John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. This week, he addresses the appraiser’s role in forecasting the future in his weekly Solid Masonry. Jonathan Miller
Writer’s Note: This week I decided to write about an issue important to me, despite not being able to find any timely news links regarding the matter.
I’ve recently done a series of appraisals in rural markets located approximately two hours drive north of New York City (and yes I said rural). These are areas where you still find stretches of farmland, woodlands and population densities of less than 100 people per square mile. Where self-serve farm stands (you simply take what you want and put money in the jar) are common enough not to raise an eyebrow and Starbucks is nowhere to be found. These locales were the last to be touched by the latest real estate trends and they may be the first to give us insight as to where we are headed.
Upon recently completing one of these assignments, I notified the client, an out of town bank, that recently the subject’s market became grossly over-supplied. I went on to say that barring changes from outside forces, i.e. mortgage rates declining, etc., this market could be set for a major price correction. My report supplied various market stats such as number of units sold, average and median sale prices, days on market, number of listings going unsold, etc.; so I felt confident in my analysis and conclusions. I received a short reply that stated “we are not required to make forecasts” and “as appraisers we are not held accountable for the value of the subject property prior to or after the effective date of value.”
And I said to myself #&@%!
Now mind you, I have great respect for this client (and I’m not just saying that in case he reads this). He and I have exchanged ideas on appraisal theory and I believe we are both the better for it. While in theory he is absolutely right, the cruel reality is he is absolutely wrong. Want proof? How many decades will it take before we appraisers are no longer blamed, single handedly I might add, for the S & L collapse? The truth is we have always been expected to understand where the market has been and to have a sense of where it is going. We are constantly asked “where do you see the market going?” by friends, clients, the media, and so forth.
So while my client is right in theory, the perception out there is appraisers know, or should know where the market is going. Like it or not, reality is where we live. For those appraisers who haven’t been paying attention, the tide has clearly turned in many markets. So if you are not in the habit of supplying market data within each and every one of your reports, now would be a great time to start. Those statistics could foretell of possible changes coming in the market place.
While we are not required to be forecasters, we are expected to pay attention.
[What is market value? A component of it is an expectation of the future by the sellers and potential buyers. It seems to me that a future forecast, is part of the assignment. Otherwise, how can you explain current market conditions? They typically indicate some sort of trend. -Jonathan Miller]
Tags: Soapbox Blog, John Mason, Solid Masonry
It seems that lenders have forgotten that mortgage lending is a risk based endeavor. With the most likely cause of a loan moving from default to foreclosure is a lack of equity. With equity the homeowner could sell the house – get some cash and move on, and the bank avoids the cost and trouble of foreclosure. So wouldn’t you think a lender would be interested if home prices in the areas they lend might drop. I guess the ostrich mantality has taken over – or how else could you explain the very risky loans lenders continue to make.
I think the problems start on the secondary level (F & F) who know better, but still allow such risky loans to be made; I believe in order to keep their investors happy. People who invest in mortgage backed securities – do so (I believe) because they think they are fairly safe – if only they knew the truth. Then the problem is exasperated by commissioned loan brokers – who search out accommodating appraisers – who will over-value and under describe the property – that is the security for the loan being made.
Beverly A. Bayer, SRA a California appraiser