There Will Be An Appraiser Shortage When Pigs Can’t Swim
I learned something new this week, and it was something that would happen only when “pigs fly.” Apparently I hadn’t considered whether it was possible for pigs to swim – frankly, I never thought about pigs swimming at any time in my life until the internet told me. And it’s true.
I also never believed the false narrative perpetuated by appraisal management companies that there was an appraisal shortage. To all my readers who are real estate agents and brokers, do you ever wonder why many of the appraisers you meet at your sold listings are not from your market and don’t have an ounce of “local market knowledge?” The cause of that phenomenon is baked into Dodd-Frank. I was irate this week when HousingWire, a regular read for me, promoted a webinar that was reliant on two executives from AMCs to talk about the future of appraising. I sent a note to the editor, and sadly, he did not respond.
More on this below in Appraiserville.
From the “Beauty in Repetition” Department
These are recurring issues in housing that continue to fascinate me. I am a big fan of repetition to convey market insights, so this section is necessary to keep these story threads in front of my readers.
It never was Neverland – There was a recent news blitz about Michael Jackson’s “Neverland” estate return to the market with a huge price chop. The point is, the seemingly random $100 million asking price was never in sync with the housing market (translation: didn’t sell). I don’t know if the price chop is enough, but I know the housing market hasn’t fallen by 33%. I therefore boldly proclaimed that the era of aspirational pricing is over.
When that sinking feeling towers over you – You buy a luxury condo in San Francisco and are told later “that the building had sunk 16 inches into the earth and tilted over 15 inches at its tip and 2 inches at the base” you wonder about your safety and your investment. I’m obsessed with this story for both its tragedy and the concept of building a tall tower in an earthquake zone no matter how advanced the materials and engineering are.
Mansionization as a new derogatory housing term
Too much room for too few people
While McMansion is firmly embedded in our culture as a negative housing type in the aftermath of the housing bubble a decade ago.
The widespread disdain for the McMansion stems from perceptions that these houses look and feel inappropriate for a given neighborhood, are wasteful in terms of space (too much room for too few people) and resources (building materials, electricity, gas), project the pretentiousness (or lack of taste or refinement) of their owners, and a general discordance in architectural preferences.
The negativity for the word is bleeding into plain old “mansion” so it is merely a hop, skip and a jump to “Mansionization” which seems to be the process of converting an existing home into a McMansion-style property. In LA, the expansion of the McMansion problem is being tackled by lot coverage ratio – moving from 50% to 45%, but that was viewed as too lenient.
Mansionization—simply described as the process by which conspicuously enormous homes replace smaller residences that more smoothly blend with the neighborhood aesthetic—was first addressed by the city in a 2008 law called the Baseline Mansionization Ordinance.
High school physics taught me that for every action there is an equal and opposite reaction. One of the by-products of zoning restrictions like this and many others result in higher housing prices. Hatred of McMansions – as awful as they are – isn’t free.
The Height of Stupidity
That phrase is appropriate when you sneak extra height into a new mansion and then have to tear the second floor down. It shows you place a lot of faith in your neighbors to ignore your zoning interpretation. A Hamptons developer violated…
the “pyramid law,” which means there is no building 45 degrees from the edge of a property line, so a home doesn’t tower over neighboring homes.
In 2012, The Post reported that Cardel built a house from scratch for posh clients too close to the curb. So he had to tear the whole thing down and start again.
Apparently, the margins for Mansion development must be so huge that architects and lawyers aren’t needed. If you build a mansion a few feet outside the allowable area, you simply tear it down and start over.
‘Let Love Rule’ Celebrity Home Decorating
I’m probably dating myself, but I always loved Lenny Kravitz’ first big hit “Let Love Rule.” So it was a little confusing to learn Kravitz has a design firm outside of his music business. In the world of new development, so much of marketing is about an association with celebrity these days. In the housing bubble, projects would shout out the architect’s name in their advertising to such a degree that buyers, sellers, and brokers would be embarrassed to ask who the person was – fearful of the response “you don’t know who ______ is?” as if you were a moron. That’s not the case with Kravitz and given the trendy location of the project it’s probably helpful, before even considering whether his firm can do a good job with it.
One57 Primes the Pump With Corrected Pricing
When we talk about super luxury condos in Manhattan, One57 is top of mind. After years of slow sales, and no sales in the first half of 2016, they saw a surge in activity at the end of 2016. This bump was likely not related to improving market conditions but rather the introduction of their lower priced former rental units priced closer to current market conditions.
Upcoming Speaking Events
March 9, 2017 – Real Estate Board of New York: 19th Annual Residential Management Leadership Breakfast to honor outstanding leaders in residential property management: Jonathan J. Miller, CRE, CRP, of Miller Samuel Inc., will give the keynote address at the event to be held at the New York Hilton Midtown (2nd Floor, Sutton Ballroom, 1335 Avenue of the Americas). Tickets are available for purchase on rebny.com.
April 6, 2017 – The Miami Herald New Yorkers’ Guide to Miami: What second homeowners, investors need to know. Moderated by Jonathan Miller, President, CEO, Miller Samuel real estate consultancy, the panelists include Howard Lorber, Chairman, Douglas Elliman / Michael Stern, Chairman JDS development / Neisen Kasdin, Miami Managing Principal, Akerman at Sotheby’s, 1334 York Avenue, New York City. Tickets are available for purchase.
I like to take my bad news before my good news.
A few items of note based on feedback and interactions with appraisers across the U.S. this week: There seems to be a growing number of AI members that are not paying their dues. I don’t know whether this means they are dropping out, but it has been described as a reaction to AI National’s recent behavior after years of neglect. I know that AI National has formed an exploratory committee to address their lack of commitment to their residential membership and that one of the members is not an appraiser. Given AI National’s aggressive behavior in Montana against the interests of their residential members, I am skeptical this committee is anything more than a tool to sooth the savage beast. Well earned cynicism is a tough thing to discard.
The other much more optimistic development is that Wells Fargo VMS has been aggressively calling appraisers around the country to get them on their panel. When the appraiser tells them they refuse to work for their AMC, the response has been along the lines of “we are no longer using AMCs” and “we are now going in a different direction” and “there was no ‘value add’ – if this is true, then it is good news for residential appraisers. Apparently, Costco Finance is doing the same thing. Also, my firm and some colleagues around the U.S. have been receiving calls from community banks and regional banks with the same messaging – that they are not using AMCs going forward. A few weeks ago, a big Wall Street bank with a mortgage division called me to get our firm on their panel for NYC work. They can’t stand the quality of the AMC work they are seeing anymore and are testing out the concept.
HousingWire Webinar Fog Alert
I like to read HousingWire and have met with the founder in my office in NYC. I was quite upset with their promotion of a webinar that was comprised of two AMC executives – one is the well-known Brian Coester, and the other is Alan Hummel, a former president of the Appraisal Institute who now works for an AMC. That’s a “tell” on AI National’s actual position on AMCs in my view. If you read the threatening letter to Tom Allen from 2004, Hummel was the guy Tom had to provide an apology to. On the plus side, there was a very insightful appraiser, Matt Simmons, who provided actual data to disprove the AMC false narrative of the appraisal shortage. Matt was formally a Florida regulator. He has a terrific power point that he used and generously shared with me – here is a key slide that makes the point that there are plenty of appraisers.
Here is a video of AMC owner Brian Coester doing a follow-up video to the webinar. I am giving him the benefit of the doubt here, but he is rambling about literally nothing.
Who is REVAA? Phil Crawford Explains
They are the AMC trade group. I will have more to share about them in the coming weeks but make sure you listen to Voice of Appraisal soon.
A day wasted working for an AMC
Part of the false narrative by AMCs is the time they waste trying to find a low fee appraiser.
Dave Towne wrote a great post last fall on AppraisersBlogs called “Appraisers Shortage? A Personal Story” that is well worth a read.
And Dave is a great resource for appraisers. He is a prolific writer and shares his content with his subscribers. Dave told me how to get on to his appraiser email list – I highly recommend it:
I ask that ‘new subscribers’ provide the state they are based in, and if they want, add the city/town name and business phone number, and send that info to my email … firstname.lastname@example.org … with a comment to “subscribe to email.’
Updates from the Real Estate Industrial Complex
Over at my forum known as the Real Estate Industrial Complex where I have been chronicling the unfortunate anti-membership activities of AI National.
Appraisal Institute Membership Has Declined More Than 35% Since 2007
At the current trend, a 50% further membership reduction would occur within nine years.
In all the information being sent to me by AI members over the past several months and within my research, I noticed a pattern of significant decline in membership. Now, this is nothing new to most of you, but I’m not sure how much many members realize how quickly the numbers are dropping. Using AI National’s published information including annual reports, press releases and notices on their website, I cobbled together a decade of total membership numbers. You can see the 35.5% drop illustrated clearly below.
The above chart shows a clear linear pattern. If the same trend continues to occur – I anticipate a faster rate of decline in the coming years – it will take 9 years to fall another 50%. This drop is not unrealistic since AI National has worked hard to keep the status quo which is probably the reason their stealth culture has remained firmly in place.
I don’t know what the membership threshold needs to be before the AI National organization collapses – since institutional transparency has not been demonstrated during the “taking” debacle – but I’d characterize the membership decline as an organizational crisis. This future collapse needs to be addressed immediately and differently.
After reading most of AI National annual reports since 2010, it is clear that leadership has primarily focused on recruiting. For every big jump in designations that are realized in a given year, the following year sees a net membership loss as the rate of aging or disaffected members more than offsets new designations. Their math isn’t working.
I suspect top leadership is fully aware of this trend but doesn’t know how to reverse it, so they continue to ignore it, blaming the decline on forces beyond their control. To make matters worse, they have pulled back into their silo and have lost touch with their membership’s needs and mindset (consider the recent “taking” debacle.)
Upon reflection, this could explain leadership’s irrational behavior of late – perhaps panic. The manhandling of membership through the “taking” debacle to fully control chapter cash or pushing things that are detrimental to their members best interest. These include AMCs, promoting the false narrative of an appraisal shortage and pushing hard to get rid of The Appraisal Foundation to swoop in and save everyone with their set of standards.
What’s quite amazing about this situation is that back in 2006, AI National correctly forecast a 25% to 35% decline in appraiser population. However, I doubt they thought it would be reflective of their own membership. The text of an AI National press release was presented in Appraisal Today.
The Appraisal Institute has analyzed the Appraisal Subcommittee National Registry data since 2006 using a consistent methodology, and the long-term trend is clear: · The number of appraisers continues to decrease at a rate of about 3 percent per year; · The appraiser population could decrease 25 to 35 percent over the next 10 years due to age attrition and fewer new entrants. “In spite of a higher level of appraiser qualification overall, the lack of career prospects for trainees and few new people entering the profession are legitimate and serious issues, yet opportunities do exist to reach the next generation and employment options will, in fact, likely be enhanced in the coming years,” said Appraisal Institute President Richard L. Borges II, MAI, SRA.
Let’s hope AI National wakes up soon – I suspect it may be too late.
A Brilliant Idea
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. They’ll swim like pigs, you’ll make a chart and I’ll give a speech.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- The World’s Ultra-Wealthy Population Grew by 6,340 in 2016, After a Decline in 2015 [Mansion Global]
- First-Time Buyer Index Release of November 2016 Data [Housing Risk]
- Residents Might Be Stuck Paying for San Francisco’s $750 Million Tilting Tower [Bloomberg]
- A $33 Million Price Cut for Michael Jackson’s Neverland Ranch [Forbes]
- Room for Rent: Exploring Rental Vacancy Rates in Urban, Suburban and Rural America [Zillow Research]
- The Secret to Selling Manhattan’s Biggest Condo Project? Raise Prices [Bloomberg]
- Lenny Kravitz, Interior Designer [NY Times]
- DID NEIL PATRICK HARRIS JUST BUY THIS 13-ACRE EAST HAMPTON ESTATE? [Behind the Hedges]
- LA takes new steps to fight McMansions [Curbed LA]
- Hamptons neighbors furious over mansion built higher than code [NY Post]
- Mapping the 26 high-rises under construction in Philly [Curbed Philly]
- How Aaron Burr gave the city a faulty system of wooden water mains [6sqft]
- Zillow made 71% of revenue through controversial premier agent feature [The Real Deal NY]
- What a Fed Rate Hike in March Would Imply [Bloomberg]
- Sydney Home Prices Surge at Fastest Annual Pace Since 2002 [Bloomberg]
- QuickTake: The Future of Fannie Mae and Freddie Mac [Bloomberg]
- Improving America’s Housing 2017: Demographic Change and the Remodeling Outlook [Joint Center for Housing Studies, Harvard University]
- Why Wealthy Condo Owners Haven’t Paid Their Taxes [Realtor.com]
- One57 inches towards full occupancy with $169M in deals over past 6 months [Real Estate Weekly]
- NYC’s most expensive rental is back and as over-the-top as ever [Curbed NY]
- Contract Signings Would Be Higher If… [Realtor Magazine]
- Jimmy Buffett-inspired ‘Margaritaville’ senior housing is coming to Florida [Curbed]
- Capital-Control Policy Puts Brakes on Chinese Investment in Hollywood [WSJ]
- FOMC Minutes: “Many” Support Rate Hike “Fairly Soon” [Barrons]
My New Content, Research and Mentions
- Here’s Why It May Still Be Possible to Get a Deal on a New York Rental [Cottages & Gardens]
- Paydirt: The frightened herd of domestic banks has created a very strange condo market [The Real Deal NY]
- South Florida luxury homeowners contend with dropping prices [The Real Deal South Florida]
- Sag Harbor, New York: rising prices buck Hamptons’ downward trend [FT]
- Luxury Home Listings “Overpriced by a Third?” [Wolfstreet]
- This new mansion is slated to be the largest in NYC [NY Post]
- New Yorkers’ guide to Miami: What second homeowners, investors need to know [Miami Herald]
- Manhattan’s townhouse market is cooling fast [The Real Deal NY]
- The Long View: The danger of a multifamily mortgage morass [The Real Deal LA]
- Flood insurance costs rising up to 18% a year [Newsday]
- Sales at Forest City-Greenland’s 550 Vanderbilt slow down [The Real Deal NY]
- What Trump could do to New York’s economy [Crains New York]
- The NYC rental firm brawl [The Real Deal NY]
- Prices of Miami Beachfront Condos Predicted to Slip 8% [Mansion Global]
Appraisal Related Reads
- HousingWire Webinar Follow-up – Future of Appraisal’s 2017 [CoesterVMS]
- What is going to happen to appraisers in 2017? [HousingWire]
- Let’s End the Trend [Philly Appraisal Blog]
- Podcast: E143 Niche Markets and Who is REVAA? [Voice of Appraisal]
- Poorly Treated Appraisers Refuse AMC Work Causing Shortage [AppraiserBlogs]
- When value is higher on one street than another [Sacramento Appraisal Blog]
- The worst appraisal advice home sellers actually believe [Birmingham Appraisal Blog]
- Who Owns The Baton Rouge Home Appraisal? [Baton Rouge Appraisal Blog]
- AMC Fined for Removing Appraiser from Panel [Working RE]
- Disciplinary Action Against Two AMCs in Virginia [AppraisersBlogs]
- Two New Florida Bills – Amendments to Chapter 475 [Appraiser Active]
- Santa Fe swindler faces his toughest sales pitch [Albuquerque Journal]
- Slow Pay AMCs [AppraiserBlogs]
Extra Curricular Reads
- Uncovering the Hidden Books Tucked Inside Every Single Library [Atlas Obscura]
- $3 million, dead turtles and a sex website: Inside one man’s bid to clear his name online [WSJ]