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Housing Notes

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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September 8, 2017

Don’t Rely on Appearances, You Have to Bore Underneath to Understand

I was crossing Madison Avenue in Manhattan the other day and one of the lanes was closed. I didn’t have the good sense to snap a picture of a utility company using a vacuum to suck out the loose dirt in a hole that was beginning to reveal a labyrinth of pipes and conduit. It made me think of Elon Musk’s Hyperloop One concept but not for the wonderment of underground transportation. As a self-proclaimed “dull and boring numbers guy” I regretted not coming up with his company name “The Boring Company” before he did – and why didn’t I think of that name back in 1986 instead of “Miller Samuel” for our appraisal company?

Australia Now Thinks I’m a Real Estate Agent

I had a long sit down and good conversation with an Australian news reporter. A few segments or our interview ended up in the story about a condo project known as 220 Central Park South, and the penthouse unit. Their chyron tagged me as a real estate agent (I’m not) although I’d love to enjoy the commission paid on the US$250± million sales price. #appraiser

The New Urbanism “Crisis of Success”

Real estate market participants are aware of the affordable housing in the U.S. and worldwide. Developing affordable housing, especially in urban areas, has always been a challenge. But in the past five years, affordability has become a full grown crisis. Richard Florida has been the leading speaker of the new urbanism movement and he now has some revisions to his original thoughts. In my view – and I’ve said it before here on Housing Notes – that housing supply creation is not elastic like corresponding demand. And housing regulations are one of the key drivers of high urban market housing costs. My other view relates to credit conditions have not normalized since Lehman and that low-interest rates inflate asset prices.

Here’s a good PBS interview with Richard Florida on the disconnect with the creative class movement and the high cost of housing. It is well worth listening (no multitasking while doing so!) to understand the nuances. Plus he talks with his hands like I do.

State by state look at what $200,400 will get you in house size

While we all seem to love info graphics and worry about the reliability of Zillow data, I chuckled when I saw the 1,113 average square footage for New York State presented by In Manhattan, $200k will get you about 100 square feet of living area, 1 tenth of the statewide average.

For those who assumed new development introductions were slowing down…

Curbed New York does a masterful (and mapful) job presenting the NYC new condo projects hitting the market over the next few months.

Why me? Ugly to you, beautiful to me

When an appraiser walks up to a house like this, the first thing we think of is “Why me?” Well, there is always a story behind a property like this and its part of why working in the real estate industry can be so interesting. In Manhattan, the asking price would not get you a 29,500 square foot home. You’d get the equivalent of a 900 square foot one bedroom.


Support Texas/Florida Appraisers In Need #Harvey #Irma

We’ve raised $11,400 as of this morning but need to reach our goal of $20K. Please help!

So it’s come to our attention that some appraisers are in need of help that were impacted by the flooding of Hurricane Harvey in Texas. We are an amazing group of people in this profession and group and we all know the hardships we face on a daily basis on any ordinary day. Well, now some of our very own have even more of a hardship than we could ever imagine. Please take the time to donate anything you can so that we can help them out. Let’s show our support and flex our muscles yet again. Thank you all.

This is co sponsored by Mark Skapinetz, Joe Mier, Lori Noble, Jonathan Miller and Phil Crawford.

Click here

Appraisal Industry Letters to Party Leaders of House Committee on Financial Services and Senate Committee on Banking, Housing and Urban Affairs on “No Appraisal” Waivers

The Appraisal Institute led the charge for the industry to write letters to the House and Senate that were critical of the GSEs new “no appraisal” waiver programs. I just sent Bill Garber at AI National a note suggesting they delete a duplicate entry of the “Mississippi Coalition of Appraisers” but other than that minor clerical issue, it is a great letter.

See both letters attached.

Fannie-Freddie-Appraisal-Waiver -House
Fannie-Freddie-Appraisal-Waiver -Senate

9 Unintended consequences from no appraisal mortgages by Tom Horn, SRA

Editor’s note: I can’t seem to reconcile the incredible urgency toward super fast and cheap appraisals and now no appraisals by the GSEs, lending and appraisal management company industry with creating a long term disaster. I probably sound like grandpa whittling on his front porch reminiscing about a simpler time when he could “put a penny in a burnt out fuse” (borrowed from John Prine). Are consumers truly begging to save some money by not knowing if a seasoned market expert thinks the home they just bought is wildly over priced? While I’m sure there is plenty of concern about keeping costs low, is it at the level being shouted by industry stakeholders? How about if there was no Federal backstop this time around? I’d be willing to bet that the moral hazard of this path and where it eventually ends up would evaporate if there was no potential for future bailouts? What about a clear criminal culpability as the slippery slope gains speed with future steps by over confident GSEs with low credit score portfolios?

Tom gave me permission to share his August 31, 2017, blog post 9 Unintended consequences from no appraisal mortgages in its entirety that sits on his must read Birmingham Appraisal Blog. Make sure you go to Tom’s blog and sign up for his weekly email and be sure to read through the comments on this post over at his site.

Are no appraisal mortgages a wolf in sheep’s clothing?

I’ve seen a lot of celebration recently from various players in the home purchase and mortgage game regarding the decision by Freddie Mac to skip getting a traditional appraisal. While it may sound good up front because they promise to reduce the cost to the buyer and reduce turn times, will this really occur? Are no appraisal mortgages too good to be true?

There most likely will be some unintended consequences from the transactions where a traditional appraisal is not used. Today I thought I’d share my thoughts, however, I’d like to hear from you as well. What do you think about eliminating the traditional appraisal from a mortgage transaction? They say this option will not be used all the time but only for qualifying purchases. Will it eventually include all purchases? Tell me what you think in the comments section below.

Possible consequences from no appraisal mortgages

1. Independence is lost- The appraiser is the ONLY unbiased party to a home purchase transaction. Everyone else from the agent to the loan officer has a financial stake at risk if the loan does not close.

When you remove the appraiser from the picture you risk removing the voice of reason. Appraisers are trained to measure the market value of collateral to protect the interests of the lender.

The steps involved in the appraisal process include weighing and comparing sales to the subject property in order to properly reconcile value. When an automated valuation model is used it is possible to be overly optimistic when interpreting the data and the independent nature of the appraisal is lost.

2. Inaccuracies in the size of the house will grow- When a traditional appraisal is performed the appraiser measures the home according to a generally accepted standard (ANSI). Using a set standard on every property helps the appraiser to compare apples to apples when it comes to the gross living area of a house.

Comparables are selected based on bracketing the gross living area of the home. If you use an inaccurate square footage figure from county records or from the owner and then bracket this amount it will prevent you from getting an accurate value indication from the sales.

Automated Valuation Models (AVM’s) look at the price per square foot of sales and then apply it to the subject. Whenever you have inaccurate square footage of the comps you arrive at a flawed price per square foot to apply to the subject. This inaccuracy is multiplied when you apply the wrong price per square foot to the subjects perceived living area.

3. Comparable selection- Choosing comparables is more than picking the 3 most recent sales that occurred within a one-mile radius. It takes human reasoning to pick comps that are the most similar to the subject property.

They say that choosing the right comps is 90% of the task in an appraisal assignment. If you choose the right comps the adjustments will be minimized and the value indication for the subject will be more accurate.

Appraisers have had a taste of the quality of comps that an AVM would provide with the Fannie Mae Collateral Underwriter (CU). The Collateral Underwriter is supposed to provide an automated risk assessment of an appraisal report. Part of this is looking at the comps the appraiser used and then possibly suggesting other comps that were not used.

The comparables that CU suggest are a joke at best. I have had lenders provide me with comps that the CU came up with that are not even in the same city as the subject. They include foreclosure sales when they are not even appropriate. We all know that school systems are a driving force in value, right? Many of the comps provided are from different school systems and would not provide an apples to apples comparison of properties.

4. Checks and balances for AVM’s will be lost– It is possible to compare a real appraisal with a Zestimate or other AVM to see how they vary but if the AVM is the only thing used then you don’t know how accurate it is.

Automated Valuation Models have been used for a long time, and in certain circumstances can be useful. They can be used to initially estimate a property value to make a preliminary loan decision, however using it exclusively is not prudent in my opinion.

Numerous appraisers have analyzed Zestimates and other AVM estimates by comparing them to appraisals they have done to see how closely they match up. The AVM’s are not consistent in their accuracy and can vary by a wide range. For lenders interested in having the most accurate value for their loan portfolios this is definitely not the way to go.

5. Consumers may not see the cost savings since the AMC or lender will keep charging a full appraisal fee- Will the consumer really see cost savings? Or will it be like it is now in areas where there are supposed shortages?

Why didn’t my house appraise for what I thought it would?I have heard instances where the borrower was told that there was a shortage of appraisers and the lender had to charge upwards of $1,500 to get the appraisal done. The borrower was charged this amount but the appraiser was only paid $300-$400, if that much, and the Appraisal Management Company (AMC) pocketed the rest of the money. Sacramento appraiser Ryan Lundquist wrote of a similar situation about appraisal fees that you should check out.

Why would a lender or AMC pass on the savings to the consumer and give up money that the borrower is used to paying anyway? In my opinion, this is just a way to increase profits. There may be a savings in time, but at what cost to the consumer?

6. Owners will not know the true value of their assets- Sale price does not always equal market value. Some people think that if someone is willing to pay a certain price and someone is willing to sell for a certain price then that is market value, but that is not always the case.

With all of the inaccuracies that AVM’s provide how will the homeowner know the true market value of their largest asset? It reminds me of several situations I have seen in the past when buyers were paying cash and did not get an appraisal to make sure that the price they were paying was too much.

Life situations necessitated the owners sell shortly after they purchased the home, but they could not resell the home for what they bought it for because it was overpriced. If no appraisal mortgages result in a similar situation it can lead to short sales, which is discussed in #7.

7. Short sales could increase- If a home sells for more than its true market value, and the AVM does not provide how to appraise in an appreciating marketan accurate value indication, the buyer could immediately be underwater in their mortgage. This could result in a short sale situation because the lender will need to accept less than the amount owed on the property.

We all know how short sales affected overall property values during the recession, right? If you have enough short sales, overall price trends could take a dip downward.

8. No brakes put on bidding war situation- The word on the street is that inventory levels are down across most of the country. This has resulted in a seller’s market with buyers becoming frantic that they will not get the house they want.

One tactic that real estate agents have used for their buyer clients is to create a bidding war situation where they offer a price over the list price in order to have the winning contract. If the contract is accepted by the seller and the transaction qualifies for a nontraditional appraisal mortgage this could create a problem that was outlined in #6 and #7 above.

In situations like this where a traditional appraisal is performed the high contract price would probably be questioned based on recent sales and active listings. The boots on the ground appraiser would be able to let the lender know that their collateral is worth less than what they are lending on it, which would help them make a better-informed loan decision.

9. Lawsuits against agents could increase- Many of the above-noted situations could result in consumers becoming frustrated when they find out that they bought a house for more than it was worth. This could increase liability to real estate agents since buyers may choose to sue agents.

Since an appraisal was not done, the true market value of the home was not determined. As I noted previously, some believe that if a buyer is willing to pay a certain price and a seller is willing to sell at a certain price then that should constitute market value, but in reality, it may not. A traditional appraisal determines the most likely price after looking at numerous transactions, including closed sales and active listings. It goes beyond the agreed upon price, although it also is taken into consideration.

As you can see, there may be some unintended consequences from Fannie Mae’s decision to provide no appraisal mortgages. Appraisers provided valuable input into the last housing recession before it began to happen, although many did not listen. Will eliminating appraisers from future mortgage transactions be worth the risk to the housing market? Only time will tell.

June 6, 2017, Appraisal Foundation Letter to FHFA over Waiver of Appraisals Issue

Now that the false narrative of “appraiser shortage” by AMCs, Lenders and Large Appraisal Firms has been countered by the appraisal industry (absent AI National), the discussion of new policies from the GSEs concerning appraisal waivers seems especially irresponsible. In addition to the false shortage narrative, it was a reaction that was enabled by the refinance boom that is now over. It also shows how little the GSEs understand about the appraisal industry and the damage done by AMCs. FHFA has been spoon-fed an out of context storyline by parties with a financial gain. I also assume they are feeling particularly confident with a very high portfolio credit score created by mortgage underwriting disconnect from current risk reality.

Here is the letter sent by TAF to the GSE regulator FHFA that clearly outlines the FHFA disconnect concerning “No Appraisal” waivers.

I like to paraphrase Mark Twain, “history doesn’t repeat itself but sometimes it rhymes.”

APPRAISER FORUM & FESTIVAL – Real Estate Appraisers Are Holding A Convention for Real Estate Appraisers

In the rush to hold conferences for the real estate appraisal industry, the big stakeholders forgot about the real estate appraisers themselves. Next year there will be a new event and we hope you can make it. Details coming. I can’t wait.

RAC Conference Frisco TX: Changes, Challenges, Solutions

As I’ve said many times, the annual RAC conference is the best appraiser-centric conference I’ve ever attended. It is developed and operated by active appraisers who are working to help you thrive as a professional.

As the current president of RAC, I’m proud to be part of an organization comprised of the best residential appraisers in the U.S.

Click here for more information.

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 become boring, you’ll discover a Hyperloop under your garden and I’ll keep digging.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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May 19, 2017

Sgt. Pepper’s Lonely Housing Market Deep Tracks

You think that there is a lot of news and controversy coming out of Washington, D.C. these days? Well, the appraisal industry is seeing just about as much (Russia, aside) so be sure to read through the supercharged edition of the Appraiserville section below.

It is also important to note that on June 1st, we will celebrate the 50th anniversary of the Beatles’ Sgt. Pepper’s Lonely Hearts Club Band, the number one rock album of all time.

One could argue that this seminal album does not contain many deep tracks.

However, when you find deep tracks in the housing market, they provide a complete context to the market (or band) you thought you understood.

So let’s play that album. Ready?…1..2..3…4…Go!

NYC metro area NY Fed Business Leaders Survey [Sgt. Pepper’s Lonely Hearts Club Band]

In this NY Fed Business Leaders Survey, you can see how pronounced the pause in activity was late last summer into the fall before the U.S. election.

A Listing Description for the Ages [With a Little Help from My Friends]

There was a listing with this description on Zillow.

The single-family home with a cottage has been listed on Zillow since April and is priced at $130,000. This listing says in full:

Please read carefully before scheduling showings. May not qualify for financing. Great “diamond in the rough” investment property or primary home needing separate apartments. Little is known about condition except that property has active roof leaks.

Property is being sold “as-is” with no repairs, no clean-up, and no warranties expressed or implied. Upstairs apartment cannot be shown under any circumstances.

Buyer assumes responsibility for the month-to-month tenancy in the upstairs apartment. Occupant has never paid, and no security deposit is being held, but there is a lease in place. (Yes, it does not make sense, please don’t bother asking.)

Downstairs has 1,742 sq.ft, central HVAC, 2 large bedrooms, and ceramic tile bath w/separate tub and shower areas, living room w/fireplace, dining room, kitchen, utility/breakfast room and studio/study w/antique pine paneling and tile floors. Living room, dining room, and bedrooms have wood floors.

Berber carpet in central hall. In 2000, some electrical and plumbing were upgraded. Upstairs unit has 914 sq.ft. w/gas heater, large great room, built-in storage areas, small study/library w/bookshelves, bedroom, kitchenette (all in original pine paneling) and bath. Some electrical upgraded ’07.

Backyard cottage has gas heat, 563 sq.ft. of area including 2 rooms, bath and great room with kitchenette. All units have been used as rentals at some point. In the past, downstairs has leased for $1000, upstairs (occupied) $450, and cottage for $350.

U.S. Borrowers Credit Scores are insane. [Lucy in the Sky with Diamonds]

One of the reasons our housing market still remains distorted is because mortgage lending standards have not normalized. The credit scores for portfolio mortgage loans is incredibly higher than during the housing bubble era. In fact, 61% of all mortgages have an average credit score of 760 which is basically quadruple-mint territory. This is why I contend that credit conditions for mortgages – unlike auto loans, credit cards and student loans, remaining irrationally tight.

Getting Tired About Predicting Canada’s Housing Bust [Getting Better]

Goldman Sachs predicted that Canada’s housing market had a 30% chance of collapse within two years. Those odds seems fairly reasonable if not low considering their market kept on going after the U.S. collapsed.

The ‘Flipper’ Narrative Led to The Housing Bubble [Fixing a Hole]

Nobel Laureate and economist Robert Shiller connects the dots between housing data at the time and the price bubble through social narratives at the time – ie getting rich through flipping.

There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future.

The Bronx is bubbling [She’s Leaving Home]

As the search for affordability increases, there has been an outward push in demand extending to the outer boroughs and suburbs. When Queens began to boom a few years ago I described it as “Queens is the new Brooklyn.” Now “The Bronx is the new Queens.” As this recent TRD article says, Investors are placing huge bets on the borough – but the numbers may not pencil out. Sales since 2010 show prices far outpace building fundamentals: TRD analysis

Mile High Buildings? [Being for the Benefit of Mr. Kite!]

An interesting conversation with Justin Davidson, architecture critic for New York magazine on an article he wrote in 2015. This dovetailed nicely with a great Citylab piece I mentioned last week but still am reveling in the content: Why Do Autocracies Build Taller Skyscrapers? which had an even better short answer: Because they can!

Premium for private park access [Within You Without You]

Some Gramercy Park area residents in Manhattan have access to a beautiful 2 acre private park. Many years ago, New York City hired consultants to value direct access to the Highline for real estate purposes. They approached me to discuss the Gramercy Park premium although I’m not sure how they used that or even if they even used my feedback for their analysis of the Highline.

Renters That Want To Rent [When I’m Sixty-Four]

This weekend’s New York Times real estate section has a great piece on people that have the way, but not the will to buy their homes. Remember that roughly two thirds of residents in many urban markets are renters despite the fact that two third of U.S. residents are homeowners. NYC is no exception it is a two-thirds renters market. Manhattan is 75% rental.

And here’s an interesting NYT Magazine read on How Homeownership Became the Engine of American Inequality

Here’s a chart i created on the homeownership rate nationwide. The rate appears to be rising – or at least not falling unabated. Notice the Fannie Mae projection made during the bubble?

Second Avenue Subway Access Problems [Lovely Rita]

Sprinklers accidentally turned on and damaged three escalators at the 86th Street station on the new Second Avenue subway line. We New Yorkers love to complain.

Buying in a building with a pool [Good Morning Good Morning]

I’ve always seen pools as one of those amenities that are nice to think about but few actually use them. If the building is big, then a pool will likely have a nominal influence on your HOA fees. I remember appraising a loft-like townhouse in downtown Manhattan where a roof top pool was positioned directly above the master bedroom on the floor below. I couldn’t imagine getting comfortable with the thought of thousands of pounds of water suspended over me.

No, not one of these.

Forward-Looking Sentiment Cooling Off [Sgt. Pepper’s Lonely Hearts Club Band (Reprise)]

Appraiserville [A Day in the Life]

High-end appraisal lock by AMCs is collapsing

In my own practice, we are seeing some rumblings on the AMC front that is encouraging for our industry. Because these actions were fueled by upper management of banks, they could even be seen as a “tipping point” for the AMC stranglehold on the appraisal industry.

  • 3 major Wall Street investment banks that handle a lot of residential mortgage volume have called me to warn my firm to expect significant work volume from them soon. They are either not renewing their AMC agreements or requiring their AMCs to create high-end appraisal groups that cater to high-end mortgage loans. The blowback from their own client base has been significant and they needed to take action. Apparently, all those AMC analytics run on crappy appraisals don’t take the place of competent appraisers with local market knowledge.

  • 1 major wealth management banking group that is locked into AMC agreements from their larger retail group has formed a high-end review group so that the same people that review the slog presented by AMCs aren’t the same people who review high-end appraisers in specialized markets. So far they have been very refreshing to work with. We no longer get stupid requests that wear us out; i.e. “What does a doorman do in a condo building?” and “Do you really think this co-op is worth this amount?” We were close to the point of firing this long time client for demeaning addenda requests.

From the Desk of Dave Towne: Your Appraisal Signature

For excellent periodic insights, send appraiser Dave Towne a request to be added to his email distribution list: and tell ’em Jonathan Miller sent you.


Yesterday (5/17/17), a CA based ‘low echelon’ AMC sent an email to APPRAISERS requesting REAL ESTATE AGENTS upload their signature to the AMC website, for use in BPO’s.

Many appraisers began circulating messages about and questioning this request, and the blogosphere and forums are now filled with various comments. That’s excellent, because appraisers were paying attention.

This morning, a manager with this ‘low echelon’ AMC issued a retraction and apology, saying that the message was not meant for appraisers.

The problem with this situation is a number of appraisers are “dual licensed,” meaning they have BOTH a real estate sales person’s license in their state, plus an appraiser’s license. Some of these licensed appraiser people may in fact do real estate BPO’s for extra income.

The other major issue with this is apparently this ‘low echelon’ AMC thinks it’s perfectly acceptable for any REAL ESTATE AGENT to willingly fork over their signature, separately, irrespective of any actual BPO performed on behalf of this ‘low echelon’ AMC.

Appraisers are reminded that USPAP’s Ethics Rule, Management section (Pg 9, lines 276-282) clearly states that the APPRAISER is responsible for exercising due care to protect the unauthorized use of the APPRAISER’s signature.

One problem with unencrypted digital signatures – which are nothing more than an ‘image’ – is the signature can be removed from a PDF or the actual signed report if it is sent in native software. This is one key reason why I have major concerns about using the AppraisalPort delivery process. AP can, and often does, remove and re-use the appraiser’s signature when converting reports to the AP .env format when making the ‘new report document’ sent to lenders.

By the way, the .xml data sent with UAD reports does not have the signature [embedded]. But the signature is on the PDF report that accompanies the.xml.

Zillow’s Zestimate Under Siege

Phil Crawford Spews Out Verbiage That Makes Us Smarter

As a fan of Phil Crawford’s Voice of Appraisal, I signed up for his $4.99 monthly subscription because it’s not just his weekly must-listen show. He also shares some suggested verbiage for appraisers to address various issues they run into. This verbiage came out today:

The appraiser understands that the subject property may have a publically reported estimate of market value known as a “Zestimate”. The real estate technology firm known as Zillow uses an algorithmic propriety formula to compute this value. It is important to note that Zillow makes the following statement on their website about this product: The Zestimate® home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user-submitted data, taking into account special features, location, and market conditions. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:

• Getting a comparative market analysis (CMA) from a real estate agent
• Getting an appraisal from a professional appraiser
• Visiting the house (whenever possible)

The appraiser performed a detailed market and valuation analysis within the appraisal assignment. The opinion of market value is based on applicable and peer reviewed and accepted market data and not on a “proprietary formula” that has not been reviewed or verified by the appraiser.

Tom Horn Gives us Zestimate Artwork to Cherish

I’ve included a number of links below to the Zestimate Lawsuit – actually including two for Kenneth Harney’s syndicated column. But this was really an excuse to post Tom Horn’s real estate graphic with a useful description of a Zestimate:

The Outside World Continues to Fail to Understand Our Role in the Homebuying Process

From the Denver Post: Metro Denver’s average home sale price hits record $487,974 in April, even as number of closings cools

“Agents are experiencing a higher degree of cancellations and of contracts falling through,” he said. Part of that could reflect offers from buyers that are going above what appraisers are willing to support.

Willing to support?

Updates from the Real Estate Industrial Complex

Here are some posts 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 Committee (RAPT) Working to Develop Recommendations To Address Neglect of Residential Members

Woody Fincham, SRA, AI-RRS penned a summary piece on this effort in Joan Trice’s Appraisal Buzz site yesterday. His public reputation is one of absolute loyalty to the policies and practices of AI National, so it invites analysis to make sure a balanced message is conveyed.

I’ve written about this residential committee before, here on REIC. Here are my thoughts after reading this post. I’ve broken it down into two viewpoints; cynical and optimistic.

Cynical Viewpoint

— The title of Woody’s blog post Appraisal Institute Addresses Residential Appraisers’ Issues is weakly worded. Full disclosure – Woody and I have a history. He has been critical of me in social media and behind the scenes with people I know. But still, I respect anyone who enters the arena of discourse at a seminal moment in our industry’s history. I just wish he would rely on facts and not simply go with the default storyline of AI National. Critical thinking as a lucrative appraisal skill can apply to everyday life including the actions of a trade group or professional association. His post title choice infers that AI National is in the middle of resolving residential membership issues. They are not – to my understanding from Woody’s recent email to me. Granted the committee has already been getting together to create recommendations for AI National to consider. This is great news. However, I don’t believe AI National has “addressed” anything yet and hopefully, when they do, they will tell their members. Better title: ‘Appraisal Institute Will Review Input From New Residential Appraisers Committee.’

— Quoting from his blog post: “Appraisal Institute research shows that the number of licensed U.S. appraisers has declined nearly 23 percent since 2007, a drop of approximately 3 percent each year.” Unfortunately, the membership decline of the Appraisal Institute has fallen by 35% over the same period – relying on AI National statements and documents on their website (facts). The decline in membership can be seen in charts from an earlier post on REIC. In other words, the rate of decline of membership of AI National has been more than 50% faster than the appraisal industry itself since 2007. Because AI National membership decline is faster than market forces facing the industry, it is reasonable to suggest that the excess decline is due to the mismanagement including the lack of attention AI National has provided to their residential members.

— Specifically, Woody gets passive-aggressive by lecturing bloggers like me with the “noise in the blogosphere” comment. The “blogosphere” on this issue is essentially me and a handful of others because we are the only people blogging about this issue. He pulled out an old family chestnut saying we (the blogosphere) are a bunch of whiners because we aren’t doing something about the damage done to the SRA designation (also see Brad Bassi’s eloquent response in the original post).  It looks like he forgot to consider that if it weren’t for my “whining” back in December with my “taking” post and Jim Amorin’s subsequent trip to Dallas to pause the “taking” action due to the massive organizational backlash, then Woody wouldn’t be on this residential committee because it wouldn’t exist, because Jim Amorin wouldn’t have been pressured to suggest it, and therefore Woody wouldn’t have felt the need to lecture us on not taking action.

— Let’s remember that the Appraisal Institute’s lobbying thrust (advocacy) in 2016 was towards alternative valuation standards and was to the tune of at least $100,000 based on public disclosure filings. As far as we can tell – and their silly press releases aside – the key lobbying efforts were centered on the fight for an appraiser’s right to switch off and on their license to take $25 evaluation assignments. Jim Amorin, Bill Garber and Scott DiBiasio of AI National feel strongly that all their residential members want the option to do evaluation work and don’t believe it damages the value of the SRA and the standing of appraisers in the industry. Jim Amorin has formed this committee to provide solutions to stop their neglect of residential membership. Logic follows that because they don’t understand the needs of their residential members as evidenced by the formation of this committee, they don’t realize how Scott DiBiasio’s stealth lobbying effort on a statewide level severely damages the public trust and is a betrayal of AI National residential membership. I hope the committee addresses this specific issue and refutes what Bill Garber inaccurately represented to Congress last fall and what Scott DiBiasio asserted in various state legislatures.

— The same people – literally the same leadership for at least a decade – that have ignored the SRA brand are the same people that are going to implement the committee’s recommendations: all, some or none.

— As the article correctly states, this committee process will be a long slow effort. Unfortunately, the Appraisal Institute is in a state of crisis and doesn’t have the luxury of time.  In all due respect, how can this process not take more than a couple of months if it was of such importance to AI National? AI National is losing membership at an alarming rate. I have been told they spent heavily on their international recruiting and apparently it continues since Scott Robinson just spoke in Serbia. They are also spending on lobbying for alternative standards at a statewide level and in DC.  It feels like they see the end is near, and these are their last ditch efforts but aren’t sharing their strategy with anyone.  When the “taking” policy is enacted on January 1, 2018, as stated, and AI National – in theory – will have nearly all chapters’ money, how much will AI National care about the residential committee’s recommendations? My guess is they won’t need to care because the implementation of this committee appears to be done to appease residential membership during a significant membership backlash. “Throw the residential membership a bone to keep them occupied,” so to speak.

Optimistic Viewpoint

  • The group includes some terrific residential professionals and good people – some of which I have the pleasure of knowing and some others I simply know from their reputations shared by people I respect.

— I agree with Woody’s assertion that the SRA designation holds value to some clients. However one can’t hide behind that assertion and apply it to the whole membership, or otherwise, there wouldn’t be a reason to have this committee. A lot of time and money has been spent by the residential membership to earn their SRA designations. The function of AI National is to create a branding value-add to hold such a designation. Let’s apply “paired sales analysis” to extract the value of the SRA designation. If you took the value of the SRA designation in 2007 and compared it to the value in 2017 –  What is the contributory value between the periods? Are they different? Yes, of course, they are quite different. Why are they different? Because AI National has largely ignored this designation for years relying on decades-early momentum. Running the same old ads isn’t supporting the brand.  I believe it can be revived to a limited degree if AI National gets behind it instead of funding speeches in Serbia and Romania.  However, deep down I suspect it is too late – AI National missed their moment.

The time for lecturing those who criticize AI National is over because to do so is self-serving.  Criticism is the engine that promotes improvement.  Whining about critics like me not having the facts is disingenuous.  Focus on the actual problem and help the membership…now.

I truly wish the committee well and hope they are able to make effective recommendations to AI National to implement immediately for their residential members. The residential designations for AI members that possess them were hard-earned.  I’m with you and hope the committee does a thorough job keeping the membership informed and specifically recommends to AI National how important timely communication is to their residential membership.

The time is now for the committee and roll up their sleeves and get something constructive accomplished for the hard-working residential appraisers in the Appraisal Institute sooner than later.  There isn’t a lot of time left. These efforts are greatly appreciated.  Fingers crossed.

  • Kenneth Harney, syndicated columnist writes: “Zillow faces lawsuit over ‘Zestimate’ tool that calculates a house’s worth”

The “Zestimate” AVM results are being tested by the courts as a homeowner (who happens to be a lawyer) sued them over the results. While I don’t know if the accuracy is an issue in this case, conceptually it always has been an issue. I’ve railed about this tool for a decade, specifically because the presentation infers a precision that doesn’t exist. I have been in several articles on the topic over the years relating to my own home’s value including the WSJ. When our market was stable, my home value plummeted 25% almost overnight. When I modified my square footage and number of bedrooms to reflect actual conditions (my house is a 200-year-old historic home) the value of my home increased 5 fold. I met former Zillow president Lloyd Frink and their chief economist at the time. Stan Humphries in my office to discuss it. Both very nice people who have a strong belief in this tool despite the real estate industry’s concerns, namely from appraisers and agents. Zillow’s response to me on this issue was along the lines of “the consumer is smart enough to know when the results are off.”

Now that the AVM has been in use for more than a decade, it is ubiquitous. And the fact that it still continues to be presented as rounded to the nearest dollar, infers precision.

  • Stephen Wagner, MAI, SRA, AI-GRS justifies implementation of “Taking” policy on January 1, 2018, saying vast majority of AI Chapters want AI National To Take Most of Their Money.

The following feedback was just shared with me by an attendee.

The Regional 8 meeting was on Saturday. That is generally composed of Central Texas, El Paso, North Texas, South Texas, Houston and Austin. In short nothing has changed with respect to AI. Beta testing will begin in the next few months with some chapters for the new policy and most larger chapters are not. One stat that Stephen Wagner provided is that “only” 20 % of the chapters do not like the policy. Well that means nothing – the chapters who do not want the policy “as is” are the large chapters with the highest number of members. So if some chapters need the AI Mothering FINE. But those of us who do not what AI to provide this mothering want an opt in opt out provision. In short after many of us telling them “they owe the membership more than they giving, provide this extra provision and that their arrogance is going to be the final straw that puts us down – they refuse to acknowledge these issues!! I am totally ashamed of our leadership and embarrassed at what this is doing to our reputation nationwide.

As a reminder, Stephen Wagner is part of the inner circle of leadership that is driving this train wreck. He is also the co-chair of the Residential Appraiser Project Team (I addressed this previously in REIC on May 16, 2017). The silliness of the 20% figure either disqualifies him as co-chair as a defender of the leadership status quo, or it makes the committee’s efforts moot. Or both. How about presenting a list of the chapters that are either for or against the “taking policy” in the interest of transparency, since there is so little trust between membership and AI National?

Good grief.

I remember when Saddam Hussein won re-election with 100% of the vote.

A Brilliant Idea

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See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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October 14, 2016

Shipping Housing Values Elsewhere

It’s been a stressful week for news, especially after last week’s clown analysis. So rather than delve into those details, I’m going to actually focus on housing related topics and not stoop low to discuss the after effects of your favorite childhood cereal or this.

I should point out that after 4 years, my wife and I finally agreed on a name for our boat. It will be known as “Sound Decision” – because we are located on Long Island Sound and it clearly isn’t a good decision. Our kids fought hard for “Tough Ship” but my wife and I didn’t want to go low road.

but I digress…

5 Market Reports Have Been Shipped

For those of my non-NYC metro Housing Note readers, the following is regional but might be interesting nevertheless since many of the patterns we are seeing in the NYC metro area are playing out across of U.S. housing markets.

It was week 2 of our 4 week U.S. market report gauntlet. Douglas Elliman Real Estate published 5 reports that I authored, covering 8 housing markets. Next week: South Florida, Fairfield County, including Greenwich, CT.

Elliman Report: Manhattan, Brooklyn & Queens Rentals 9-2016

We learned from the report release that Wall Streeters are more interested in the New York City apartment rents than the Fed minutes, slumping stocks and the Wells Fargo CEO resignation.


Here’s a chart from Bloomberg that uses our data. Click on it to open the article. bb9-2016manhattanrent

Douglas Elliman created a nice graphic for the report.

MANHATTAN Rents Manhattan median rent slipped as new leases surged and landlord concessions expanded. This was the second time in nearly three years median rental price declined year over year. Both of those declines came in 2016 with the prior decline occurring in February. Median rental price slipped 1.2% to $3,396 from the same period a year ago. Average sales price edged up 0.8% to $4,117 from the same month last year. Median rental price declined most at the upper end of the market and was flat in the entry market…

BROOKLYN Rents After two consecutive months of declines, Brooklyn median rental price edged higher, along with a surge in new leases and gain in inventory. Median rental price rose 2.4% to $2,949 from the same period last year. Average rental price increased 2.2% to $3,197 over the same period…

QUEENS Rents Rental price trends for the Northwest Queens market have remained mixed, declining in 7 months over the past year. Median rental price for the area that includes Long Island City, Astoria, Sunnyside and Woodside, declined 5.7% to $2,787 from the same period a year ago…

Elliman Report: Brooklyn Sales 3Q 2016
The Brooklyn housing market continued to push the envelope both with higher prices, more sales and falling inventory. Median sales price increased 8.7% to $735,000 from the same period last year to a new record. Average sales price showed a similar pattern rising 14.8% to a record $983,511, just shy of the $1 million threshold. Housing prices continued to rise across all property types and all major regions of the borough. The median sales price for condos were up 6.8% to $812,008, co-ops were up 8.4% to $428,000 and 1-3 family houses were up 9.2% to $830,000 respectively over the same period…

QUEENS sales
Elliman Report: Queens Sales 3Q 2016 The Queens housing market set a number of new price records, as the region benefited from the spillover of demand from Brooklyn. Median sales price set a new record, rising 10.7% to $499,000 from the same period a year ago. Average sales price followed the same pattern, rising 7.6% to a record $561,966. There were 3,750 sales during the quarter, up 3% of the same period last year to the highest third quarter sales total in 9 years. With heavy sales volume, listing inventory continued to slide. There were 4,291 listings on the market at the end of the quarter, 18.3% less than the same period a year ago…

Elliman Report: Westchester Sales 3Q 2016
There were more residential sales during the third quarter Westchester county housing market than during any other quarter over the past 35 years. The sales were comprised of single-family homes, 2-4 family homes, coop apartments and condominium units. The overall market has shown heavy sales volume for more than a year now fueled by New York City renters and homeowners priced out by the recent housing boom. There were a record 3,193 sales, up 4.9% from the same period a year ago and the prior record… westchester3q16matrix

Putnam & Dutchess sales
Elliman Report: Putnam & Dutchess Sales 3Q 2016 The Putnam county housing market saw the most sales in 11 years. The number of sales surged 21.5% to 367 from the same period a year ago. Single family home sales accounted for 87.2% of total sales while condos accounted for 12.8% of total sales respectively from the year ago quarter with roughly the same representation by property type. Listing inventory dropped 27.8% to 698, pushing the pace of the market more than 40% faster than the same period a year ago. The absorption rate, the number of months to sell all inventory at the current rate of sales, was 5.7 months compared to 9.6 months in the year ago period, the fastest market pace in thirteen years…

Vancouver is shipping foreign housing demand elsewhere

[click image for WSJ article]

On August 2nd, the Vancouver government implemented a 15% property-transfer tax on non-Canadian buyers to prevent further proliferation of building “bank safety deposit boxes” in the sky. The results have been dramatic across the market. Luxury market sales fell 57.5% and overall sales fell 30.2% from the prior month. While these month over month numbers strike me as exaggerated since there was a rush to close in July before the deadline and sales were compared with sales after the deadline, I would think there will be a significant impact to prices. While prices haven’t been hit yet I am confident they will be eventually with less demand. This will impact property values for Canadian buyers int he market going forward. I don’t know what the alternative is but Vancouver seems to be a test case. I hope city officials are expecting a sharp drop in tax revenue going forward.

Be careful what you wish for.

Shipping a condo’s value 2 inches to the right and 16 inches down

I’ve written about the construction problems with the Millennium Tower in SF in a prior Housing Note. The Real Deal poses the greatest home valuation question EVER:

So what’s a condo worth in the 58-story Millennium Tower at 301 Mission St., the most luxurious condo tower in San Francisco, which has sunk 16 inches since its completion in 2008 and began leaning in 2009?

There will be years of litigation ahead but the condo owners have already begun to provide their value opinions.

Before revelations this summer that the tower was sinking and leaning, condos had been valued from $563,084 to $12.6 million, with 141 units valued at over one million, according to the SF Examiner; but now the dynamics have changed: “Some stated figures as low as $0, $1 or $2. Others knocked off a million dollars or reduced the value by half.”

In litigation situations there are always parties who claim there is “zero” value to a property. I find that line of reasoning is quickly dismissed when the opposing attorney offers to overpay for the property and give the plaintiff $1.

This situation seems to be a “catch-22” because the value is predicated on an assumption that there is a functioning market for it. Questions about additional sinking and leaning, safety and a lot of future litigation have likely made the project non-financeable and unsaleable at the moment. But that doesn’t mean forever and those questions will probably be answered eventually. But it means a lot of caveats and hypotheticals to provide some sort of value of those units future.

Shipping demand for city housing to the suburbs

There were a couple articles in Curbed that I stumbled across that talked about the new shift in housing demand (we are already seeing this in NYC with record suburban sales (see Westchester report above). Affordability leads all discussions.

Curbed: Why Millennials May Soon Leave Big Cities The trends that have brought more young adults to urban areas are about to reverse, says a new study


Curbed: Can building luxury condos fix the affordable housing crisis? The answer is more complicated than you think


REFA: For Sale and for Rent, Trouble at the Top?

If you happen to be in or near Connecticut on October 25th, I’m moderating what looks to be an interesting panel in Stamford, CT for the Real Estate Finance Association.


Please read and sign this letter

Appraiserblogs posted an open letter by The Virginia Coalition of Appraiser Professionals sent out an open letter to AMCs. Whether you are an appraiser, in the mortgage industry or somehow connected with the valuation process, please take a moment to read it and hopefully sign it. The intent is to create much more awareness about the damage the appraisal management company (AMC) industry is causing to the quality of valuation that is relied on in the mortgage lending process.

You can read and sign the letter at the bottom of the post under the heading “VaCAP AMC Letter” in red – it is simple and quick. I find it encouraging to see the all the grassroots efforts by state coalitions to rise up after appraisers have been long neglected by appraisal industry trade groups who seem only focused on collecting a fee.

[click to open Appraiserblogs post]

Phil Crawford at Voice of Appraisal has a list of state coalitions.

Appraisers Narcing On Each Other

One of the things that has annoyed me for my entire career is how many appraisers are so ready and willing to get personal digs in on an appraisal review for a mutual client. It’s as if our industry can’t help ourselves.

Our firm completed an appraisal for an estate and the broker told the estate they thought we were a little low. So the estate hired a local appraiser recommended by the broker – I have run into them over the years (personal dig because I can’t help myself: this appraiser worked for a company that went under after the owners lost their license). The appraiser has always seemed like a nice person and from what little I’ve seen, also seems to provide adequate quality work. The appraiser proceeded to perform a “review” of my appraiser’s report but used an effective date of 8 months later than ours, throwing in jabs at our appraisal – yet the comps he used in his report did not exist 8 months prior. He even referred to things I’ve said on valuation methodology in the media as evidence we were low. Bizarre. Why do some appraisers act so unprofessional sometimes? Are most appraisers that insecure? This unprofessional behavior only makes that reviewer look bad to their client.

In this situation the appraiser didn’t review us on the effective date of our report (so its not technically a review under the guise of being one) and he looked to be too high. So for the rest of my career, we will no longer recommend this person. If the appraiser’s review stuck to the facts and compared apples and apples it would be business as usual. Does the review appraiser really think this places them in a good light with the client? No, it doesn’t. In this particular case, we spoke to the client who inferred as such. We declined to provide a rebuttal to the review but did offer to be engaged to update our report by 8 months.

In the appraiser’s defense and some of the really outlandish review commentary I have seen over the years, some appraisers are just very poor writers outside of their comfort level like providing constructive criticism over providing market analysis in their reports. Don’t go down that path. Stick to the facts and your experience in the market and stay away from reality television behavior. Otherwise you do yourself, your colleagues and the appraisal industry a disservice.

Appraisal Oversight, Illustrated

This was shared with me from a colleague – don’t know the source: “This demonstrates what’s wrong with the appraisal industry.”

[click to expand]

A Brilliant Idea

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See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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Miller Samuel at 30, A Short Story

October 4, 2016 | 11:14 pm | Milestones |


It’s hard to believe that thirty years have passed since my family and I began our Miller Samuel appraiser journey. Here’s a little bit about the experience which reminds me of that old joke about marriage:

“We’ve been married for 30 years and it only seemed like five minutes…under water.” (boom)

It all began in 1986 when my parents, wife, sister, former brother-in-law and I got the idea to form an appraisal company after we had actually raised a substantial amount of money to launch a real estate brokerage firm. My wife and sister were already appraisers. A lawyer that I sold a condo to in 1985 (yes, I was a real estate agent in NYC for a brief stint) found a group of Japanese investors willing to back us. When it came down to it, we just couldn’t sign on the dotted line because we didn’t want to become real estate brokers. Our family’s collective real estate background was mixed, including brokerage, appraisal, management, development, rentals, sales, but most importantly, a lot of analytics and a fascination with technology. We seemed to be different from our competitors, creating our own software (there was no appraisal software), going with the Mac as a platform over PC and collecting any data we could re-use. I remember that we were the first New York appraisal firm to have two fax machines, with a hunt and search two line setup, allowing us to give out only one fax number (LOL). We cold called banks and hand delivered our appraisal reports to better connect with our clients (Who had heard of email?)

It’s a leap of faith to start a new business and in our first month, we received two bank appraisals for a total of $600. Even with the high cost of three couples living in Manhattan, those two appraisal orders felt like $1 billion – and they remain best feeling of validation I ever experienced in my professional career. Within a few months of our launch, our volume snowballed and a year later we nearly tripled in size to 17 employees and lots of personnel challenges.

The October 1987 stock market crash caused appraisal volume to implode. We laid off more than half of the firm shortly thereafter and stuck with an 8-employee line up for the ensuing decade. From this experience we learned a valuable lesson – we were far more profitable with a smaller nimble firm that focused on quality over volume. In addition we were able to do what we loved rather than be mired in personnel issues. Manhattan was our turf and we loved and walked every inch of it.

By 1989, appraisal licensing came on the scene after the S&L crisis. While I had already taken appraisal courses, continuing education became a mandatory requirement for the upcoming licensing law. On a whim, I remember flying on a Trump Air helicopter from Manhattan to Atlantic City for $75 to take an appraisal course for my license – who knew appraising was so exciting? As a self proclaimed cool geek, I felt very out of place standing on the heliport near the Javitz Convention Center waiting with the Atlantic City heavy hitters wearing white polyester blazers, gold chains and white patent leather loafers, ready for a weekend of gambling.

The subsequent years brought us through a recession where the New York region was hit far harder than the rest of the country and distressed real estate was the next wave. Remember the division of the FDIC known as The Resolution Trust Corporation (RTC)? By 1990, 50% of our practice involved co-op foreclosures, a byproduct of the high velocity rental to co-op conversions and a tremendous amount of investor activity that overheated the market – eventually the music stops in any housing boom. Renters were flipping their insider rights to outsiders for their retirement nest eggs.

Other appraisal firms arose in the early to mid-1990s that pushed out many of the “out of area” firms with token representation in Manhattan. Indirectly, these large new competitors ended up being helpful to us as they worked very closely with mortgage brokers and were hyper focused on high volume. We were focused on quality and low to moderate volume. From the beginning, we had worked hard to reduce our dependence on mortgage related work. Mortgage brokers, who were paid only when the loan closed, got to pick the appraisers. That conflict of interest was always mind boggling to me. The mortgage brokerage industry generally did not pay for appraisal reports until they reviewed the value to confirm whether it was adequate to make the deal work. By that point the appraiser had been officially converted from valuation professional to deal enabler. We weren’t very popular with mortgage brokers since we required payment before we would release the value.

By the late 1990s the Dot-com boom was in full force and the irrational exuberance we experienced in the 1980s returned, carrying all the way through the housing bubble. Our firm did not fair very well during the bubble from 2003-2008 because we weren’t morally flexible to work in this new world where risk was assumed to be managed away so reckless behavior was the standard – conflict of interest was the standard. We saw appraiser competitors’ volume explode to the point where they dwarfed us in size. Their commissioned staff were able to do as many as 40 appraisals per week, which included taking the order information, making the appointment for the inspection, getting information from the managing agent, searching for comps, calling agents to confirm condition and other comp information, writing up the report and fixing edits from the reviewer, following up with calls after the client received the report, etc. I should mention that Manhattan still doesn’t have a traditional MLS and sales were not public record until 2006, 20 years after we began. Our firm was based on salaried staff to control quality and maintain professionalism but maxed out at about 8 appraisals per appraiser per week. I never understood the math for the high volume process unless virtually all quality corners were cut. Our appraisal staff is still salaried with benefits today. Back then, those types of “crank it out” firms thrived at the expense of the dwindling pool of ethical appraisers. It was a frustrating period in our history because we could have tripled our volume overnight if we sold our souls. We just couldn’t.

By 2005 it became apparent that the end of the bubble was coming and I still needed an effective way to get the word out – that something was wrong with the mortgage process – not that anyone would listen since they were making too much money. U.S. banks began closing their in-house review appraisal groups as “cost centers,” and loan officers began to call and demand higher values or cut us off and mortgage brokers were dominating the market even more. So I started blogging about it. I figured I had nothing to lose by going public. And thankfully the feedback came quickly. My first blog post on Matrix (I had start writing on my appraisal blog Soapbox the previous month and later merged them) was in the summer of 2005 based on an APM Marketplace radio interview. Later, CNBC came to my office to talk about “real estate’s dirty little secret”…where I said on national television that “75% of bank appraisals weren’t worth the paper they were written on.”

I knew we would be out of business in three years (by 2008) if we didn’t change our business model. So we fired all our national bank clients (before they could fire us) as they went to the appraisal management company model that essentially removed all local market knowledge from inhouse. The onslaught of dumb questions from AMCs made the decision easier (i.e. sample AMC review question: “What does a doorman do in a co-op or condo building?”) We proceeded to focus on the underserved private and legal work – our ability to adequate serve these clients had been hampered from the mind numbing clerical tasks that appraisers were required to do. And it worked! Our new focus on clients that actually wanted to know what the value was and were willing to pay a fair fee for paid off.

When Lehman collapsed in September 2008 almost simultaneously with the bailout of the GSEs and AIG, mortgage appraisal work nearly came to a halt. Thankfully we had already inverted our business model away from retail bank appraisal work in the prior year, around the time that Bear Stearns had collapsed. Our new business model was very contrarian to the state of the market. The change to our business and new revenue streams were inspiring and liberating. Our firm has experienced record sales nearly every year since 2008 but only because we have stayed away from retail mortgage appraisal work. Aside from the very low fees, AMCs that issued appraisal orders for banks kept expanding clerical requests to justify getting half of the appraisal fee. Since the Lehman moment, most of my competitors have gone under and most of the principals either no longer have their licenses or have left the business. Unfortunately for mortgage lenders (even though they don’t realize it) is that most of the “best” appraisers in each housing market have either left the business or moved on to more lucrative market rate work.

The false appraisal shortage narrative being perpetuated by the AMC industry is disturbing since it is really about the shortage of people willing to work for up to half the market rate. There is no shortage of appraisers. Over thirty years of measuring housing markets and valuing property has taught my firm that appraisers, like housing markets, are subject to supply and demand. The current mortgage lending environment is stuck with a solution that ignores that basic fact, so good firms like us move on to greener pastures. As a result, Miller Samuel is not looking to return to generic retail mortgage appraisal work anytime soon. That is a shame because we have 30 years of market experience to share with those banks to help them make informed lending decisions on their collateral.

As the incoming president of RAC, a group comprised of the best residential appraisers in the U.S., I observed that many of our members moved out of the mortgage appraisal business as we did to land higher quality work. This mass exodus of the best appraisers in each market presents an incredible loss to the collective knowledgebase of the mortgage lending industry. Perhaps because of the federal backstop employed at the “Lehman” moment in 2008, the mortgage industry still thinks they have risk management under control. They don’t.

Hopefully at some point in the not too distant future, regulators, taxpayers, government employees and other assorted stakeholders will come to realize that it is for the greater financial good of the taxpayer/consumer to have a mortgage appraisal industry exist that is:

  • competent through education and mentoring
  • allowed to provide a neutral opinion of value without fear of retribution
  • adequately and fairly represented in the mortgage process

These elements do not currently exist. In order for the current disconnect between mortgage lending and collateral valuation to be fixed, it must be understood that:

  • a real estate appraisal is not a commodity, nor is the appraiser
  • real estate appraising is a professional service
  • real estate appraisers are the most essential element of understanding collateral values in order to make informed lending decisions
  • without adequate representation, appraisers will continue to be overrun with scope creep
  • appraisers are subject to the laws of supply and demand like any industry
  • cutting the pay of appraisers by half has an adverse impact on the reliability of the valuation result

It’s been quite a journey for our firm.

Miller Samuel is going to continue to do what it does best, provide neutral valuation opinions on collateral to enable our clients to make informed decisions.

And yes, these past thirty years have felt like holding our breath for five minutes underwater, but it was worth it.


August 5, 2016

Examining The Fabulous Housing Market Without The Flossing

First, let me get a little bit of #weddingtalk out of the way:

As I mentioned in the previous installment, I attended a nephew’s wedding in the Midwest and took a little time off (as I write this Housing Note I am technically still on vacation). Over the past week, two of my four sons became engaged (that brings our sons’ engagement ratio to 75%). They both proposed in the same time zone but one in the Northern Hemisphere and one in the Southern Hemisphere as well as one on the beach at the Atlantic Ocean and one on the beach at the Pacific Ocean. That’s pretty cool. In addition, we have three more weddings to attend in the next three months, including my oldest son’s wedding in my backyard and two more relatives in the midwest. In case you were wondering, I’ve been married for 32 years. #weddingtalk

But I digress. Here is another important issue…

My roommate from college is my best friend, a homeowner and more importantly, a dentist. I can only imagine him going apoplectic on the big AP news story this week – that the medical benefits of flossing is unproven and therefore flossing might not be really necessary. One of my favorite podcasts Surprisingly Awesome gets rid of yesterday’s meal:

What does this have to do with the housing market? Give me a minute, I’ll come up with something.

Fabulous Listing Terminology

Speaking of flossing, here is a quote of mine in a Manhattan townhouse listing one of my appraisers spotted. While the numbers are accurate, the quotes and words are not – a combination of the source and the sourcee. To all my loyal Housing Note flossing and non-flossing readers: I have never, ever, ever used the word “fabulous” to describe anything to do with the housing market or anything not to do with the housing market, anywhere, at anytime…until now so please read on.


The use of the word “fabulous” is more often used when there is limited transparency, such as the Steve Roth on Vornado’s 220 Central Park South project. His mistake was hyping the performance of the building early-on and his lack of consistency in communication of the building’s absorption rate simply creates an assumption by market participants that sales have nearly stalled.

Roth acknowledged a slowdown in sales earlier in the year, but claimed it ended a few months ago. Sales are going “fabulously well” and exceeding Vornado’s expectations, he said. “There has never been a project in New York that sold as well.”

‘Land’ is a four letter word

I called in to Kathleen Hays and Pimm Fox on Bloomberg Radio’s ‘Taking Stock’ yesterday where we discussed a seminal Bloomberg News story: Manhattan Luxury-Condo Glut Ends Developer Rush for Land Deals by Sarah Mulholland and David Levitt. They chart data from Ariel Property Advisors, who I am a big fan of as a role model for the way commercial real estate research should be presented.

Let’s revisit what land really means in the housing market. Here’s something I wrote for Bloomberg View on November 11, 2014 that went #1 on the Bloomberg Terminals and was the #4 most popular read on (readers must have thought it was fabulous):

Housing Bust Wasn’t About the House

Unless you live in a cave, you’re no doubt familiar with the outlines of the housing bust that marked the beginning of the financial crisis: Real-estate prices plunged, people lost their homes, banks went under and the economy tumbled into a recession. We are still grappling with the hangover.

There’s only one issue with this narrative: Housing prices didn’t fall that much in the meltdown, or at least the value of physical structures didn’t fall much. It was the price of land that imploded. See the chart below:

land prices chart

In advanced economies, rising land values have been behind as much as 80 percent of the real-estate price gains since 1950. U.S. housing prices increased about 650 percent during the past four decades and most of that gain was due to rising value of land.

One thing rising land prices help explain is the tear-down phenomenon — when a small home is replaced with a larger home. A more valuable piece of land can justify a larger, more expensive home. That’s also one reason why the average size of a U.S. home has increased almost 60 percent during the past four decades.

So next time someone says they can’t believe how much housing prices have risen — or fallen — tell them to blame the land they’re standing on.


Forget Dumpster Diving, The Scourge of Cities are Dumpster Pools

The City of Philadelphia is cracking down on… dumpster pools h/t Oshrat Carmiel It cleverly avoids the none to negative impact to value of above ground pools.

However with the eventual downshift in new residential construction, this seems like a fabulous alternative use of construction roll-offs (dumpsters).


More on the housing development stall

There has been a lot of eye opening in the housing industry this year after at least two years of wearing blinders in the fetal position. The mad rush to build a lot of new housing product skewed to the high end of the market is now not looking as smart as it once was. New York luxury condo prices corrected as much as two years ago which is why absorption has been so slow.

Some developers in New York have done well despite the slow down, but its not a secret how they do it. Offer product outside the over-saturated locations and segments and re-price existing offerings to the new market condition…and then units will sell. The current stall has been created by sellers who are unwilling to adjust prices downward to the new market. I’ve said this many times in these Housing Notes.

We are seeing prices begin to fall in overbuilt markets like downtown Miami:

That’s not likely to change in the near future, either: Integra’s report shows another 5,508 rental units are under construction and expected to open within the next two years, with 8,483 more apartments in the proposal pipeline for the greater downtown area alone.

I think those Miami flippers are going to be very disappointed. Last cycle’s carpenters and nurses have been replaced by Wall Streeters. And it’s not just about condos. Miami-Dade county is expected to see the largest influx of rentals in 17 years that are pressing rents lower.

Downtown LA is also seeing heavy new rental product enter the market, raising the use of concessions by LA landlords.

The new dynamic, Basham said, can be chalked up to simple supply and demand. In the last year and a half, more than 3,700 apartments have opened downtown and an additional 6,260 are currently under construction, according to real estate firm Transwestern.

Big Closets Are Fabulous

The New York Times real estate cover story focused on the topic of closets. They are getting bigger. But not because homes are getting bigger. They are growing faster than the size of the properties themselves. I saw this in my research of the Manhattan condo market – here’s me quoting myself which is pretty fabulous.

Jonathan J. Miller, the president of the appraisal firm Miller Samuel, estimated that master bedroom walk-in closets in top new apartments are nearly 30 percent larger than they were in the last development cycle, before the financial crisis of 2008, while the overall size of those apartments has grown by only about 10 percent.

“When I started in the mid-80s, closets were few and far between — very tight, not very deep, and not a lot of walk-ins,” Mr. Miller said. “It’s the polar opposite now.”

It makes sense. Buyers of these units probably have a lot more stuff to keep and the self-storage industry is booming. Why not keep it in your closet?


Appraising can be fabulous, but when an appraiser is pressured by a client in an inappropriate way, the appraiser needs to reach out and complain. Per the Federal Reserve Regulation Z Truth in Lending Act [bold – my emphasis]

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) amended the TILA to include several provisions that protect the integrity of the appraisal process when a consumer’s home is securing the loan. The rule also requires that appraisers receive customary and reasonable payments for their services. The appraiser and loan originator compensation requirements had a mandatory compliance date of April 6, 2011.

As my friend, appraisal industry leader (and accomplished bad joke teller) Tom Allen of Oklahoma gave me his message to the appraisal community: “Don’t be afraid to file a complaint or voice your opinion.” And file complaints early and often (I paraphrased what Tom said using his style) when you are being pressured.

This hotline is not a one time thing but a tool provided by the federal government to give appraisers a voice, something we don’t have through lobbyists that deep pocketed financial institutions have used against the industry for the past decade to disastrous effect.

Appraisal Complaint National Hotline

The letter below is the response by the Federal Reserve to a letter from the 25 state appraisal coalitions (who seem to be the only entities who actually work on the appraisers behalf these days and have been very effective) in regards to “reasonable and customary fees.”

It is important that the appraisal industry uses the link to the Appraisal Complaint National Hotline and follows the process for filing complaints. Instead of whining about it (like I have been known to do), it is important that you take action now. I’m told the regulators are very interested in hearing from appraisers about the fee pressure our industry is subjected to, especially from the controversial appraisal management company [AMC] industry.


A Brilliant Idea

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll feel better than a wind turbine on fire, you’ll fly faster than a pigeon on the highway and I’ll feel fabulous.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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March 4, 2016

Housing Notes Turns 1: So Let’s Talk Banana Bread Pudding, Half Fees and The Big Short

Believe or not, I started writing these Housing Notes a year ago. The first Housing Note was more of an introduction, but this effort quickly morphed into a weekly ritual that I can’t seem to stop thinking about. Where else can you get housing commentary AND discussion on a new twist on banana bread pudding (h/t OC) and housing? Which forces me to point out, BECAUSE THE BREADTH OF COVERAGE DOESN’T EXIST ELSEWHERE.

And it’s important to appreciate where the best banana bread pudding comes from: Magnolia Bakery. Remember this 2005 SNL video called ‘Lazy Sunday‘ where someone macked (sp?) on some cupcakes? Who made those cupcakes? Yep, Magnolia. This video went viral in 2005 when the wheels were coming off the housing wagon (and I started to blog) but most didn’t see it yet. It is simply diabolical to take it a step further and see Magnolia as famous for it’s cupcakes but the informed love them for their banana bread pudding. You need to understand this because that 2005 SNL short made a new little startup called Youtube go viral and probably influenced Google to buy them for $1.65 Billion shortly thereafter…as free flowing credit allowed anyone to purchase anything, everywhere, yo. Watch it.

But I digress…

Since I’m reflecting on the past (and banana bread pudding), it would be appropriate to look back at an event that started this writing journey, the housing/credit bubble. It spurred my forays into podcasting as The Housing Helix (in my first 2009 podcast intro, I sound beaten up by the financial crisis), blogging on Matrix (my first post was a Marketplace Radio segment how appraisers were pressured to hit numbers), social media, magazine and commentary in newspapers, op-ed pieces and a lot more. After all, appraisers are observers of the housing market from the street view, why not get a closer perspective?

The Big Short Has To Be Explained Through Comedy

My wife and I finally carved out time to go see The Big Short – the story of the financial crisis that brought down the housing market. Our delay in seeing it wasn’t a sign of reluctance but rather my lack of enthusiasm to commit to watching ANY movie (except Repo Man as been discussed on HN before). I’ve always been that way. But combine a book that Michael Lewis authors, my favorite Led Zeppelin song and the housing bubble and I’m in.

Michael Lewis said during an interview once that he never imagined The Big Short being made into a movie, unlike others such as Moneyball and The Blind Side. It was too complicated. The director had to provide comic relief and break down the fourth wall to keep it interesting. Otherwise how could they expect a movie-going audience to understand all the technical terms and concepts, when Wall Street clearly proved they didn’t understand them either – despite creating them.


Here are some incredible quotes on IMDB from the movie:

Overheard at a Washington, D.C. bar: “Truth is like poetry. And most people fucking hate poetry.”
Mark Baum: I don’t get it. Why are they confessing?
Danny Moses: They’re not confessing.
Porter Collins: They’re bragging.
On screen quotation from Mark Twain: It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

I thought it was weird to seemingly pin the beginning of this whole thing on Lewis Raineri who invented securitization although he is rightfully in the top 25. It’s also never fair to exclude home buyers and home sellers from this list (remember liar loans) as well as whole industries related to Wall Street.

Joshua Brown aka The Reformed Broker (@reformedbroker) did a great video summary with Time Inc. on the importance of the movie and the lessons learned. This is really worth a watch.

Here are a collection of the movie trailers.

So I think you can tell I liked the movie. If you still don’t want to see it, then at least read the book. It was so riveting I read it in two evenings. The housing market conditions we are experiencing now are actually the hangover caused by the financial crisis depicted in the movie.

Appraisal Fees As By-Product of Financial Crisis

Ryan Lundquist of my often referenced must-read Sacramento Appraisal Blog created graphics that illustrate how fee adjustments can eat you alive. Now imagine what happens after systemic price chops are made and their adverse impact to the intellectual experience of an industry that is supposed to assist with mortgage risk management? Dodd-Frank (initially HVCC) literally gutted the reliability of the bank appraisal industry overnight (on May 1, 2009) and good appraisers like Ryan and myself moved on to greener pastures of non-bank work, where the fees are higher and the respect for expertise actually exists. Speaking for myself, my expertise and those of my experienced peers has been lost forever by the mortgage lending industry. We’ll probably never return. Like the Wall Street depicted in the movie, generic retail national big bank higher ups have no idea what is going on with asset valuation (appraisals) used to determine lending risk on their mortgages.

UPDATE I still find the state of appraisals absolutely incredible: We are in the midst of a prolonged period with the tightest mortgage lending conditions of the modern era. If lenders are being conservative (risk-averse), they are still oblivious to the risk of basing their adequacy of collateral decisions almost exclusively on third party institutions (AMCs) whose business model relies on, and only can survive on, poor quality appraisals.

The following charts by Ryan can be found on Ann O’Rourke’s must-read Appraisal Today Blog: The True Cost of Lower Appraisal Fees

appraiserfeesSAB1 appraiserfeesSAB2

The financial crisis hangover that has destroyed the bank appraisal industry has been Dodd-Frank’s insertion of a middle man (appraisal management company) aka AMCs in between the bank and the appraiser, embedding scare tactics to blame the widespread collusion between mortgage brokers and some appraisers as justification. Here’s the dysfunctionally illogical thinking that prompted the post-financial crisis appraisal regulations now embedded in mortgage lending policy:

  • Collusion between some appraisers and some mortgage brokers must be stopped because that relationship caused the financial crisis although it didn’t because it was a symptom of widespread conflict of interest, not a cause.
  • Let’s implement policy using unclear language to infer that banks MUST use a third party institution (AMC) to order appraisals and vet appraisers so the lender is separate and clear from the process even though banks were the parties during the crisis who heavily relied on mortgage brokers and shut down their in-house appraisal departments as “cost centers.”
  • In order to comply with regulations, let’s take a modest appraisal fee and give half of it to a third party to manage appraisers because everyone knows that managing the flow of appraisers workload by 19 year olds chewing gum is equally critical to risk management as the expertise and training that used to go into appraisal quality.
  • In order to justify AMC importance to the lending system as they take half of the appraisal fee from appraisers, let’s create a system where “scope creep” runs amok so that clerical staff without valuation experience go through expanding checklists of clerical requirements to justify the AMC half of the appraisal fee.
  • Lets make a big assumption that defies logic or reason to cut the wages of the entire bank appraisal industry by half and because AMCs have lobbying power, argue that the quality of appraisals won’t deteriorate working for half price and untenable turnaround requirements and because AMCs are paying lots of non-appraiser clerical staff to manage appraisers and use internal analytics sourced from crappy data scraped from reports of rushed and underpaid appraisers who remain in the industry as well as those few new entrants who were never mentored.
  • Let’s not assume that an overnight cut in the bank appraiser’s wages won’t attract a lesser quality appraiser to enter the industry. After all, entire industries or trade groups such as lawyers, public officials, bankers, politicians, regulators all had their wages instantly cut by half since the financial crisis, right?
  • Lets mislead the public to think there is an appraisal shortage to save the AMC model when there is clearly only a shortage of appraisers willing to work for half the market rate.


Appraisals are not a commodity. Experienced appraisers are valuation professionals and we are dwindling in numbers. We are not a title search or a flood certification.

Tim Geithner Blames The Housing Bubble on Thin Home Equity?

The former New York Fed chair and Former U.S. Secretary of the Treasury Timothy F. Geithner hosted a lecture series on Coursera, which is an awesome teaching platform.

John Wake at Real Estate Decoded, an excellent blog by an economist turned real estate agent, takes a look at the course.

John concludes: Geither’s top cause, “Home equity was too thin.”

The distortion of having Geithner provide his perspective, much like the well written “access journalism” book “Too Big Too Fail” forgot about the part where Geithner ran the New York Fed during the run-up and New York is where most of the big banks were headquartered. He was part of the problem so his contribution to providing the solution is unsettling to me. Geithner’s actions were specifically talked about in the excellent read: Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.

Speaking of Cutting Things in Half

With the recent NYC development boom’s focus on the very high end of the market, we are seeing the top begin to soften. High end co-ops are starting to loosen their rules, forced by competition from new condominiums. The new development condo market way overemphasized very large units and we are starting see developers react by chopping them in half. The logic being that there are more buyers for two $20 million condos than one $40 million dollar condo, or something along those lines. This is illustrated by this Bloomberg piece NYC Penthouse Gets Sliced in Two as Luxury Market Falters. This can only work if the pricing of the sum of the parts is much less than the price of the whole.

Keeping a Global Prospective on What You Get for $1 million

The Knight Frank’s brilliant research piece, the Wealth Report 2016 was launched yesterday. I’ll talk more about it next week but I thought it would be interesting to look at this illustration captured from yesterday’s event with Douglas Elliman by The Real Deal:


Crazy, right?

Best Headline of the Week

The Hartford Courant’s (CT) goes crazy with:

Attorney: Developer Might Change 50 Cent’s Farmington Mansion Into Assisted Living

Bouncing Around The U.S. Telling House Stories

My friend Alexei Barrionuevo is the editor-at-large for VoxMedia’s Curbed. He is writing a weekly column on U.S. housing and it’s always good. Here are the last three and if you like them, there’s more. :

Charting Fairfield County Connecticut, With A Splash of Greenwich

I shared new chart idea last week, illustrating the change in market behavior of Greenwich, CT since the financial crisis – ironically a housing market driven by Wall Street. I thought I’d share more charts from the region, Fairfield County. Despite New York City’s luxury market boom of the past 5 years, Fairfield County and specifically Greenwich, hasn’t enjoyed the same intensity at the top of the market.







If you need something rock solid in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll see The Big Short, you’ll try donut ice cream cones and I’ll keep eating banana bread pudding without chocolate.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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December 11, 2015

Plenty of the Wrong Kind of Rental Housing Stock & Rock Lobsters

If you have been out of the loop for the past 24 hours, then you missed the release of the Manhattan, Brooklyn & Queens Rental Report I author for real estate juggernaut Douglas Elliman. I was invited to join Betty Liu on Bloomberg TV’s “Bloomberg Markets” this morning to talk about the report as well as the New York City residential real estate market and Fed policy.

But if you are up to date on the state of the rental market, I’ll bet you haven’t seen this video of a dog who catches lobsters (because I hate cat videos):

A career high water mark for me (lobster-wise) was blogging about lobsters and their link to the subprime housing crisis back in 2009 in a post titled Lobster Prices And Subprime Lending. We’re talking about Maine lobsters, not Long Island, New York, lobsters obviously. I gave up my lobster fishing license a few years ago.

Cracks Appearing In Rental Market Foundation

While rental housing prices in New York City continue to flirt with records, weakness is beginning appear in other metrics besides price. Like the sales market, the rental market housing stock is skewed to the high end, driving up prices at the low to middle of the market.

Here’s the Elliman rental report for NYC and an infographic whipped up by Douglas Elliman.


Here’s the breakdown by region:

MANHATTAN While Manhattan year-over-year median rental price expanded for the 21st consecutive month, some market weakness was beginning to appear. Market share of landlord concessions, vacancy rate and listing discount expanded. The market share of new rentals where the landlord paid the brokerage commission and offered the tenant free rent, rose sharply to 13.5% from 4.8% in the same period last year, the highest in nearly 5 years…



BROOKLYN While Brooklyn rental prices continued to fly close to recent records set in the summer, the rate of price growth eased since then. The rise in median rental price on a year-over-year basis slipped each month since August when rental prices peaked. Median rental price slipped a nominal 0.4% to $2,935 from the same period a year ago, largely from a 3% drop in market share of smaller apartments. Fewer smaller apartments being rented and that is where the price growth has been concentrated. The median rent for studios and 1-bedrooms rose 9.2% and 2.1% respectively from the same month a year ago…



QUEENS Rental prices in northwest Queens moved higher, yet the number of apartments where landlords paid the brokerage commission and provided free rent accounted for more than half of all transactions. Median rental price expanded 8.3% to $2,735 from the same period a year ago as average rental price and rental price per square foot followed a similar pattern. The rental price growth was more pronounced in the studio and 1-bedroom markets than were in larger apartments…



By the way, I think it’s becoming more and more apparent that the Fed is raising rates next week. That’ll push mortgage rates a little higher and will keep pressure up on rents, at least initially as borrowers on the margin will be tipped back into the rental market. I remain very skeptical that there are going to be multiple increases in 2016.

Quick ‘en Spurious Appraiser Correlations

A while back I mentioned a great book here in my Housing Note – Spurious Correlations that seemed appropriate to consider alongside the following monthly release by Quicken loans.


Admittedly I wrote about Quicken Loan’s Home Value Index (HVI) last year when I was a columnist for Bloomberg View, but I’ve come to believe this index really benefits no one and tells us nothing. I love a good chart and I love quirky insights even more than the next person but the very idea of a report that places homeowners and appraisers home value opinions on equal footing seems worthless: a neutral third party valuation expert (appraiser) versus a homeowner who has skin in the game (consumer), often playing the bank for a higher valuation as in a refinance transaction. This index is pushed by Quicken Loans, a high volume, appraisal management company (AMC)-loving mortgage firm that is being sued by FHA for pressuring appraisers on values.

Per Housingwire:

According to the DOJ, Quicken allegedly had a “value appeal” process where, when Quicken received an appraised value for a home that was too low to approve a loan, Quicken often requested a specific inflated value from the appraiser with no justification for the increase– even though such a practice was prohibited by the applicable FHA requirements.

The FHA litigation alleges Quicken is pressuring appraisers to raise their values without support (probably to keep volume elevated).

Early this year I was speaking in Detroit at an economic forum and the speaker after me represented TSI who is a key AMC (appraisal management company) for Quicken. I’m sure he’s a nice guy, but he gave the most insulting and demeaning presentation I have ever heard levied at appraisers, so I wrote about it.

Guilty or not of what the FHA claims, it seems very inappropriate that Quicken would still publish a sentiment index. In the new world of journalism turned upside down, there is an awful lot of free content out there that is really just free crap.

Podcasts I Love But Not Necessarily Relevant to Housing

Slate Money – A regular listen for me. In The World-Changing Edition which freshes our memory on what caused the housing crisis and relied on the author of the seminal podcast on the topic with This American Life called The Giant Pool of Money. Here was my blog post from 2008.

Martini Shot – One of the first podcasts of any kind I subscribed to – this is a 3 minute weekly podcast by Hollywood writer Rob Long called “Martini Shot” (which is a Hollywood term that describes the final shot set-up of the day, i.e. the post-wrap drink. aka the “19th green” in golf). The show is not particularly relevant to housing, but I am writing about it because this week’s show is called “Sell The House” and I can’t pass up a good housing phrase.

The Leap is my new favorite. One of the best podcasts I’ve heard in a while was about the guy that invented Punk/Grunge music, inspiring bands like the Ramones and Nirvana. You’ll never guess who. I brought this podcast up to you, only because there is a related Housing v. Music segment below.

Seeing Music Through Real Estate

My friend Constantine Valhouli, founder of NeighborhoodX penned a cool op-ed piece this week in the LA Times – Straight outta Compton: What mapping L.A. through its music history tells us about our city

He said:

We can also examine the neighborhood conditions that gave rise to what urban planners call “creative clusters.” No, not a vegan breakfast snack from that place in Silver Lake, creative clusters are places where the concentration of people living near each other leads to a cross-pollination of ideas, and an outpouring of music. (In the case of the Sunset Strip in the ’80s, an outpouring of Aquanet hairspray, too.)

Using the map, it becomes clear how creative clusters tend to pop up in reasonably priced neighborhoods, and typically dissolve when things get too expensive. Or to put it another way: almost all creative clusters are in affordable neighborhoods, but not all affordable neighborhoods give rise to creative clusters.

I agree. And for what it’s worth, I have always seen music as a bookmark for a specific period in my life. Where I was living, who my friends were, etc. I prefer music over photos in many ways. Partly because that song coming out of the speakers takes you to that place immediately and your imagination can be much more powerful than an image.

Adjusting Asking Prices Back to Sea Level

Over the past week there have been a couple of articles that talk about Manhattan developers discounting prices to get sales moving again. Since the rising strength of the U.S. dollar, foreign investment (purchasing luxury condos) has been falling overall. Brokers are reporting declining sales office visits in these new projects which continue to enter the market in large numbers.

And with a protracted sales pace, the public can more easily confirm sales success in a building as sales close before the project is sold out. Joe Anuta of Crain’s New York did some sleuthing on 50 United Nations Plaza, the first super luxury building near the UN. In the best story title of the week “Zeckendorfs say their half-empty U.N. luxury tower is really half full” with a 9% average discount offered in 2015 and a pattern of rising discounts for each of the past 3 years in the 4 year marketing window (green cells).


I think this is a good strategy by Zeckendorf. Developers have to project pricing out several years and when a market stops rising or priced too high, they have to adjust to the new market or their property will languish for years. As I like to say, “a flat or declining market can’t catch up to an over priced listing.”

And now there is another one. E.B. Solomont of The Real Deal wrote about how Toll Brothers is going to adjust their offerings to the market to speed up absorption. CEO says firm plans to get “aggressive” to spur sales at 400 Park Ave. South, 1110 Park While most developers will resist this type of action and pray things eventually improve, the winners are going to be those who take action now. Just look at the rear view mirror for the additional 5,000 to 7,000 Manhattan condos entering the market in 2016. Competition is only going to increase.

That’s enough about rental housing, music and lobsters for now.

If you need more Rock Lobster in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll feel good, you’ll feel better and I’ll have plenty of seafood.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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November 20, 2015

Housing Analogies, Nerd Style

I started off the week with…


At first I was confused because I always fancied myself as a geek, actually a cool geek, emphasis on “cool.”

While attending an appraisal conference in the late 1990s, an appraiser overheard me explain to a friend how I sent a single email from Yankee stadium with my Palm Pilot using an attached modem. It was a huge deal (to me) circa 1998 as I exclaimed that it was the coolest thing ever. The eavesdropping appraiser interrupted the conversation with a loud, sarcastically toned “GEEK.” I turned and corrected him with, “no, cool geek.” He was flustered because I owned the label and I am sure he went back to his office to use his aol email account. He was later forced out the of the profession. Geeks win. I’m really not smart enough to be a nerd and I do have a social life. Still, the geek-nerd debate rages on.

Here are a few related observations that can be linked to housing if you really try:


  • The political discourse is making us stupid. This podcast by Vox called “The Weeds” (no it’s not about pot) has to be one of the best discussions on how we interpret information that is fed to us. Don’t listen to this as a way to break down all the political rhetoric in the news (and we only have a full year of it to go), but rather listen to this on how we interpret information about housing. i.e. It’s a bubble. It’s a strong market. There is so much conflicting information presented to us that most of us seek out information to support our theory rather than keep an open mind to new insights – just like politics. It is an incredibly insightful discussion.

Ok, I feel much better. I hope you do too.

Making Charts About Miami as A Housing Geek Should

In my spare time I make a lot of charts on the housing markets I research. I don’t think there is an analogy I can use for this hobby, so here are a few on Miami residential housing market. Click any one to expand to their full glory.







The Power of Housing Analogies


One of my appraiser/internet heroes, Ryan Lundquist of the Sacramento Real Estate Blog, loves housing market analogies. I do too and shared a few favorites with him, namely donuts and bubbles (balloon with a slow leak). Many people can better identify with a housing analogy than the direct information. I get it. Yet analogies are often used to mislead the readers as well.

In other words, donuts can also be bad.

Speaking of Housing Analogies, Bubble Makes A Comeback.

  • Britain’s Housing Bubble Gets Bubblier [Bloomberg Gadfly] britishbubbleBgadfly

  • San Francisco Fed study says this housing boom looks less precarious than last bubble [Market Watch] fedSFleverage

A Non-Political Economic Overview

Think back to my earlier request to ignore the political aspects of The Weeds Podcast and consider it in the context of interpreting information and our own built-in bias. Now ignore the political subject matter of this next piece (good grief I am getting pretty bossy) and look at the outlook of the economy over the next year.

Ben Casselman at 538 writes a great economic overview in the first part of his feature and includes a humongous infographic. Look the graphic in the context of the housing market. I find it to be quite helpful in understanding the mediocrity our economy despite all the hype about expected interest rate increases in December. It’s not so obvious at this point.

538economyoutlook [click to expand]

Appraisal Fee “Chunk” And Sports Agent Analogies Better Explain Appraiser Shortage

Amy Hoak at Marketwatch penned a good article The number of real estate appraisers is falling. Here’s why you should care My only criticism of the piece is that it didn’t emphasize the actual economic situation that appraisers face and it all comes down to money.

For residential appraisers, business isn’t as lucrative as it once was. Federal regulations in 2009 led to the rise of appraisal management companies, which act as a firewall between appraisers and lenders so appraisers can give an unbiased opinion of a home’s value. But those companies take a chunk of the fee, cutting appraiser compensation. Some community lenders don’t use appraisal management companies, according to Coyle, but they are often used by mortgage brokers and large banks.

The appraisal profession was never “lucrative” as that word infers. Over the past 3 decades (my experience timeline), the vast majority of U.S. residential real estate appraisers made a modest living. Since the changes to the profession in 2009 that are now part of Dodd-Frank financial reform, the appraisal management company “chunk” cited in the article is often 50% of the appraisal fee paid by the consumer (even though the consumer has no understanding that this is happening). AMC fees can be less than 50% and with the shortage of appraisers willing to work for half the market rate, more AMC’s are offering to only take a third or a quarter of the market rate but with a ton of clerical baggage.

Sports agents usually get a 10% cut of a professional athlete’s contract and some my get 20%. But in that analogy, the sports agent is working for the athlete. In our world as appraisers we are working for the AMC. It’s a perverse “taking” of a profession’s livelihood with literally no value add to the appraiser. And arguably, if not incredibly, no value add to the lender.

50 Cents on the Dollar and Herding Cats Analogies

The growing discussion about the shortage of appraisers really is a shortage of appraisers willing (or able) to work for 50 cents on the dollar. The good appraisers have moved on to other disciplines outside of bank appraisals or have retired. The problem now is that the AMC industry, who has decimated the appraisal industry is the same industry that has built automated valuation models (AVM). They are positioning themselves to go in the AVM direction if the appraisal fee issue is not worked out – easier to remove the human element of valuation. Deep down – institutionally speaking – banks don’t really care about the reliability of the valuation opinions they use for the collateral in their lending decisions. Past actions by the Federal government as a backstop has diffused any real focus on resolving the reliability of appraisals for lending purposes. The tax payer will always back them up, right?

As my good friend Tom Allen, a colleague in RAC, who is an appraiser in Tulsa, Oklahoma once told me (paraphrased). How does an AVM tell the lender a house is occupied with a hoarder and 100 cats?” (Incidentally, I am a member of RAC which is an organization of the best residential appraisers in the U.S.)

Still, I really prefer donut analogies.

If you need something sweet in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll feel good, you’ll feel better and I’ll be satiated.

See you next week.

Jonathan Miller, CRP, CRE President/CEO Miller Samuel Inc. Real Estate Appraisers & Consultants

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October 9, 2015

There Is No Appraiser Shortage. Plus, The Lawn Police And Housing Price Records.

This week I caught up on my 99% Invisible podcasts, some of the most amazing stories on topics that often touch the housing market. My recent favorite was titled “Lawn Order” (say it fast enough and it becomes “Law & Order”) covering the topic of homeowners who don’t keep up with their lawn and the origination of the lawn as a symbol of the American Dream, part of the homeownership package.

Homeowners can spend a few days in jail for letting their lawn get out of hand. Remember the housing crash? Funny, I don’t remember execs going to jail for creating zombie houses, seriously damaging property values of nearby neighbors.

When I lived in Chicago, my former boss lived in a booming suburb to the west called Naperville and she would turn her sprinklers on at night to reduce the odds of being busted by the “sprinkler police” who were very aggressive.

shades of green600

When I was a young kid growing up in Rehoboth Beach, Delaware, I remember a local golf course was converted into a subdivision with tiny lots. Many residents filled their small patch of land with white stones or concrete , some even painted them green, to eliminate the maintenance hassle. Although the painting part seems like a hassle as the paint fades.

An imagined conversation between a couple who need to spruce (type of green) up their painted concrete might go something like this: “Honey, the yard needs painting, do you want to go with the Apple Green this time, since the Forest Green didn’t hold up.” “I don’t know, I’m thinking we should brighten it up and go all in with a Lime or an Emerald.”


Now in California, the drought has converted “lawn shaming” to #droughtshaming as restrictions are imposed.

Of course there are services that will paint your brown grass green.

Since I’m not planning to move out west, the experience of raising four sons placed my lawn mowing days far behind me, thank goodness.

Getting sick of false housing market guru labels

When I took this picture in Times Square New York a while back, I somehow knew it would be useful to have.


This week I let loose on a blog rant about getting bad advice from “gurus” and puffed up titles. To go into aggressive attack mode is out of character for me, but sometimes it needs to be done for my own sanity. If you can handle it, check out Multi-millionaire Motivational Speaker Dean Graziosi Shares His Appraisal Wisdom and the equally long update at the end.

And within the real estate profession itself, the “Chief Economist” title is widely misunderstood. The consumer sees it as prestigious and it certainly is for the most part, but when the position sits at a trade group, their job is to convey information only to their group’s benefit. Think NAR, NAHB, etc. Now a new bloated title trend brewing and it’s called data scientist. I used to think my aspirational alias title of “master of the universe” title was a little too much. No more.

There is no appraiser shortage!

ALTERNATIVE TITLE: There is a shortage of appraisers willing to work for half the market rate and submit to draconian demands of 24 hour turn around by 19 year olds chewing gum from outside your market area!

There is an insane discussion within banking circles today that there is now a shortage of appraisers to provide valuation expertise during the issuance of mortgages. Frankly it’s an argument that is entirely self-serving to the banking industry and appraisal management company industry they rely on. The American Bankers Association held a meeting to address the appraiser shortage (subscription required: Valuation Review, a newsletter for the appraisal industry that is well worth it).

The American Bankers Association (ABA) premise that there is an appraisal shortage is completely misleading. They are only trying to keep the appraisal management company process relevant. Cost and speed are the only real appraisal priority to mortgage lending right now despite all the pain the mortgage industry has suffered as a result of not caring what the actual value of a property was during the last boom & bust housing cycle.

Here’s why.

  • Dodd-Frank/HVCC Since the financial crisis began, legislation that now sits within Dodd-Frank (thanks to former NYS Attorney General Cuomo’s attempt to reign in mortgage brokers) enabled the appraisal management company industry to dominate the ordering and reviewing of appraisals completed for banks.
  • Appraisers got a 50% pay cut overnight in 2009 Bank appraisers got a 50% pay cut, essentially giving half of the mortgage applicant’s appraisal fee payment to a third part institutional middleman (AMCs), causing “good appraisers” to leave the business or move to other appraisal specializations in droves. Imagine any profession in the U.S. – give them a 50% pay cut overnight and what happens? Experts leave and new less educated and less experienced enter. It’s simple economics.
  • AMC claim their analytics capacity offset the quality loss Analyzing crappy reports using crappy data from those crappy reports is the same logic as rating agencies giving CDO tranches a “AAA” rating when only a small part of those mortgage portfolios were actually “AAA”.
  • Banking’s view of the appraisal as a commodity It’s a professional service.

The amazing part of the ABA optics they are expressing to the world is that it is patently false. There are plenty of appraisers out there. But there is a shortage of those willing to work for 50% of the prevailing wage. It’s that simple. Economics has taken over and the banking/AMC industries has run out of form-filling robots to perform appraisals for 50% of the market rate.

Here’s a chart passed around the industry from a recent Appraisal Foundation meeting.


Market Reports Gone Wild


This week took me halfway through our third quarter market report gauntlet – 2 more weeks to go. Douglas Elliman Real Estate published our research on the following markets. The general theme was record or near record sales prices and rents, combined with heavy sales volume. That seems to be the key differing factor from the prior housing boom. It’s happening without the normalization of credit although I am not sure how long it can be sustained. Inventory is still low and economically speaking, wages in these regions remain flat despite robust economic activity.

Elliman Report: Manhattan, Brooklyn & Queens Rentals 9-2015
-MANHATTAN For the nineteenth consecutive month, median rent increased from the same period a year ago to the second highest level ever recorded and the highest point in more than five years. A robust city economy, record employment gains and tight credit conditions helped spur additional rental price growth. Median rental price increased 5.4% to $3,437 from the same period last year..
-BROOKLYN Brooklyn rental price indicators continued to move higher on a year-over-year basis. Median rental price increased from the same period last year but fell short of the records set in the prior three months. Median rental price increased 7.7% to $2,953 from the same period a year ago. Following the same pattern, average rental price rose 7.4% to $3,275 and rental price per square foot increased 17% to $43.61 respectively over the same period…
-QUEENS A surge in the overall price trend indicators returned to the northwest region of Queens. Price volatility caused by the varying mix of new development introduced to the market continued. Median rental price jumped 18.4% to $2,954 from the same period a year ago. Average rental price and rental price per square foot followed the same pattern…

Elliman Report: Brooklyn Sales 3Q 2015
Brooklyn housing prices broke records this quarter as demand expanded and supply fell. Robust economic conditions and the rebranding of Brooklyn as a Manhattan competitor continued to play a role in the stronger market. Median sales price set a new record, rising 15.1% to $676,250 from the same period a year ago. Brooklyn remains the only New York City borough with a median sales price above the pre-financial crisis high. The third quarter median sales price was 25.2% above the same period eight years ago. Still, 73.8% of all Brooklyn property sales in the third quarter were below the $1 million threshold…

Elliman Report: Queens Sales 3Q 2015
Queens housing prices set records as declining inventory met with a surge in sales activity and a robust city economy. Median sales price jumped 14.1% from the prior year quarter to a new high of $450,865. This was the fifth year-over-year quarterly increase for this price trend indicator. Average sales price followed the same pattern, rising 12.8% to a new record of $522,378 and the first time this metric had exceeded the $500,000 threshold. The luxury market, measured as the top 10% of all sales during the quarter, had a record high entry threshold of $925,000 and price gains consistent with the overall market…

Elliman Report: Westchester Sales 3Q 2015 [Expanded!]
The Westchester residential housing market, including single family, condo, co-op and multifamily sales, reflected price stability despite the highest sales total in at least 34 years and falling supply. Median sales price for all residential properties edged 0.8% higher to $529,000 from the prior year quarter, while the remaining price indicators showed mixed results. Average sales price slipped 2.9% to $696,654 and average price per square foot increased 4.9% to $319 respectively from the prior year quarter. Countywide the number of sales expanded 5.5% to a record of 3,044 as the amount of inventory slipped 2.7% to 5,653 respectively from the same period last year…

Elliman Report: Putnam & Dutchess Sales 3Q 2015 [New Report!]
-PUTNAM Housing price trend indicators moved higher in the third quarter as market conditions tightened. Median sales price for single family and condo sales increased 5.4% to $316,000. Average sales price followed the same pattern, up 8.7% to $365,044 and average price per square foot increased 7.6% to $184 over the same period. Condo prices rose faster than single family prices. Condo median sales price jumped 15.1% to 262,500 and single family median sales price increased 4.2% to $333,500 respectively from the prior year quarter…
-DUTCHESS We are please to announce our market report coverage area has expanded to Dutchess county, New York. Dutchess county housing prices showed mixed results in the third quarter. Median sales price increased a nominal 0.6% to $270,000, reflecting the general stability of the market. Average sales price and average price per square foot slipped from prior year levels. Average sales price fell 4.8% to $286,674 and average price per square foot declined 3.7% to $130 respectively from the prior year quarter…

There is a lot of shaming going on at this very moment as I wrap up this note. Not what I talked about above, but rather my wife telling me I am late for our lunch date. Ok, ok.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

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August 21, 2015

Housing Vanity Never Goes out of Style, but Forget the Celebrity Premium

Summer is rapidly coming to an end (disclosure: I LOVE cold weather) so I thought it would be a good time to take a look back at some housing related items we thought we understood. Call this a summer house cleaning (because it’s too hot and muggy to go outside). If they aren’t housing related, pretend they are because I simply wanted to include them starting with the most important:

How Did Saltwater Taffy Become A Beach Thing? – It’s amazingly simple and it’s something I always wondered after growing up in Rehoboth Beach Delaware.

How does someone live in a 100 square foot apartment? – Because some people can figure it out.

Ok, now lets get a little more serious…

“Luxury” Housing is Everywhere – The use of the word “luxury” when associated with real estate is now ubiquitous and yet it is still effective as a marketing description. While I define luxury in all of our market research as the top 10% of each respective market, it’s much more subjective than that and those definitions are always in flux. Back in 2009 I was appraising a beautiful home of a plastic surgeon – the dark days following the collapse of Lehman Brothers in 2008 – who, when I asked how things were going said business was booming because…

“Vanity never goes out of style.”

Celebrity Premium – The premium placed on celebrity homes is wildly misunderstood. While this is not a “luxury” home example it speaks clearly to the issue of the perception of the celebrity premium. I loved the music of Nirvana from day 1 and have everything they’ve published, would tell my family to be quiet during long road trips to Michigan when their songs came on the radio, it doesn’t mean that I or his fans would pay a multiple of what his childhood home might be worth, even if the home smells like teen spirit. In the case of large “luxury” (see above) properties, there is a greater probability that the owner is a bold faced name, whether it was a celebrity or a titan of industry. Pick a market like New York or LA, and a large swath of homeowners might fall into that definition – so put that pipe dream aside. Best case might be a faster marketing time because the property gets more marketing eyeballs and maybe that results in some sort of premium. Still in the real world, proof of the celebrity premium is not empirical to my satisfaction. For every example of a premium, I can show a 10 fold of examples without one.

cobainhome Source: Curbed Seattle

Going “Topless” – In my 5th Housing Note on April , [3, 2015] “Headless Housing Titles in Topless Market” I didn’t expect the phenomenon to sort of be attempted to be kind of resolved in a political manner. Ok, I was just trying to tie in the word “topless” without sharing a photo (this is a family service) so let’s move on.

A September Interest Rate Hike By Fed Was Assured – If I was paid a dollar each time I heard a chief economist or financial analyst over the past several months say that the Fed was going to raise rates in September I’d be a thousandaire. The Chinese currency devaluation I explored in last week’s Housing Note and low inflation are shifting conventional wisdom toward a December rate increase, but even the odds of that are falling. For anyone connected with the stock or other financial markets, or are wealthy, the economy feels like it is booming. For mere mortals, it doesn’t. I have no idea what I am talking about when it comes to rates but I have been saying that a rate rise won’t happen before 2016. I know nothing about this topic so therefore I know as much as the prognosticators do.

fedratepredictionsized Source: Bloomberg

The McMansion is Back! (but maybe not for long) – After setting a record for size last quarter, the average size of a newly built home slipped (by about the size of one closet). Just drive around the Hamptons market on the eastern end of Long Island. There is a slew of McMansion spec development going on right now. At least someone still loves the McMansion.


Rental and Sales Price Trends are in Sync – I demonstrated this pattern in this week’s ‘three cents worth’ column I’ve been writing for Curbed New York since 2004. What’s most interesting to me about the current trend of rents and sales prices rising together is that for the most part, it is largely driven by tight credit conditions which I have addressed frequently since 2008.


Appraisal Industry – For all of you who think the state of the appraisal industry is improving, you need to reconsider, because it hasn’t and it’s terrible. Every day I get feedback that shows how hopeless the situation is and I think I’ve been beaten down so much by it as have my colleagues, that I’m sick of talking about it. Get ready for this to change. Here’s an email to an appraiser from one of the largest appraisal companies in the U.S. They claim they are not an appraisal management company (you know, the 3rd party institutions that banks rely on who send appraisers from out of town to value a property because they will work for 50% of the going rate). AMC’s have destroyed the quality of the appraisal industry as a whole by enabling form-fillers and driving out experienced valuation experts (who didn’t get involved with the mortgage broker fiasco of the last bubble despite AMC rhetoric).

Read this conversation below between an appraiser who declined to work for appraisal goliath MetroWest. This dialog is representative of the way the AMC industry and large vendors see appraisers – as a nuisance and a commodity – rather than an asset that provides a benchmark valuation to make informed lending decisions [click it to expand, its a fuzzy image]:

metrowestappraiserssized [click to expand]

What happened to human decency? And when will this Housing Note end?

All will be better once you share these Housing Notes with your friends and colleagues (C’mon, seriously. SHARE.) and ask them to sign up. It’s free. And it’s cool, unlike the weather in New York City.

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc. Real Estate Appraisers & Consultants

ps Please feel free to share.  If you get tired of all the charts, real estate commentary and articles presented in each weekly note, just opt out.  I always appreciate feedback so please email me.

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Floored: Can/Should A Governing Body Set Minimum Sales Prices?

May 6, 2014 | 2:47 pm |


The concept of “setting a price floor” applies to gated communities, homeowner associations, planned unit developments – in fact any situation where a central governing body has direct influence over the sales price and/or buyer of your property. I believe the idea of “setting price floors” is surprisingly common in the outer boroughs of NYC, especially Queens.

Let me back up a second to provide context.

As the Manhattan market peaked in 2007/2008, we began to observe some co-op boards setting floors to prices in their buildings to “maintain value” for their shareholders. While a fiduciary responsibility, it is steeped in contradictions to free market principles. There was a great New York Times summary piece about this practice back in June 2007: “Should Co-op Boards Set ‘Floor Prices’?

About 15 months after the NYT article was written Lehman Brothers had collapsed and AIG, Fannie Mae and Freddie Mac were all bailed out. Manhattan sales prices had fallen about 30% from 2008 to 2009. During this period I observed an increase in the practice of setting price floors. A hypothetical scenario (the type I often observed first hand) for – let’s call it – “Apartment XXX” and the timeline might go something like this:

  • Sold in 8/2007 for $1,000,000
  • Listed in 8/2008 for $1,100,000
  • Zero activity until 1/2009, offered $700,000. Offer rejected by shareholder.
  • Offer made by new buyer in 2/2009, offered $705,000. Offer rejected by shareholder.
  • Offer made by new buyer in 3/2009, offered $700,000. Offer accepted by shareholder.
  • Board turndown – “price too low.”
  • Offer made by new buyer in 4/2009, offered $695,000. Offer rejected by shareholder.
  • Offer made by new buyer in 5/2009, offered $710,000. Offer accepted by shareholder.
  • Board turndown – “price too low.”
  • Taken off market by shareholder.

A co-op board CAN’T dictate sales prices
It is clear from the steady stream of new offers in my hypothetical that the market had reset to a significantly lower level during the year. If that was the case (it was), then the board was actually doing a disservice to their shareholders by making their apartments essentially unsaleable. A buyer isn’t going to pay what the seller or the board wants the price to be. Econ 101. Housing market prices change over time, hopefully rising more than falling in the long run. The brokerage community also has a fiduciary responsibility to get the highest price for their seller under market conditions at that time. Although the board is trying to protect their shareholders (and themselves as shareholders), they have in effect, temporarily nullified the market in their building. The brokerage community is less likely to bring offers to sellers because they assume the board will reject the price even though the property had been properly exposed and vetted in the marketplace.

A co-op board CAN protect their shareholder against price outliers
One of the misnomers of the “setting a price floor” discussion is the fact that appraisal quality for lenders has been decimated since the financial crisis as banks now fully rely on appraisal management company ie “AMC” appraisers and most have no “local market knowledge.” An out of market appraiser will likely be more influenced by outliers than a local appraiser because the out of market appraiser is data starved and has no experience in the nuances of that market. It is clearly prudent for a board to be vigilant about outliers as reflected in the video. I’ve consulted on transactions for boards that don’t represent market value – ie the heir or executor lives on the other side of the country, doesn’t care about the market value and simply wants to dump the unit, make some money and move on. The out of market appraiser will probably use that sale as a “comp.”

“Protecting against outliers” is very different than “controlling prices” in a market.

In the outer boroughs especially in Queens, I believe the practice of setting a price floor has remained a widespread practice for years. Here’s a co-op attorney who is providing tips on how to “maintain values” on Habitat Magazine‘s web site. Concepts like setting up “sliding scales” to sell at 95% of the average of past sales may work in a stable market but worry me because the co-op won’t be able to respond to downturns and is in danger of choking off the market, potentially depressing prices even more.

This video also talks about apartments being different in condition and boards need to consider this because real estate appraisers don’t take into consideration whether or not an apartment was renovated.

No! This is absolutely an incorrect or the appraiser is not being asked to provide an opinion of market value – appraisers are supposed to take condition into consideration if they are being requested to provide an opinion of market value.

As I mentioned earlier, with the proliferation of AMCs, appraisers working for retail banks are generally being paid 50% of the market rate and can’t or won’t confirm condition of their comps. Higher up banking executives don’t yet equate appraisal fees with appraisal quality.

“Maintaining Value” in a co-op (or multi-unit housing entity with a governing body) Here are a few (non-legal) valuation thoughts on “maintaining” values in a co-op. I’ve personally always taken this to mean that the corporation is run efficiently for the benefit of the shareholders and when that happens, property values are “maintained” relative to the market. I also believe their values will ebb and flow with the world that surrounds the building – ie supply, demand, credit, interest rates, economy, employment, etc. These are outside factors tend to be things that the board has no control over. If the board takes actions to control “market forces” they can potentially damage shareholder value and they are potentially not fulfilling their fiduciary responsibilities.

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