Bad Actors: AMC Appraisal Perspective Through Rhetorical Misdirection

October 20, 2014 | 4:45 pm | Public |

I was invited to speak at the Great Lakes Chapter of the Appraisal Institute last week and met a lot of great appraisers who cover the state of Michigan.

Summit2014Brochure

I spoke about the housing market and the misinterpretation of residential housing metrics, inspired by this article and the following infographic from the Detroit Free Press.

Inkster +106.4% !!!!! a largely distressed market with what I was told only has a handful of rock bottom sales ie $10K in 2009 becomes to $30k in 2014 – a perfect example. Hot? Hardly.

dfp-real-estate-hot-spots-2014-MAP

As much as I think I held their attention for the entire hour allotted, my presentation fell short of getting audience adrenaline pumping like the Jordan Petkovsky, the Chief Appraiser of a TSI Appraisal, a large national AMC and affiliated with Quicken Loans. I still wonder how beneficial this public relations could be by talking to the industry like a politician – as if residential appraisers were clueless to the “incredible benefit” that AMCs provide our industry.

Here are a few of the questions (paraphrased) posed to an audience comprised of heavily experienced residential and commercial appraisers:

Q: “I realize there is friction between AMCs and appraisers. What has to happen to solve this problem?”
A: Someone in audience: “Someone has to die” followed by a burst of laughter from the entire room.

Q: “We spend millions on powerful analytics. Wouldn’t it be great for appraisers to get their hands on this technology?” (repeated 2 more times slowly for effect).”
A: Someone answered: “You have to spend millions on technology because the appraisal quality is so poor you need to analyze the markets yourself.”

Q: “How do we attract new appraisers into the business?”
A: My answer “Until appraisers are fairly compensated when banks are made to be financially incentivized to require credible reports, nothing will change.”

Q: “How do you think banks feel about the reliability of appraisals today? They don’t feel the values are reliable.”
A: My answer “Because AMCs pay ±half the market rate, they can only mostly attract form-fillers (aka “corner-cutters”). They don’t represent the good appraisers in the appraisal industry.”

Q: “We focus a tremendous amount of effort on regulatory compliance on behalf of banks and boy are they demanding! We even have a full time position that handles the compliance issues.”
A: My comment – that’s a recurring mantra from the AMC industry as a scare tactic to keep banks from returning to in-house appraisal departments. Prior to 2006 boom and bust cycle and the explosion of mortgage brokers with an inherent conflict of interest as orderers of appraisals, the profession was pretty good at providing reliable value estimates. The unusually large demands by regulators (if this is really true and I have serious doubts) is because the AMC appraisal quality is generally poor. If bank appraisal quality was excellent, I don’t believe there would be a lot of regulatory inquiries besides periodic audits.

What I found troubling with his presentation – and I have to give him credit for walking into the lion’s den – is how the conversation was framed in such an AMC-centric, self-absorbed way. I keep hearing this story pushed by the AMC industry: The destruction of the modern appraisal industry was the fault of a few “bad actors” during the boom that used appraisal trainees to crank out their reports. That’s incredibly out of context and a few “bad actors” isn’t the only reason HVCC was created – which was clearly inferred.

Back during the boom, banks closed their in-house appraisal centers because they came to view them as “cost centers” since risk was eliminated through financial engineering – plus mortgage brokers accounted for 2/3 of the mortgage volume. Mortgage brokers only got paid when the loan closed, so guess what kind of appraisers were selected? Those who were more likely to hit the number – they were usually not selected on the basis of quality unless the bank mandated their use. Banks were forced to expand their reliance on AMCs after the financial crisis because the majority of their relationships with appraisers had been removed during the bubble – the mortgage brokerage industry imploded and banks weren’t interested in re-opening appraisal departments because they don’t generate short term revenue.

The speaker spent a lot of time talking like a politician – “we all have to work together to solve this problem” “appraisers have to invest in technology.” When asked whether his firm had an “AVM”, he responded almost too quickly with “No” and then added “but you should see our analytics!”

The residential appraisers in the audience were largely seething after the presentation based on the conversations I heard or joined with afterwords.

It’s really sad that appraisers don’t have a real voice in our future. We’ve never had the money to sway policy creation and we can’t prevent the re-write of history.

But we’re clearly not the “bad actor.”

Tags: , , , , , , , , ,


[Panelist] May 15 – The Real Deal’s New Development Showcase

May 9, 2014 | 1:40 pm | trdlogo | Public |

trdshowcase5-2014
[click to see full flyer as pdf]

They’re expecting 2,000 attendees! You can sign up here.

I’m looking forward to it.

Tags: , , ,


Brooklyn Rentals: Coolness doesn’t come free

April 11, 2014 | 10:07 am | Public |

4-2014qzmanhattan-brooklyn-rentspread [Source: Quartz]

Rob Ferdman over at Quartz writes a great breakdown of the narrowing rental spread between Manhattan and Brooklyn using the data I crunch for The Elliman Report: Manhattan & Brooklyn Rentals. Here’s my version of the chart.

After I designated last week’s Bloomberg story headline “Brooklyn’s Hipster Economy Challenges Manhattan Supremacy” as my favorite new phrase, specifically:

Brooklyn’s Hipster Economy

Quartz has given me a new favorite phrase (see under original chart):

Coolness doesn’t come free

.

Tags: , , ,


Repost: Measuring Manhattan Values By Floor Level

March 25, 2014 | 1:36 pm | nymaglogo | Favorites |

In the spring of 2012 my floor level valuation methodology was illustrated in a great piece in New York Magazine by Jhoanna Robledo called “What Price Height and Light?. The graphic and accompanying descriptions provide incredible clarity to a fairly convoluted subject.

In the flurry of transitioning content to our new site over the past few months, I remember the actual moment when I deleted the original post for this topic by mistake and thought, “wow this is annoying but I can always go the Wayback Machine.” However, today someone asked me about the graphic and I couldn’t find my prior post on the Wayback Machine (but I found a bunch of cool stuff) so I am reposting this piece. I really LOVE the graphic that New York Magazine came up with.

The graphic is fairly self-explanatory.

nymag4-2012301w57

Tags: , , , ,


[Speaking] 2014 RAC / TRN Conference in Frisco/Dallas Texas

March 9, 2014 | 11:16 pm | Public |

rac-trnlogos

I just returned from an incredibly helpful and fun annual appraisal conference in Texas. I was asked to make a presentation and ended up joining their board of directors. I’ve been a member of RAC (Relocation Appraisers & Consultants) for about 20 years and even though the organization started out with a primary emphasis on relocation appraisals in the early 1990s, RAC is so much more than that. Most of the members provide expertise in complex residential with a lot of work in litigation support. The quality of the residential appraisers in this organization is the best in the country – bar none. Most of the mainstream US appraisal trade groups emphasize or have a majority concentration of commercial appraisals and RAC fills the void.

Seminars
racaudience

Having fun filming a video with clients
box-goodrichvideo

Tags: , , , , , ,


Manhattan Luxury Housing Buyers: ‘Eager but not Desperate’

February 15, 2014 | 7:37 pm | bloomberg_news_logo | Public |

There was a terrific Bloomberg News story by Oshrat Carmiel: Manhattan Trophy Home Sellers Test Buyer Limits on Price that delved into the disconnect between reality and perception of the luxury housing market in Manhattan. I talk about this phenomenon on Bloomberg Radio’s ‘Taking Stock’ with Pimm Fox and Carol Masser.

It all began with Sandy Weill’s $88M sale of 15 Central Park West PH20 to a Russian Oligarch back in late 2011 that closed in early 2012. He was reportedly purchasing the unit for his 20-something daughter to crash when she wasn’t at her home in Monaco but it was more likely a divorce strategy. The home sold for $13k per square foot, 30% more than the recent $10k ppsf record previously set within the building (ie definition of an outlier).

Combine this outlier with the dearth of high end new development until recently and this 13k ppsf threshold became a new pricing tool for hopeful sellers and real estate brokers of large properties. The $100M resale penthouse listing at CitySpire was the new symbol of “outlier pricing” phenomenon. Other examples of aggressive pricing are cited in the Bloomberg story.

Despite the fact that this nearly $100M subset represents a tiny sliver - a handful of listings and sales – in the overall Manhattan market, consumer (buyers and sellers) have been subjected to a buzz saw of news reports about trophy properties giving the impression that properties like this comprise most of the housing market.

In reality there have only been a handful of contracts signed near the $100M threshold at buildings like One57 and 432 Park Avenue (the near $100M townhouse contract doesn’t count because it’s roughly 1/2 the ppsf of those apt sales)..and otherwise the overall Manhattan market seeing very modest price growth.

Yet none of the trophy apartment resales are selling at this new price point. Sellers have been testing the waters to see if someone across the globe will be willing to pay for something here, that in relative dollars to their home market is a good deal or they hope they will get lucky and these buyers will over pay.

Apparently these trophy sellers haven’t used the Internet.

UPDATE
Just got this feedback emailed from a real estate agent: In every neighborhood and property class “testing the waters” is an age-old technique that has enough utility to go on forever. As an agent, I prefer the price that results in a quick sell but I never turned down a client who insists on an absurd Ask. In most such cases, I have picked up a few customers and sold them something else they could afford before the “outlier” ran out of inquiries and the seller dropped its price or took it off the market. I like it when journalists report activity at the extremes of price and value because it helps me to identify the evolving dimensions of the market.

____________________________
Bloomberg Radio’s ‘Taking Stock’ with Pimm Fox and Carol Masser
Bloomberg News: Manhattan Trophy Home Sellers Test Buyer Limits on Price

Tags: , , , , , ,


[Pre-Nor'easter Keynote] Long Island Housing Market: Transitioning from “Recovery” to “Recovered”

February 12, 2014 | 12:17 pm | fedny | Public |

appraisalinstitutelogo

A while back, I was invited by the Long Island Chapter of the Appraisal Institute to keynote for their winter dinner/seminar tonight in Westbury, Long Island:

LI Housing Market: Transitioning from “Recovery” to “Recovered”

It’ll be great to catch up with my friends and colleagues and I always love to talk appraisalspeak for extended periods of time.

The presentation will cover (2 CE credits):

Long Island Market Reports, Key Trends, Drivers of the Current Residential Market, Fiscal Cliff, Pent-Up Demand, Record Low Inventory, Mortgage Rates, Federal Reserve, Transitioning to a Sustainable Long Term Housing Market Recovery

In a question and answer period, discussion will include Snapshot of the Long Island Housing market, including 4Q 2013 market research results in Long Island, Hamptons and the North Fork; Affordability, What is driving Sales Activity?; The relationship between Sales and Prices – Why is inventory low?; Spike in Mortgage Rates; Federal Reserve taper miscommunication; Why are Housing Prices Rising?; Long Island and Manhattan real estate economy, Credit Issues, Lending, Market Trends, Impacts, and Challenges in Year 2014.

The latest Nor’easter is supposed to start at about 2AM so it looks like we’ll get this done just under the wire!

Tags: , , ,


[Bloomberg TV] Second Avenue Subway Nears Completion, Influences Housing

February 2, 2014 | 7:00 am | nytlogo | Public |

Here is an interview I recently did for Bloomberg Television’s In The Loop on the first phase of the long awaited and sorely needed Second Avenue subway line. I had also looked at this data about two years ago.

subway map

For the show I crunched closed sales data for the 4th Quarter of 2013 versus the same period in 2009 and provided a similar time frame for the rental market. I defined the impacted subway zone as the Upper East Side neighborhood between Third Avenue and First Avenue extending from 96th Street to 59th Street. Areas out side the zone were simply those to the east and west of it but within the neighborhood. I realize that simply taking the average price of all transactions in each of the zones are subject to skew. However given the large size of the zones, I think it is a reasonable way to extract some sort of impact.

Based on the results, the subway zone fell behind the areas outside the zone during the 4 year time span.

West of Zone
Sales Prices +14.7%
Rental Prices +7.7%

East of Zone
Sales Prices +12.2%
Rental Prices +9.1%

Tags: ,


[Public Speaking] Miami Condo Market Symposium 10-29-13

October 27, 2013 | 9:32 pm | delogo | Public |

I’m headed to Miami this week to speak at the Urban Land Institute’s Miami Condo Market Symposium: Embracing Boom & Bust Cycles. Based on the speaker list, it promises to be an informative event.


[click graphic to go to web site]


[VIDEO] Housing Recovery + Rising Rates with Christine Romans on CNN’s Your Money 6-30-13

June 30, 2013 | 9:38 pm | Public |


[click to play]

On Friday I taped an interview with Christine Romans, host of CNN’s Your Money on the housing recovery and why rising mortgage rates aren’t necessarily a bad thing. She’s a very engaging interviewer – plus it’s always fun to visit the studio.

This clip captures a large part of the interview – there were three more Q&A volleys on the televised broadcast omitted in this clip – they’ll be airing them in other segments.

Tags: , , ,