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Nearly a year ago, my wife and I went for a drive in the next town over from where we live in Connecticut and stumbled across a slew of houses being modified to the FEMA Base Flood Elevation (BFE). It was eye opening for me since I never envisioned a house – especially houses built 30-50 years ago – as so readily moveable. As a kid I had observed my dad have his real estate office moved 2 doors down so he could sell his lot to an adjacent condo developer….and 40-years later both of those buildings are standing.

Note all the”tall” garages.

It also raises valuation issues. How will an appraiser handle the valuation of the house next to the house that was raised? We may see the market apply a penalty to the house not on stilts in a flood zone.

This was a home being lifted last spring…

and with the work complete…

What would a potential buyer of the house next door (in a flood zone) think?

Tags: Hurricane, Superstorm Sandy, FEMA, flood insurance, photos

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[click to open reports]

We recently released the market reports we prepare for Douglas Elliman covering the The Hamptons and North Fork.

This is part of an evolving market report series I’ve been writing for Douglas Elliman since 1994.

Key Points

HAMPTONS 1Q 2013

• Listing inventory continued to fall.
  
• Number of sales surged.
  
• Number of sales in excess of $5M dropped as many high end buyers rushed to close at the end of 2012.
  
• Limited supply beginning to apply upward pressure to stable markets.
  
• Credit remains tight, restraining supply from entering market, no urgency to list.
  
• Record low mortgage rates and release of pent-up demand keeping demand strong.
  
• Less high end sales as tax-incentivized buyers rushed to close at the end of 2012.
  
  

NORTH FORK 1Q 2013

• Housing prices up in all segments except for top quintile due to tax-incentivized rush at end of 2012.
  
• Number of sales fell and listings rose.
  
• Days on market expanded.
  
  

Here’s an excerpt from the 1Q 2013 report:

HAMPTONS…After an unprecedented year end surge in high end closings motivated by tax planning purposes, the first quarter Hamptons housing market saw an unusually low level of high end sales despite a year-over-year increase in total sales. As a result, the price indicators reflected declines, when in fact the housing market was not experiencing falling prices…

NORTH FORK…Sales activity in the first quarter of the North Fork housing market was somewhat weaker than the same period a year ago as the prior quarter “poached” some activity at the close of 2012. Price indicators were generally higher, but sales were lower and inventory was above prior year levels…

You can build your own custom data tables on the market – now updated with 1Q 13. While we haven’t built separate chart galleries for each market yet, you can browse our chart library.

The Elliman Report: 1Q 2013 Hamptons Sales [Miller Samuel]
The Elliman Report: 1Q 2013 North Fork Sales [Miller Samuel]
The Elliman Report: 1Q 2013 Hamptons Sales [Douglas Elliman]
The Elliman Report: 1Q 2013 North Fork Sales [Douglas Elliman]
Market Chart Library [Miller Samuel]
Aggregated Custom Market Data Tables [Miller Samuel]

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[click to read article (subscr)]

I thought the chart created by the WSJ using our data nicely illustrated the end of year spike in sales and prices at the end of the 2012, influenced by the notion that taxes, whatever form they take, will be higher in the future. I think this surge in activity will take some of the edge off the market in 2013.

Tags: Josh Barbanel, WSJ

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Here’s a summary of how our taxes may change with the pending “fiscal cliff.” It’s a nice concise summary brochure.

Tags: Fiscal Cliff

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I provided some insight to a recent edition of a new French Magazine called The Good Life – the issue was dubbed 100% New York.

Since we make so much of the influence of international buyers in the New York City market, I found the issue to be refreshing as I flipped through it in its entirety, as if providing some sort of validation that the way we see the market as locals is how others outside of the US see it.

Of course this is a stretch because the issue is entirely in french, but hey, I took five years of french in school and on a good day can remember how to ask for permission to sharpen a pencil.

For the real estate portion, you can open it here, for the entire magazine – you can buy it here.

With the recent ratings downgrade to French banks, I wonder if the flow to US assets will accelerate.

Jonathan Miller
fondateur et président de Miller Samuel Inc.

Tags: The Good Life, France, FEMA

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[click to expand]

This chart is an enlarged version of a chart that appeared within our just released Elliman Report: Hamptons/North Fork Sales. I’ve expanded it because I was struck by the randomness of activity in the $5M and up sector of the market (blue columns). Clearly the pattern follows the market stall after Lehman’s ’08 bankruptcy for a few quarters but otherwise, the sales don’t seem to follow a pattern, seasonal or otherwise.

The two quarters with a spike of 38 sales, 4Q 2010 and 2Q 2012 could be explained perhaps but the reasons aren’t that compelling in comparison to how much they stand out.

4Q 2010 The looming Bush tax cut expiration at the end of 2010 caused many sellers to bring high end properties and they were quickly absorbed.

2Q 2012 The prior quarter seemed to be an elevated spring surge.

4Q 2012 Will the 4th quarter see the same phenomenon as 4Q 2010? The capital gains implications are the same – will the Bush tax cuts be extended? – I’m not sure but our appraisal practice is inundated with valuation assignments of high end properties hedging against the potential end of year rise in capital gains tax.

The aftermath of Hurricane Sandy and the imminent Snor’eastercane may change the 4Q 2012 results.

Tags: Hurricane, Lehman

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Remember this mailbox? It’s been through a lot. The photo is of my street in my CT home town, one of many downed trees and wires on my street. It’s been a long work week, especially since I haven’t been able to work much without power at home or work and it’s not nearly been a week since Sandy wreaked havoc on the Northeast US. My family and friends are safe and I feel very fortunate.

I’ve expanded or refreshed my vocabulary since Super-Storm Sandy – here’s my slow wifi, town library recap:

%$$%%!!! Your one word profanity-laden scream (insert word of your preference) when one of your favorite healthy 6-story shade trees falls down next to your house during the storm and you realize the storm is no longer an adventure (incidentally a tree falls really fast, not like in the movies).

OMG – The word you utter when your fireman son tells you about all the near misses with falling trees while they were out on the truck responding to emergency calls while your other adult child is taking pictures of the storm and submitting them to the local paper’s web site.

Boom of Doom – What my friend Michael Gross called the collapsed crane on West 57th Street, which forced the evacuation of his apartment nearby.

Zone A – A FEMA designation that few were familiar with (as appraisers we are) that now smoothly rolls off everyone’s tongue in everyday conversation.

Waterfront – That highly sought after real estate amenity that has everyone wondering if living away from the water would be better. Nah.

Flood – See “Waterfront”

“Coned” – The way a long-time Weather Channel anchor was pronouncing the NYC’s electric utility “Con-ed”

SoPo – (h/t to my friend Dan Alpert) was an overheard description for “South of Power” – Manhattan below 39th Street is without power. Of course, my office is located on 38th and remains dark.

NoPo – My alternative to “SoPo” and it is not location specific – it refers to anywhere that has power.

Electricity – It’s that crazy magical force that makes pretty much everything we rely on actually work and we only notice it when we don’t have it.

Primary (Service) Wire – The name my fireman son gave a large thick black wire – if you touch it while electricity is coursing through it – you catch on fire – incidentally one of these wires is still laying on my front lawn.

Snor’eastercane – The nickname given to the storm coming to our area next week bringing cold weather, snow and rain. Has it’s own twitter handle.

Sandy – A hurricane we won’t forget. Replaces “Back in ’38” with “Back in ’12”

Frankenstorm – See “Sandy”

Super-Storm – aka Mega-Storm. See “Sandy”

Puzzles – Those arcane cardboard pieces of art cut into odd shapes that you try to reconnect when you have no power and have to actually speak to your significant other and your kids.

YES!!!! – The near-expletive yelled with joy when we discovered our boat dock came within 6 inches of lifting over the piling and floating away with our boat. Always have a “YES!!!” “chambered” and ready to use it when your power turns back on.

UPDATE

Treemaggedon – What it felt like to see huge trees down all over our street and yard.

Tags: Hurricane, Superstorm Sandy, Power, SoPo, FEMA

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The New York Times had a trifecta of estate-related coverage this weekend.

In What an Estate Looks Like to the Taxman explores the lack of estate tax for 2011. The threshold could be dropped from $3.5M in 2009 to $1M in 2011 if its reinstated. The coffers are pretty empty with all the spending post-credit crunch so I would find it hard to believe that it won’t be re-instated.

When Congress passed a law that eliminated the estate tax for people who die this calendar year — with plans to bring it back with a vengeance in 2011 — the joke among estate planners was that 2010 might go down as the year of “Throw Momma From the Train.”

The Confusion Over the Dormant Estate Tax Keeps Advisers Busy talks about the scramble for estate planning this year. Since housing tends to be the biggest asset in a typical estate, and the level of property values in the region, I’m anticipating a lot of estate tax appraisals next year.

The real problem comes for the merely rich — individuals worth more than $1 million and less than $3.5 million and couples with net worths of $2 million to $7 million who previously did not have to worry about the estate tax. If Congress fails to act again this year, the estate tax laws next year will revert to their levels before 2001, and that could snare a host of people who set up the estate plans on the assumption that there would be no tax when they died.

The real estate section cover story this weekend was Loved. Lived In. Listed as an Estate Sale. The article covers a fact of life (no pun intended) in real estate. In NYC, “estate condition” is a common term that suggests the property needs significant updating.

That is when the property entered the realm of the estate sale, a segment of the market often inhabited by one-of-a-kind apartments that haven’t been touched in decades. These places tend not to be bargains, especially after factoring in the often necessary and sometimes costly renovation. But they attract a certain species of intrepid buyer, satisfying an appetite for an ambitious redo, architectural distinction or an aura of prestige.

Tags: Estate Tax

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Since appraisal management companies are now responsible for the super majority of appraisals being ordered through lenders for mortgage purposes due to HVCC and AMCs are not a regulate institutions, the consumer is exposed more than ever to the potential for low quality appraisals, continuing to undermine the public trust in the appraisal profession. I suspect trend this has the potential to push errors and omissions insurance rates higher and provide more exposure to the mortgage lending system.

I firmly believe that 5-7 years from now we will be looking back to today’s AMC trend and will be saying: “if we only did something about it.”

Admittedly I know very little about surety bonds and this is no sales pitch or a solution to the AMC problem. I am more interested in understanding ways to protect the consumer against negligence and instill confidence in the appraisal process. To require AMCs to pay for surety bonds in order to operate in a state sounds like it provides an easier way for consumers to go after AMCs for negligence. Feedback or suggestions welcome.

According to Wikipedia, a surety bond is a contract among at least three parties:

• The obligee – the party who is the recipient of an obligation,
• The principal – the primary party who will be performing the contractual obligation,
• The surety – who assures the obligee that the principal can perform the task

I was contacted by Jay Buerck of SuretyBonds.com who wrote provided the following post on surety bonds and appraisal management companies. He indicated that 6 states brought about new AMC legislation last year and it is expected to grow in the coming years. His article is simply trying to make everyone aware of this fact.

States nationwide are introducing tougher oversight and regulation of appraisal management companies. The push is part of a growing effort to bring more consumer protection and transparency to the home-purchasing process.

In all, six states: Arkansas, California, Nevada, Louisiana, Utah and New Mexico ó ushered in new AMC legislation in 2009. Industry officials expect another 15 to 20 states to consider adopting similar measures this year.

Appraisal management companies are becoming increasingly important because of sweeping changes to regulations for home valuations nationwide. The stricter regulations are geared toward boosting consumer safety and stabilizing the housing market.

“There is a significant belief out there that mortgage fraud played a significant role in the meltdown in the housing market, and any unregulated entity that is out there presents the possibility for mortgage fraud to creep back into the system,” Scott DiBiasio, manager of state and industry affairs for the Washington, D.C.-based Appraisal Institute, a global association of real estate appraisers, told Insurance Journal this winter. “I think legislators recognized that this was a gaping loophole that needed to be corrected.”

Taking consumer protection a step further, Arkansas became the first state to add a surety bond requirement to its appraisal management statutes. The new legislation requires that AMCs post a $20,000 surety bond with the stateís real estate appraiser board.

Surety bonds are essentially three-party agreements that ensure businesses or people follow all applicable laws and contracts. A surety bond also provides consumers and tax payers who are harmed by the business with an avenue of financial recourse.

Most of the new AMC legislation requires companies to make sure their appraisals are in line with the Uniform Standards of Professional Appraisal Practice. Theyíre also responsible for ensuring they use certified and licensed appraisers only.

There are also some financial disclosure and transparency requirements in some states.

“We need to have and the public deserves to know who owns, operates and manages these appraisal management companies,” DiBiasio said. “I think the $20,000 surety bond is really there to provide some minimal protection to consumers.”

Tags: Appraisal Management Companies, HVCC, Appraisal Institute, AMC

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[click to open story]

Scott Merrell, also known as the Rowayton Cowboy, was arrested Tuesday as he protested his eviction from his home. The city seized the multimillion-dollar home at Wilson Point after Merrell did not pay more than $110,000 in property taxes.

The home was sold at auction more than a year ago because of the tax situation.

Merrell has repeatedly claimed the city overvalued his home and that he should not have to pay.

‘Rowayton Cowboy’ faces Tuesday eviction [Stamford Advocate]
Police Take Rowayton Cowboy Into Custody [NBC Connecticut]
The Rowayton Cowboy, Scott Merrell is in police custody [The Hour]

There was a lot of coverage in this publicity effort, but if you lose in more than one legal venue, what is the point of all this?

Tax appeals are a growing phenomenon as housing markets decline and municipalities need revenue.

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As a testament to the overcorrection in mortgage underwriting mentality, Kenneth Harney in his The Nation’s Housing column writes about the IRS Form 4506-T that

authorizes a loan officer or mortgage investor to get electronic transcripts from the Internal Revenue Service covering multiple years of your federal income tax filings.

A transcript is pulled at mortgage application and at closing as an attempt by Fannie Mae to reduce mortgage fraud.

One has to ask themselves, why should this be a new process? I remember during the credit boom, no one seemed to care whether someone had the income they claimed they did, after all, real estate always went up and defaults would not be a problem.

Of course with other issues, like toxic mortgage titles, a petty thing like actually proving borrower income [sarcasm] now seems kind of important.

At issue is proof of ownership at the time of a foreclosure sale. During the housing boom, millions of mortgages were bundled into bonds and sold to investors, a process that resulted in lengthy and twisted paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held the mortgage.

Its a lesson learned – problems at the end of the mortgage process (foreclosure) make it imperative and obvious to reduce the probability of later default at the beginning of the mortgage process. Hence a credit crunch.

Tags: Fannie Mae

4 Comments

I noticed that banks seem to fail on Fridays. Every bank failure in 2008 failed on a Friday.

It gives the regulators a chance to take over the institution over the weekend so it’s back to business on Monday.

Here’s a great article on this phenomenon in Slate’s Exlainer column..

On the Friday of a typical takeover, the FDIC arrives on-site with a large team to manage the transition. (When a large bank fails, this might include upward of 100 people.) The team has two main priorities. First, it must figure out which customers’ deposits are insured and which are not. This can be a tangle, since customers can sock away money in a variety of accounts to ensure that their deposits fall under FDIC-insured limits. The second priority is getting the bank ready to open under new ownership by Monday. That involves discarding any material with the old bank’s name on it—like posters, cashiers’ checks, and marquee signs—and putting the new bank’s paperwork, advertisements, and employees in place. Specialists from other departments, such as facilities, human resources, IT, public relations, and accounting, round out the FDIC’s team. Officials once even hired a hypnotist to help a bank employee remember a vault code.

Tags: FDIC

2 Comments