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Posts Tagged ‘Appraisal Management Companies’

AMC Structure Systematically Pushes Good Appraisers Out of Business

June 13, 2014 | 2:25 pm |

dangerhighpressure

Good appraisers are unable to compete with the fly-by-night form fillers that proliferate the AMC industry.

We have done some work for the AMC of a global bank who provides mortgages in Manhattan when they are willing to pay the market rate for appraisal services. They send us requests to appraise a variety of co-op apartments in Manhattan. We recently received an appraisal request for a very large co-op apartment in a unique building (property probably worth well over $10M). The AMC offered a generic fee which is roughly 1/3 the local market rate for this type of property.

We sent them a request to be paid the market rate and was then asked to make an “exception request” and explain the reason for the higher fee so they can go back to the borrower to get approval. We are nearly always rejected.

Problem 1: Conflict of Interest Unbelievably the AMC is aligned with the borrower’s interest in cost savings without concern for quality. The AMC is in business to manage the appraisal process and therefore help protect the bank’s exposure to risk. When you get right down to it, the only value-add an AMC provides to a bank is cost containment (and they are not cheaper than banks doing it themselves) so why would an AMC be incentivized to allow the appraiser to collect a fair fee? It makes them look ineffective at cost containment.

Problem 2: Paying Lip Service to Quality The reason an appraiser is requesting a higher fee is the complexity of the assignment. What else would it be? Yet we have to write a specific request to this property which we haven’t inspected yet. In reality, the next appraiser on the conveyor belt will be selected and given a higher rating for being cooperative. This is a sham process – it is merely a way to document the appraisal process in case the regulators show up.

Here’s the standard BS response that this AMC gave to our request – this AMC is located in a rural location in the upper reaches of the northeastern US – they are concerned whether the borrower would feel comfortable paying a higher fee on a 50% cash co-op building on Park Avenue. The sender is a clerical (non-appraiser) individual who is giving the appraiser the following boilerplates response and doesn’t really understand what they are saying:

When you became an approved appraiser, you agreed to follow the processes and procedures required by [XXXXXX] by signing our Engagement Letter. We require all vendors to submit a fee exception form when they feel the work is outside of the norm. We need that information to justify your fee request to our borrowers. We are not looking to force an appraiser to complete work at low fees, we are looking to provide the best possible work at the best possible price for our borrowers. We expect that you are the expert in your market and we are looking for your expertise and explanation to make our borrowers understand why the fee may be warranted. However, we also expect the fee to accurately reflect the work involved and borrowers have the right to refuse to pay that fee and request that another appraiser be assigned. While, it may be frustrating for our appraisers, it is our current system and all of our vendors are required to follow the process.

No, it’s insanity.

Question How much do you think this clerical person understands about our specific submarket and whether they understand how much another appraiser who will work for a lowball fee does understand about our specific market?

Answer Nothing. This is merely canned comment process designed to blunt the impact of an investigation by a regulator in the future.

Here are a few other thoughts on this whole sham process:

Why Appraiser Robots Rule The World of AMCs
- In a market like Manhattan, especially for a substantial property, you could say that there is no such thing as a standard property and fees are based things like time spent on the assignment and the experience needed to handle the complexity….unless you see appraisers as robots and every assignment is the same.
- Beyond saying things like this is a unique property with limited data and would take a longer time to work on to provide a credible result aren’t enough to justify a higher fee to a borrower who wants to keep the fee low. Does the bank (AMCs client) even understand that this is happening?

So what would help an appraiser get a fee approval of any kind from this AMC? Here are a few reasons I might use next time when I have to substantiate a higher than generic appraisal fee:
-There are attack dogs in the building lobby that we have to run from and I am expecting them to tear at my clothes and force me to seek out significant medical attention.
-The flooring of the co-op apartment is believed to be covered with shards of glass and we therefore have to buy steel toed work boots to do the inspection.
-The occupant is known to carry a weapon, having assaulted visitors and did jail time as a result – so we need to buy a Kevlar vest

You get the idea. Good grief.

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Regulators Turn Focus on AMCs, Proposals Include Hiring “Competent” Appraisers

March 26, 2014 | 12:43 am | Milestones |

occheader

The OCC and an alphabet soup of 5 additional regulators: FDIC, CFPB, FHFA, NCUA and the Federal Reserve issued a joint press release that if adopted, takes a small step forward in the regulation of appraisal management companies, who are largely responsible for the collapse of valuation quality since the credit crunch began.

To many, this action is long overdue. Appraisal management companies control the vast majority all mortgage appraisals in the US, having been legitimized by HVCC back in May 2009. I’ve burned a lot of calories over the past several years pointing out the problems with the AMC industry so admittedly it is nice to see them getting attention. The fact that these institutions are not licensed to do business at a statewide level but the appraisers who provide the valuation expertise they manage is inconsistent at best.

Still, the recognition of this regulatory glitch probably won’t have a significant impact on appraisal quality provided by AMCs. As my friend Joe Palumbo maintains, is like fool’s gold.

I think proposal is at least a starting point.

A couple of highlights – regulators would:

  • Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (today we had a clerical AMC staffer tell us that writing out the math calculations on the floor plan was a requirement of USPAP).
  • Ensure selection of a competent and independent appraiser. (It is unbelievable to think this is necessary but it does make the legal exposure a little larger for AMCs.)

Housingwire has a good recap of the proposed regulations and so does the Wall Street Journal provides a nice overview (I gave them background for the piece).

The proposal by the Office of the Comptroller of the Currency, Federal Reserve and other regulators mandates that appraisal-management companies hired by federally regulated banks use only state-licensed appraisers with “the requisite education, expertise, and experience necessary” to complete appraisals competently.

Moral hazard There is no significant financial incentive for lenders to stop accepting the generally poor quality appraisals the AMC industry presents them daily. The hope is that the additional regulatory largess the AMCs have to confront will force the issue with lenders simply because the AMCs will have to raise their fees. Without a real “value-add” to the banks other than cost control and fast turn times, the lack of quality for a large swath of AMCs may no longer be overlooked by banks. Yes I can dream.

Residential appraisers, mostly 1-2 person shops, have largely been left without a voice and the bigger financial institutions have lobbied financial reform overtop of us without the regulators truly understanding what our role should to be to protect the taxpayer from excessive risk.

Anumber of smart appraisers I know have created a petition whose sole purpose is the get the attention of the CSFB to address the issue of “customary and reasonable” fees. Our industry has no other way to reach the regulators or the ability to lobby our views in Washington. I hope they are listening.

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Online Petition To Get “Customary & Reasonable Fees” Issue In Front of CFPB

March 19, 2014 | 3:16 pm |

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Within the current mortgage industry, predatory appraisal fees are driving experienced appraisers out of the field only to be replaced by an army of “form-fillers.” The appraiser today is being asked to pay for a bank’s compliance with financial reform directly out of their appraisal fee or go out of business. The practice is misleading to the consumer, exposes the taxpayer and the financial system to unnecessary risk and drives invaluable expertise out of the appraisal profession.

The folks over at AppraisalBuzz ask me to provide input into the petition. It is an essential read for all appraisers regarding the practice of predatory fees by AMCs: The Online Petition Every Appraiser Should Know About or you can go directly to the petition and signup if you agree – it takes about 30 seconds.

My hope is that this petition creates a public awareness of how serious and untenable this problem is and how much the reliability of the appraisal of collateral for mortgage lending purposes has deteriorated since the financial crisis began.

Appraisal Buzz post: The Online Petition Every Appraiser Should Know About

Sign the petition.

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It’s time to debunk the debunking of the 3 biggest myths about your AMC

March 9, 2014 | 10:00 pm | Favorites |

aeron-chair

I saw an opinion piece written about appraisal management companies over at HousingWire that made me just about fall out of my chair – and my office chair is a sturdy Herman Miller Aeron so it was quite an unsettling piece. I’ve written about AMCs quite a bit since HVCC came into effect on May 1, 2009 and my last big piece: “Appraising for AMCs Can Be Like Delivering Pizza” prompted a senior executive at one of the largest US AMCs – who we don’t work for – to call me after he read it and say, “all of what you wrote is true – how do we change it?” He sounded very reasonable and earnest and got his Chief Appraiser to reach out to me to explore what to do. That person ended up providing me with robotic and defensive feedback before I even asked any questions – making it clear it was all about keeping his job, not improving the industry. Sad.

Make no mistake – I am not against the concept of AMCs and there are some reasonable ones to deal with – but the majority of them are poorly managed and therefore can only attract appraisers with the “form-filler” mentality.

This HousingWire editorial was called “It’s time to debunk the 3 biggest myths about your AMC” by the CEO of an appraisal management company. We don’t work with them and I don’t know of them or the author. It’s a corporate sounding piece so I’m guessing that it was pitched and written by their PR firm as a way to sell the virtues of a good appraisal management company.

What threw me for a loop was the omission of any discussion about the actual providers of valuation expertise. AMCs do not provide value opinions to banks. AMCs manage appraisers who provide value opinions to banks. My guess is they or the AMC industry in general are receiving more pressure from banks for the rising cost of the appraisal process – not because the appraisal fees are rising – but because the AMC appraisal quality is so poor that relative to the cost, the value-add of an AMC really isn’t really there.

We have started to observe national lenders push back against the poor quality of AMC appraisals and some lender personnel are now bypassing AMCs on complex or luxury properties because they don’t trust the expertise coming out of the AMC. Amazing.

Here are the 3 “myths” presented in this AMC PR piece. I restate each point being made to reflect the reality of the appraisal process:

From the Housingwire guest editorial:

THEIR Myth 1: Appraisal Management Companies add costs to the lender’s business.

So, yes, the costs of putting a solid value on a piece of real estate have gone up. But this is not due to the fact that an AMC has been added to the equation. It’s due to the fact that it costs more to do it right, to employ the technology, to manage the fee panels, to quality-check the results. Like most myths, this one has at its core the ugly truth that the price of an appraisal has gone up between $80 and $200, depending upon the circumstances.

MY Opinion of Myth 1: The rise in costs is NOT because appraisers are arbitrarily raising their fees. It is because the appraisal management industry takes half of the appraisers fee paid by the borrower at application to cover their costs and ended up driving most good appraisers out of retail bank appraisal work – now dominated by AMCs. The rising costs are being born by the AMCs who try to checklist away the poor quality. Here’s how: Imagine making a modest salary for a job well done and then one day (May 1, 2009) you get your pay cut in half. The middleman between the bank and the appraisers (the AMCs) got to keep the other half of the appraiser’s fee/salary. In reality, this 50% pay cut was the appraiser paying for bank compliance with HVCC by hiring the AMC. Would you quit your job if you got a 50% pay cut? Most would say yes. Who would replace you at 50% of an already modest wage? A lower caliber, lesser experienced person who was able to cut corners – like eliminate research – and essentially be willing to be a form filler rather than a valuation expert – quality evaporates not matter how much “review” is put in place. AMCs have been grappling with poor quality and probably have had to increase oversight as more banks push back against the poor quality. I think the additional compliance issues being touted throughout this opinion piece in this “Myth” are probably more of a scare or fogging tactic than a real reason for higher costs. The higher cost that is being represented by the AMC is more likely from the fact that AMCs are being forced to find better appraisers in certain markets and those appraisers are less willing to subsidize bank compliance with HVCC out of their own hide. We doing more and more AMC work now and we are paid a full fee and are given a fairly reasonable turnaround time. Why? Because that AMC’s panel quality was poor and their bank clients basically told the AMC to use firms like mine or the bank will go to another AMC who will use a higher caliber of appraiser.

THEIR Myth 2: AMCs deliver poor turnaround times that can’t compare to internal teams

Anyone who buys into this myth must live in a world without Service Level Agreements (SLAs) that spell out exactly what a vendor will provide to a lender. It sets the terms of the engagement and specifies penalties that the vendor will suffer should it fail to live up to the promises the document holds. Turnaround times are always part of the SLA between an AMC and a lender…Now, here’s the grain of truth at the center of this ridiculous myth: lenders are working to incorporate so many new compliance rules into their processes that the collateral valuation process is simply taking longer for many of them than it has in the past. Part of this comes from the fact that compliance checking takes time. Part of this comes from unnecessary processes within the lender’s shop that exist out of some executive’s fear of possible compliance problems. The appraisal process is taking longer in many cases, but it’s not due to the AMC. It’s just part of the new business environment we’re working in.

MY Opinion of Myth 2: This is simply a reframing of the conversation between lenders and AMCs. The biggest problem with most AMCs today is they demand an unreasonable turn around time – some require 48 hours (more with complex properties), about 1/3 the minimum average time needed to do a reasonably competent job. Because the AMC bank appraisal quality is generally poor, AMCs have to insert more and more checklists into the QC process to appease their lender clients. The lender clients require more service level agreements BECAUSE THEY DON’T TRUST THE QUALITY OF THE PRODUCT, NOT BECAUSE OF MORE FEDERAL COMPLIANCE ISSUES. In turn, the appraiser gets a gum chewing 19 year old who calls them every day to fill out a checklist. Banks were fine, pre-HVCC, with the turn times of their in-house and outside fee panel staff and it NEVER was as fast as the typical AMC requires today. Today, most AMCs have to differentiate themselves from other AMCs by cost and turn around standards. With the poor quality of the typical AMC bank appraisal, the AMC gets squeezed financially as banks and appraisers are beginning to push back with more requirements and costs. An appraisal is NOT a commodity – it is a professional service. If the AMC doesn’t respect the bank appraisal industry and pays them poorly, all the AMC can ever hope to receive in return is a poor quality product that can’t be check listed away.

THEIR Myth 3: The lender relinquishes control when they outsource to an AMC

The lender is in complete control at all times and federal regulators have made it crystal clear that the lender is the responsible party anytime they outsource to a third-party vendor. No lender will relinquish control to a third party when it knows the CFPB will come back to its front door in the event of a problem. There are some aspects of the collateral valuation process that the government has said must be removed from the control of the loan officers originating the loan and the managers who oversee them. Federal regulators do not want the lender to control the outcome of the appraisal process and so they have made it clear in the regulations that it must be moved away from the origination department. The uncomfortable truth is that the federal government wants the lending institution to lose a bit of control here, for the good of the consumer and the financial institution. But handing responsibility for a few aspects of one process to a third-party outsourcer is not the same thing as giving away control. No lender we know and no good AMC executive would equate these two.

MY Opinion of Myth 3: One of the biggest myths furthered by many AMCs is to fog lenders with the idea that HVCC requires banks to use them to be compliant. The statement “The uncomfortable truth is that the federal government wants the lending institution to lose a bit of control here” is very misleading. All the government wants is a separation between the sales function and the quality function of a bank – a firewall – which is an AMCs major selling point. The irony here is that large AMCs are just as susceptible to lender pressure as the individual appraisers, but on a much larger scale.

I am not anti-AMC. However I am against bank appraisers paying for a bank’s compliance with HVCC and being marginalized as a result. The appraiser is the expert developing the value opinion for the bank, not the AMC.

In my experience to date, the majority of AMC bank appraisals that I have seen are very poor. But it doesn’t have to be that way. If the lender paid the market rate for an appraisal and an additional fee for the AMC to administer the process, the quality would improve. Borrowers today generally don’t realize that the bank appraisers is paid a fraction of the “appraisal fee.” Today’s bank appraiser is paying for the bank’s compliance with HVCC and this has largely destroyed many of the quality firms in the appraisal industry. It doesn’t help that the residential appraisal industry has no real representation in Washington.

But I do like my chair.

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Why AMC Addendums Are Bane of an Appraiser’s Existence

February 27, 2014 | 5:54 pm |

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One of our appraisers just got an addendum request for an appraisal we recently delivered to an appraisal management company. If you know my history, relax, it’s an AMC that accepts our reasonable fee and turnaround times rather accepting the typical AMC terms dictated to most appraisers (we won’t work for that type of AMC). But as reasonable as this AMC is to deal with, we do receive maddening addenda requests (asking the appraiser for written clarifications on the report originally submitted).

Here’s the latest:

Reporting discrepancies noted regarding subjects site size (pg 1, addendum comments, survey). Appraisers to comment and revise as appropriate, including applicable site adjustments.

Translation: we needed to reconcile the following:

  • Lot size per town records (and used in our report): 0.365 acres or 15,529 square feet.
  • Lot size per survey: 0.3655 acres or 15,530 square feet.

That’s a 1 foot difference in the amount of land under the house or a 0.006439565% difference in the amount of land reported in public record and the survey (aside from the fact that the town drops the 4th digit from the acreage measurement in their public record listing).

As a result of using public record for the acreage information, we got dinged on our “appraiser rating” which impacts our volume flow (appraisal requests from a client)

This is just the tip of the iceberg as to the types of addendum requests we receive. Curiously, we NEVER receive requests questioning the value or how we arrived at it – the questions are always clerical minutia, reflecting the 19 year clerk chewing gum who doesn’t really know what an appraisal is.

Sigh.

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The Low Appraisal “Hassle” is a Symptom of a Broken Mortgage Process

September 16, 2013 | 3:58 pm | nytlogo |

Last week we saw a chorus of “appraisers are killing our deals” stories in some major publications:

  • When Appraisal Hassles Tank a Home Sale [WSJ]
  • When Appraisals Come in Low [NYT]
  • Appraisals Scuttle Home Sales Where Prices Rise Fast[IBD]

I’ve long been a critic of my own industry. Like any industry there are terrific appraisers, average appraisers and form-fillers. Post-Lehman there are a LOT more of the latter.

The scenario that prompted these articles and others like them occurs when a sale is properly vetted in the market place and an appraiser enters the transaction and subsequently appraises the property below the sales price. It supposedly is happening in greater frequency now, hence the rise in complaints.

My focus of criticism has largely been centered on appraisal management companies (AMC), who have tried to convert our industry to a commodity like a flood certification or title search rather than a professional service. AMCs serve as a middleman between the bank and an appraiser and they have thrived as a result of financial reform. Most only require an appraiser to be licensed, agree to work for 50 cents on the dollar and turn work around in one fifth the time required for reasonable due diligence. Appraisal quality of bank appraisals has plummeted in this credit crunch era and as a result has prompted growing outrage from all parties in a transaction.

Of course, the market value of the property may not be worth it. But the real estate industry doesn’t trust the appraiser anymore so we point them finger at them automatically.

Yes, it’s a hassle. So let’s decide what the problem really is and fix it.

A long time appraisal colleague and friend of mine once told me before the housing bubble burst:

“Jonathan, you as the appraiser are the last one to walk into the sales transaction. Everyone involved in the sale is smarter than you. The selling agent (paid a commission), the buyers agent (paid a commission), the buyer (emotionally bias), the seller (emotionally bias), the selling attorney (paid a transaction fee), the buyer’s attorney (paid a transaction fee) and the loan officer or mortgage broker (paid a transaction fee) all know more than you do.”

The appraiser in this post-financial reform world doesn’t have a vested interest in the transaction like they did during the housing boom – some could argue they are too detached. The vested interest I speak of occurred during the bubble when mortgage brokers and most banks generally used appraisers who always “made the number.” Incidentally, many of those types of appraisal firms are out of business now.

Let’s clear something up. The interaction an appraiser has with a lender when appraising below the purchase price now is not that much different than during the boom. When an appraiser kills a sale, the appraiser is generally hit with a laundry list of data to review and comments to respond to questions from the AMC, bank or mortgage broker who use the “guilty until proven innocent” approach even though the bank likely won’t rescind the appraisal. The additional time spent by the appraiser is a significant motivator to push the value higher to avoid the hassle if the appraiser happens to be “morally flexible.”

And by the way, sales price does not equal market value.

The sources for most of these low appraisal stories I began this post with come from biased parties so it makes it clear that low appraisals are the problem. In reality, the low appraisal issue is merely the symptom of a broken mortgage lending process. The problem is real and becomes more apparent when a market changes rapidly as it is now. Decimate the quality of valuation experts and you generate results that are less consistent with actual market conditions and therefore more sales are killed than usual. Amazingly the US mortgage lending infrastructure today does not emphasize “local market knowledge” in the appraisers they hire no matter what corporate line you are being fed. This is even more amazing when you consider that most national lenders have only a handful of appraisal staff and tens of thousands of appraisals ordered ever month.

The cynical side of me thinks that rise in low value complaints reflects an over-heated housing market – that the parties are getting swept up in the froth and the neutral appraiser is the voice of reason. The experienced me realizes that financial reform has brought new appraisers into the profession that have no business being here (and pushed many of the good ones out) and that the rise in the frequency of low appraisals has only seen the light of day because housing markets are currently changing rapidly.

Here’s my problem with the mortgage lending industry today as it relates to appraisers:
• Most of the people running bank mortgage functions are the same as during the bubble, only see appraisal as a cost, not as eyes and ears.
• Banks love the current state of appraisals because the values are biased low (banks are risk averse) and they fully control the appraiser.
• Appraisal Management Companies themselves have no real oversight (some are very good, most are terrible).
• Banks no longer emphasize local market knowledge in their appraisers or they pay lip service to it.
• Short term cost savings trumps emphasis on quality and reliability.

Every now and then (like now) everyone seems surprised and feels hassled when appraisal values don’t match market conditions. However the bank appraisal process has largely morphed into an army of robots on an assembly line – either because we are unaware of the problem until it affects us directly or we just want it that way.

Let’s focus on fixing the mortgage lending process or stop complaining about your appraisal.

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Broken Appraisal: Lack of Market Knowledge Overpowers Lack of Data

January 27, 2013 | 6:06 pm | nytlogo |

There was a really good appraisal story in the Sunday Real Estate Section this weekend by Lisa Prevost focusing on appraising high end properties whose theme is well-captured in the opening sentence:

As home sales pick up in the million-dollar-plus market, deals are being complicated by unexpectedly low appraisal values.

The higher the price strata of the market, the smaller the data set is to work with so the conventional wisdom seems to be that less data = more unreliable appraisals. However I believe the real problem is lack of market knowledge by more appraisers today as a result of May 2009′s Home Valuation Code of Conduct (HVCC) – the lack of data at the top of the market merely exposes a pervasive problem throughout the housing market.

To the New York Times’ credit, they are the only national media outlet that has been consistently covering the appraisal topic since the credit crunch began and I appreciate it since so few really understand our challenges as well as our our roles and relationship to the parties in the home buying and selling process. Appraising gets limited coverage in the national media aside from NAR’s constantly blaming of the appraisers as preventing a housing recovery (in their clumsy way of articulating the problem, they are more right than wrong).

Here’s the recent NYT coverage:

January 27, 2013 Appraising High-End Homes
January 11, 2013 Understanding the Home Appraisal Process
October 12, 2012 Scrutiny for Home Appraisers as the Market Struggles
June 14, 2012 When the Appraisal Sinks the Deal
May 8, 2012 Accuracy of Appraisals Is Spotty, Study Says
September 16, 2011 Decoding the Wide Variations in House Appraisals

The general theme and style of coverage comes about when Realtors start seeing an increase in deals blowing up that involve the appraisal. The Prevost article indicates that higher end sales are more at risk because the market at the top (think pyramid, not as in ponzi) is smaller and therefore the data set is smaller.

This may be true but I don’t think that is the cause of the problem but rather it exposes the problem for what it really is. I contend that the problem starts with the appraisal management company (AMC) industry and how it has driven the best appraisers out of business or pushed them into different valuation emphasis besides bank appraisals by splitting the appraisal fee with the appraiser (the mortgage applicant doesn’t realize that half their appraisal fee is going to a bureaucracy).

My firm does a much smaller share of bank appraisals than our historical norm these days but it is NIRVANA and we’re not likeley to return to our old model anytime soon.

Since the bank-hired AMC relies on appraisers who will work for half the market rate and therefore need to cut corners and do little analysis to survive, they generally don’t have local market knowledge often driving from 2 to 3 hours away.

Throw very little data into the equation as well as a very non-homogonous housing stock at the luxury end of the market and voila! there is an increased frequency of blown appraisal assignments.

There is always less data at the top of the market – the general lack of expertise in bank appraisals today via the AMC process is simply exposed for its lack of reliability. Unfortunately the appraisal disfunction affects many people’s financial lives unnecessarily such as buyers, sellers and real estate agents (and good appraisers not able to work for half the market rate and cut corners on quality).

The appraisal simply is not a commodity as it is treated by the banking industry. The appraisal is a professional service so by dumbing it down through the AMC process, they have succeeded in nearly destroying the ability to create a reliable valuation benchmark on the collateral for each mortgage in order to be able to make informed decisions on their risk exposure.

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Having Fits With Appraisal In Home Buying Process

January 13, 2013 | 9:27 pm | nytlogo | Public |

The New York Times Real Estate goes gonzo this weekend with a nice write-up AND a large color artwork on perhaps the least understood part of the home buying process.

No not the radon test…

The appraisal. Can’t live with them, can’t live without them.

Here’s my stream of consciousness on the topics brought up in the article:

  • “Sale and “Comparable” are not interchangeable terms. Really.
  • There is no ratings category for (like totally) “super excellent.” The checkboxes provide good average fair poor with “good” at top end (but fear not, “super excellent” is marked “good” and like total adjusted for).
  • Not all amenity nuances that are important to you as a seller (ie chrome plated doorknobs), are important to the buyer.
  • Not all amenity nuances that are important to you as a seller, are measurable in the market given the limited precision that may exist.
  • Not all appraisers have actually been anywhere near your market before they were asked to appraise your home, so technically they shouldn’t be called appraisers. Since their clients don’t seem too concerned about this, something like “form-filler” seems more appropriate.
  • Most appraisers who work for appraisal management companies are not very good, but some actually are.
  • When an appraiser makes a time-adjustment for a rising market, understanding whether a bank will accept that adjustment or not is (should be) completely irrelevant and quite ridiculous (unless they are “form-fillers” and not actual appraisers). I have always believed that the appraiser’s role is to provide an opinion of the value and that occurs in either flat, rising or falling markets.
  • HVCC was a created with best intentions by former NY AG Cuomo by attempting to protect the appraiser from lender pressure, but it has literally destroyed the credibility of the appraisal profession by enabling the AMC Industry.
  • The 12% deal kill average of an AMC an arm’s length sale properly exposed to the market is absolutely an unacceptably high amount and a major red flag for appraiser cluelessness about local markets.
  • I’ve never heard of a major bank since the credit crunch began who would throw out the original appraisal found to have glaring errors that would severely impact the result. My quote on this nailed that sentiment with brutal precision, if I do say so:
“You have a better chance of winning Powerball than getting a lender to abandon the first appraisal.”



Understanding the Home Appraisal Process [NY Times]

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Appraising for AMCs Can Be Like Delivering Pizza

December 27, 2012 | 10:00 am | nytlogo |

I recently appraised a property that was well into the 8-digit value variety – not to sound cavalier but when you are in a market like Manhattan, it’s not uncommon.

What made this assignment different was that I was contacted to appraise this property because an appraisal management company (AMC) was not comfortable using their regular panel of appraisers that do nearly all of their volume (for half the market rate and 48 hours). Although I was leery to accept the request as an exception, I had history with an exec there, they were paying our quoted fee and accepting our turn time requirements so why not?

Here’s how it went:

Day 0 - I am interviewed by the AMC representative to see whether we are experienced in this property type. The AMC rep stresses they want to be “in the loop” at all times.
Day 1 – We are engaged by the AMC to provide the report – we place a call to the property rep.
Day 2 - Property rep calls back and say they want us to inspect 3 days from now. My office informs the AMC rep the appointment via email is set for Day 5. I get a call from the AMC rep asking if a I need any help and I say “no, not at this point since we haven’t seen the property yet.” They follow with “I’ll be calling you every day of this assignment to ensure you have what you need.” I politely ask why they need to call me over the next 3 days before the inspection. The AMC rep says “yes, in case you need help.” I respond that I won’t be doing anything further until I see the property. The AMC rep said something to the effect of “Ok, I’ll wait until you inspect.”
Day 3 - The AMC representative apparently emailed me (instead of calling) but I never received it (gotta love spam).
Day 4 - The AMC representative left me a voicemail on my mobile phone and office phone chiding me because I didn’t respond to the previous day’s email (technically the AMC rep didn’t call me) and they had been forthright in saying they would contact me every day to help me and they needed to speak to me every day. I got the voicemail on my mobile during a different inspection and emailed my office asking them to let the AMC rep know I am inspecting the property the next day.
Day 5 - The AMC rep called to see how we were doing with the assignment. My assistant reminded them we were inspecting the property toward the end of the day and that they had been kept up to date. Near the end of the day I inspected the property and my office let the AMC rep know via email we had inspected the property.
Day 6 - First thing in the morning and my first chance to sit down and work on the appraisal. My office sent them an email telling them I had what I needed and confirmed the delivery date. The AMC rep called my office that afternoon to see if there was anything we needed…

This is how nearly all interaction between AMC and appraisers go. The appraiser is bombarded with meaningless status requests as the AMC industry attempts to commoditize a professional occupation. I assume the AMC rep in my case had a checklist – akin to those dated checklists with initials you see on the back of doors in highway rest stop bathrooms assuring you the bathroom was cleaned each day of the week.

The result has been the crushing of appraisal quality because trained, experienced professionals are opting out of this madness because time = money. Cut the fees 50% and then waste another 30% of an appraiser’s time with this meaningless activity and you don’t end up with a more reliable valuation opinion.

In all sincerity, I take my hat off to those professional appraisers who need to work with AMCs out of necessity that are able to put up with being treated like a teenager on their first job.

It reminds me of the canned customer service interaction we are all forced to do when we interact with a company on the phone. The call ALWAYS ends with the canned “Is there anything else I can help you with?” Yet the relationship was already established and fine up until that point and the authentic nature of the conversation is suddenly over. I pause for a second and say “Yeah, I could go for a large pizza right now.”

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Serious Jibber-Jabber: Lessons from Nate Silver to Filter Out Housing Noise

December 10, 2012 | 7:00 am | Videos |

I really enjoyed this “Charlie Rose”-like interview by late night TV host Conan O’Brien and statistician Nate Silver on his “Serious Jibber-Jabber” series. I recently bought Nate’s book “The Signal and the Noise: Why Most Predictions Fail but Some Don’t” and it’s next on my reading list (actually I bought 2 copies because I forgot I had pre-ordered on Amazon for Kindle and ordered again from Apple iBooks, Doh!).

What I found intriguing about the discussion is how much effort it takes to filter out the noise and get the to meat of the issue as well as getting outside of your self-made insulated bubble to be able to make an informed decision – aka neutrality.

Real estate, like politics, is a spin laden industry whose health is very difficult to gauge if you rely on people and institutions who have a vested interest in the outcome. i.e. Wall Street, rating agencies, government, banks, real estate agents etc.

Some interesting points made:

  • During the bubble, for every $1 in mortgages, Wall Street was making $50 in side bets.
  • Many people during the housing boom saw it was a bubble but didn’t want to miss out. They would see the green arrows pointing up on CNBC screen and it became very hard to be contrarian and be left behind.

The current “happy housing news” that is all the rage seems to draw a parallel with the pundits who got the election outcome all wrong yet all were experienced in politics. The housing herd is disconnecting from what the data is showing.

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