The bulk of this week’s commentary seemed to revolve around the erosion of the appraisal profession despite licensing (lack of independence breeds robots), broker incentives (commissions are incentives aren’t they?) and making sense of housing futures (we can’t even make sense of the past).
Appraisal Quality Erosion
- The quality of appraisals has diminished since licensing was enacted and thats because the states view the appraisal license as a revenue source. There are no significant funds for enforcement and the fact that the state says an appraiser licensed, gives them entre into the lending community. At the same time, retail banks have shuttered their in house appraisal operations and have shifted emphasis on mortgage brokers as the source of origination as well as appraisal management companies. The appraiser whose sole focus is on the combination of speed and making the number are thriving. It will serve to make the profession largely obsolete if things don’t change soon because all players at the party know the bulk of the reports generated or only for the file and don’t have a lot to do with value.
- I’ve been in the business a few years, and the amount of real economic analysis I do is quite minimal. I wonder at times how complicit we are in what seriously appears to be an overvalued market. It is true, the only value an appraiser has these days is how fast he can write a consistent report without glaring errors, and whether or not the value achieves the client’s expectations.
Real Estate Broker Incentives
- Well, yes, there is good and bad in every industry, but I don’t think industry standards are as low as in real estate brokering. In what other industry can a representative be “dually loyal”? Can you imagine a lawyer doing such a thing? My wife and I are searching for a house, and right in a recent listing (on the internet, for a major residential brokerage, for all to see) was the promise of a several thousand dollar bonus for the buyer’s broker if a buyer closed by such and such a date. Almost anywhere else this is called a kick-back, but nobody seemed taken aback.
- It’s called an incentive not a kick back. In a market where there are more sellers than buyers, a seller will often offer an additional incentive to attract more brokers to bring their buyers for a look. It would be a good idea for you and your wife to engage a buyers broker to help you in your search. After all, they know the product and you don’t. You sound angry and frustrated with the market so you diss the broker. Not productive.
- I had a situation where there was a buyer’s agent incentive, and it made me very uncomfortable, as a real estate agent. My client liked the property, so he bought it. I took the first $1,000 of the incentive, and gave the buyer the rest ($2,000), because of the appearance of a conflict of interest. I would do the same thing, again, if it happened. $1,000 for my trouble, the rest to the buyer. It definitely is an ethical dilemma.
Housing Futures Trading Made Simple?
- TheStreet.com’s article was accurate in so far as that if the CME listed only a spot futures contract, then yes, all you are doing is number gaming an event (the yet to be calculated index value)that has already occurred. The CME in fact lists out to May 2007. This allows a trader to transfer housing price risk on an event which has not yet occurred (the Q1 2007 cash housing trades). When the CME lists multiyear futures for the housing indexes, then the market will most certainly be looking forward with an index that looks back 2 months at settlement.