Matrix Blog

Showing Results for "case shiller"

[Looks Fishy] Case-Shiller 20-City Home Price Index Is Spoiling

December 4, 2009 | 12:47 am | |


[click to expand]

My often quoted colleague and friend Dan Alpert at Westwood Capital had a great take on the recently released Case Shiller Index that he shared with me.

Dan looked at the number of cities within the 20-city index in 2009 that had month over month positive or negative changes in price.

The lines form, well, a large fish. A lot has been made of the index “going positive” as a sign housing has bottomed. By June, nearly all cities in the index were showing positive price trends. Since then there has been a growing trend of more cities going negative.

Besides the chart showing a large bird-like beak next month, the fish is starting to spoil. As Dan summarizes:

Res ipsa loquitor


Tags:


[S&P/Case-Shiller Home Price Indices] August 2009 up 1.2% M-O-M, May Go Negative in September

October 28, 2009 | 9:50 am | |

The August 2009 S&P/Case-Shiller Home Price Indices report showed continued month over month improvement while the decline from the prior year same period continues to ease. Reporting on this report has been decidedly positive over the past 6 months, cited by many as evidence that housing has bottomed. The report shows that prices are at 2003 levels, which is consistent with my personal experiences with the systemic breakdown of the mortgage process. Back in 2003, the pressure came on the appraisal industry full bore to keep the pipeline full as underwriting restrictions became seemingly non-existent.

Here’s the press release.

My friend Barry Ritholtz over at Big Picture does a very interesting analysis on the high end of the market showing that it now only represents 10% of sales over $500k, a staggeringly small percentage. Barry and I are speaking on a panel today at The Realty Alliance.

Since CSI index is value weighted, the shift in the mix and surge in lower priced foreclosures will likely turn CSI negative in the near future, as early as next month.

In fact, the CSI press release suggest this and feels like our expectations are being managed a tad:

Once again, however, we do want to remind people of the upcoming expiration of the Federal First-Time Buyer’s Tax Credit in November and anticipated higher unemployment rates through year-end. Both may have a dampening effect on home prices.

Since residential housing indices trail the current market by about 4-5 months from “meeting of the minds” to actual reporting of the index (contract date => closing date => recording date => index reporting date) the people that work with this data already have a fairly strong impression of where the index will be next year and even the subsequent month.

If we can’t take the indices at face value when they show a decline, then perhaps the same ought to be true when the indices go positive? The take away here is there is no single barometer of the state of housing.

Here’s the 20-city index breakdown.

As I like to say: “The trend is your friend until it ends.”


Tags: ,


[Case-Shiller Index] Homes Prices Now At 2001 Levels

August 31, 2009 | 1:05 pm | |

Source: NYT (click to expand)



In Floyd Norris’ column this weekend titled After a Bumpy Ride, Back at Square One illustrates how housing prices are back to 2001 after adjusting for inflation.

During the period, the Standard & Poor’s Case-Shiller 20-city composite index of home prices rose almost 21 percent. The Consumer Price Index also rose almost 21 percent.

He concludes…

Now foreclosures are still rising, even as home sales and prices seem to have stabilized. If the worst is over, it will have been a wild ride that ended very close to where it began, but with many people much worse off for the experience.

The takeaway is that home price performance varies significantly by area so the national number doesn’t mean to much to your local market. However, it would appear that because the boom was born out of credit, the housing market may over correct.

Not relevant to post but who cares – aside: How social media are like sex


Tags:


[Case-Shiller Index] Up M-O-M 1.4%, Down 15.4% Y-O-Y, Feels Like 2003

August 25, 2009 | 1:20 pm |

From the Case-Shiller Index Report released today:

“For the second month in a row, we’re seeing some positive signs,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “The U.S. National Composite rose in the 2nd quarter compared to the 1st quarter of 2009. This is the first time we have seen a positive quarter-over-quarter print in three years. Both the 10-City and 20-City Composites posted monthly increases, as did most of the cities. As seen in both seasonally adjusted and unadjusted data, as well as the charts, there are hints of an upward turn from a bottom. However, some of the hardest hit cities, especially in the Sun Belt, show continued weakness.”

The press release has the monthly 10/20-city, quarterly 10/20-city and national index with monthly and year over year data and references to month, quarter and year are all interspersed so its tough to follow.

Here’s what it looks like – The 10-City and 20-City Composites recorded annual declines of 15.1% and 15.4%, respectively. These are also improvements from their recent respective record losses of -19.4% and -19.1%. The 10-City and 20-City Composites posted their second consecutive monthly increases. Both indices were up 1.4% in June over May, and up 0.5% in May over April. Eighteen of the 20 metro areas saw improvement in their annual returns compared to those of May. Looking at the monthly data, the same 18 metro areas reported positive returns in June.

For the national composite, housing prices rose 2.9% from Q1 to Q2 and fell 14.9% from the prior year quarter before seasonal adjustments.

In other words, the indexes show improvement in the short term.

Shiller notes a change in mindset:

“The animal spirits seem to be coming back,” said Robert Shiller, Yale economics professor and developer of the Standard & Poor’s/Case Shiller Home Price indexes. “The psychology does seem to be changing.”

But Shiller is cautious about the good news:

“The really important things [affecting home prices] are unemployment and momentum,” said Shiller, who is a Yale economist. “We have momentum, which is very important, but we also have high unemployment.”

And, he added, “the government has not yet handled the foreclosure problem.”


Tags: ,


[Case-Shiller Index] 18.1% Becomes 17.1%, But M-O-M Is More Positive

July 28, 2009 | 1:35 pm | |

The May 2009 20-City Case-Shiller Composite Home Price Index fell 17.1% from May 2008, the fourth month in a row that the y-o-y rate of decline for the index gotten smaller. 17.1% is still a sharp decline.

We may be on the way to recovery,” said Maureen Maitland, vice president of S&P’s index services. “I say ‘may’ because it’s only been a couple months of data and home prices are seasonal … It will take a couple more months to see if we have turned around.”

This quote from S&P kind of confused me since, S&P/CSI has been seasonally adjusted since November 2008.

What’s got everyone so excited is m-o-m:

Looking at the monthly data, 13 of the 20 metro areas reported positive returns; and the 10-City and 20-City Composites reported positive returns for the first time since the summer of 2006. To put it in perspective, these are the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizing”.

WSJ/Real Time Economics has a nice summary of the release.

Remember, this index tracks prices only, not sales activity. Sales trends lead price trends.

I think the takeaway with the release is that the rate of decline is getting smaller which is a good thing and it does suggest the potential for improvement going forward. But this provides no support that the moment is at hand and its only up from here. Still, I’ll take what I can.

WET BLANKET UPDATE: Confidence among U.S. consumers fell more than forecast in July


Tags:


Case-Shiller Index: 18.7% Becomes 18.1% = Market Falling, Just Not As Much

June 30, 2009 | 2:54 pm | |

Here’s a cool WSJ interactive map on the results and here is the official CSI press release.

The general media coverage focus on the April S&P Case Shiller numbers talks a lot about the 3rd consecutive month of the ease in the rate of price declines. But the jobs outlook slipped, sapping consumer confidence.

An interesting, and in my view, likely housing double dip may be seen in the Case Shiller Index caused by performance differences in the bottom and and top half the the market.

Here’s the 20-city breakdown:

While the Case Shiller Index isn’t a tool to price specific property or markets, it shows macro trends and does a lot to set consumer housing market psychology.

Here’s Shiller’s interview on Fox Business today (I was interviewed by the same anchors about 30 minutes later on the issue of HVCC) talking about his new trading tool for housing. Mike at Altos Research does a brilliant job explaining how the new ETF works.


Tags: ,


OFHEO/Case-Shiller In Hodgepodge Smackdown

June 27, 2007 | 8:41 am | |

S&P released their Case-Shiller April 2007 index today A Hodgepodge of Declining Growth Returns in Home Prices According to the S&P/Case-Shiller® Home Price Indices [pdf] showing further housing market weakness.

A review of the decline in home price returns on a regional level shows no region is immune to the weakening price returns,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC.

[question: is “hodgepodge” a macro econ term? I’ll check with Yoram Bauman.]

The index showed the fourth straight drop and the biggest decline since the index started in 2001. An index of 10 metropolitan areas fell by the most in at least 16 years. The Bloomberg article also has a heading that describes the index as most accurate. One gets the impression that a lot of effort is being spent by the S&P public relations machine to sell the credibility of the S&P/Case-Shiller index. News coverage tends to include something like what was presented in the Bloomberg piece:

The S&P/Case-Shiller index and another gauge by the Office of Federal Housing Enterprise Oversight track individual homes through repeat sales and more accurately reflect price trends, economists say. The measures from Commerce and the Realtors group can be influenced by changes in the types of homes sold. Higher sales of cheaper homes relative to more-expensive properties will bias the figures down.

OFHEO may feel threatened by the S&P/Case Shiller Index full court press and felt the need to substantiate their validity through a [pause while holding breath and say slowly] white paper called “A Note on the Differences between the OFHEO and S&P/Case-Shiller House Price Indexes [pdf]” written by Andrew Leventis dated June 22, 2007.

(Hap tip to a colleague who has lost more Blackberries than anyone on the planet.)

The fact that a government agency would go on the offensive to dress down a private sector competitor is unprecedented. Since the S&P/Case Shiller Index hasn’t done anything wrong, I can’t come up with a reason for this strategy.

Of course OFHEO is likely feeling the heat on several fronts, ranging from suggestions that they be replaced by another agency, their lack of oversight during the Fannie Mae accounting scandal and large bonuses just announced to their executives. They have been releasing other research works lately as well.

OFHEO basically says they are better than Case-Shiller because:

  • Case-Shiller excludes 13 states, including three of the fastest appreciating: Idaho, Montana and Wyoming data
  • Case-Shiller has incomplete coverage in 29 states and doesn’t clarify what specific areas are omitted.
  • OFHEO has more complete data.
  • Case-Shiller does not fully disclose their methodology.

Case-Shiller is a monthly index and OFHEO is a quarterly index, plus OFHEO only includes transactions with mortgages less than $417,000 (include values of refinance mortgages) and excludes a large swath of metro area prices.

Case-Shiller and OFHEO Indexes are similar because:

  • They are both repeat sales indexes.
  • They exclude new development, co-ops, condos and multi-families (CSI excludes foreclosures and flips)

Its a battle between government (OFHEO) and academia (Case-Shiller). I am hoping for a response from Case-Shiller although I doubt there will be one.

The benefit to the real estate consumer in all this whining and grandstanding exercise is more awareness of what these indexes actually offer and possibly allow for more transparency in the future. In other words, a hodgepodge of possibilities.


Tags: , , ,


S&P/Case-Shiller Home Price Indices/January 2007 – Dire?

March 28, 2007 | 7:34 am | |

Professor Robert Shiller has leveraged his repeat sales index by developing a new monthly national housing market report with Standard & Poor called S&P/Case-Shiller® Home Price Indices. I find that repeat sales indexes can be very inaccurate and lag the market because they don’t reflect changes in the houses being measured for multiple sales, the data set is too thin, and the response to sudden changes in a market is delayed. This particular report addresses composites of 10 and 20 metro areas so its not really a national housing market indicator since metro areas are distinctly different markets than outlying areas. However, the index seems to address one of their biggest flaws:

Their purpose is to measure the average change in home prices in a particular geographic market. They are calculated monthly and cover 20 major metropolitan areas (Metropolitan Statistical Areas or MSAs), which are also aggregated to form two composites – one comprising 10 of the metro areas, the other comprising all 20. The indices measure changes in housing market prices given a constant level of quality. Changes in the types and sizes of houses or changes in the physical characteristics of houses are specifically excluded from the calculations to avoid incorrectly affecting the index value.

“The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “ The 10-City and 20-city Composites are both showing negative annual returns, a striking difference from the 15.1% and 14.7% returns they reported this time last year. The dismal growth in the 10-City composite is now at rates not seen since January 1994.”

Its the first time in 11 years that home prices go negative. A possible theory for the weakness is relating to the interplay between new home sales and existing home sales. I am not sure I buy into it but its interesting to consider nevertheless.

The lag in timing on this index is really showing the markets around the November 2006 election since the study is based on January 2007 closings. At -0.2% and -0.7% for the 10 and 20 city composite, its is a significant drop from the 15% annual appreciation rates seen a year earlier but not unexpected.

I know economists are paid to worry, and I am not cheerleading here, but does Professor Shiller have to use the word dire in his description?

Tags: ,


[St. Louis Fed] Home Prices: A Case for Cautious Optimism?

November 2, 2009 | 6:27 pm | |

The St. Louis Fed, in their Economic Synopses publication contained a research piece called Home Prices: A Case for Cautious Optimism (Hat tip: Joe Weisenthal over at BusinessInsider) that does a great job lining up 3 housing related indexes and makes the case that we aren’t through yet despite positive month over month trends of the past 6 months.

The title for this Fed research piece is simply wrong. It should be re-named: Home Prices: Not Much of a Case for Cautious Optimism.

The chart shows the Case Shiller Home Price Index, FHFA Home Price Index and NAR Housing Affordability Index of Median Household Income presented in alignment.

Here’s the problem with affordability as a measurement – it considers income, housing prices and interest rates but not the tightness of credit, which is THE story at the moment. The affordability index is significantly optimistic right now because of this gaping void over credit.

Its great to have lower prices for all those buyers only if they can get a mortgage to take advantage of the opportunity. Mortgage underwriting is very tight right now and therefore we are looking at a 3 legged kitchen table that originally had 4 legs.


Tags: ,


[Confluence and Communion] From The Pope To Prudential, From Bill Gross To Bob Shiller

July 7, 2009 | 11:37 pm | |

Everyone is out there talking about where we are and where we seem to be going. One thing that is rather striking is the lack of spin relative to a few years ago – surprisingly refreshing.

Here’s a few notable individuals’ takes on the-state-of-where-the housingmarket-economy-is-at-right-now.

Pope Benedict XVI (Yes, the Pope): The “economy of communion.” ahem…amen.

The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centered. Today we hear much talk of ethics in the world of economy, finance and business.

Allen Smith, CEO Prudential Real Estate Investors: Confluence Of Indicators. Here’s the podcast.

Some have spoken about deleveraging. Some have told us about the shrinking of values. Others have said it’s a confidence game — as in, there isn’t any.

William H. Gross, Managing Director, PIMCO: “”Bon” or “Non” Appétit?” I always have to re-read his columns a few times to follow, because the nuances in his delivery are staggering.

Investors who stuffed themselves on a constant diet of asset appreciation for the past quarter-century will now be enclosed in a cage featuring government-mandated, consumer-oriented fasting. “Non Appétit,” not Bon Appétit, will become the apt description for the American consumer, and significant parts of the global economy, including the U.S.

Robert Shiller, Professor of Economics, Yale University:“Bob Shiller didn’t kill the housing market”

When the June Case-Shiller figures were released, he said they showed “striking improvement in the rate of decline.” Asked to look ahead, he says, “My guess is that prices will continue to fall for a while, but at a slower pace, and then stabilize. We’ve become very speculative in our attitude toward real estate, so there could be another boom. But if so, it likely won’t happen for another five to 10 years.”

Tags: ,


Declaring A Housing Recovery Using A Threshold Based on Fraud

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

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

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

csiclassicchart11-2016

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

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

but I digress

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

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

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

thhpodcastlogo

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

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

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

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

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

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

cshpitablefrompeak11-2016

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

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

csnsazero

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

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

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

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

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

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

  • CS excludes new development.

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

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

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

Tags: , , , , ,


Multi-millionaire Motivational Speaker Dean Graziosi Shares His Appraisal Wisdom

October 4, 2015 | 4:40 pm | | Favorites |

Huffington_Post_Logo

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.

watchgraz

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.

fhfajuly2015

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.

CSJuly2015CR

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.

EHSAug2015CR

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.

EHSInvAug2015CR

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: , , , , , , , , , , , ,