He was selling a house and a VA appraiser low balled it. As a seller, my friend really has no recourse other than to report this person to the state or move on to the next deal. He can’t go to the bank and of course, the buyer would be happy to pay less. This appraisal cost my friend about $20K for no reason whatsoever. He even sent the appraiser something like 17 legitimate comps out of desperation and the appraiser hung up on him. This was a unique property that was renovated and compared with wrecks that were “plussed up” without support because they were of similar configuration – this guy couldn’t think out of the box. I get the insulation from influence part, but do we have to insist on saving our ass because it’s easier? How about getting it right?

I’m not going to share all the photos and comps and appraisals he gave me to show his value logic value but I’ve shared his letter – if you know my friend who wears his heart on his sleeve – is a good read.

When I met the appraiser at the property, he said he had seen my work before, and said I was very thorough. When it is my money on the line, I tend to overdo it. I apologize to the readers up front, as there is probably way more information here than is needed, but I saw many inaccuracies in this report. With all due respect, the appraiser did not have much to choose from in the way of suitable comparables within the subject’s immediate neighborhood. He said this lender would not allow detached homes to be used as comparables. I can understand having guidelines asking to refrain from detached homes, but the vast majority of the homes in the neighborhood are detached, so it would make sense to include a few detached homes and make adjustments for the detached versus semi-detached configuration. The appraiser did not bracket the sales price, and the comparables have artificially pulled the value down. Comp 4 sold for less than 59% of the subject’s contract price. I was going to save this comparable for a later discussion, but let’s just get it out of the way now.

Com 4 – Why he chose this comparable stumps me. It exhibits a lack of knowledge of the Hagerstown market, although I believe he knows the area better than what is represented in this report. Ridge Road is noted as being 0.62 miles from the subject, but that is as the crow flies. Google maps have the distance as 1.6 miles going south or 1.9 miles going north. It is in an industrial area on the other side of the railroad tracks, in a far inferior neighborhood. I know it well, as I purchased a house a little over a year ago at auction for $19,000 and was happy to sell it at wholesale to an investor/ landlord friend. Most of the street is tenant occupied, and there is little pride of ownership in the neighborhood. Furthermore, this comparable is adjacent to a busy road with a transformer station on the other side, with another busy road south of it, and railroad tracks and industrial facilities along that road. I took pictures of the homes across the street to compare with homes on the subject street. I spoke at length with the listing agent and found that it had been a rental for 15 years, and had to be fixed up just to get it to sell. It was a bare minimum updating, and I got access to inspect personally, with pictures attached. The kitchen was the bare minimum, with only a stove and refrigerator and minimal cabinets. No CAC. A gravel path for off-street parking, no pavement. No garage, No finished Attic. No finished basement. Some peeling paint, remnants of graffiti. Please take a look at the photos to compare to subject and neighborhood.

Comp 1 – 521 Guilford Avenue is indicated in the MLS sheet as a renovated duplex, and is the most logical comparable, as it is located in the same neighborhood and one block away on the same street. I had viewed the listing pictures previously when I was evaluating my property at 629 Guilford. To confirm what I had interpreted, I knocked on the door of 521 on June 4. I met the owner, and we talked about the property for a little bit. She invited me in and showed me the “renovated” home. She believes that this was the seller’s very first flip, and he did not know what he was doing. The first floor is lower end LVT vinyl tiles, glued to wavy floors. She reported that all of the floors are not level, and it feels like the whole house is sagging. The ceiling has staple tiles, not drywall or plaster. There are some plaster or drywall walls, but many of the walls are a very thin ¼” paneling which has been painted. It showed well in the MLS pictures, but the walls are very flimsy. The kitchen looks very nice, with nicer granite counters than my brand new faux granite Formica counters. She said that the cabinets look nice, but were very non-functional. The drawers were very narrow, and you could not put a silverware tray in them. She said the dishwasher hose broke away because they used the wrong clamp and it dumped dirty water all over the kitchen floor within the first week. She also said the appliances were not new but did work. There is no half bath on this floor. The rooms are much smaller, due to a foyer partition in the living room. There is a paneling covered HVAC ductwork intruding into the middle dining room. The ductwork was not done properly so all of the air from the air conditioning goes directly to the middle room and does not get distributed through the house. The HVA C system is reported to be new.

Keep in mind that 629 Guilford has beautifully refinished wood floors, refinished by a professional floor craftsman. He indicated that these floors looked great, and he said he had not seen any better railing and Balusters with this age home. He refinished all the treads with stain. The 521 comparable that we’re examining had been painted over, including the wood treads on the stairs, which are already wearing off and scuffing.

Heading up the painted stairs, we get to the second floor which has lower end carpet throughout the second floor. The subject property has parquet floors which have been refinished in the hallway, wood floors in the laundry room, and carpet of a medium grade with good padding in the two bedrooms. The two bedrooms are significantly smaller, due to the makeshift closet configuration in these rooms. The middle bedroom has a closet which is not deep enough to hold clothes on hangers. The closet was made out of paneling and has an outlet inside the closet. The owner reports that the closet had a clothes rod installed when she first viewed the property, but it had been taken down when she purchased the property. She later discovered that it was because the closet was not deep enough to actually hold clothes hangers. This bedroom does not have the built-in shelves that the subject property has. The front bedroom also has a makeshift closet and the shelf hangers had pulled out of the wall. They were screwed directly into ¼ inch paneling, and would not hold anything. The bathroom is a different configuration than the subject property. It has a nice double vanity with a new fiberglass tub and shower unit. Looking closer, she discovered after she purchased the house that the plumbing was not done correctly and she can pull the spigot away from the tube, as they used flexible piping and did not secure the spigot. I am thinking that water is running behind the tub when the shower is used. The outlet for the bathroom is at the other end of the sink, and cannot be accessed easily, as it is behind the door. The light switch for the bathroom is actually outside the bathroom door in the hallway. There is a new resilient floor. The laundry room is in the same location as the subject property, although it is not as large due to the unusual configuration of the bathroom. The commode area extends into the laundry room.

Heading upstairs to the third floor which is also finished but as a narrower roofline with essentially seven feet wide area with at least 5 feet in height. There is no closet in the room. Furthermore, the way the stairway configuration is set up, you cannot get any reasonably sized pieces of furniture into this area. The only real furniture she could bring up was a large bean bag that would make it past the stairway railing. The subject property has a different railing, as I could see furniture access problems. My contractor set two by two pickets from the floor to the ceiling which can be removed as needed with a couple of screws per picket. This provided the safety of a railing, with the ability to remove them completely for furniture egress.

The basement is accessed with a cheap, sticking door (no knob) and stairs down to the unfinished cellar. Unfinished is being kind, as the exposed stone walls provided a very low ceiling, which is less than 6 feet high in some sections. I presume it is a dirt floor which has been covered with black plastic. The HVA C system is in the basement, as are the water heater and electric panel. There is no walk-up exit from the basement to the exterior. I would not have included this as a basement. The stone foundation is likely responsible for the sagging of the structure above The entrance to the property has been redone with 5/4 nosed decking boards, which the owner complains are kind of wonky and crooked, and she is not sure how long it will last. This porch is significantly smaller than the subject’s porch. I did notice that there are some retaining walls on the front. I thought these were 4 x4 landscaping posts, but it is actually 54 nosed deck boards screwed to the outside of some small posts. It should not be long before these are pushed away from the posts, as they are on the outside of the post. These walls really have no ability to retain any kind of pressure. I believe is only a matter of time before the boards are pushed away from what they’ve been screwed into. I believe it looks nice for the time being. There is a very narrow walkway between the next house, as opposed to the subject’s shared driveway providing space and sound buffering. There is an alley access for this comp property with 2 off street parking spaces. They’re not as convenient as the subject, as there is a little bit of a yard unit between the parking and the house. There is a concrete patio and the two balconies. Only one was mentioned on the subject property. The owner also reported that the property needs a new roof. This problem was overlooked, and she has one bid at $13,000, which I believe is high.

In short, comparing the condition, amenities, quality of construction components and workmanship, size of rooms, and parking options to the subject property leaves a lot of room for upward adjustment. I believe that the only superior features that this property has over [the subject] is granite kitchen counters and a nicer bathroom vanity. Virtually everything else is equal or significantly inferior.

Comp 2 – Rougher neighborhood, commercial and multifamily across the street, billboards adjacent to the property, busier road, one way, 2.5 stories plus basement. Ony 6 pics in the listing. Called owner. See exterior pics.

Comp 3 – I appraised this house for the purchaser’s lender. It was updated, but not nearly to the extent of the subject property. Contracted a year ago, why use it? Not even in the subject’s neighborhood. Compare views of multifamily buildings, run down, no landscaping in sight. See attached pics and compare with the subject street.

Comp 4 already discussed.

Comp 5 – Under contract for the 4th time. I talked with the listing agent at length but could not get access. The first contract fell through for home inspection issues. 2nd backed out because purchaser did not want stairs? 3rd fell through because purchasers wife never liked it, and they were able to get out after the purchasers’ credit check failed (intentionally?). 4th is still moving forward. This was priced low to move it, recognizing that it is located on a very busy road and backing to a strip mall. See pictures to get the full effect. This is not just a busy road, it is the main thoroughfare through this side of town with a median strip and 2 lanes of traffic each way. Fire, ambulance, trucks, etc. Behind is a struggling strip mall.

I am running out of time to get data back for the value dispute. I have provided 17 suitable comparables in a grid. My adjustments are different than the appraiser’s adjustments. $25 / ft for GLA is way too low, but it does make a pretty appraisal. This area seldom has comparables that fit within the net and gross adjustment guidelines, unless you avoid making adjustments. That is the easy way out. I have not had time to cross-check features and condition, and the adjustments are rough. I wanted to get something out.

I am always available to discuss the subject and any of the comparables with anyone involved in this transaction.

The VA appraiser did not really understand the comps he relied on and that’s unfortunate.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more like Rocky Raccoon;
  • You’ll be into parking spaces;
  • And I’ll rent a three-bedroom.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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June 8, 2018

Directions for Housing Monetary Policy Without The Contagion

I’ve spent the latter part of this week at a joint session of The Appraisal Foundation which had plenty to offer – including all you non-appraiser real estate types as I write this from an Acela Express train racing from DC to New York this morning. That meeting, combined with a large steak and some sort of mint chocolate chip tasting drink at Morton’s Steak House has left me slow and groggy as I write this, plus I’m trying to crack the pancake code simultaneously, so I’ll keep it a little short this week.

What’s A Boston Real Estate Market “Sound” Like

I’ve been quite remiss in not spending more time sharing the insight-rich NeighborhoodX start-up (with whom I am an advisor) that takes neighborhoods to depths that are not found in other resources, especially in the canned feedback from the big real estate portals. They have their Boston site out in beta with more to come. Since I’ve been traveling a bunch lately I thought I’d explore the topic of airport noise. Try flying around the site and explore the thoughtful insights on all things that impact neighborhoods. Click to expand the following images.

Elbow Room is Overrated

Conor Dougherty wrote a great page one Wall Street Journal piece on the density of Vancouver, Canada, the poster-child for the global new development real estate phenomenon. They have a huge affordability challenge and have encouraged the development of small homes in their backyards. It’s not about just building more units… this is worth a listen.

2 Big 2 Fail

On the must listen daily VOX podcast “Today, Explained” there is a great discussion of the rollback of the banking regulations instituted after the financial crisis, because, well, history can’t possibly repeat itself. Here’s 2 Big 2 Fail

Can Keller Williams Survive Manhattan?

As one of the few franchise brokerage firms in Manhattan, there was concern that this firm would not survive the latest real estate downturn and would meet the same fate as Town did a few weeks ago.

Keller Williams NYC was the fastest-growing firm in Manhattan last year. But more bodies doesn’t always mean more business. When it came to closing deals, Keller Williams NYC was down 18 percent year-over-year to $193.1 million in sell-side transactions, placing 13th among Manhattan firms. “If you have one of the highest agent counts and one of the lowest incomes,” said one former staffer, “it tells you all you need to know, doesn’t it?”

Founder Ilan Bracha was interviewed by EB Solomont of The Real Deal to talk about how they pivoted in order to survive.

New in the Real Estate Lexicon

With Blockchain coming to real estate, I thought it would be useful to Housing Note readers to better familiarize themselves with the term. Not everyone is a fan of its future (but I am).


The Appraisal Foundation Hosts National Appraisal Forum to Discuss Appraisal Waivers and Hybrid Appraisals

“Preserving the Public Trust”

I really got a lot out of this week’s joint meeting with IAC and TAFAC of The Appraisal Foundation that took place in Arlington, VA. I represented my appraisal firm Miller Samuel at IAC (Industry Advisory Council) and RAC (Relocation & Consultants) at TAFAC (The Appraisal Foundation Advisory Council) and I’ll be sharing new insights on these and other topics in the coming weeks.


Appraisal Waivers – Both Julie Jones of Fannie Mae and Scott Reuter of Freddie Mac spoke about the waiver concept. On the whole, I feel much better about the GSE’s intent from their presentations. They’ve been offering appraisal waivers for more than a decade but recent efforts were ramped up and widely touted (and widely criticised). Their market share of loans with an appraisal waiver is a little under 10% so of course, the fear by most appraisers is that it is a slippery slope and soon all appraisals for Fannie Mae and Freddie Mac loans would be waived. The FNMA explanation was that if market share were to increase beyond 10%, their credit box would have to be expanded and that is a difficult process, requiring approval by their regulator FHFA (Federal Housing Finance Agency) [Expanding the credit box would relate to many issues including loan-to-value and property types]. In my view, they have been trying to entice lenders to better match their underwriting interpretation of risk with the actual risk out there. Lenders have lost their appetite for risk with the exception of some recent easing. With the economy strong and some consensus building for a recession by 2020, I find it hard to see a significant expansion of the FNMA credit box if at all, at least in the near term. [However, appraisal waivers are included in FNMA mortgage transactions because they are disclosed at the loan level and there is room for growth.] Therefore it would follow that the expansion of appraisal waivers would be unlikely. [Incidentally, the GSEs have to report to FHFA every quarter on any outliers, i.e. why market share expanded for certain loan types.] On another note, I don’t think the understanding of the AMC impact to loan quality has been properly [adequately] exposed because the GSEs can’t distinguish between AMC appraisers and non-AMC appraisers.


Hybrid Appraisals – An analyst for Moody’s spoke about hybrid appraisals that rely on a separate inspector rather than the appraiser. There has been little adoption observed in the securities markets. Moody’s knows of only one deal that included hybrid appraisals in some of the loans of a portfolio and there is no apparent impact yet on portfolio pricing. This deal had nothing to do with the GSE portfolios. Moody’s perspective was that portfolios include broker price opinions (BPOs) and they are more comfortable with appraisers being involved in the process. However Moody’s along with S&P and Fitch missed the housing bubble, thinking they could mitigate all risk but were using the wrong data to feel comfortable. My takeaway is that there is no real data or precedent to base risk decisions on this new product at this time and their biggest concern was the lack of standardization of separate inspectors for this product. The Fannie Mae waiver product is confusingly inserted into this line of thinking yet Fannie Mae appraisal waivers are not part of these portfolios. If their use becomes prolific much like AMCs have grown to dominate the mortgage appraisal industry, I start wondering about the expanded misplaced quality assumptions built into the bond market. In other words, bond pricing is likely appraiser-quality influenced and with 80% to 90% of all retail mortgage appraisals going through AMCs, up from 10% in before 2009. This lack of AMC understanding as it relates to the value of mortgage collateral for securitization should make regulators nervous. What is going to happen to the bond market, whose mortgage collateral that is largely tied to AMC quality (which are generally poor) when the quality issue finally becomes more front and center.

Appraisal Institute Roams The Halls of Irrelevance in DC – Despite being denied re-admittance to TAFAC for not agreeing to honor the TAF mission statement, Scott DiBiasio of the Appraisal Institute continues to attend Appraisal Foundation meetings like this week’s, trying to insert influence and assert AI’s presence despite its current industry irrelevance. The more feedback I get about their actions, the more I am convinced they have some sort of private agreement with REVAA (Real Estate Valuation Advocacy Association) to encourage the industry adoption of evaluations despite pushback from their own residential members. Time will tell but as history has shown us, they don’t share these types of things with their members. Afterall, it took members a decade to get AI National to admit and disclose their deal with FNC. Residential appraisers I know – who are and are not AI members – continue to scratch our heads wondering why they are so unnaturally and over-enthusiastically supportive of demeaning our profession to enable us to do $25 (and I have heard of $7 to $12) evaluations as if that serves their members best interest. No logical reason for their over the top enthusiasm has been shared. To date, AI National has had no success on the state legislature level nationwide with this agenda that is unsupported by their members and in fact, I heard AI just lost its bid to enable appraisers to switch on or off their USPAP licensing requirements in Florida by a 1-7(?) vote.

A Better Day Ahead Through Collaberation – I had several appraisers at the conference mention to me that the mood in this regulatory body was noticeably more upbeat. The elimination of the constant AI National-fueled drama was no longer poisoning the collaborate efforts of stakeholders. That makes sense. Jim Park, director of the Appraisal Subcommittee (ASC) spoke to the joint TAFAC and IAC group and said that the only way our profession moves forward is in a collaborative way. I totally agree with that observation. It would be great to see AI National be a part of that but sadly that can’t happen if the current leadership remains and they continue to ignore the needs of their hard-working residential members.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll eat more steak;
  • You’ll be more train-worthy;
  • And I’ll be more collaborative.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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June 1, 2018

Rising Waters: Realtor Signs, Cockroach Milk and Plastic Straws

We’re flooded (save that term for later in these notes) with new insights:

  • The last straw: Apparently, plastic straws are really bad for the planet. Since I was little, I’ve always avoided using straws, thinking that my sense of smell helps make a chilled glass (the heavy kind from a diner) filled with chopped ice and Cherry Coke tastes better without using one.

So it’s sometimes better to focus what’s immediately in front of you for your own survival as you navigate your way down the path (this is deep).

But I digress…

Flooding the Housing Market

For some reason, this week seemed to see a lot of coverage on the impact of climate change on the housing market and that the Northeastern U.S. was the most vulnerable. We seem to be lousy with water.

  • Rising Risks: Waterfront real estate in Boston rises in the face of stronger storms [CNBC]

“In Boston, we’ve spent a lot of time thinking that these impacts are 20, 30 years down the road,” said Deanna Moran, director of environmental planning at Boston’s Conservation Law Foundation. “The last couple of nor’easters that we’ve had have made it very clear that these storms are here now. They’re happening more frequently. They’re more severe.”

  • Underestimated Flood Risk Could Crash the American Housing Market [Citylab]

The two economists undertook a door-to-door survey of properties throughout Rhode Island and found that 40 percent of flood zone respondents were “not at all” worried about flooding in the next 10 years, even though the average property in their sample has a one-in-seven chance of flooding annually after just one foot of sea level rise.

  • Miami’s condo king breaks silence on sea level rise comment: ‘Maybe I had too many drinks’ [Miami Herald]

When author Jeff Goodell approached developer Jorge Pérez during a party at the Pérez Art Museum to ask him if sea level rise had changed his approach to building, the chairman and CEO of The Related Group replied: “In 20 or 30 years, someone is going to find a solution for this. Besides, by that time, I’ll be dead, so what does it matter?” A few years ago I moderated the main panel at ULI Miami and asked about the impact of climate change and got a similar shrug. It looks like awareness of the adverse impact of it on the U.S. housing stock has only recently become a front-burner concern.

For the 1/3 of Americans that don’t believe in climate change, consider going on vacation to South Beach in Miami or Norfolk, VA at high tide when it is raining. You’d be surprised how much flooding is occurring on a daily basis that wasn’t happening a decade ago. Whatever the cause, housing development has to consider it as the consumer becomes more and more aware of it.

Walkup Apartments Have Built-in Health Clubs

There was a good Wall Street Journal piece this week: Step by Step, New York City Walk-Ups Climb the Price Ladder. In the appraisal of walk-up apartments throughout my career, I have always marveled at those who live on the fifth floor (and a few 6th floors) of a building without an elevator. Just imagine the scenario where you bought groceries for dinner and forgot the avocados (this is a hipster tale) so you trudged downstairs to the corner store to retrieve the avocados. When you arrive back to the apartment, a little out of breath, you realize you don’t have enough wine so you turn around and trudge back downstairs….

On the bright side, you will become super organized and heavily dependent on “to do” lists. I suspect you’ll love the solitude and the greater natural light that a lower floor apartment might not enjoy.

If the above photo looks familiar, its because these twin tenements located at 96 and 98 St. Mark’s Place between First Avenue and Avenue A in Manhattan graced the cover of Led Zeppelin’s Physical Graffiti album in 1975 (the first record I ever purchased).

In our research, we find that a lowrise building with an elevator sees roughly a 1% or possibly 2% rise in value per floor above the second floor with a much large jump from the first floor to the second floor. However, the floor level premium is reversed in a walk-up building and the per floor level adjustment is much larger than in an elevator building. We generally see value changes as much as 5% to 10% per floor in a walk-up. There are a number of types of walk-ups. Here are some blog posts I wrote about floor levels a while ago that were turned into infographics by various publications – click on the graphics for the posts and more links.

The Real Deal New York


The Term “Appraisals” Bleeds Into The Term “Evaluations”

One of the reasons the appraisal industry has been so upset with our former industry leader, The Appraisal Institute, is that they don’t realize that they are destroying the meaning of the word “appraisal” by championing lower cost alternatives to appraisals, that actually are appraisals. It’s the organization’s tragic flaw and why they are now essentially irrelevant. Hopefully, that will change but its really up to the residential and commercial membership to champion new leadership.

But I digress…

This is why:

Here’s an “evaluation” product that is ordered as a “new appraisal assignment” for a lowball fee. The appraiser had two hours to respond and then it rolls over to the next appraiser on their list. Robo-ordering these evaluations to hundreds on an approved list is what the Appraisal Institute has helped make possible. Think about that.

Then think about your time. If the going rate for an appraisal in your area is $450 and you are willing to do an evaluation that perhaps takes half the time (just guessing and assume you are ethical) yet retains all the liability, is a fee reduced by 83.33% worthy of your hard earned years of expertise? Are you really just a form filler or are you a valuation expert?

It’s Been More Than 9 Months: How Is The Search For New Appraisal Institute CEO Going?

On August 24th, AI’s CEO Frank Grubbe resigned overnight without warning. It was announced then that second-time AI president Jim Amorin was to fill in as acting CEO until December 31, 2017. That date has come and gone without any notice to members as to the status of the search through their newsletters, website or emails that I am aware of. So much for transparency. It was widely held that once Grubbe had left the organization, the toxic culture he had either caused, enabled or allowed would subside.

No evidence yet.

AI used the executive search firm Tryon & Heideman LLC to find a replacement. At no time was an application filing deadline shared with the public on either the executive search site or the AI site that I can find.

I’m not a member of the Appraisal Institute but a few members I asked have reached out to have scoured the site and don’t see any information about it, not even a landing page. A little over a week ago, the Appraisal Institute removed mention of the search for the position from the home page. Since no deadline date was presented on the AI site, I can only assume that removal of the announcement from their home page was an indication that the search has ended.

Let’s recap:

  • Pervasive toxic political culture still dominates the organization
  • August 2018 CEO resigns overnight without warning after 11 years
  • Two-time AI president fills interim CEO position
  • Interim CEO position expires December 31, 2017, without discussion
  • Announcement of CEO search removed from AI Home Page in May 2018
  • Description of CEO position remains on executive search site without application deadline date

(Hey, how’s that residential committee doing?)

It is time for the AI membership to hold leadership accountable (you know, the group I’m told that regularly flies first class with their wives all over the world to attend valuation conferences and don’t share what they learn with the membership).

You need to contact your local chapters and put pressure on Chicago leadership to actually attempt to be transparent. If you don’t this organization will never recover, let alone survive, from its current state of irrelevance.

Appraiser “Accounts Receivables” Alert: CoesterVMS One Step Closer to Death?

Coester Chronicles Continued…

On May 25, 2018, Myriddian LLC filed a “Confessed Judgement” request against CoesterVMS.com Inc. Yesterday (May 31, 2018) the Baltimore County Circuit Court granted the “Order of Confessed Judgement.” Myriddian LLC is owned as a sole proprietorship and functions as a government contractor. The owner is Merlynn Carson, daugher-in-law of Ben Carson, current HUD secretary. This action, based on the earlier legal link, might be interpreted to mean that the creditor filed on behalf of the debtor to shortcut a lengthy litigation process.

Here’s a screenshot of the details.

And an explanation found on AppraisersForum.com:

This series of actions does make me wonder if CoesterVMS borrowed a lot of money from the Carson family and then defaulted. Given Carson’s proximity to the HUD cabinet secretary, this seems big league and ominous for the future of CoesterVMS, a notorious AMC. Appraisers who continue to work for them, despite all the available information about this AMC, that remain insistent on working for them: You’ve been warned.

Note: It’s not how much revenue you make as an appraiser that counts, it is how much you get paid. Over my career, I’ve always been amazed at how many in our profession seem to forget this basic rule of survival.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more accounts receivable orientated;
  • You’ll drink more cockroach milk;
  • And I’ll walk up more stairs.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads

May 25, 2018

Useless Housing Stat Silence Breakers For Your Awkward Memorial Day Weekend Picnic Moments

I hope you get to celebrate the long weekend with family and friends and please take a moment to reflect on what the holiday stands for.

It is a little early to start the weekend on a Friday afternoon, but hey, this is Housing Notes and our readers are known for doing whatever they want. Since I want to take a break too, I left you with a slew of reading materials in the links below (pop quiz on Tuesday) and cut it super short today. The following is a silly junk stat presentation by ATTOM but I’m confident you won’t remember all those names of distant relatives at the picnic and this might sharpen your naming skills or give you something to talk about over the awkward silence.

For example, Phoenix may be booming, but there are 86% more home purchases by Carter families than a year ago…


Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll bring more ketchup;
  • You’ll bring more mustard;
  • And I’ll keep an eye out for the Carters.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads

May 18, 2018

Housing Legacy Distortion: The Coke vs. Diet Coke Explainer

I want to dig deep this week and show it’s what’s on the inside that counts (floats) in reference to the challenges facing the traditional residential brokerage community:

But if you really want to see how the sausage is made, here’s the Chitty Chitty Bang Bang version:

But I digress…

What is a Traditional Real Estate Brokerage Model?

Town’s Legacy Distortion
I’ve known Andrew Heiberger, founder of New York brokerage Citi-Habitats (acquired by NRT/Realogy), for years and always admired his chutzpah, (despite his Alumni status as a Wolverine versus mine as a Spartan). His second brokerage effort with Town Residential just ended badly but no one can fault him for trying to be a player in the space. However, I’m a little disappointed in his public comments since Town’s closing. He seems to be blaming the market for the downfall rather than a vulnerable business strategy of reportedly offering higher fee splits than the market standard. Town was acting like Compass before there was a Compass but they didn’t have hundreds of millions in the bank like Compass to go on a recruiting tear.

Here’s some unsolicited LinkedIn advice to Gary Malin of Citi-Habitats from Andrew.

Compass’ Similar Model
Remember that Softbank, a Japanese multinational conglomerate holding company headquartered in Tokyo, has been investing in tech at a large scale in an asset-starved world. And Softbank invested $300 million in a dog-walking app. This makes me wonder about their due diligence, but then again, I am not fully informed about the economies of dog-walking apps. It makes you wonder that without the capital to offset what is assumed to be a significant burn rate, the Compass model is susceptible to the same fate as Town, but only after the money runs out, or they succeed in an eventual IPO and then the money runs out, which could be years from now. The Compass war chest is what makes them a disrupter, not their technology or business model – at least based on what has been shared by former agents or from Compass itself. It is important to note that traditional brokers are independent contractors and go where they are paid more if they feel the fit is right. As with any move to any firm, they risk losing their momentum.

What Is A Traditional Brokerage Model?
Andrew contends that Town represented a typical traditional model yet it was their high split version that was not sustainable. This was apparent in the recent feedback by the local industry when they were recruiting former Town agents. I’m not saying the traditional brokerage model isn’t vulnerable – it’s been called vulnerable for decades – but this narrative seems more orientated to protect his legacy. I hope he reconsiders this approach since he is one of the few leaders in the business that has created a large firm, let alone more than one so I’m sure he’ll build something else.

Here’s a conversation between Andrew and Fred Peters of Warburg.

Amir Korangy, the publisher of the Real Deal Magazine, interviews Andrew about what happened at Town. Being reflective of the downfall in a very public way takes chutzpah, no matter how it was framed.

This Week in Aspirational Pricing, California Style

Since 2014, I’ve been collecting the U.S. closed sales at $50,000,000 or higher and try to include as much worldwide as I can. There have been 8 sales in the LA vicinity – Malibu and LA’s Bel Air were the most active with 3 sales each in the past 18 months, outpacing high-end sales in other markets such as New York. I’ve collected 90 closed US sales since 1999.

Here are a few of the most recent biggies in California.

I just whipped up a couple of charts to show the U.S. super luxury phenomenon:

What Happens to Housing When Interest Rates Rise?

Gotta love Planet Money’s “The Indicator” Podcast:

As interest rates climb, so will mortgage rates, making houses relatively less affordable. Refinancing also becomes less attractive. But there are also surprising ways in which interest rates affect – and in one case, don’t affect – the housing market.

More Avocados = Less Homebuyers

Curbed unlocks how innocent avocado toast became a synonym for millennial excess.

LOL. Watch the Instagram video.



Rationalizing accepting $50 to $100 hybrids ’cause you’ll get volume

Here’s the sales pitch being sent to appraisers:

MCSV is currently offering a distinct hybrid product to our clients that involve a restricted report. We would like to extend our hand – beyond the product types that you already cover, to determine if this is something that you would be interested in.

I have provided useful information and attachments below regarding the RESIDENTIAL EVALUATION REPORT (RER).

An RER is a restricted appraisal report that involves a Broker Price-Opinion completed by one of our BPO vendor/Brokers for the purpose of providing an inspection – as interagency guidelines require evidence of an inspection. If the BPO completing agent happens to provide some credible data that an appraiser finds useful in their appraisal development that is fine. Appraiser is expected to develop an opinion of value in accordance to USPAP standard 1. We provide AVM’s and sales data when available and this data could potentially be adequate to provide a credible report. That is up to the appraiser to make the determination. Again, this is a desktop appraisal product with an inspection. When the client places an RER order, we engage a real estate agent or broker that works in the immediate area of the subject property. They will visit the subject property, take photos, and describe their observations about the subject property’s condition and features. They then complete a Broker Price Opinion or Competitive Market Analysis. The BPO or CMA report, including the inspection information is provided to the appraiser along with AVM’s and alternative sales in the area. The appraiser reviews this information and any other information that the appraiser needs and has available to develop the appraisal.

The BPO report and other data that has been provided to the appraiser would not be considered as appraiser assistance. The scope of the appraisal assignment is for the appraiser to complete the appraisal report as a desktop. Inspecting the subject property is not within the scope of work for these assignments. The scope of work determines what is and what is not appraiser assistance. Any information used in the report is data, not appraiser assistance. To illustrate, let’s take a more familiar example, the scope of a 2055 exterior appraisal report is to inspect the subject property and the comparable sales from the street. Other information such as size, year built, room count, etc. will be used from other resources deemed credible by the appraiser to use in the analysis with an extraordinary assumption that the information is correct. If someone who is not the appraiser does the exterior inspection for the 2055 exterior assignment, they are providing appraiser assistance, because an exterior inspection is in the scope of work for the appraisal assignment. The county assessor providing the property sketch, square footage, room count and the listing agent that described the subjects interior condition on a recent MLS listing are providing information that the appraiser may be using, but they are not providing appraisal assistance because measuring the property and inspecting the interior of the property are activities that are outside of the scope of work. Again, if it is a task the appraiser must perform because it is in the scope of work and it is performed by someone other than the appraiser, the appraiser must disclose it as appraiser assistance. Any task that is outside of the scope of work would not be performed by the appraiser therefore would not be appraiser assistance. I hope this answers any additional questions you may have.

There is some room to negotiate the fee based on the market rate other appraisers charge for the product, the scope of work, complexities, and time involved.

We have access to 94% of the MLS systems nationwide and our access to public records is even higher. We provide any relevant data in the subjects’ area that we have available including AVM’s and sales. We also organize and present the data using 5 different perspectives. When there is a lot of credible data, appraisers are able to quickly develop their appraisal opinion using these tools. When the data is more limited and more efforts need to be made to research, it could take much longer. The fee that will be quoted to you is the base fee. If you are assigned an order that will take a lot more research than typical, you are welcome to come back to us with a fee quote.

Another advantage to including a BPO report is that it gives you access to someone that buys and sells properties in the subjects’ specific market area. If you are assigned an order in an area that you are less familiar with you can contact the broker/agent directly and associate with him or her to help gain competency.

The Data entry for the RER is only a free form text box and a place for you to put your value opinion. As far as filling out the form it is not labor intensive at all.

We are experiencing an increase in volume in your state and would greatly appreciate your participation. We also strive to keep our RER panel smaller to help increase individually assigned volume. If this at all makes sense in your business model, we could certainly use a good appraiser in your area. I would encourage you to sign up. If at some point you decided it is not working for you, you can withdraw without any effect on your regular work for MCS Valuations.

No wonder the Appraisal Institute is pushing evaluations at every public forum out there: You’re future is based on $50-$100 assignments, not the $25 assignments you thought were coming. Boom times?!?!?

Some appraisers might think you can bang out dozens of these products per day. I contend that you’ll end up doing 1 or 2 if you are actually doing credible work versus form-filling. Am I way off here?

Take a look at the information and forms you’ll deal with – good grief.

RER-Appraiser Signature
RER Appraiser Facing Presentation
RER Sample

Someone familiar with this told me that $50-$100 is now the value of your certified signature and wondered how E&O Insurance providers will view these assignments? Are they even covered in the current insurance binder?

Seems like a legitimate concern.

Don’t Ask, Don’t Tell About “The Weed”

My son is a police officer and when they smell weed on a traffic stop it enables them to search the car. Appraisers are being placed in the awkward position of not reporting something that they see during the inspection. This Corelogic work around seems very awkward to me. The again, I’m not appraising in Colorado. Thoughts?

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll drink less soda;
  • You’ll be more traditional;
  • And I’ll double down on avocado toast.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads

May 11, 2018

Churning Housing: Affording, Buying, Renting

I caught this news story with the best title ever: Worst Greyhound bus ride ever departs Cleveland for New York hours late and winds up in Toledo. I thought it brilliantly represented the concept of “churning” when it came to housing affordability – and who doesn’t love a good bus story that uses excuses like “Road Failure” as a reason for an insane delay.

but lets get back on the road…

Elliman Report: Manhattan, Brooklyn & Queens Rental Report April-2018

Another month goes by and another New York City rental analysis is upon us. If you’re new to these Housing Notes, you won’t know that I’ve been authoring a series of market reports for Douglas Elliman since 1994. They published my research for the April 2018 rental markets in Manhattan, Brooklyn and the northwest region of Queens.

First of all, we need to get the most important issue of the study out of the way. The article that referenced the report was yesterday’s number 1 most emailed article on the Bloomberg terminals worldwide (350,000± subscribers).

And a chart…

The basic premise across all market areas was that the rental market continued to soften:


  • Fifth consecutive monthly year over year decline in median face rent
  • Third highest recorded landlord concession market share in seven and a half years
  • Market share of studios and 1-bedrooms as expanded as larger apartment share slipped


  • Reached highest recorded market share of landlord concessions for the fifth consecutive month
  • Decline in year over year net effective median rent for eleventh time in twelve months
  • Highest combination of free rent and owner pays commission in over two years

Queens (NW)

  • Fifth record market share set for landlord concessions in past seven months
  • Eighth time in past nine consecutive months with year over year decline in net effective rent
  • Largest new development market share in eighteen months

Here is a sampling of our charts (full gallery):

Manhattan Absorption Rate for April (Months to Sell)

[click to expand]

Visualizing Manhattan’s Occupancy By The Hour

This is what Manhattan’s occupancy looks like on an hourly basis. With a 2 million Manhattan overnight count, the population doubles to 4 million during the workday peak Wednesday at 2 PM is the weekly peak. I think it is quite interesting to see northern Manhattan behave like the outer boroughs – the population declines during the day. However, the remainder of the island to the south rises during the day. At peak density, excluding Central Park, the population is about 100,000 per square mile north of Central Park and 280,000 per square mile south of Central Park.

Check out the interactive visualization: Manhattan Population Explorer

This Week in Aspirational Pricing

First, some tractor-talk.

Some sellers simply NEED to sell at a certain price no matter the logic or market evidence presented. When I was in college in the late 1970s, a friend of mine was a sod farmer, and I went with both him and his dad to an International Harvester dealership to buy a new tractor. The new model included surround-sound stereo, air conditioning and other amenities consistent with luxury cars at the time.

And if my friend’s dad bought the tractor, they’d throw in an International Harvester Scout for free.

That seemed pretty extravagant to me, having spent my high school years driving an old Ford Pinto station wagon that used a quart of oil for every tank of gas despite only having 3 working cylinders and whose exhaust was held on by a Bungie cord. I thought to myself, “why wouldn’t the dealer simply mark down the price based on the value of the Scout? We’ve seen this marketing behavior a lot in the housing market when it turns south and it never seems to work.

But I digress…

There is an $85,000,000 listing in a Manhattan location not known for luxury properties. It has been on the market for 5 years at the same price. It is a 15,000 square foot penthouse apartment with river views. And you also get:

  • Rolls-Royce Phantom — hardtop
  • Rolls-Royce Phantom — convertible
  • Lamborghini Aventador Roadster
  • 75-foot yacht, with five years of docking fees on the Hudson
  • A summer stay in a Watermill (Hamptons) mansion that rents for $350,000 a season
  • A year’s worth of weekly dinners for two at Daniel Boulud’s 65th Street flagship
  • A pair of courtside season tickets to the Brooklyn Nets (valued at around $225,000)
  • A year of services from a live-in butler and a private chef
  • Two $250,000 seats on a Virgin Galactic space flight
  • All transfer taxes paid
  • $2 million construction credit because the sale is actually a number of smaller units and seller thinks it will cost about $7.5 million to combine and renovate

I wish I understood the seller logic here. It is almost as if he has a side bet with someone that he can sell it for $85 million.

New in the Real Estate Lexicon: Churn

It is all about Churn.

Brookings Definition: “Churn” is the sum of additions and subtractions to the housing stock. One of the key reasons for the affordability crisis is a chronic shortage of inventory – demand is rising faster than supply. We simply aren’t creating enough housing supply. But it is not as simple as building more.

Here’s an NPR discussion last summer that was linked to the Brookings piece and is related to the topic: “Why Isn’t The Housing Market Booming The Way Experts Expected?

Small is (trying to figure out how to be the) New Big

I recently shared a Miami Herald article on micro units – as cities try to figure out the housing affordability crisis. One of the thought leaders of the movement has been the NYU Furman Center.

On February 21, 2018, the NYU Furman Center convened a panel discussion that explored the viability of small unit housing in New York City.

Given the New York City’s growing population of single-person households and the need for housing assistance across all household sizes, the panel explored the pros and cons of reforms that the city might implement to encourage the creation of more small units, including self-contained micro units and efficiency units with shared facilities. Panelists also considered how the city might strategically allocate subsidy resources.

Race & Redlining: Fair Housing Act

This video is quite compelling.

In 1968, Congress passed the Fair Housing Act that made it illegal to discriminate in housing. Gene Demby of NPR’s Code Switch explains why neighborhoods are still so segregated today.

Real Estate Blockchain, Not To Be Confused With Cryptocurrency

Blockchain explained from Wired


Tindell v. Murphy, Cal. Court of Appeal (2018)

Here are the documents from the case shared by Peter Christensen, General Counsel, LIA Administrators & Insurance Services:

On May 7, 2018, the California Court of Appeal, Third Appellate District certified for publication its recent decision in a case entitled Tindell v. Murphy. The case involved mortgage borrowers who sued a real estate appraiser blaming the appraiser for a purchase they made in 2005 at the peak of the real estate bubble. The trial court had dismissed the borrowers’ suit because they were not intended by the appraiser to use the appraisal, as the appraisal was prepared for the lender, and the Court of Appeal upheld that decision in a straightforward opinion. However, the opinion was not originally slated for publication, meaning that it would not serve as precedent for cases involving other appraisers.

While it was a straightforward decision, an effort was made by Peter as well as the Northern California Chapter of the Appraisal Institute and the National Association of Appraisers to enable this case to be published so it could be used as a basis for future appraisal litigation.

One key issue here that helps limit the liability to appraisers – in a mortgage appraisal, we aren’t responsible to the homeowner directly since they are not an intended user of the report.

Feedback: AQB/AARO Spring Conference, Seattle, Washington May 2018 – Peter Gallo

Here are appraiser Peter Gallo’s notes from the conference. I have placed a sampling of them below. His fill notes are a good summary of the issues appraisers are facing today:

  • “There is also a focus on redefining the term “inspection” as hybrid appraisals and other alternate valuations address an inspection differently from what the current definition describes.”

  • “The Appraisal Subcommittee (ASC) also gave a brief update and talked about the Tennessee bank appraiser waiver request that had been denied, saying that they had received 166 public comments including several from appraisers who worked with the bank that requested the waivers. The final order denying the waiver request has been posted to the federal register.”

  • “There was an update on AQB Certified USPAP Instructors. There are currently 432 instructors which is down 8.3% from 2017.”

  • “time was spent on the changes to the Real Property Appraiser Qualification Criteria and PAREA. The Board emphasized that the reduction in the criteria was not a result of or in response to any “shortage” or pressure from any groups. The sole purpose was to eliminate barriers or hurdles to entry into the profession.”

  • “The Board is currently speaking with and searching for education providers that can assist them with the development and approval of these practicum courses. Board members emphasized that the new generation of appraisers learn in a different way and that technology and simulation can be used to generate real life scenarios that can replace actual experience and that “boots on the ground” is not necessarily the only way to go in the new world of learning.”

  • Scott [Reuter] from Freddie Mac began the session with graphs depicting demand for appraisals, loan volume and the number of active appraisers showing the correlation between these factors. There were some interesting overlays that were shown including that trainees were mostly involved in appraisals being used for purchase transactions. He showed that while appraiser capacity or the number of active appraisers were somewhat steady over the years, there were spikes and valleys in the demand for their services and some of the spikes well outdistanced the supply of appraisers. He did review their property inspection (appraisal) waiver program and the factors that went into their use. There is a joint GSE (Fannie & Freddie) effort to redesign the current appraisal form (1004) underway. He described the current form as “archaic” and that they are in the first quarter of the first year of a three-year effort to revise the form (so they are at the very beginning of this process). They are considering all options including that there might not be a form at all, but it could even be some sort of online schematic or portal for a give and take of information. He said that the will be a lot of outreach to stakeholders and the pursuit of modernization will involve a lot of listening. He also mentioned that “big data is here to stay”.

  • Jim Murrett from the Appraisal Institute was next to speak, and he discussed the thresholds that had been raised as well as evaluations which banks would like appraisers to perform. He said that there are huge amount of evaluations being done and that they are easier for appraisers to complete them outside of USPAP. He described USPAP as something that is mostly a guideline for regulators and that appraisers are more than capable of working outside of USPAP and still developing a reliable/credible report.

  • Sharon Whitaker with the American Bankers Association gave a brief presentation that included a focus on how everything was being done online in their world and it has happened in a very short period of time. There are no more paper forms, everything is done by logging into online systems. She said that disclosures were also now being completed online and that the requirement for disclosures of fees with minimal allowances for changes put pressure on all to abide by tolerances.

  • “There was a discussion of a need for more consistent training where different supervisors train differently and practicum classes will create a more uniform experience for the trainee. AQB stated that experience is not seen as that critical to training and that the exam is the “gatekeeper” to demonstrate competency. AQB reminded the audience that their requirements are only meant to be a “minimum”. There was also discussion of the “trainee” nomenclature and that the AQB criteria allows for other names to be used, that there is not requirement to use the word “trainee”.”

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll churn;
  • You’ll drive a tractor;
  • And I’ll buy an old Pinto.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Appraisal Related Reads

Extra Curricular Reads

May 4, 2018

Aspirational Pricing Still Lurks in the Hearts of Sellers

“Everything that has a beginning, must have an end.” The Oracle (The Matrix).

I’m keeping this week’s Housing Notes short as I stroll around the Matrix and work on a new Boston market report for Douglas Elliman.

But I digress…

Your Local Chase Bank Branch is on Fire

So many analogies to be made.

This Week in Aspirational Pricing

Sales at the development One57 in Manhattan showed a good quarter because the developer finally chose to discount asking prices to meet buyers at current market conditions. This building is the poster-child of Manhattan super new development simply because it has been on the market for so long. In a recent Bloomberg Pursuits piece: NYC Luxury Tower One57 Has Big Quarter Thanks to Condo Discounts

While that’s a good strategy given that the developer is building another tower two blocks away with twice as many units, One57 has been on the market for seven years and still has 27% of its units left to sell.

“The quiet little secret about the super-luxury market is it’s absorbing” inventory, Barnett said.

While it is true that super-luxury sales are being absorbed, they’re not doing that on their own.

Absorption occurred as asking prices were brought down to become more connected with what actual market conditions were.

[Custom furniture at a duplex in One57. Photographer: Jeenah Moon/Bloomberg]

And I won’t go into details about the 25% list price chop – from $250 million to $188 million. While that’s a significant cut, this is a 38,000 square foot house on an acre.


Since these Housing Notes are a “lite” version this week, make sure you read all the great appraiser-related links down below.

ZILLOW: Entry-Level Homes with ‘Farmhouse Sinks,’ ‘Wainscoting,’ or ‘Exposed Beams’ Sell for Nearly 30 Percent More than Expected

No they don’t. This is what we call “junk statistics.” This press release suggests that when someone installs a “farmhouse sink” in a $400,000 home, the house becomes worth $520,000? Nope.

“Chip and Joanna Gaines’ farmhouse-inspired design trends command highest sale premiums among entry-level homes, according to an analysis from RealEstate.com”

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll make cup cakes like Joanna;
  • You’ll take a price cut;
  • And I’ll bring the kitchen sink.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads

April 27, 2018

A Winter Housing Analysis Without Compromising The Incremental Lack Of Flow In Argumentation

This week I wrapped up our 30+ market report gauntlet for the first quarter of 2018 – more on that down the page. In my 24 years of writing this research, I have always worried I am making basic market condition descriptions sound too complex. While I’m not interested in riding a custom chopper in Orange County, somehow this meme spoke to me.

But I digress…

Market Report Gauntlet Q1-2018 Week 4: Long Island, North Fork & Hamptons

Douglas Elliman just published the last of the first quarter 2018 market research gauntlet. As I’ve said before in these Housing Notes, these reports are part of a growing series of research I’ve authored since 1994. I’ve got an exciting new market to add to the report series very soon.

Hamptons report coverage on Bloomberg Television

But first, lets get down to business. Charts on the Hamptons and Long Island markets from our reports. These three versions of the same charts show how luxury Hamptons listings have begun to rise after spiking in 1Q 2014:

Bloomberg Business

Bloomberg Businessweek

Bloomberg Terminals: Chart of the Hour

And Newsday’s article of the Long Island report made the cover of the paper.


Market Report Gauntlet Q1-2018 Week 4: Aspen/Snowmass Village, Los Angeles, Venice/Mar Vista, Malibu/Malibu Beach

We also published research in California and Colorado that was pretty interesting. In high-end markets, we saw more strength than was expected.


Los Angeles (Westside + Downtown)

Linking Social Media To Property Addresses?

This was just shared with me – a Corelogic software package add-on for MLS systems that connects social media accounts with property addresses (1:50 into video). Seems like a potential safety issue if misused, no?

This Week in Aspirational Pricing

A 10,000± condo triplex (3 stories, not 3 units, for you non-New Yorkers), just sold in the Manhattan neighborhood of Chelsea, at The Getty according to Forbes.

According to my calculations, that’s only 19th highest closed sale in Manhattan history. The current record price of $100,471,452 paid by Michael Dell for the Penthouse at One57, holds the record but there are at least two other contracts higher than that. Who knows, perhaps this recent Chelsea sale will be the 21st most expensive sale in 2018 eventually.

By the way, this building is located on The Highline, a restored elevated train line turned into a park which is the number one tourist destination and has essentially redefined the Chelsea neighborhood by providing an anchor that has attracted residential development.

[Source: MARCH vis Forbes]

New York City Video from…

1993: You know you’re old when you were living in NYC during the “vintage” recording of this video. I’m not a native New Yorker but I moved there in 1985.

1911: Nope, I definitely didn’t live in NYC then or anywhere, but it was the year Douglas Elliman was founded. This streetscape video is simply mesmerizing, especially when you consider every man woman and child you see is no longer with us.

Robert Stern is Taking Over Manhattan, And That’s a Good Thing

One of the most notable starchitects of the past 20 years has been Robert Stern. His most famous development and what I believe is the best condominium in Manhattan is 15 Central Park West. Bloomberg does a thought piece: Why Copies of 15 Central Park West Are Taking Over Manhattan on whether the popularity of his design – there are a number of new condos rising with his famous design.

And Miller says Manhattan isn’t even close to saturated with Stern condos. Unlike buildings by other starchitects such as Frank Gehry or Jean Nouvel, which are often meant to stand out with striking designs, 15 CPW and its ilk are meant to blend in. And that’s why Stern is building more of them than his peers. “The genre of [starchitecture] is defined by creating something unique,” he says. “The multiple versions of 15 Central Park West are a conservative version of something new.”

Photographer: Sandra Baker/Alamy


The lobby is amazing.
[Source: Zeckendorf Development via Bloomberg]


Phil Crawford Provides Updates on Appraiser Fest!

Listen to the podcast (you should be anyway!)

ASA leads opposition to TriStar Bank waiver request

That’s the headline from Valuation Review. Looks like ASA has better PR than AI National these days.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be using bigger words;
  • You’ll protect your tweets;
  • And I’ll get a waiver.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads

April 20, 2018

Somehow…The Housing Market Is Like Rhubarb

Here are some very deep “vegetables are like housing” insights. I’ll bet there are few Housing Note readers that have cooked with rhubarb but we understand the basics..it grows..its consumable…and there are lots of things it goes with. My wife and I have a long-standing joke about rhubarb and I’ve mentioned here before. For those of you who missed it, it goes like this. Whenever one of us hears the word “rhubarb” used it she and I banter like this:

Question: “What’s Rhubarb?”

Answer: “It’s a plant.”

This dialog came from this 1989 Lee Jeans commercial…

Cracks me up every time. And of course, a couple of my kids had a garage band (literally they only played in our garage) back in 2005 and their name? You guessed it. Electric Rhubarb.

Here’s the only recording I have – before screaming vocals were added.

And of course, this is what Rhubarb sounds like in the dark:

But I digress…

Market Report Gauntlet Q1 2018 Week 3: Greenwich & Fairfield County

As readers of Housing Notes know I’ve been the author of an expanding report series known as the Elliman Report since 1994 for Douglas Elliman Real Estate.

We are in the thick of the gauntlet with one more week to go. Bloomberg included our Elliman Report: Greenwich, CT Q1 2018 in market coverage piece that was the 5th most read on the Bloomberg Terminals worldwide (350K+ subscribers).

As we’ve learned from the Barry Sternicht episode a few years ago, Wall Streeters (and Greenwich homeowners) are learning to price their homes to the market, rather than aspirationally. That change in sentiment has resulted in improved conditions at the higher end. The headline of the Bloomberg story was changed from a SOLID synopsis of the story content:

ORIGINAL “In Greenwich, Long Listed Homes are Selling in Sign of Healing”


CURRENT “Greenwich’s Luxury Homes Are Selling. It Just Takes a Year”

In the case of the high-end market, days on market has become very long, clearly illustrated in the chart below. Yet this is a good thing. The DOM metric means: The average number of days from last price change to contract date all properties that closed in the quarter. In this case, it meant that long sitting properties sold because the sellers became realistic.

Since the financial crisis, luxury sellers became so disconnected from actual market conditions for so long preceding the era of the 2016 “Sternlich Moment” that number of old-school brokerage firms and real estate brokers who are known for tracking statistics seemed to develop a “Stockholm Syndrom” with the wishes of their sellers. But with greater market transparency, they could no longer keep enabling sellers to wildly overprice their listings for fear of not getting the listing. This was always a disservice to sellers, even if done with best intentions. Their data never matched all the rosy talk about great parks and schools but only served to “fog” what was going on. When it comes down to it, the market is the market. Once sellers began to accept what actual conditions were through greater market transparency, luxury properties began to move in 2017. The number of transactions is a much more important sign of a market’s health than price trends.

Market Report Gauntlet Q1 2018 Week 3: South Florida

There is a slew of Douglas Elliman’s South Florida market reports that I author were released this week. The general theme across most of the markets was rising prices and inventory, with sliding closing volume but surging pendings – all on a year over year basis.

Mansion Global does a great chart on our absorption (months to sell) stats. The high-end Miami Beach absorption is clearly the longest. But months of absorption change dramatically when the market changes because the denominator of the formula gets bigger when the market changes. We saw this a decade ago when absorption was at 10 years but when sales accelerated, inventory was absorbed in 3.5 years.

Here are some of our charts…

You can view more in our Florida housing market chart gallery.

New York Times Rental Chart

Last week our rental research for the Elliman Report covering Manhattan, Brooklyn and Northwest Queens was published. The theme was a growing decline in rents. As I like to say, “the trend is your friend…until it ends.”

This Week in Aspirational Pricing

The “a string of increasingly pricey off-market mega-sales” continues with a new record $110,000,000 sales in Malibu as told in my favorite high end real estate blog: Yonda’s Little Black Book.


Mueller Writes Appraisal Reports

In all the news craziness coming out of D.C., this Working RE email advertisement caused me look twice. I am not getting anywhere near politics here but the headline was an attention grabber.

Being knee-high in my market research (like Ryan Lundquist) in Connecticut and South Florida, I am a little overwhelmed this week and am cutting Appraiserville short. Plus Super Troopers 2 is premiering tonight. There are a lot of great appraisal-related links below so please take a look.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll order more pie;
  • You’ll know more about plants;
  • And I’ll bake you a Rhubarb pie while wearing Lee jeans (rewatch video above).

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads

April 13, 2018

Flushing Out Our Housing Data (from You & I)

If sales are plunging because of a clogged inventory pipeline or hesitation-fueled uncertainty, then more serious steps (jumping up and down) are required …and a lot better puns.

[Reddit – click on image]

Before you get started, take a look at my commentary on Facebook Privacy, Zillow Brokerage and the CoreLogic monopoly threat to real estate in: The Core-Facebook-Logic Consumes Us A La Mode in “Appraiserville” section down near the end of this note. The message applies to all of us.

but I digress…

Market Report Gauntlet Q1 2018 Week 2: Manhattan, Brooklyn, Queens, Westchester, Putnam Dutchess

As longtime Housing Note readers understand I’ve been writing and expanding market report series for Douglas Elliman since 1994. This week Douglas Elliman published our research for the following markets:

March 2018 Manhattan, Brooklyn and Queens Rentals
Q1 2018 Brooklyn Sales
Q1 2018 Queens
Q1 2018 Northwest Queens Sales
Q1 2018 Riverdale Sales
Q1 2018 Westchester County Sales
Q1 2018 Putnam & Dutchess County Sales

The general theme across the region was fewer sales and there was a correlation with larger sales declines in higher-priced regions than lower priced regions. Price trends in aggregate were generally higher. Part of the decline in sales was due to chronically low inventory choking off volume but the other part was a hold back in response to the economic uncertainty housing faces – with the implementation of a new tax law that extracts the federal government out of the “homeownership promotion business” and rising mortgage rates and uncertain economic policy going forward.

What was particularly fascinating for a chart nerd like me was the result of what appraisers would call a “paired sales analysis.” Bloomberg news covered the Westchester and the New York City rental report and was ranked the 2nd and 4th most read stories ALL day worldwide. However, Westchester County, a suburban market of NYC garnered more reads than the always hot topic NYC rental report (but Westchester remains behind their paywall). Typically the only suburbs that Wall Streeters (350K+ subscribers to the Bloomberg Terminals) are interested in are Greenwich (next week) and the Hamptons (in two weeks). And their interest seemed to be driven by the new tax law implications (the average property taxes for single family homes in Westchester is $20,000 per year) and the decline in sales. High property taxes and new tax law must have generated the heavy readership.

But most importantly there were charts the articles using our data:

And our rental data made “Chart of the Hour” on Bloomberg which is all that matters to me in life:

Week 2 Market Report Chart Action

For more, you can go to our gallery.

After More Than A Decade of Denials, Zillow Will Sell Homes

It seemed inevitable that Zillow would be getting into the home-flipping business. If a company amasses the data and then builds analytics around it…and then watches a lot of HGTV, yes it is inevitable.

Gamechanger: Zillow to begin buying and selling houses [Housingwire]

…with the subtitle: Follows lead of Redfin and other direct homebuyers

Zillow Intends to Buy and Flip Homes [WSJ]

…with the subtitle: Online listing service’s strategy threatens to disrupt traditional real-estate-agent business model

With the Zestimate as one of the least accurate AVMs I have seen, I can’t imagine this being profitable unless they are relying heavily on forward-looking analytics through clicks. Competitors like OpenDoor who have garnered a lot of attention from investors specialize in markets with homogenous housing stock and after seeing a presentation, I believe their margins and margin for error are very thin. They don’t use listing agents but are very cooperative with buyer agents. I don’t see how Zillow can rely on the Zestimate for this strategy at high scale.


Peak Millennial

Millennials became the largest generation in the work force, but will they buy houses?

Click on the graphic to see more Millennial insights at Pew Research.

Real Estate Blockchain, Not To Be Confused With Cryptocurrency

Streetwire CEO Comments on Zillow Move To Sell Homes

As I’ve mentioned in the past, I am an advisor to Streetwire, a blockchain real estate vertical and I asked their CEO, Oliver Tickner, to provide some thoughts on the Zillow move into the brokerage industry:

Zillow’s recent expansion into transactions – announced yesterday – is an interesting development. It would seem the firm is taking another step away from their dependency upon traditional broker firms for access to listings and wider information about the market. This may be a reaction to the blockchain technology that has received much wider coverage through bitcoin over the past 6 months.

Companies such as StreetWire are in the early stages of enabling organizations and individuals with the closest proximity to real estate to register ownership of their information and then sell access to it through a marketplace. From the producing side, this has the potential to generate faster transactions, secondary revenue streams, and retention of control over how that information is used. For the pure data aggregators, however, blockchain has the potential to place a cost on the information they traditionally receive for free through listings and sales from real estate brokers.

Sebastian Delmont who is part of the StreetWire team and was the Co-Founder and former CTO of StreetEasy which was acquired by Zillow was recently quoted as saying “If I had started StreetEasy today, I would have done it on top of StreetWire. We would have begun with higher quality data, and would be rewarded for all the value-added information we built on top of it and contribute back to the system”.

Oliver Tickner, CEO


The Core-Facebook-Logic Consumes Us A La Mode

This has been a tumultuous couple of weeks for Facebook. I’ve never been a heavy user of it, mostly a lurker. They constantly change navigation paths making it nearly impossible to update your settings frequently – and when you do, do you really trust them? I’ve always seen them as the “dark side” much like Mac lovers see PCs and Appraisers see CoreLogic. We all know by now that when you use something that is free, then you are the product. This was never more apparent when hearing Zuckerberg’s testimony before Congress this week – his long-term tactic since Harvard has been “its easier to apologize than ask permission.” There’s a great read on Quartz: 14 years of Mark Zuckerberg saying sorry, not sorry

But now with other developments such as CoreLogic buying the dominant software provider in the appraisal industry with over 50% market share, a la mode, plus FNC, Landsafe, Dataquick and others, big data and big paydays seem to always come from the backs of frontline appraisers. CoreLogic powers a large share of MLS systems now through their Matrix software. How can that not be some sort of data grab from real estate agents? Likewise, how can the a la mode purchase not be a data grab from appraisers? I’m all ears.

As for the a la mode decision to sell to CoreLogic, it is a free country and this is capitalism in action. If I were Dave Biggers, the founder of a la mode, looking at a giant payday and a stagnating user base, I’d find this offer hard to turn down. Corelogic has a reputation for paying whatever it takes to acquire someone which makes me think the end game is bigger than the sum of the parts.

We use a la mode and I even provided testimonials for them in 2012, but now I am conflicted, and since we are heavily invested in their software, to leave at this moment doesn’t make economic sense. But this action opens my eyes to looking at alternatives, which are already cropping up, after the dominant appraiser form software brand, blinked. They will need to prove to appraisers they are not going down that path. This seems like a tall, if not impossible and improbable order. But our industry reaction isn’t about the seller. It’s about the buyer – what CoreLogic plans to do with this purchase, aside from the sterile press releases.

And Zuckerberg got a much higher hourly rate than I ever have on the witness stand as an expert. He constant use the terms like “I’m sorry” and “we didn’t know” are things I’ve never said on the witness stand. If I did, perhaps I could bill at $1.5 billion per day? Just a thought.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more apologetic;
  • You’ll say you’re sorry;
  • And I’ll wonder what it was like to have any privacy.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads

April 6, 2018

Housing’s ‘Dilly Dilly’ Moment

I’m no longer interested in playing golf anymore, but I found it odd that the 2018 Masters banned crowds from cheering “Dilly Dilly” because, well, they can. Between you and I, do you really think they will throw out hundreds of spectators for cheering a great drive by chanting that phrase?

And then there’s this display of Dilly Dilly entertainment…

Carrying the torch for Tiger’s old Nike Golf commercials – here’s the original and a few other versions.

But I digress…

Market Report Gauntlet Q1 2018 Week 1: Manhattan

As most Housing Note readers know, I’ve been writing the Elliman Report series for Douglas Elliman Real Estate, the (now) third largest real estate brokerage firm in the U.S. since 1994. The market report focused on the drop in sales, the largest year over year decline in 9 years and the lowest total in 6 years.

  • About a third of the decline was attributable to the expiration of the “legacy contract pipeline” which was comprised of older new development contracts purchased off of floorplans. These units were skewed much higher in price, reflecting the early phase of the new development boom. Once their respective buildings were completed, these units closed and joined more recent sales, skewing overall price trends and sales levels higher. Now that these units have largely been sold off, their impact overstated the decline in sales and prices. For example, the median sales price of all apartments that closed in the first quarter fell 2% YOY to $1,077,500. However when the market was parsed out by existing and new development, both segments showed a rise in median sales price. That’s because new development sales dropped 54% YOY (while their median sales price rose 3.9% YOY to $2,802,937) and existing sales fell 17.5% YOY (while their median sales price rose 4.3% to $965,000).

  • About two-thirds of the YOY sales decline reflected the “uncertainty” in the market. December 22, 2017, federal tax law was a large part of the market easing even though it is too early for the technical implications of the tax law to impact prices. In fact much of the actual impact will be tested in court findings – ie how the tax law is interpreted. Consumers have a lot to process. Will mortgage rates actually rise? What is the economic policy coming out of a chaotic Washington DC environment? Consumers are grappling with the idea that the federal government has essentially extracted itself from “homeownership promotion business” hoping that doubling standard deductions will offset more direct incentives through itemizations. Buyers and sellers are going to go through a rebalancing act in their understanding of what values are in the future. I call that “price discovery.” Markets with much lower housing prices than Manhattan with much lower real estate taxes may see a limited impact after all is said and done. Much of the post-tax law world is dependent on price levels in a market, how much property taxes and SALT are, as well as what a buyer or seller’s personal financial situation is.

In other words…Dilly Dilly.

The Bloomberg piece that covered the report was the number 1 most read article on Tuesday all day.

I don’t see this decline in sales phenomenon as the onset of a continued linear trend but more as a reset event. And in many ways, this event helps get the issue out in the open and could actually help buyers and sellers come to terms with new conditions.

I spoke with Bloomberg Radio on this and had a fun discussion about this on Bloomberg TV:

Here are a couple of Manhattan market charts:

This Week in Aspirational Pricing

The 432 Park Avenue new development in Manhattan continues to dominate the price record books with the lion’s share of top level sales: Wife of Hedge-Fund Titan Pays $60 Million for Manhattan Apartment [WSJ]

New in the Real Estate Lexicon

“Correction” – Speaking to a group of real estate agents and brokers the other day, it was clear to me that there was some nuance lost with the word “correction” as in “the market experienced a price correction this quarter.” The word “correction” conveys that the prior pricing was “wrong” rather than economic conditions that created value had changed. Values change over time as economic conditions and tastes change.

Perhaps “reset” is a better term, since it doesn’t convey right or wrong pricing, that values returned to levels that reflect prior economic conditions. What’s more nuanced than simply saying “Dilly Dilly” when the situation calls for it? Just a nuanced thought.

Housing Reality Shows Convert Dollars to Cupcakes

Waco Texas, home of Joanna and Chip Gaines’s hit HGTV show Fixer Upper has helped Waco become a tourist destination and as presented in this Curbed read, reduce its association with cult leader David Karesh. I remember seeing t-shirts in the early 1990s that said: “My parents went to Waco and all I got was this lousy AK-47.” Thanksfully times have changed.

With all the bad and confusing news in the world these days, it’s refreshing to see a housing reality show have such a positive impact on a city.


It’s Time to Change the Narrative

My friend and data management savant Mark Stockton penned a great article on statistics being tossed around by the major players in the valuation industry is misleading. Mark, Phil Crawford and I got to talking about this topic after reading a recent Appraisal Buzz article: Evolution in the Industry. Well intentioned I’m sure, but presents a tired and misleading message that I interpret as “embrace technology for the sake of technology” as if the default position on technology is that it always is “better” than the alternative.” The reality in valuation is that most of it is crap, but the big dogs in the space have a vested interest in making this 100% about automation.

Here’s Mark’s article:

It’s Time to Change the Narrative

According to Fannie Mae: “Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.”

This is a very nice, neat definition to describe something that is extremely elusive.

In his introduction to “The Adverse Effects of Single Approach Appraisals and Single Point Valuations” (Recognizing and measuring the market impact of volatility in residential real estate purchase prices and valuations), written in 2015 by Bill King President, Chief Valuation Officer at Real Info, Inc., he states:

“Real estate markets are imperfect markets; we should expect a certain lack of precision when measuring both sale prices and appraised values. Even in the most homogeneous neighborhoods, no two properties are truly identical, and no two buyers operate with the same information or motivations. Value, like fairness, is in the eye of the beholder. Values concluded in residential appraisal reports are said to be “in error” when those values disagree with actual sale prices. Closed sale prices are believed to be the best evidence of market value as defined in the federal register. While there are many studies of the error rates in appraised values, there are few studies of the error rates in sale prices.”

Mr. King performs several analyzes in order to draw conclusions about error rates in sale prices. Among them, he looks at sales for a subset of homes that, “Aside from minor differences in maintenance and upkeep…are nearly as substitutable as stock certificates.” He observes price differentials reaching nearly 15% in a single month.

Among his conclusions:
“a purchase price variance of up to 10% should be expected when all other factors, including buyer ability to pay and overall motivation to buy are otherwise the same.”
“Price variances must be expected because ultimately, there really is no one true market value number to the exclusion of all other numbers.”

(Bill King has more than 35 years of housing industry experience, including work as a senior executive, qualified forensic expert, speaker, trainer, author, appraiser and real estate broker.)

Fannie Mae’s definition of market value does not state that sale price equals market value. As Mr. King’s analysis makes abundantly clear, real estate markets by nature are imprecise, and the correlation between sale price and true market value can be difficult to reconcile. However, sale price is the benchmark most often used to test the accuracy of real estate valuation models.

Every national valuation company that utilizes automated valuation technology represents their value estimates are accurate, within certain parameters. These accuracy statistics are generated in blind testing where value estimates are compared to actual sale prices (sometimes contract prices and appraised values, as well), and differences are reduced to a percentage of error.

By way of illustration, “Zillow’s accuracy has a median error rate of 5.6%”, according to their website on June 15, 2017. The site elaborates on this statement: “This means half of the home values in the area are closer than the error percentage. For example, in Seattle, Zestimate values for half of the homes are within 5.4% of the selling price, and half are off by more than 5.4%.”

Those of us who deal with real estate analytics on a day-to-day basis recognize that statements like these are entirely misleading. When the market itself is less than exact, how can one expect value estimates benchmarked against sale prices to be predictably accurate?

We need to change the narrative from a discussion of accuracy to a discussion of “defensibility”.

A valuation provides an estimate or opinion of value. The accuracy of that estimate cannot be conclusively determined from a mere representation of precision, unaccompanied by documentation that adequately supports that statement. The results of a test which compares value estimates with sale prices might seem reasonable at first blush, but we know without reservation that sale prices are not precise measures of “market value”. If our target or benchmark value is inexact, how can we make definitive statements about the accuracy of estimates that are compared to those values?

In addition, accuracy statistics published by valuation companies relate to tests performed on large sets of data; they are not granular enough to be meaningful at the property level. It is doubtful that someone living in Houston, TX cares about the statistical accuracy of values computed for all of Harris County. They likely are concerned with the accuracy of the value estimate for their home – and they won’t get that from the valuation company.

On the other hand, if each valuation is accompanied by thorough documentation that allows the recipient to understand with complete transparency how the value was derived, the recipient can then form an educated opinion as to the reasonableness of the value conclusion. If they can form an opinion about the value conclusion – whether they agree with it or not – the estimate becomes a useful tool that can be used in a decision-making process. Otherwise, it is useless.

So, while the results of tests performed against large volumes of sale prices are useful to the analysts who strive to improve their valuation models, they have little or no application for those who are concerned about the accuracy of individual home values, or groups of values as might exist in a portfolio.

Defensibility is key to understanding whether a value is “accurate”, i.e. reasonable in light of supporting documentation. We need to move away from the absurd reliance on accuracy rates we know to be false, and move toward reliance on definitive, factual documentation that allows us to form an honest opinion about the reasonableness of value estimates.

The second to the last paragraph is powerful so I’ll repeat it:

So, while the results of tests performed against large volumes of sale prices are useful to the analysts who strive to improve their valuation models, they have little or no application for those who are concerned about the accuracy of individual home values, or groups of values as might exist in a portfolio.

FHFA: AMCs Provide No Contributory Value to the Mortgage Appraisal Process

In reference to the damning FHFA white paper published last month, Phil Crawford breaks it down on his Voice of Appraisal Podcast: E196 The AMC Report Card…OUCH!

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more uncertain;
  • You’ll be more certain;
  • And I’ll say Dilly Dilly!

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads

March 30, 2018

When Observing Bathroom Tiles, No One Can Hear You Scream

In last week’s Housing Notes and inspired by this screaming article, I linked out to an old Tim Geithner (former U.S. Treasury Secretary during the onset of the financial crisis) Matrix Blog post that featured his blue bathroom in 2009:

[Geithner Bathroom, Westchester MLS]

And here’s the old Daily Show video in case you need more context. John Oliver explores why Tim couldn’t sell his home and is able to get bathroom decorating ideas from Robert Shiller. Classic fun.

Shortly after I released last week’s Housing Notes I received a note from a loyal reader from the same county as Geithner’s 2009 listing suggesting their green bathroom tiles were more impressive than Geithner’s:

The thought process of choosing between these two tile selections made me wonder if this was what the song “Out on the Tiles” on the album Led Zepplin III was actually talking about: “The title of the song is derived from the British phrase for going out for a night on the town. Led Zeppelin drummer John Bonham would talk about going “out on the tiles,” meaning to go to bars…”

In other words, after returning from an evening of bar-hopping, the overwhelming color intensity of these tiles would clearly look, well,…good.

But I digress…

One More Time: Wall Street Bonuses Don’t Correlate With The Manhattan Housing Market

Each year at this time we are welcomed by (no, not chocolate bunnies) the New York State Comptroller’s report on Wall Street Bonuses. It brings thoughts of 30-something Leonardo DiCaprio-style executives running out and buying new Maseratis and snapping up super luxury condos.

No, that’s a myth and might have been some truth to it a decade ago, in today’s world those stories are relegated to on the margin one-offs. The post-financial crisis regulatory environment has been one with a large regulatory overlay designed to reduce “moral hazard.” I know that’s a stretch but with much of this comp coming in a deferred form, you might have to stick around for a few more years before you can actually spend it.

In the following chart, even though the bonus pay per person has been rising, they use “average” as the metric. I’ll bet if NYS OSC used the median as a metric it would show a far different story. We saw this metric play with the “average tax savings” after the new federal tax law came out. This is one of the reasons “median” is the preferred metric of the housing market because it removes outliers. Even though the average bonus is way up per person, I have been told repeatedly that top performers at the top of the executive pyramid (poor word choice) are getting larger bonus comp proportional to the lower echelons. Call it “shift in the mix.”

Wall Street employment has remained somewhat stable in the long term while overall employment, with more high wage earners in tech, has been growing. While still, a very important piece of the employment and comp picture, the city has been slowly weaning itself off of this sector. Therefore the impact of bonus season is less than it has been in the past, no matter how big the bonus pool is.

There is no doubt that Wall Street compensation is important to the city’s economy with wages roughly 5 times the private sector. However, as a smaller share of employment, the impact to the housing market is much more muted than in the past.

One more thing. The stock market is not the economy.

Self-Storage Places Need To Look At Self In Mirror

With the low cost of capital worldwide, we continue to see asset bubbles rise to the top. Self-storage units are popping up everywhere in my neck of the woods and I keep wondering:

How much stuff do we need to keep outside of our homes? Is that need exploding? I see a disconnect. Here’s an interesting article with video in Sarasota.

I saw the stat art below on the storage market in Manhattan in a Core New Development newsletter I never signed up for but put it to good use. Extra space is expensive to maintain. I remember when I first moved to Manhattan, my dad suggested that if you aren’t going to use something in a year, get rid of it. Sage advice. I don’t know about you, but “stuff” continues to grow at the Miller household.

FHFA Is Working Hard To Get Banks To Ease Up On Credit

Mortgage origination volume is still well below housing bubble levels and the GSEs want to see that volume flow through their institutions. They are doing a lot of things to get banks to lighten up on credit conditions as many lenders remain in the fetal position because they have lost the muscle memory to lend. This is a key reason why listing inventory remains so low. It’s MOP money (Money on Paper) because many are faced with the inability to afford or qualify for a trade-up, a lateral move or even downsizing.

Housingwire published a listicle on what the GSE regulator has done to convey to lenders that it is a good time to lend. However in their expediency to ease the credit world, they may have made banks more nervous.

One of these ideas was the introduction of the concept of waiving appraisals on a small percentage of loans that relies on the bad data generated by Appraisal Management Firms that have corrupted the appraisal process. Just imagine the fraud that this will unleash?

I found it hilarious that this ad was in the Housing Wire article. No wonder why banks continue to push back on Fannie Mae’s attempt to ease conditions.

Here is the list with the key comments selected from the Housingwire piece.

  1. Student debt – revised their student debt related calculations concerning potential payment shocks.

  2. Credit invisible – improves access to credit for mortgage applicants who do not have sufficient credit history to compute a credit score.

  3. Low income borrowers – increased to a 95% maximum loan-to-value ratio allowed for adjustable rate mortgages.

  4. Mortgage education – planning its own marketing campaign to increase awareness of borrower training and other resources available through its CreditSmart financial education curriculum and borrower help centers.

  5. Language barriers – it would include a question on the revised uniform residential loan application to find out an applicant’s preferred language.

  6. Housing counseling – work to improve their pre-purchase and early delinquency counseling by outreach.

  7. Credit score models – desires to update from the Classic FICO model, it has yet to decide which new model to use as a replacement.

  8. Minority borrowers – community outreach and provided training to three major minority trade associations at town hall events.

  9. High LTV refinances – will give borrowers with high-LTV loans who are current on their mortgage an opportunity to refinance.

  10. Multifamily – loan production caps on each of the GSE’s multifamily business to further the goal of maintaining multifamily activities while not impeding on the participation of private capital. Exclusions include financing for subsidized affordable housing, manufactured housing communities and small multifamily properties, between five and 50 units.

Shock And Awe of Starchitecture But…

One of the great things about the housing boom/bubble a decade ago and the recent development boom of the past 6 years has been the great creativity in external design. When I arrived in Manhattan in the mid-1980s was largely safe, pragmatic and boring. But the introduction of “Starchitects” to the market in the early “aughts” changed everything.

In the same way that George Clooney and Meryl Streep could be counted on to carry a picture, these brand-name architects, or “starchitects,” as they came to be known, helped to set a building apart and gave buyers another reason to want to live there.

One of my favorite buildings in Manhattan is a luxury rental tower built in 2007 known as New York by Gehry. Frank Gehry’s work is amazing.

I attribute the start of the Starchitecture in Manhattan with Richard Meier’s 173/176 Perry Street in 2004. After his success with the Getty Center in Los Angeles, he struck east and created the condominium known as 173/176 Perry Street. It broker price barriers as many of his west coast fans bought there.

The problem with this phenomenon is what does the developer do about the marketing when the new project becomes aligned with the starchitect that is accused of something controversial and criminal?

Here are some thought pieces on the subject:

  • Tainted by #MeToo, starchitect Richard Meier’s name is erased from his building [Quartz]

  • Architecture’s #MeToo moment and the marketing of ‘starchitecture’ [Curbed NY]


What A Time We’re Living In!

One of the great things about the changes being seen in the appraisal industry today is through the actions of appraisers themselves. Appraisers are speaking out more often and pushing their thoughts about the industry and the techniques of the profession out into the ether. And most of all, these actions are causing change.

  • When Tristar Bank of Tennessee lied about the shortage of appraisers in their request to lend without appraisers, an often fragmented industry unified to call “BS.” One of the biggest pain points of the industry has been Appraisal Management Companies for fighting through their REVAA trade group to keep borrowers in the dark about who gets what part of the appraisal fee.

  • Some of the biggest appraisal-related publications were criticized for never giving appraisal industry coverage the perspective of the appraiser, these publications responded by reaching out and including appraisers in their content more often.

  • A number of appraisers have been frequently sharing their knowledge and insights to the appraisal industry narrative in a “can do” spirit that I find contagious. Ryan Lundquist, Tom Horn, Rachel Massey, (have I missed any other notables?!?!)

  • Appraisers have relentlessly fought the misleading narrative provided by appraisal management companies over the appraisal shortage, their lack of emphasis on quality, their drag on turn time and their increase in the cost of an appraisal. And as new blogger but experienced appraiser Mark Skapinetz so eloquently articulated in his first blog post: What’s not in your wallet?

From My Experience I wonder If AMCs Add Weeks To The Appraisal Process?

Despite being approached all the time to add our firm’s name to an appraisal management company, decline. However, when wealth management companies were forced by their parent company, they made arrangements to help attract better firms like ourselves to consider working with them:

  • Pay our fee
  • Respect our turn time quote
  • Not inundate us with clerical addenda requests

Last fall we were approached by 4 different AMCs because their wealth management clients demanded they fix the problem of not attracting the better appraisers in their coverage area.

In the first three that onboarded us, we got a lengthy addenda request that included things like inserting the “floor” level” of the office address of the client in the report. I’d push back and request a conference call with all the parties and to their credit, they rethought the review process and we rarely see addenda anymore and when we do, its fair. That’s how it should be.

It also proves a very significant point – most of the laundry list items included in addenda requests are either over-interpreted or simply made to justify the AMC’s existence but on our time and money. They are not regulatory requirements that is claimed when appraisers give pushback.

The fourth of these firms finally on-boarded us and our appraisal timeline looked like this:

Day -3 – assumed it took 3 days to find a cheaper appraiser since it was ordered as a rush (borrower wasn’t in a hurry)
Day 0 Rush appraisal requested
Day 0-5 days borrower allowed access
Day 5-8 we delivered report 3 days later as quoted
Days 8-13 reviewed by AMC
Day 13 – AMC delivers a 30 point review of clerical fixes that had nothing to do with the multi-million dollar valuation
Day 14 – I send an email to both the bank and AMC requesting a call to discuss review process. AMC responded that chief appraiser would review
Day 15 – no response yet

By my math, this is a 18-day process although we don’t have a response yet. The appraisal part only took 3 days as a rush.

Here’s a redacted partial (admittedly terse) response – “if [XXXX] continues to apply this approach to the high-end review function, we will no longer continue to accept assignments or will simply triple our fee quotes to reflect the incredible amount of time needed to complete the requested clerical busy work.

I’d be happy to discuss this issue with you and members of the [XXXX] team to resolve this relationship…Let me know how you would like to proceed. We’d love to continue to work for you and I’m sure your high-end clients would like for you to continue to rely on our services.

We don’t have this issue with lenders we deal with directly.

AMCs Are There For A Bank To Say They Checked A Compliance Box

I ran out of time to write about the FHFA paper on the appraisal process. I’ll elaborate next week. It’s important.

Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals [FHFA]

In the meantime, I’ll share my appraiser friend and colleague’s tweet on the topic:

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

  • They’ll be more mobile;
  • You’ll be more aspirational;
  • And I’ll name my favorite Christmas song (White Christmas – Bing Crosby version).

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog @jonathanmiller

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