Matrix Blog

Continuing Education & Licensing

[The Real Deal Magazine] Will Own Lincoln Center

September 7, 2008 | 8:53 pm | | Public |

The Real Deal magazine’s New Development Forum at Lincoln Center was sold out at the 3,000 capacity venue last year. For lack of a better description, it was fun.

So this year, I was more than happy to help spread the word (all 3 seconds worth). The ad is running hourly on CNBC on Time Warner Cable and on NY1.

Since Publisher Amir Korangy knows how to pack content into his magazine, there’s no doubt he’ll pack ’em into Lincoln Center for another sell out. He lined up a group of interesting guests and with the housing and credit markets in turmoil, this event will prove especially informative.

To buy tickets

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Licensing Doesn’t Really Work, But A Necessary Revenue Opportunity

July 31, 2008 | 7:45 pm | |

I think the future holds more licensing requirements in store for real estate professionals. After entering a credit crisis like we are currently experiencing, all professionals connected to the real estate industry may face new licensing or additional requirements.

In an interesting piece written by two economists—Fed visiting scholar Morris Kleiner, of the University of Minnesota, and Richard Todd, vice president of Community Affairs at the Minneapolis Fed called Licentious Behavior:

On the face of it, this makes perfect sense: If incompetent or dishonest brokers have encouraged borrowers to take out loans beyond their means, then targeting these abuses through stricter governmental requirements on brokers should help prevent future problems.

But a recent empirical examination by two Fed econ- omists casts doubt on that solution. In the first compre- hensive assessment of relationships between mortgage broker licensing and market outcomes, the economists find that most regulatory steps appear to have no clear connection to consumer outcomes, but one financial regulation (surety bond and minimum net worth requirements) is consistently related with conditions that seem worse for both brokers and borrowers.

Deja Vu

The appraisal industry faced new licensing requirements in 1991 as a result of the S&L crisis of the late 1980s. Think Vernon Savings & Loan and property values being appraised higher every few hours by appraisers who must have possessed incredibly precise and masterful valuation skills and adequate supporting data (yeah, right).

Appraisers ended up being licensed, waiting in line with other professionals in the testing centers such as pool cleaners and hair stylists.

Appraisers were part of the problem in the current credit crunch as well. Licensing did not prevent bad appraisers from crossing the line then or now. In fact, I would venture to guess that the quality of the average appraiser (not the median) declined sharply after implementation of licensing 17 years ago.

Was it licensing that created the deterioration in quality of appraisers?

No. It was a bigger systemic problem but it did play an unintended role. Licensing of any profession provides a false premise of quality. In this case it was presented to the mortgage industry, but more importantly, allowed a shift in liability to the appraiser who had a freshly painted bullseye on his or her back.

Licensing alone does not promote better quality work.

Quality only gets noticeably better by an incentivized private sector who is enticed through regulation to require better quality reports. It is not enough to say you “can’t do something.”

Is licensing a good thing?

Absolutely. It provides a minimum barrier to entry and a process to allow for the removal of bad appraisers from the business.

Licensing alone won’t improve quality, however. An example would be a town whose police department cracks down on speeders – this alone doesn’t make everyone a better driver, but it does play a role in improving safety. People still get into accidents when they have a drivers license.

A side benefit to municipalities becomes an important revenue opportunity for the licensing bureau, especially with a weakening economy in most of the country. Revenue funds some enforcement for blatant violations, and provides some oversight and regulation. I am fairly certain that a portion of earmarked licensing revenue ends up channeled to other departments, essentially defeating a primary argument for licensing.

What about mortgage brokers?

So for mortgage brokers who are on the verge of being licensed in New York state, with a economic slowdown already being felt, I think it is a long shot that this effort will be defeated.

Will it increase the quality of mortgage brokers in New York state? I doubt it, only on the lower fringe.

I saw first hand the basic financial conflict in their role as commissioned provider of mortgage business, paid only if the loan closed. As in every profession, there are good and bad “professionals.”

All who touch the mortgage should to be licensed, at the very minimum.

Who We Are In The Eyes Of The Federal Government

July 30, 2008 | 12:33 am |

Here’s a surprisingly detailed and well written analysis of our appraisal profession by the US Department of Labor.

Good stuff.

Apparently employment opportunities are high.


Inman SF, A Convection Oven Of Information

July 24, 2008 | 12:09 pm | |

I thought I wouldn’t make it there:

Here’s a glass is half empty whining, seeking empathy recap:

  • Drove to JFK, pouring so hard traffic would periodically come to a stop on the expressway
  • JetBlue flight was packed, with warm air blowing like a convection oven at about the halfway mark
  • Two kids, about 3 and 4 years old, screaming, fighting and crying for 6 hours directly behind me, parents oblivious or helpless
  • Two people next to me became fast friends, speaking so loud for 6 hours straight, I couldn’t tune them out with my iPod. I now know their mortgages, financials, plans to divorce, how they met their spouses in intimate detail
  • My tv screen went black halfway into the flight
  • Room wasn’t ready for 2 hours at the hotel
  • Apple store across the street ran out of iPhones 20 minutes before I got there, and were surprisingly rude

Here’s a glass is half full, glad to be here in San Francisco summary:

  • But I made it, alive
  • 65 degrees, sunny (perfect)
  • Met a ton of old friends, long time online friends finally in person
  • Brad Inman can still put on a show
  • Chief Economist at BofA main session gave great, forthright overview
  • Listened to Craig Newmark – quirky and endearing, “Constitution gets used again after the election” discussion (plus, as an added bonus, Craigslist discussion)
  • Hung out with Dustin Luther, saw his terrific presentation at the main conference
  • Winced at hyperinflation talk (1000%, 20 years, without factoring in corrective market forces) but otherwise loved the bull vs bear discussion, and at the end decided I didn’t need to jump off the Golden Gate
  • Couldn’t twitter during the conference, no ATT reception on the main conference and didn’t realize how simple the wireless password was. duh!
  • Went to the Trulia BBQ – on the trolley and spoke at length with the Marker Man who had to turn sideways to fit – best (only) meatballs I have ever had in SF
  • Had dinner with some of the smartest econ bloggers out there – UrbanDigs, Naked Capitalism, Calculated Risk and their better halfs
  • Realized it was about 2:30 am EST and had to end the evening without going to the Curbed party (I know, serious wimp)

Going to cook some more today.

[Sounding Bored] Hiding Behind USPAP To Avoid Getting Sick

July 20, 2008 | 10:03 pm | Radio |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Take the case of Mike Lefebvre, a Realtor in Massachusetts, who also happens to have an appraisal background.

There are many appraisers who were originally real estate agents and in fact, I believe there are still states that require appraisers to have a real estate sales person’s license in order to get their appraiser license.

Mike has an interesting approach to getting a listing. He performs an appraisal on a potential listing rather than a broker market analysis (BMA) because it is more detailed and helps him properly price the property. He uses that appraisal as part of his marketing effort. In many ways, he is being more professional as an agent by providing a more thorough analysis for his clients than a BMA affords.

Since pitching a listing is not a federally related transaction and he discloses (and it is apparent) that he has a vested interest in the eventual transaction by the fact he is an agent paid on commission, I don’t see this being a problem or a violation of USPAP.

Of course, I would love another perspective on this.

However, I often see more seasoned appraisers make a habit of needlessly scaring clients, banks and agents by using USPAP as a grey fogging tool…almost like the way a consumer feels reading an insurance policy…it is something so confusing that it is not meant to be understood, except by appraisers.

And THAT, in my humble opinion, is one of the things that is killing the appraisal profession. USPAP was in place during the housing boom so it is apparent that this standard alone is not the panacea of the lending industry. Create so much confusion that you motivate the industry to find alternatives.

Others see it differently, and this email is the inspiration for this post.

Mike forwarded me an email sent by an appraiser. I am not familiar with him but he appears to be well-qualified as an appraiser in his market judging from his web site. I’ll even assume he is a good appraiser and a nice person.

The appraiser was “sickened by Mike’s performance of an appraisal on each of his listings to more accurately price the property and alludes to connecting him to bank fraud (the irony is that USPAP clearly forbids appraisers to mislead their readers, which this email is treading awfully close to that, no?):

From: [kept anonymous]
Date: June 6, 2008 10:07:42 PM EDT
To: mlefebvre
Subject: Re: Inquiry About 30 Jefferson Road, Franklin, MA – why would you bias yourself like this? Ever hear of USPAP?

You do understand that when you do an Appraisal you must adhere to USPAP including “I have no present or prospective interest in the property that is the subject of this report…..”

How can you do an Appraisal on a property you list, this is sickening to see.

Do you know what constitutes acceptable versus unacceptable business practices? This is required in all 50 States. Follow this link…

Giving a comp check without an Appraisal IS BANK FRAUD.

Ethics? Do you understand them? Follow this link to learn more about what an Appraiser is required to do and what not to do.

In addition to our Appraisal services we can also offer sessions for your office on how to be compliant with USPAP.

We “VALUE” your business! Specializing in honest and accurate results!

[deleted content to keep anonymous]

“Think about USPAP and how to follow it now, or you may get a long time to think about it in prison later.”

“People only think USPAP Requirements are stupid until they are caught and punished for not following them.”

I think having USPAP is a good thing, a necessary thing. The fact that the lending industry went to hell in a handbasket isn’t because every appraiser didn’t follow USPAP. The problem is much bigger than that.

We all need standards to live by and the public needs to have comfort that when they order an appraisal, they understand what they are being provided. If an appraiser has a potential conflict, it must be fully disclosed.

I also think this sort of threatening message is self-serving and shouldn’t be tolerated either. You don’t use USPAP as a weapon to create mass hysteria in the public domain as a way to generate business. That makes the profession look even worse than it already does.

Good grief.

Here’s Mike’s post on the subject.

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[The Hall Monitor] There’s Room For Improvement

July 20, 2008 | 6:05 pm |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. In this post Todd structures the building argument for a change in terminology. …Jonathan Miller

Improve v 1. To raise to a more desirable or more excellent quality or condition; make better. 2. To increase the productivity or value of (land or property). 3. To put to good use; use profitably.

Improvement n 1a. The act or process of improving. b. The state of being improved. 2. A change or addition that improves.

These definitions are from the American Heritage College Dictionary, fourth edition, published in 2002. This same dictionary does not include an entry for “teardown”, as this is a relative “arriviste” in the lexicon of real estate. However, the term teardown has become ubiquitous among people living in the many places across the country where they are common. The New York Times, in an editorial on July 1, 2008 entitled Holding Back the Wrecking Ball, makes reference to a Westport, Conn. Web site featuring Teardown of the Day.

The Appraisal of Real Estate, thirteenth edition, has recently been issued (so says Jonathan Miller in Soapbox) but I’m still working from the twelfth edition and I have no plans to buy the new one. The index in my book does not include a reference to “teardown”. I am genuinely curious as to whether or not the thirteenth edition does. Consider this a plea to those of you who have the new book. Does the word teardown appear in the index, or doesn’t it? In my opinion it absolutely belongs there. What no longer belongs there is the word “improvement”, or any derivation thereof.

From this point forward, in appraisal parlance the word improvement should be replaced with the word structure. (or perhaps you have a better word) “As improved” should be “as structured”, “unimproved” becomes “unstructured”, you get the idea. The reason should be obvious. The very definition of the word improvement carries with it the implication that the “structure” always adds value to the land. And until fairly recently that was generally true but it is no longer necessarily so. An “improvement” that does not enhance the value of the land IS NOT AN IMPROVEMENT. If it were then “teardown” wouldn’t have become the commonly used word that everyone understands.

In the case of a teardown, not only does the structure not add value, it diminishes the value of the land, as unstructured. The word “structure”, which makes no premature judgment as to any contributory value of an existing building, allows for the critical question to be asked in a way that the word “improvement” does not. Does the existing structure enhance the value of the land, or does it diminish it? In places where teardowns are common the answer is clear the value of the land, as vacant, is greater than its value, as structured. It’s misleading, ridiculous even, to call these buildings “improvements”.

In real estate appraisal the word “improvement” is an archaic term reflective of an early 20th century truism land was cheap (dirt cheap) and most of the value (75% or more) was in the building. In the early 21st century, in many urban and suburban places this notion is demonstrably false. In these areas the land component may account for as much as 50% of total value and that’s with new construction! The best way to acknowledge this reality is to replace the heavily biased word “improvement” with the more neutral “structure”.

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[Lucky 13] The Appraisal Institute Updates The Bible

July 11, 2008 | 6:50 pm |

Just when you thought you had your summer reading under control (I have a slew of books next to my bed that blogging seems to keep me from reading), the Appraisal Institute updates it’s mainstay publication:

The Appraisal of Real Estate, Thirteenth Edition

While the book is a text-book, it’s actually a pretty good read and an invaluable resource during my appraisal career. Here’s a summary.

In fact, it is probably an even better read than my recent books: Bad Astronomy, The Aspirin Wars and American Nerd: The Story of my People.

Ok, I admit it, I am dull and boring.


[Commercial Grade] Lending 101

June 26, 2008 | 1:40 pm |


Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know. …Jonathan Miller

I think that I finally understand what the problem is.

We just need to go back to basics and make sure that the real estate lenders are being property educated. I recently came across a textbook written for lenders: The Complete Guide to Financing Real Estate Developments (Hardcover) by Ira Nachem ( 2007, McGraw-Hill, New York), List price $79.96. Seemed like a respectable enough book, which is why my jaw dropped and I had to read the following section three times to make sure that I wasn’t imagining things

A section in Chapter 5 with the heading “Influencing the Appraisal”,

Since appraisers want to continue to receive assignments, they generally have a desire to satisfy you, their client. You sometimes can play on that desire and get the appraiser to produce a report with values a bit higher (or lower) than he otherwise would report.If you want to make sure that the appraiser is not undervaluing the property, you should tactfully indicate your concern up front

Do you believe this stuff?!

As I was reading this I kept on waiting for Alan Funt to jump out and tell me that the whole thing was a joke. He didn’t. (I guess he couldn’t since he died in 1999.)

It gets better

A third reason to go against a conservative valuation involves market conditions and competition among lending institutions. When more lenders are in the market, competition for business increasesTo be more competitive, loan officers who receive higher appraised values can make larger loans

Over the years I’ve spoken to numerous loan officers that truly don’t have a clue as to how the appraisal function is supposed to fit into the underwriting process. Unfortunately books like this do little to educate them.

I look forward to reading future books in this series: “Shmearing the Building Inspector” and “Tax Evasion for Dummies”.

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[Gettin’ Heavy] Real Estate Connect San Francisco 2008

June 5, 2008 | 12:01 am | | Public |

The upcoming Inman Real Estate Connect San Francisco conference is a must see event for real estate professionals, plus it is in San Francisco, one of my favorite places. Check out the deal for bloggers.

Inman News has been touting the wide swath of speakers as:

  • The Best and the brightest;
  • Real estate industry’s champions; and
  • Industry heavyweights

Ok, ok. I get the hint. I need to lose a few pounds….

Inman Real Estate Connect is great because it attracts decision makers and innovators. I always learn something a lot and meet many great people.

Brad, Joel, Jessica and company know how to run an event.

On Friday in the main conference venue, I’ll be participating in the last panel discussion of the conference:

When Will the Housing Market Turn?

  • Alex Perriello, CEO, Realogy
  • Joel Singer, EVP, CAR
  • Jonathan Miller, Co-Founder, Miller Samuel
  • Patrick F. Stone, Chairman, The Stone Group

Should be a great time.

[Social Mortgaging] Using Social Capital To Seek Out Information

June 4, 2008 | 12:01 am |

In a recently released paper called The Use of Social Capital in Borrower Decision-Making by a doctoral student at Harvard, Cassi Pittman, with the support of the NeighborWorks America’s Emerging Leaders in Community and Economic Development Fellowship and the Joint Center for Housing Studies of Harvard University. This research focuses exclusively on black borrowers’ search for and obtaining of mortgage financing.

Because of wide variations on mortgage borrowing patterns based on race, this study looks at mortgage patterns from the demand perspective. In other words: how do individuals decide to go with a particular lender or mortgage product?

The preliminary findings indicate that borrowers’ preferences and subsequent demands for mortgage products were shaped by the informal and formal advice they received. Those borrowers who consulted the most diverse sources of information had loans with lower interest rates. Those borrowers who received advice only from family and friends did not fare as well as those who received help from credit counselors. Thus, arguably, their loan outcomes varied not just based on if they consulted others, but especially whom they consulted. When given the right advice, potential homebuyers make better decisions in choosing both a lender and a loan.

The report sample size is arguably small and because of the quickly changing environment, feels a little dated (ie 65% of origination is via mortgage brokers – it must be half that market share or less right now), but its well written, presented and even better…it’s interesting, covering such on an abstract subject.

Just sitting through a closing, illustrates the futility of federally mandated mortgage disclosures. Not only are the volumes of documents cumbersome and lack clarity, but it serves to confuse borrowers even more. When borrowers do not understand the terms of their mortgage and the fees associated with the transaction, they are more likely to be victims of lending abuses and to be charged “fees that far exceeded what would be expected justified based on economic grounds”. The mortgage rates charged were as high as 16% in a low mortgage rate environment. 2-28 (2 years fixed, 28 years adjustable) were among the most popular.

Of course, conventional mortgage denial rates played a role in fueling demand for subprime products.

Obtaining a mortgage in today’s mortgage market is a complicated process. When reaching a decision on a home loan, borrowers might feel compelled to use their social networks for information and guidance. Loan products have become increasingly complex. Federally mandated mortgage disclosure forms, instituted to display the cost of the mortgage transac- tion and to prevent “the uninformed use of credit,” have been found to poorly convey the true cost of borrowing.

With all the talk about social networks, the social network that influences a mortgage decision is particularly powerful and the financial stakes are high.

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[Musings Of An Appraiser] Incompetence A Bigger Issue Than Fraud

April 13, 2008 | 3:23 pm |

Adam Johnston, SRA, is a long term appraisal veteran, and currently a chief appraiser for a national real estate settlement services company (and a longtime fan of Soapbox). On a daily basis, he speaks with appraisers and lenders across the country having observed the rise and fall of the sub-prime lending market. …Jonathan Miller

There has been a lot of recent discussion from the government and the news media regarding the issue of appraisal fraud and improper pressure on appraisers. Although appraisers and fair housing advocacy groups have complained loudly about these issues for the past several years, our concerns were frequently disregarded or dismissed as being over-hyped and insignificant. Many regulatory bodies and lending institutions naively suggested that appraisers should obey the rules and everything would be fine. All the while, these entities ignored a fundamental reality; where there is demand, there will be supply. Accordingly, where demand for appraiser’s to “play ball” became a prevalent practice, there developed an ample supply of greedy appraisers to meet that demand. The presence of inexcusably lax enforcement, instigated by regulatory apathy and insufficient state funding further enabled the problem and emboldened the offenders.

Unfortunately, we now find ourselves in a real estate meltdown of mind-numbing proportions. Although appraisal pressure and fraud was merely one symptom of the greater problem, it was avoidable none-the-less.

Despite all the rhetoric about appraisal fraud, I believe a far more significant problem exists within the appraisal industry. Namely, we are plagued by incompetent appraisers with marginal training and a marginal understanding of basic appraisal procedures and techniques. Shockingly, it has been my experience that many seasoned appraiser’s lack the necessary understanding of USPAP to comply with it’s rules. How does an appraiser certify compliance with a document they fail to read or understand? I believe that appraiser incompetence is a greater threat to mortgage lenders than appraisal fraud. I suspect that most appraisers would not knowingly commit fraud, but yet will engage in incompetent appraisal practice on a routine basis. An incompetent appraiser can unknowingly yield appraisal conclusions and market value opinions that are similarly erroneous and damaging as appraisals that are frequently labeled as fraudulent.

In conclusion, I believe that:

  • appraiser incompetence is significantly more dangerous and prevalent than appraisal fraud.
  • Secondly, I believe that appraiser incompetence is far more difficult and costly to detect than appraisal fraud.
  • Lastly, I believe that our current system of mentoring, licensure, continuing education, appraisal review and enforcement is woefully inadequate and is built for marginal success.

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[Inman] Real Estate Connects Golden Gate

April 12, 2008 | 10:36 pm | | Public |

The San Francisco edition of Real Estate Connect is approaching. I attended last year for the first time (I am a veteran of the New York version, which is usually about 5 blocks from my office). I get to meet a lot of smart people and pick up a lot of great information and discovered a lot of new resources. I am on slate to participate in some capacity this year.