Remember liar loans of a decade ago? Those same people want to do away with appraisers.

November 30, 2018 | 10:12 am | Investigative |

My friend and appraisal colleague Ryan Lundquist and I authored a petition on change.org to point out the growing wreckless behavior that is enveloping the mortgage process.

There’s a proposal from the FDIC, Federal Reserve, and Treasury Department not to require appraisals for some mortgages under $400,000.

As we say in the petition, this change can impact several groups in particular: consumers, the taxpayers, the housing market and appraisers.

One group not explicitly mentioned in the petition but impacted down the road are real estate agents and brokers. Currently, 12% of mortgages that flow through the GSE (Fannie Mae and Freddie Mac account for 78% of residential mortgages right now) will have their appraisals waived. Those are “PiW” loans or have a “Property Inspection Waiver.” My good friend and appraiser colleague Phil Crawford says on his radio show “Voice of Appraisal” says the acronym stands for “Pissing In Wind” which is more accurate. If the buyer realizes they overpaid for the property, the agents are now the professionals with the bullseye on their back. Liability insurers are already talking about a new target when things go south.

Years ago and again this morning, I heard a real estate agent say – what do we need you (appraisers) for? “The seller and the buyer determined the market value by agreeing on the price.” The problem with this logic is the buyer may not be fully informed (i.e., from an out of market area) and will also mortgage fraud supercharged. Ever heard of straw buyers? Agents must remember that they perceived as biased even with the best intentions and the best ethics because they are paid only if the deal closes. When something goes wrong, they are completely exposed.

The direction that was taken by regulators relies heavily on AVMs (Think Zillow’s Zestimate which is not within 4.3% of the actual value 50% of the time) and “hybrid appraisers” (which removes the appraiser from the actual inspection of properties) to develop a value opinion. The inspection of the property, when done, will rely on non-licensed individuals to fill out a checklist and give an appraiser at a desk the information without any standardization, direct contact or assurance the inspector knows what they are doing. I’ve heard of fees as low as $8 to do the inspection and $78 for the appraiser. As far as I can tell, a full appraisal (inspection and analysis) cost can represent as little as a hundredth of a percent of a purchase transaction.

This petition is for everyone to sign, not just appraisers. Please sign and help bring attention to a pattern we just lived through in the financial crisis. It’s happening again.

Please make your voice known, read about and hopefully sign the petition below:

PETITION: Remember liar loans of a decade ago? Those same people want to do away with appraisers.

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Bloomberg Markets TV: September 11, 2018, Looking back at 9/11 and the Financial Crisis

September 11, 2018 | 8:39 pm | | Milestones |


I had a nice reflective discussion with Scarlet Fu and Caroline Hyde, reflecting on two milestones in New York City – 9/11 and the financial crisis.

Miller Samuel CEO Says Credit Conditions Haven’t Normalized Since Lehman
September 11th, 2018, 3:48 PM EDT
Jonathan Miller, president and chief executive officer of Miller Samuel Inc., takes a look at the state of the U.S. housing market 10 years after the financial crisis of 2008. He speaks with Bloomberg’s Caroline Hyde and Scarlet Fu on “Bloomberg Markets: The Close.” (Source: Bloomberg)

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[Media] Bloomberg Markets Interview January 11, 2018

January 11, 2018 | 11:07 pm | | Milestones |

So I was walking down Fifth Avenue in Midtown Manhattan in the late morning after a meeting and got a call from Bloomberg TV. Apparently, two different stories that featured two of the market reports I author – published by Douglas Elliman – were the number one and two most emailed on the Bloomberg Terminals worldwide.  They wanted to talk about them.

So I took a left and walked over Bloomberg HQ.  Got to speak with Vonnie Quinn and Shery Ahn on set – who knew how to make an interview go well.

This is a 2-minute clip of the 5-minute interview, but you’ll get the gist. I’ll expand on this discussion tomorrow at 2 pm when my weekly Housing Note is released.

[click to view video]

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Bloomberg TV – Housing Related Issues in Final Version of the Tax Cut and Jobs Act of 2017

December 27, 2017 | 9:07 pm | | Investigative |

Today I joined Joe Weisenthal and Julie Hyman on Bloomberg TV’s “Bloomberg Markets” for a discussion on the impact to the U.S. Housing Market in the aftermath of the new Tax Cut and Jobs Act of 2017 that was signed into law by the president on December 22, 2017.

Here are about 2 minutes of the 5-minute interview:

Back on December 14, 2017, I provided a summary of the proposed tax bill comparing the House and Senate versions. The bills were merged into committee and signed by the president into law on December 22, 2017, effective January 1, 2018.

You can download my housing summary regarding the final version of the new tax law [pdf].

Fun side note: Here’s the stock photo of me that Bloomberg uses whenever I appear on television or radio. In this case, its projected about 15′ tall for TV. It’s a picture Bloomberg took of me about 14 years ago – circa 2003. I look like I’m in high school. I guess that shows how long I’ve been a regular contributor.

UPDATE to fun side note Someone just shared my current bio photo on the Bloomberg Terminals taken about 20 years ago.

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How the GOP Tax Bill Might Impact U.S. Residential Real Estate

December 14, 2017 | 5:49 pm | Investigative |

[UPDATE: The impact of the tax bill changed after it came out of committee and became law on December 22nd, 2017. See an updated tax law impact summary here.]

Both houses of Congress have passed far-reaching tax bills with a lot of common ground between them. The U.S. Senate and U.S. House of Representatives are in the process of merging their versions into a single bill that will be voted on, and if it gets out of committee, it will be submitted to the president for signing.

Unlike the 1986 tax reform bill, which took six months of public hearings and discussion on both sides of the aisle, this tax bill was worked on for a year by the GOP and was passed very quickly without most of the signers knowing what was actually in it. Therefore I anticipate an ongoing procession of additional insights that impact the housing market as more people read the bills or the eventual law.

This lack of transparency and vetting alone is not great news for housing, which is very dependant on an “uncertainty-free” environment. In addition, there is a “get it done before Christmas” deadline.

Here is what I mapped out but this is only what we think we know by reading many interpretations with source links presented at the bottom of the table below. Here’s the pdf version of the table.

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The NYC Downtown Resurgence After 9/11

September 11, 2017 | 9:40 am | | Milestones |

It’s hard to believe that it’s been 16 years already since 9/11. The name of the attack is now referenced as a noun and every year I think about the events of that day – getting emails from out of state friends and colleagues asking if I was ok, with one asking if I was still alive; Watching the second tower fall; walking to Fifth Avenue and then to Sixth Avenue to see the towers in flames; No cell service; losing all access to public transportation; literally walking northward out of Midtown with throngs of others; getting a lift from my friend’s mom to Westchester county, then borrowing the car to get home to my family in CT; Debriefing with my neighbors who were standing outside like everyone else trying to learn what happened; learning that a parent of my of my son’s classmates was in the tower; hearing stories from neighbors who were talking to someone on the phone in the towers when a plane hit and the line went dead.

It seemed that everything I knew was going away and never coming back. Yet NYC showed me it never quits and I’m proud to be part of it.

Here is my interview with Tom Keene on Bloomberg TV this morning on the resurgence of downtown over the past 16 years.


UPDATE Immediately following the television spot, I walked over to their radio studios and spoke with Tom again as well as David Gura. My interview with Tom Keene and David Gura on Bloomberg Surveillance Radio so click on the graphic below and go to the 10-minute spot:



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Declaring A Housing Recovery Using A Threshold Based on Fraud

November 30, 2016 | 3:16 pm | Charts |

S&P CoreLogic used it’s National Non-Seasonally Adjusted Housing Price Index to declare that the housing market has recovered. Even the ironies of this public relations effort have ironies. I’ll explain.

First, look at this classic Case-Shiller chart. Notice how the arrows don’t connect to the lines they are associated? I’m being petty but it looks like the chart was updated and rushed out the door.

csiclassicchart11-2016

Incidentally, who controls the Case-Shiller Indices brand these days? It used to be “S&P/Case-Shiller Indices.” Here are a couple of variations found in the first paragraph of the press release:

  • S&P Dow Jones Indices
  • S&P CoreLogic Case-Shiller Indices

but I digress

Since the financial crisis, I have spent a good deal of time explaining away the reliability of the Case Shiller Index.

To be clear, I greatly admire Robert Shiller, the Nobel Laureate and his pioneering work in economics. I’ve had the pleasure of speaking with him on a number of occasions both publicly and privately. He and I were on stage together at Lincoln Center back during the housing bubble for a Real Deal event.

During the bubble I was the public face of a short lived Wall Street start-up that collapsed when the bubble burst. Like Case-Shiller it was built to enable the hedging of the housing market to mitigate risk using a different methodology, avoiding the repeat-sales method used in CS. The firm had annoyed Shiller by constantly citing the issues with the CS index and we got far more traction from Wall Street with our index that was (literally) built by rocket scientists. It got to the point where he mentioned me and the startup by name at a conference in frustration.

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After I disconnected with the startup before it imploded, I reached out and we made up. In fact he did my Housing Helix podcast (link broken but hope to bring it back online soon for historical reference) at my office back when I was doing a podcast series of interviews with key people in housing). Also we’ve run into each other on the street in Manhattan a number of times. In fact when he learned of my love of sea kayaking he gave me the latitude and longitude coordinates of his island vacation home in case I was nearby. You can see that I feel a little guilty criticizing the use of the index since he is one of the nicest and smartest people I’ve ever had the honor to meet.

But I don’t like the way S&P, Dow Jones and/or CoreLogic have positioned Case-Shiller as a consumer benchmark. And especially yesterday’s announcement as a marker for the recovery of the U.S. housing market. I feel this is a low brow attempt by these institutions to leverage publicity without much thought applied to what is actually being said. Here are some thoughts on why it is inappropriate to use this moment as a marker for the housing recovery.

“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

Blitzer remains in the very awkward position of explain away the gap between the market 6 months ago and current condition as if there is no difference. He does this by using anecdotal commentary about metrics like supply that has nothing to do with the price index as well as making pithy remarks.

  • The Case-Shiller National Index is being touted for reaching the record set in the housing bubble a decade ago despite the record being set back then by artificial aka systemic mortgage fraud. However their 20 city index has been pushed as the key housing benchmark for more than a decade, not the national index. And they are using the non-seasonally adjusted national index to proclaim the record beaten despite their long time preference of presenting seasonally adjusted indices (the seasonally adjusted national index has not broken the housing bubble record yet).

  • The credit bubble got us to the 2006 peak, not anything fundamental.

cshpitablefrompeak11-2016

  • In my thirty years of valuation experience, I have learned that sales transactions, not prices, should be the benchmark for a housing market’s health.

  • The 0% markets that reached the 2006 peak are super frothy – created by rapidly expanding economies and an inelastic housing supply. Income growth doesn’t always justify their price growth. Click on table below for the markets shaded in turquoise.

csnsazero

Some important background points on the Case Shiller Home Price Index (CS) – that most of its users are unaware of:

  • CS was never intended for consumer use! It was built for Wall Street to trade derivatives to hedge housing market risk much like hedging risk for weather, insurance, non-fat dry milk and cheddar cheese.

  • CS never caught on because housing is a slow and lumbering asset class, unlike a stock which has much more liquidity. The flaw during this bubble period was the way Wall Street and most real estate market participants considered housing as liquid as a stock and how financial engineering had enabled that liquidity.

  • As access to public housing data has become more ubiquitous, the index has been more easily gamed by companies like Zillow, who have been able to accurately predict the index results much sooner rendering the index as useless for hedging.

  • CS lags the actual “meeting of the minds” between by buyers and sellers – when they agree on the price and general terms – by 5-7 months. The November report just released was based on the 3 month moving average of closed sales from July, August and September. If we say that contract to close period is an average of 60 days, then the contracts signed in this batch of data represent May, June and July. And the time between the “meeting of the minds” and the signed contracts can be a couple of weeks, so the results in yesterday’s lease of the Case-Shiller index represents the period around Memorial Day weekend as summer was getting started.

  • CS only represents single family homes (although they have an index for condos).

  • CS excludes new development.

  • There is little if any seasonality in the CS methodology (even though there is a seasonally adjusted version).

  • Geographic areas in the 10 and 20 city CS indices are incredibly broad. For example, the “New York” index includes New York City, Long Island, Hamptons, Fairfield County, Westchester County, a bunch of counties in northern NJ and a county in Pennsylvania. Yet this index is often represented as a proxy for the Manhattan housing market by national news outlets. Manhattan residential sales have about a 1% market share of single family homes.

In other words, the CS index is a great academic tool to trend single family home prices at a 30,000 foot view for research but not to measure the current state of your local market.

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Housing and the Election Aftermath

November 9, 2016 | 9:56 pm | Milestones |

With any significant unexpected and historic event, the initial impact to housing can be seen in the form of a “pause” until buyers have enough time to process it. I first wrote about my “milestone” theory more than a decade ago. There was a New York Times cover story a month after Lehman collapsed in 2008 that used our data to mark such a milestone. A “pause” can be measured in days or months and market reaction can ultimately go against conventional wisdom.

Back in August of 2011, after S&P downgraded U.S. debt ratings, it was thought to be catastrophic to the U.S. economy yet the world’s investors flooded into U.S. treasuries for safety, pushing interest rates to the floor, ultimately giving a boost to housing.

I may not know much, but I do believe this: potential changes in government social policies should be kept separate from potential changes in economic policies, otherwise it is impossible to take action on anything in your life. This probably includes making decisions about whether to buy or sell a home. This U.S. election campaign has been brutal and at this point we don’t know how much of what was said about social policy will be enacted. This uncertainty may keep some buyers on the sidelines longer than others, but otherwise I’m not sure any of that matters to the housing market. On the margin, I am hearing that a few buyers have placed their purchases on hold. This is a normal reaction after a significant historic event but eventually many of those participants wade back into the pool when they are more comfortable.

Stock futures were down significantly overnight but the financial markets moved higher after initially falling. With a quickly rebounding stock market, I’m don’t think home buyers will take very long to decide whether to rejoin the housing market.

2016electiondjiachart

In addition, the odds of a December interest rate increase by the Federal Reserve dropped sharply despite yesterday’s view of a rate hike as nearly a sure thing. The president elect’s economic platform, which was not widely discussed during the campaign, proposes a large tax cut and investment in infrastructure which are either favorable or neutral to the housing market.

bbcmefutureselectionday

Before the election, the housing market was generally softest at the top over the 18 U.S. markets we cover. I believe inventory will continue to be more readily available at the higher end than for other segments. In New York, the slow down in sales was assumed to caused by the pull back of foreign buyers. However this decline was equally matched by domestic buyers over the same period, so the foreign buyer decline has been a false narrative. The sales share of international buyers has remained stable for for nearly 3 years. I am speaking at the The Real Deal conference in Shanghai next week and will look to understand sentiment towards further U.S. real estate investment.

3q16internationalshare

Rather than the international buyer narrative, I attribute the New York sales slow down to the visceral view of new residential towers rising from empty lots. Construction lending nearly dried up at the beginning of the year so the pipeline will slow quite a bit over the next two years.

With world economies generally falling or remaining weaker than the U.S. economy and the continuation of near record low interest rates, I don’t see much impact from the U.S. election results after the short term jitters pass.

Of course, I was wrong about the election.

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Miller Samuel at 30, A Short Story

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

matrixswimmingpools

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.

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[Video] Providing the right context for Manhattan and Miami housing markets

April 2, 2016 | 11:48 am | | Favorites |

I really enjoyed my interview over at Yahoo! Finance this week discussing the release of the Elliman Report: Manhattan Sales 1Q 2016. Love their longer interview format.

Note the “two comma” reference taken from the HBO show Silicon Valley:

Miller also rejects the thesis that Manhattan’s two-comma real estate prices were being fueled solely by foreign money and are now jeopardized by global uncertainty and a stronger dollar versus emerging market currencies.

Additional insights on the report shared on the recent edition of Housing Notes. Sign up here.

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Miller Samuel turned 29 today

October 1, 2015 | 2:43 pm | Milestones |

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Hard to believe we’ve been around so long.

I personally feel about 29 years old (maturity of a 19 year old, obviously) yet after we published our Manhattan report today that cited 26 year record highs, the math places me a bit older than 29. My birthday was yesterday (I’m still milking that day for all I can) and our company’s birthday is today. We launched in 1986, working in our apartments and communicating via fax machines, buying Macintosh Plus computers, creating our own appraisal software, using bar code scanners, Scantron readers, tape measures, measuring wheels, sonic measuring devices, laser measuring devices and beepers. It’s been a surprisingly fun but difficult journey.


Lone Wolves: Appraisers Fighting Everyone, Including Appraisers

September 27, 2014 | 2:20 pm | Milestones |

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A few days ago I published a critical piece on the appraisal industry for Bloomberg View called Guess What’s Holding Back Housing.

There are many great people, incredible talents and solid organizations within the appraisal profession. But in my opinion only 20% of the industry are truly competent professionals and the remainder are merely varying degrees of form fillers.

I have been an appraiser for 28 years and it is apparent that the industry is dying a death of a thousand knives. One of the key reasons for this slow death is the lack of national leadership and the extreme fragmentation since most appraisal shops are comprised of a single or just a handful of professionals. I’d also like to offer that the majority of our profession seem very willing to make unsupported negative inferences on reviews of a colleague’s work such as appraisal field reviews or troll columns like mine.

Like I said, 80% of the profession are really not professional. Many of these appraisers have not looked up from their clipboards in quite a while and take an objective look at the world around them.

I have found appraisers throughout my career to be hyper defensive about the quality of their own work (I am definitely one of them on occasion). Just ask any bank review appraiser what it was like to call an appraiser out on an unsupported analysis. And just ask any appraiser what it is like to get meaningless criticisms from a bank appraisal reviewer over nothing germane to the value opinion.

A few week’s ago a colleague sent me a link to the first empirical study on the impact of HVCC on the appraisal profession by the Federal Reserve Bank of Philadelphia. The thrust of the study was the analysis of “low appraisals.”

When I used the term “low appraisals” in my piece combined with their editors choice of post titles: Guess What’s Holding Back Housing all bets were off.

It was “game on”, yet I’m in the appraisal trenches with all of them. The most amazing thing about the adverse reaction was that most of the appraisers who trolled the comment section or sent me scathing emails never read the Fed’s working paper on the analysis which was the basis of the post. The core of the working paper is only about 10 pages double spaced in length yet they were more willing to troll a colleague than undertake a professional debate.

I could chalk this unprofessional reaction to the battering our industry has taken over the past decade – I certainly feel that way – but it doesn’t explain everything. Because our industry has no real voice in related public policy, we continue to be marginalized by robotic institutional processes such as AMCs, AVMs and upper management that still sees our services as merely a cost center.

When I received the first email troll comment, I queried his email address and called him up right away. He was surprised that I found his phone number but we had a pleasant discussion. He was concerned that I would out him.

I exchanged emails with several of the email ranters and the replies were much more civil. I also did this with a few of the commenters on the post.

Although the majority of these responses are rambling rants, they shed some light on the state of the appraisal profession.

Take a look at a sample (I redacted their last names, firm names and contact info):

Hello Jonathan- I’ve heard good things about your firm and its work, so I am doubly shocked by the headline in your article “Guess What’s Holding Back Housing,” and the implication that somehow appraisers are to blame for the sluggish pace of the housing recovery. There’s no question mark at the end of the “Housing.” It’s not a question, but more of an accusation. You do know we’ve been through a severe recession, don’t you? That in spite of the increase in employment that has taken place we have created a lot of part-time jobs and done away with a lot of high-paying full-time jobs. Labor force participation is way down. You do know that lending standards have tightened? Are you aware of these facts? I ask that because your article conveys ZERO understanding of any of these fundamentals. The term “Low Appraisals” manages to be erroneous and stigmatizing at the same time. That an appraisal is “low” tells me nothing about the quality of the appraisal. It may be a great appraisal. It may be a terrible appraisal. It says nothing about whether the appraisal conforms to regulatory guidelines and industry standards and is a credible opinion of market value. I NEVER use that term when referring to an appraisal. I have dealt with many irate customers throughout the years and I always take the time to explain to people what an appraiser is supposed to do – which the general public frequently does not understand. The term “low appraisals” is also stigmatizing. If “low” appraisals are “holding back housing,” well that is not a good thing, is it? As a leader in an industry which is poorly understood by the general public, I am saddened that you would take the space granted to you to further the misconceptions people have about appraisers and what we do. It is NOT our job to “make” or “hit” a number. When we make that the job is when the problems start happening. You could have explained to Bloomberg’s readers that appraisers have to weigh an offer for a property in light of market evidence. If the evidence to support the sale price is not there, an appraiser is doing his or her job in NOT “hitting the number.” Your use of the “low appraisal” term suggests that the appraisal is somehow flawed. If the appraisal is flawed, it is not because it is “low” but because it does not incorporate appropriate data and/or analysis. In all my time in the appraisal industry I have always offered irate clients a change to point to specific, substantive errors or omissions in any appraisal when they do not agree with its findings. The overwhelming majority of the time the client, or broker, or other interested party has nothing to say. They are angry because the number is “too low.” They don’t know or care if the appraisal is well done or poorly done. All they care about is that it is “low.” I hope you will use your prominent position in the industry and your access to publications such as Bloomberg to speak the truth about what appraisers are do, not further misconceptions. Sincerely William

I called William directly and we spoke at length.

How can you, a highly recognized real estate appraiser, write an article for Bloomberg suggesting that appraisers are partially responsible for the weak housing market when the quality of the appraisal reports was not analyzed? How can anyone, or an agency make such a suggestion if the reports weren’t analyzed? I am a retired general real estate appraiser who reviewed many reports and to do so required a knowledge of the real estate market in which the report was prepared. In my own opinion, again without an analysis of any reports, it is more likely that the appraisers are better now and are NOT trying to hit the target as was the case prior to the 2006, 2007 blowup because they are under so much scrutiny from the lenders. For example, no more calling an average property “above average with no repairs necessary” when, in fact, the property has a few problems. The local appraiser group has shrunk as the worst ones are no longer in business, as is the case of many of the unscrupulous lenders who employed them.

My response to the above:

Hi Thomas,

Thanks for sending the note.

It’s actually quite easy to write about it. I disagree with your observations about today’s quality. It is very poor.

I have reviewed thousands of residential appraisals, been an expert in a number of national litigation cases and the quality right now is just as bad as it was during the boom, but different. The Fed study I referred to in the piece inferred a quality problem as a result of the metrics presented. Talented professionals like I’m sure you were are no longer entering the industry.

Yes the mortgage broker-orientated appraisers are largely gone now but the new generation of appraisers working for AMCs are just as bad, but in the opposite direction. Now we have an industry working for half the market rate who need to cut corners to be able to complete the report. With AMC’s it is much more common for the appraiser to be missing local market knowledge and to drive much farther to their assignment.

Mortgage appraisers today who work for AMCs tend to be biased low because they don’t know their market area cold which is just as bad as being biased high back during the boom.

I want our industry to provide a neutral well research product. The problem is the the clients don’t care and see us as a commodity rather than a profession.

Again, thanks for sharing your thoughts.

Thomas did not respond.

Jonathan, Summarized: Appraisers were responsible for the housing bust AND now for holding back progress in the housing market. Funny how that is……..that so many cover the above as truth and that few actually write about the actual purpose of the appraisal process. I suppose it would be harder to headline an article like that and draw readers in. I enjoyed this part in particular; “The quality of appraisal reports wasn’t analyzed, but the paper suggests that it may have declined.” I look forward to reading more. Sincerely, Adam

My response to Adam:

Hi Adam

Summarized: you need to drop the righteous indignation lathered in sarcasm approach. It’s not productive unless you are merely a troll.

Otherwise I assume you are an accomplished appraiser. Would you like to discuss this tomorrow? I’d really appreciate dissecting the disconnect.

Let me know.

Adam did not respond. The more sarcastic the commentary, the more afraid appraisers like Adam are to engage in reasonable discussion.

I don’t think you have all the correct information. For only a $400 to $500 fee an appraiser will make sure I don’t pay too much for a house. Nor pay the real estate agent a 7% commission which on a $500,000 home would be $35,000. Nor pay $300,000 in interest to a mortgage company. So are “low ball” appraisals really the problem? Or were “inflated values” the problem? Or is it that appraisers keep the other guy honest? Sorry sir, but I want to not get ripped off! Bobby

My reply:

Bobby

Thanks for the reply. On a bank appraisal, the appraiser’s client is the bank, not the borrower – a common misunderstanding.

We had a continuing dialogue.

I just read the article on Bloomberg View and I have to say, as a certified real estate appraiser, I am a little offended. I know the graphs and the statistics show that there has been an increase of real estate sales and refinances that are killed by the appraisal. I also agree that the HVCC and later the Dodd-Frank Act has increased the number of what are called “low appraisals”. I think the problem myself and many other appraisers have is even the often incorrect use of the phrase “low appraisal” itself. As in all professions there are always going to be the few that don’t do the job correctly or even those who falsely skew the results. The other 98% of the appraisers out there are just giving the honest truth, as we are required to by our ethics and the law. Most appraisers including myself have a great respect for the fact that we are there to protect the borrower and the lender, or the seller and the buyer in the case of a sale. I have read many articles in realtor or mortgage professional trade magazines and online blogs about these “low appraisals” and the bad “low ball appraisers”. The story often goes like this; A realtor Jane Doe describes how “bad, low appraisals” have killed 4 of her last 10 sales. She says the problem has gotten worse and she has been a realtor for 20 years and appraisal quality is at an all time low. The truth is that most agents, like appraisers are honest professionals who are doing a good job. The issue is their job is to get a buyer and seller to agree on a price… so that they get what they want and money can be made. They are advocates for “brokering” the deal and work on commission. There are few checks and balances in that system, it is self regulated by the free market, which is great… most of the time. What sometimes happens is this: The house for sale is a nice 2,000 sf, 3 bed 2 bath ranch home in Niceville Subdivision, the seller feels his house is worth at least $250,000 and the buyer loves the house and they feel that $240,000 is the highest they can pay. The house goes under contract for $240,000 and 2 agents and 2 clients are happy… for now. Then when the appraisal comes back at $225,000 everyone thinks it is a low appraisal, 2 agents, 2 clients, 1 loan officer, etc. all want the house to be worth the agreed upon $240,000. The problem is the appraiser is doing his job and found that out of 30 total sales in Niceville S/D, 8 of them are similar ranch style homes that are in “average” to “very good” condition selling between $190,000 and $220,000. Most of the ones that best match the size, condition, # of garages, amenities, etc. have sold for about $215,000 after + & – adjustments are made for differences. That is what is known as “The MOST PROBABLE PRICE a property will bring in a competitive and open market”, not the highest price “if you get lucky”, or the price you can get “if the buyers are from out of town and don’t know the local market”. The scope of work we agree to is just that, the most probable price. Lenders want to know that if the loan stops performing that they actually own something that is worth what they lent on it. If 90% of homes like the one in this case sell for $215,000 and I value it for $240,000 I have not done my job correctly. If the loan defaults 6 months later when the buyer losses his job and the bank loses money because they can’t find that rare buyer willing to pay too much, I have harmed them. If the buyer of that house gets relocated in 6 months and cannot sell it or has to take a loss when he realizes he can only get the usual $215,000, I have harmed him. The agents and loan officers that made the high commissions 6 months ago have nothing to fear, they did their job and got the deal done. The appraiser will be the one that will be getting the call from the attorneys. That is something that needs to be remembered. We are NOT paid on commission and our work is scrutinized by underwriters to test us constantly. It is in our best interest to do the right thing and value a property fairly, not too high or too low…. And that is what we do…. and get pressure in one direction or the other if values are going up or going down. That is why the average age appraiser is over 55 years old and few are joining the profession. Being a punching bag for doing the right thing gets old as fees go down gobbled up by the AMC’s that Cuomo forced on the industry as the cost of living, gas, business expenses, insurance, etc. goes up. P.S. Look at Cuomo’s involvement and gain, in creating a forced middleman in the modern appraisal industry. Regards, John

Thanks for your thoughtful reply John.

The phrase “low appraisal” was the metric selected by the Fed and the basis of the study. It strikes a nerve in appraisers and rightful so. They used it in a mechanical way versus the way NAR might complain that appraisers are killing their deals. Still, the appraisal quality of the industry is worse today compared to 10-20 years ago. Are there good appraisers out there? Of course. I am. You sound like you are. But the industry is dying and part of the reason, but not the entire reason, is us. We have no leadership and are simply being marginalized – the outcome in my opinion is a lower quality product that reduces the reliance on our industry.

Thanks again for sharing your thoughts.

John replied again with a very well articulated description of the state of the appraisal industry.

I agree that we need to do more. In Louisiana we are pretty good about regulating AMC’s and there is a requirement for them to pay C&R fees but many still don’t. I am sorry if I sounded rude in my first e-mail but as you know the low appraisal thing strikes a nerve with most of us. I would love to see a large powerful national organization that truly advocates for appraisers the way NAR does for realtors. That would be the real answer. Getting most of us in one organization I agree is the problem since we are lone wolves in many ways.

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