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I have a lot of good friends and colleagues who frequently give at least a passing thought to quitting the Appraisal Institute, the largest real estate appraisal industry trade group. At the national level, the association has lost the ability to work for its members and has instead, shifted into a political failure spiral by enacting policies that are against their chapters’ and members’ best interests.

I get these types of comments from members at get togethers who say things like…

“I am only paying my dues to retain my designation.”

“The chapters are the only relevant thing AI provides to help me.”

“The self-dealing politics at National sickens me.”

Their announcement of the new administrative policy on November 30, 2016 continues the trend:

As you might have heard by now, the Appraisal Institute Board of Directors recently took a significant step to enhance your chapter’s ability to focus its attention on providing member services by reducing your current administrative burden. This is great news for chapters.

Here’s the letter that was sent to chapter leaders:

It reminds me of an old IRS joke: The IRS agent walks into your office with arms extended for a handshake and says:

“I’m from the IRS and I’m here to help you.”

It has been discouraging to watch the Appraisal Institute (National) erode into irrelevance while the appraisal industry is crying out for leadership at a seminal moment in our history. Dodd-Frank is about to be gutted and appraisal management companies have run out of appraisers willing to work for half pay. Instead they have morphed into a trade group that is unable to help its members. I challenge my readers to provide any evidence of such leadership since the financial crisis.

One of the only remaining redeeming features of the Appraisal Institute aside from their SRA and MAI designations has been the strength of local chapters. It’s where the rubber hits the road, where appraisers press the flesh at local meetings, take classes and listen and interact with guest speakers. The real value of AI membership remains at the chapter level.

At the Appraisal Institute headquarters in Chicago (National), they clearly recognize the power of the local chapters. For an organization that has been encumbered by procedural minutae, they developed the ability to enact policy without input or oversight. Here’s the current controversy over a non-vetted decree from National that involves money.

National has enacted a new policy that requires all money at the chapter level be administered by National. It’s a political power grab that will further alienate dues paying members. This is part of the growing pattern of AI’s lack of communication to their members.

The response

The very large New York Metro chapter responded in a letter from their board 2 days later – about being blind sided by the new policy. It’s an incredible read – a full-on indictment of the thinking of National. So many great appraisers in that chapter but how long will they put up with this? You can see how hard the local chapter is holding back it’s anger for such a policy. See link for pdf or the full text below. Bold emphasis provided by me.

AI Metropolitan New York Chapter Board Letter to AI National Board

December 2, 2016

Dear Members of the Appraisal Institute Board of Directors:

This letter is being submitted on behalf of the Board of the Metropolitan New York Chapter of the Appraisal Institute as a response to the National Board’s recent decision to implement a new Appraisal Institute Chapter Financial Management and Administration Policy. The Metro New York Board met this week and unanimously agreed to communicate our disapproval of the new policy and our astonishment that such a major change could be effectuated without any sort of prior notification or consultation with the Chapters and the Membership. Furthermore, to announce this decision as a fait accompli late on a Friday before a holiday week is alarming to our Chapter’s Directors.

The Metro New York Board finds it surprising and unacceptable that such a significant policy change in the governance of Chapter finances could be constructed without any transparency, input or dialogue with the Chapters and Membership. Simply being informed that national will take over our Chapter funds, albeit with assurances of our continued control of our finances, is outrageous paired with the admission that “Adjustments may have to be made to the policy as implementation progresses.” By creating this plan, effectively behind closed doors, you have not instilled any sort of confidence that the policy you are demanding we accept is acceptable to the Chapter. Given that the Appraisal Institute has a model for gaining feedback from the Membership – with the 45-day notice model provided for other significant actions impacting Members and Chapters – the Metro New York Board feels it is not at all appropriate for the national Board of Directors to unilaterally create this new policy in such an opaque manner. Given the potentially serious impacts of this new policy on the individual Chapters, we believe a more extended, perhaps 90-day notice would be minimally appropriate particularly given that this change was basically “sprung on” the Chapters on the advent of the holiday season that creates extra demands on all of us.

Beyond our uneasiness with the lack of transparency and how this new policy was implemented, the Metro New York Board finds the policy itself to be unacceptable. We believe that turning over our funds to national would limit and impact the autonomy of our Chapter and potentially diminish our stature in the local real estate community. The Metro New York Chapter is one of the most active Chapters and has been diligent in providing necessary education opportunities for our members and candidates, organizing enriching events for our members and the broader New York City real estate community, and fostering a supportive framework to help candidates work towards their designations. Importantly, this last goal contributes to the health of the organization nationally. Many of these programs are supported by our members through a historically successful Chapter sponsorship program. We believe our success in these endeavors illustrates that we are proficient in managing our own funds, maintaining reserves, and knowing how to do what needs to be done on a local basis. Certainly stripping the Chapter of its funds, particularly under terms that may be subject to change, will undermine the Chapter membership’s confidence that our efforts to maintain the economic health of the Chapter constitute time well spent. Furthermore, several Chapter sponsors who have consistently supported Chapter endeavors have expressed concern about this change in policy and that it may impact their willingness to continue such sponsorships in the future considering the substantial loss of Chapter autonomy as a result of the new policy changes.

While we look forward to hearing more details regarding the new policy from National on Tuesday’s call, the Metropolitan New York Chapter Board strongly urges the National Board to reconsider implementing this new policy.

Appraisal Institute, New York Metro Chapter
John A. Katinos, MAI, President
On behalf of the Metro New York Chapter Board of Directors

I heard a rumor that AI wants to do away with chapters and I’ve also been told that is not true – but with the opaqueness of National, I don’t know what to believe. And I keep hearing rumors about AI spending millions to expand their footprint across the globe but haven’t seen any measurable success let alone share the status of this effort with members. Is esoteric global expansion worth raising dues in a compensation compressed environment? Is the membership even aware of this effort and the millions supposedly lost?

Most of my peers nationwide have expressed frustration with an organization mired in self-serving politics. And it only seems to be getting worse.

My moment of zen was their self inflicted and childish exit of the Appraisal Foundation a few years ago. I eventually left AI and moved on to two other organizations that provide what appraisers are looking for. Remember that most of us are “lone wolves” and belong to organizations to get other perspectives. I can’t tell you how many SRAs and MAIs I know are talking about leaving the organization.

And did you ever wonder why there are so many statewide appraisal coalitions popping up? It’s largely because of inaction by National or their opposition to issues important to appraisers.

Incidentally, this new policy parallels the changes made by the Chinese government a while back. They moved the majority of the tax income stream from the provinces to the national government. This forced the provinces to go hat in hand to the national government to beg for an allotment of income each year. Sound familiar?

Lots of graft ensued for the provinces to get their “share” of revenue. In fact one of the reasons there are as many as 40 ghost cities in China right now is because the provinces were incentivized to generate GDP. What better way to do that then to build cities for several hundred thousand residents that would never come.

The moral of the story: central planning is never efficient. Through the loophole that National installed allowing them to modify this policy at anytime in the future is a recipe for disastrous self-dealing.

This is the appraisal industry’s moment to have some impact on our future. There are many challenges in front of us. The Appraisal Institute on a national level is now officially obsolete.

Enough with the self-dealing. We don’t make enough money collectively to fund their boondoggle. We need leadership, not politics.

Tags: Appraisal Institute, Metropolitan New York Chapter of AI, AI National

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Had a fun interview with Phil Crawford and his must listen weekly Voice of Appraisal talk show. I’ve set up a home button on my iPhone to grab each new interview. My only regret in life is not having Phil’s smooth silky radio voice. He provides a great service to the appraisal community.

Tags: Appraisal Management Companies, Podcast, AMC, Dodd-Frank, Voice of Appraisal, Phil Crawford

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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.

Tags: Miller Samuel

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Over the past few days I’ve been sent this blog post by a number of real estate appraisers who are upset with its derogatory reference to our profession. It was written by Dean Graziosi in the Huffington Post guest blogger section. I’ve never heard of him but perhaps that’s because I’m not a real estate agent. If you insert the word “scam” in your google search, there are a lot of additional insights that come up.

His Huffpost bio and web site indicates he is a NY Times Best Selling Author along with one of the top personal motivation and real estate trainers in the world. I also learned from his bio that he is a multi-millionaire, a guru in the personal motivation sector and cares deeply about his students. Translation: He basically teaches real estate agents how to sell.

Good. While it’s not my thing, I’m happy for Dean’s success (notice how his watch is strategically placed within his Facebook head shot as an indirect confirmation of his success) assuming no one was hurt. However as a public figure (as indicated on his Facebook page with 340K+ likes), Dean has a responsibility to convey information accurately to his students if he does indeed care.

While I doubt he wrote it it personally, his brand handlers managed to mischaracterize two key issues in a small blog post on HuffPost:

1. Graziosi frames the current housing market as equal to the bubble’s peak but doesn’t accurately describe what that means.
2. Graziosi frames the real estate appraiser as something other than a real estate professional while the real estate agent is a professional.
   
   

1. Housing Market

Graziosi cites the FHFA trend line as breaking even with the 2006 peak. Yes, based on FHFA methodology that’s certainly true and taken directly from the most recent FHFA report. I do feel the need to split hairs here since his “brushstroke style” of simplifying everything misaligns with reality. He says:

First, and most important, it requires repeat sales of homes, so if there aren’t huge numbers of sales, then we’re looking at a number derived from a small set of sales data. So, we’re not necessarily seeing an excited bunch of buyers flocking to the market. We are seeing a whole lot of homeowners who aren’t selling, waiting for rising values. So, we have a small inventory and competition for it.

The problem here is that there are a lot of sales outside of FHFA data – and FHFA only tracks mortgages that go through Fannie and Freddie. Roughly 30% of home sales are cash and another 5-10% of them are jumbo loans, too large to be purchased by the former GSEs – so they don’t get included. FHFA also excludes new construction.

The Case Shiller index is also a repeat sales index like FHFA but shows a different price point for the current market because it includes transactions outside of the GSE world.

If we look at the number of sales, which is the key point he makes, sales activity is low because we’re not necessarily seeing an excited bunch of buyers flocking to the market. But in reality, home sales are not low and they have been rising for 4 years. Of course sales are not at pre-crash highs because those highs were created largely by fraudulent lending practices including the unethical behavior of consumers caught up in the systemic breakdown that included nearly all particpants in the mortgage process.

Graziosi is right that inventory is low, but not because buyers aren’t flocking to the market – many buyers are being held back credit access has over-corrected. Many homeowners can’t qualify for the next purchase so there is no point of listing their home for sale.

Conclusion – we are not at the pre-Lehman market peak unless you only look through the eyes off FHFA, a distorted subset of the overall housing market. I would think that real estate gurus understand this.

2. Appraisal Industry

Let’s move on to the real reason I am writing this post.

I can ignore Graziosi’s “lite” market commentary but I can’t ignore his misunderstanding of the appraiser’s role in the purchase mortgage process (buyers applying for a mortgage to purchase a home.)

Don’t call an appraiser, as their approach to market value is different than that of a real estate professional. The real estate agent is trying to get you a sold price near to the top of the market, and their CMA, Comparative Market Analysis, is going to give you a pretty good idea of its value.

There is so much to talk about within these two sentences I’m not sure where to begin. It’s mindbogglingly simplistic, misleading and uninformed. Perhaps this is how he makes his students motivated?

Lets go for the big point first:

“Don’t call an appraiser, as their approach to market value is different than that of a real estate professional.” He must be thinking along the lines of the IRS definition, which is

To meet the IRS requirements, you need two things: spend the majority of your working time spent performing qualified real estate activities (regardless of what you do), and rack up at least 750 hours. Qualified activities include “develop, redevelop, construct, reconstruct, acquire, convert, rent, operate, manage, lease or sell” real estate.

Nary an appraisal-related definition within that list.

The problem with Graziosi’s communication skills as a best selling author and nationally renowned real estate guru who gives seminars for a living to communicate to his students (agents) how to succeed is – if we (appraisers) are not “real estate professionals” then it is a hop, skip and a jump to suggest we are “unprofessional” as if appraisers are something less than a real estate agent. Ask any consumer if they hold real estate agents in higher regard than real estate appraisers? In my view both industries don’t have sterling legacies but one isn’t more professional than another. Remember that he is used to speaking to his students who are real estate agents, the kind that sign up for this type of course. Promote BPOs and help agents get more listings – has got to be his recurring mantra.

The second issue with his quote concerning an appraiser’s value opinions – “their approach to market value is different” than a real estate agent. Providing an opinion of market value is likely the intention of both. Most real estate agents are hoping to get the listing and the appraiser is not incentivized by the home’s future sale. The agent may be the most knowledgeable person in the local market but there is an inherent potential conflict. Graziosi suggests that the broker will give you a price you want to hear. However I do like his idea of getting three broker opinions – that’s a very common practice – nothing new there. Ironically both an agent and an appraiser are looking at closed sales, contracts and listings but the appraiser doesn’t have an inherent conflict. They aren’t going to get the listing no matter how accurate their value opinion proves to be.

One problem with today’s appraiser stereotype as this column brings out indirectly, is that bank appraisers now generally work for appraisal management companies (probably about 90%) and the best appraisers tend to avoid or perform minimal AMC work because they can’t work for half the market rate. As a result, good appraisers aren’t necessarily known as well by the brokerage community as in years passed unless they get in front of the brokerage community in other ways, like giving seminars, public speaking, etc. Competent brokers within a market will know who the competent appraisers are.

There are unprofessional professionals in every industry – doctors, lawyers, deepwater diving arc welders and farmers, so please don’t make sweeping pronouncements to the contrary – especially if you are in the business of communicating information to “real estate professionals”.

Conclusions

• The real estate appraisal industry is not unprofessional
• IRS definition aside, real estate appraisers are real estate professionals

As I’ve walked through this response, I realized that the silly advice blog post in the Huffington Post by an infomercial guy did what it intended, stir up conversations of any type to get his name out there when his actual content was devoid of useful information. There is a great post I stumbled on the industry of motivational speakers: Real Estate B.S. Artist Detection Checklist. Worth a read.

Looks like I’m never going to be a multi-millionaire wearing a huge watch strategically placed in my head shot. If you notice my own head shot in the righthand column, my watch is very small.

Sigh.

UPDATE From the I have no idea for whom the appraisal is being performed but I am a 20+ year real estate professional (see definition above) department: Here’s an article from the Santa Fe New Mexican “Be cautious of appraisals” that damns appraisers using a stunning lack of understanding of the appraiser’s role in the mortgage process given his experience. This piece was written by a mortgage broker who was also a former financial consultant and real estate agent. The author states:

Everyone in every business falls under some measure of accountability. Certainly appraisers must also be accountable to their customer. The customer is the homeowner, not the AMC.

No it isn’t.

The appraiser’s client in the mortgage appraisal situation you describe is not the homeowner. The AMC is acting as an agent for the lender in order to for the lender to make an informed decision on the collateral (of course that’s only a concept). The appraiser is working for the AMC (who works for the lender) and not for your homeowner. Your logic from the housing bubble still sits with you today.

Yes I agree that the quality of AMC appraisals for banks generally stinks, but blame the banks for that, not the appraisers. Quality issues don’t change who the appraiser is working for. AMCs do internal reviews and make ‘good’ appraiser’s lives a living hell for half the prevailing market rate loaded with silly review questions by 19 year olds chewing gum to justify their own institution’s reason for existence. No wonder you are frustrated with appraisers from AMCs. ‘Good’ appraisal firms like mine avoid working for AMCs whenever possible. Yes I would be frustrated as a mortgage broker today because your industry got used to using appraisers as “deal enablers” during the bubble and nothing more. I contend that the current mortgage process post-Dodd Frank is clearly terrible and AMCs are a big part of the problem.

ASIDE This new era of online journalism for print stalwarts like the “Santa Fe New Mexican” and new versions like the “HuffPost” rely on filler-like the above 2 articles discussed here. Very sad.

Tags: Appraisal Management Companies, Huffington Post, AMC, Dean Graziosi, motivation, guru, real estate professional, seminars, scam, motivational speaker, Santa Fe New Mexican, mortgage broker, financial planner

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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.

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A while back, Kim Velsey at New York Observer reached out and thought it would be interesting to do a profile on me. Who wouldn’t like to talk about themselves for hours? What an opportunity! LOL. Uh, Yes?

We met and she proceeded to “drain my soul” as I am fond of saying – by the end of the interview my head was spinning and I wasn’t quite sure what I had said or if I would look foolish (the sign of a good interviewer). I was also getting a little worried when I started hearing through the grapevine who she was reaching out to – in other words this was an actual, real interview profile thing!

It turned out to be a fun, extensive and detailed read that captured a very fair and accurate picture of me for which I am very grateful (and relieved).

Jonathan Miller Is the Most Trusted (and Quoted) Man in New York Real Estate
An Honest Appraisal by Kim Velsey July 29, 2015

Photo credit: New York Observer

Tags: New York Observer, Kim Velsey, profile, orange

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[click to expand]

I thought I’d build a visual representation of the decline of the appraisal industry – sort a flow chart, but really an excuse to use different colored shapes and sizes. This is a work in progress so please feel free to let me know what I’ve missed, which presumably is an infinite amount of detail.

Open the timeline as pdf.

UPDATE – Fixed a few typos and grammar weirdness in graphic.

Tags: Appraisal Insititute, Appraisal Management Companies, AMC, Appraisal Pressure, Appraisal Process, low appraisals

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I’ve received a couple of these appraisal spam messages recently and I was struck by the audacity of the messaging.   Of course this firm could be inferring through the use of poor grammar that this is a good way to get additional work for your appraisal practice.

Still, the “top appraiser” made $25K last year!

In the email marketing piece and the web site  there is no mention of competence, experience or quality.  The messaging is all about how this firm automates the sign-up process with all the AMC’s that the lucky appraiser gets to work with as well as providing plenty of inspirational discussion about fees, turn times and how quickly the appraiser gets the check.

Still, the “top appraiser” made $25K last year!  Yay!

Good grief.

Tags: Appraisal Management Companies, AMC, Appraisal Fees

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Read my latest Bloomberg View column Do Experts Value Your Home More Than You?. Please join the conversation over at Bloomberg View. Here’s an excerpt…

Homeowners are almost naturally inclined to have a higher opinion of their properties than anyone else, including potential buyers, lenders, brokers or appraisers. But that wasn’t always the case during the bubble years, and inflated real-estate appraisals contributed to the excesses.,,

[read more]

My Bloomberg View Column Directory

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Tags: Appraisal Management Companies, AMC, Appraisal Pressure, Quicken

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Read my latest Bloomberg View column Real-Estate Appraisals Are Bubbly Again. Please join the conversation over at Bloomberg View. Here’s an excerpt…

A key goal of the financial reforms after the housing bust was to prevent banks and other interested parties from pressuring real-estate appraisers to inflate valuations…

[read more]

This particular column blew up the Bloomberg Terminals, becoming the number 1 most read real estate article and the 15th most read of all articles on Bloomberg Worldwide.

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My Bloomberg View RSS feed.

Tags: Appraisal Pressure, lender bias, Number 1 on Bloomberg Terminals, Dodd-Frank Act

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I was invited to speak at the Great Lakes Chapter of the Appraisal Institute last week and met a lot of great appraisers who cover the state of Michigan.

I spoke about the housing market and the misinterpretation of residential housing metrics, inspired by this article and the following infographic from the Detroit Free Press.

Inkster +106.4% !!!!! a largely distressed market with what I was told only has a handful of rock bottom sales ie $10K in 2009 becomes to $30k in 2014 – a perfect example. Hot? Hardly.

As much as I think I held their attention for the entire hour allotted, my presentation fell short of getting audience adrenaline pumping like the Jordan Petkovsky, the Chief Appraiser of a TSI Appraisal, a large national AMC and affiliated with Quicken Loans. I still wonder how beneficial this public relations could be by talking to the industry like a politician – as if residential appraisers were clueless to the “incredible benefit” that AMCs provide our industry.

Here are a few of the questions (paraphrased) posed to an audience comprised of heavily experienced residential and commercial appraisers:

Q: “I realize there is friction between AMCs and appraisers. What has to happen to solve this problem?”
A: Someone in audience: “Someone has to die” followed by a burst of laughter from the entire room.

Q: “We spend millions on powerful analytics. Wouldn’t it be great for appraisers to get their hands on this technology?” (repeated 2 more times slowly for effect).”
A: Someone answered: “You have to spend millions on technology because the appraisal quality is so poor you need to analyze the markets yourself.”

Q: “How do we attract new appraisers into the business?”
A: My answer “Until appraisers are fairly compensated when banks are made to be financially incentivized to require credible reports, nothing will change.”

Q: “How do you think banks feel about the reliability of appraisals today? They don’t feel the values are reliable.”
A: My answer “Because AMCs pay ±half the market rate, they can only mostly attract form-fillers (aka “corner-cutters”). They don’t represent the good appraisers in the appraisal industry.”

Q: “We focus a tremendous amount of effort on regulatory compliance on behalf of banks and boy are they demanding! We even have a full time position that handles the compliance issues.”
A: My comment – that’s a recurring mantra from the AMC industry as a scare tactic to keep banks from returning to in-house appraisal departments. Prior to 2006 boom and bust cycle and the explosion of mortgage brokers with an inherent conflict of interest as orderers of appraisals, the profession was pretty good at providing reliable value estimates. The unusually large demands by regulators (if this is really true and I have serious doubts) is because the AMC appraisal quality is generally poor. If bank appraisal quality was excellent, I don’t believe there would be a lot of regulatory inquiries besides periodic audits.

What I found troubling with his presentation – and I have to give him credit for walking into the lion’s den – is how the conversation was framed in such an AMC-centric, self-absorbed way. I keep hearing this story pushed by the AMC industry: The destruction of the modern appraisal industry was the fault of a few “bad actors” during the boom that used appraisal trainees to crank out their reports. That’s incredibly out of context and a few “bad actors” isn’t the only reason HVCC was created – which was clearly inferred.

Back during the boom, banks closed their in-house appraisal centers because they came to view them as “cost centers” since risk was eliminated through financial engineering – plus mortgage brokers accounted for 2/3 of the mortgage volume. Mortgage brokers only got paid when the loan closed, so guess what kind of appraisers were selected? Those who were more likely to hit the number – they were usually not selected on the basis of quality unless the bank mandated their use. Banks were forced to expand their reliance on AMCs after the financial crisis because the majority of their relationships with appraisers had been removed during the bubble – the mortgage brokerage industry imploded and banks weren’t interested in re-opening appraisal departments because they don’t generate short term revenue.

The speaker spent a lot of time talking like a politician – “we all have to work together to solve this problem” “appraisers have to invest in technology.” When asked whether his firm had an “AVM”, he responded almost too quickly with “No” and then added “but you should see our analytics!”

The residential appraisers in the audience were largely seething after the presentation based on the conversations I heard or joined with afterwords.

It’s really sad that appraisers don’t have a real voice in our future. We’ve never had the money to sway policy creation and we can’t prevent the re-write of history.

But we’re clearly not the “bad actor.”

Tags: Appraisal Management Companies, HVCC, Appraisal Institute, AMC, Home Valuation Code of Conduct, Michigan, Quicken Loans, Jordan Petkovsky, TSI Appraisal, Great Lakes Chapter

2 Comments

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.

Tags: Trolls

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