Matrix Blog

It’s not reasonable for one person (me) to maintain 3 blogs and have a life, let alone 2 blogs and have a life or really a family of 6 (excluding the cats), 2 companies, a blog, 2 web sites and a podcast, so with the addition of my new podcast/blog The Housing Helix, I have decided to freeze my other appraisal blog Soapbox and provide appraisal content here on Matrix in addition to all the stuff you are used to seeing. Gasp.

If you are an appraiser, and only care about appraiser stuff, there will be plenty going forward if you bookmark this link.

As we say on Matrix and became apparent on my Soapbox endeavor: “Everything that has a beginning, must have an end.”

Let the fun begin (again).

Tags: Soapbox Blog

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THIS IS THE LAST POST ON SOAPBOX – please visit MATRIX for future appraiser-related content!

Back in 2005, I entered the blogging fray out of frustration with the way appraisers were treated in the lending process. Thus, Soapbox was born. It was a labor of love for me and for the numerous contributors (I think) that have shared their appraisal expertise over the past several years.

Over this period appraisal issues came to the forefront and while I am not sure things are better today, at least there is more understanding about the importance of separating the sales from the credit function when dealing with the appraiser and appraisals.

Appraisals are only worth the paper they are written on (metaphorically speaking, pdf-wise) if they can be prepared without undue pressure and fear of retribution. Sadly this is the legacy of the recent mortgage boom and now most Americans are suffering from the ramifications of the risk/reward ethical disconnect that ran across all facets of mortgage lending. In other words, Iceland is screwed.

Within a month after I began Soapbox, I started up another blog called Matrix which covered the real estate economy. It was less of a vertical focus than Soapbox and as a result, got more of my attention over the years. However my first Matrix post topic was about appraising.

This month, I launched The Housing Helix, a podcast about the housing market. Maintaining 2 blogs up until now has been a big effort, and now the idea of maintaining 3 blogs has proved to be overwhelming. After all, I still work for a living.

This is more of an effort to simplify the process – no plans to cut back appraisal-related content. Going forward, I’ll be providing appraisal issues intertwined with other housing issues on Matrix and within The Housing Helix podcast.

Please visit and bookmark both Matrix and The Housing Helix if you haven’t already.

I hope you’ll stay with me.

Tags: Soapbox Blog

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Friday morning I was invited to be a guest to talk about appraisers and how they are impacting the flow of housing sales. I was initially concerned that this would be an appraiser slam piece, blaming our industry for killing sales, causing global warming and low salaries of central bankers but it wasn’t and I think I covered the bases. Kinda surreal – met and spoke briefly to Dick Morris in the green room. Cavuto was very personable before the segment, we talked about the issue before we went on.

• Sellers are generally a year behind the market
• The ranks of good appraisers were decimated by the mortgage boom
• Appraisers have long been the “punching bag” of blown deals
• Lack of data is a huge issue

Connie De Groot, who was the Beverly Hills real estate agent who is a regular on FBN recommended that buyers get an appraisal when pricing their property for sale – as Cavuto commented on my neutraility point, a “Swiss Appraiser.”

Watch the clip here or you can watch it here.

Tags: Soapbox Blog, Appraisal Process, Jonathan Miller

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John Cicero, MAI 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

The Massey Knakal Income Property Report that I prepare on behalf of the brokerage firm was just released for the second half of 2008. The report is the only one of its kind that tracks cap rates, income multipliers, price per square foot and number of sales for the New York City multi-family market. As this report included only those sales (above $500,000) that closed from July 1 through December 31, it includes sales closed before and after the market turn in mid-September, when Lehman collapsed and the credit markets seized.

An excerpt:

The number of sales dropped 45% from the second half of 2007 to the second half of 2008. Relative to the prior year the greatest declines were in Manhattan and Northern Manhattan, both down 54%, and the Bronx, down 60%. Year over year there were 37% fewer sales in 2008. This suggests a turnover rate of 1.9%, down from 3.0% in 2007 (of the categories tracked).

Massey Knakal will distribute nearly 300,000 hard copies of the report over the next few months.

Massey Knakal New York City Income Property Market Report [2H08]

Report Methodology [Miller Cicero]

Tags: Soapbox Blog, Massey Knakal, Commercial Grade

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John Cicero, MAI 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

Buried in all USPAP appraisal reports is a comment on the property’s exposure period and marketing period. Simply put, the exposure period is intended to reflect the time that the property hypothetically would have been exposed on the open market prior to the effective date of value. Alternatively, the marketing period is an estimate of the time that it would take for the property to sell after the date of value.

The requirements to add exposure and marketing periods to appraisals came about during the S & L crisis of 1989. Then, as now, there was a dearth of sale transactions and to a large extent the only sales taking place were under distressed conditions. The intent of these exposure/marketing time concepts was to put the value conclusion in context. A marketing period of up to 18 months says that in the appraiser’s opinion the property could sell for X dollars within the 18 months following the effective date of value. This would differentiate a property’s inherent value in a “temporarily impaired” market, and prevent banks from being required to write down loans to liquidation value.

While the exposure period/marketing time sections became part of the boilerplate over the past five years, in the current market it has taken on new meaning. When we interview brokers for our appraisals they often comment on how values are down 30%, 40%, 50%, etc. However, these discounts reflect what the broker believes that he/she could sell the property for if he had the listing today. A broker is not thinking about a 12 to 18 month marketing period. He/she wants to list the property and sell it in 3 to 6 months. To an appraiser this may represent a liquidation or disposition value; to the broker it is reality.

Like everything else in this market that has come full circle, the exposure/marketing period is once again an integral part of the appraisal. I think it’s time to dust off that section of the report and break it out from the rest of the boilerplate.

Tags: Soapbox Blog, Appraisal Process, USPAP, Commercial Grade

2 Comments

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 and housing issues.
…Jonathan Miller

Much of the talk these days deals with the residential real estate market and the need for it to “find its bottom” before any kind of stability can take root in the broader economy. We all know, of course, that there is not “one” residential market and what’s happened most acutely thus far, in places like Florida, California and Arizona, over the last two years or so, is very different from what has transpired in other parts of the country. It seems fair to say, however, that prices are declining at varying rates everywhere, or almost everywhere. What we all want to know is how much further prices will fall.

Consider Westchester County, a wealthy New York City suburb. The Median Sale Price chart (for single family houses) shown here is based on statistics compiled by the Westchester County Board of Realtors from 1986 – 2008. The second chart, based on data compiled by H.S.H. Associates, tracks 30 year fixed rate mortgages over the same period.

The most glaring trend, and the one that appraisers in Westchester, and other places I’m sure, are grappling with, relates to the disconnect between the conventional wisdom about how far prices have fallen, and the fact that the median sale price in 2008 was $650,000, a decline of just 5.1% from the $685,000 seen at the height of the market IN 2007! What has declined, and declined precipitously, is the volume of sales, which is down by as much as 30%. But as to a “correction” based on these numbers I can only say – What Correction? To be fair, the fourth quarter showed a steeper decline as compared with the fourth quarter of 2007. But year over year, the numbers are not that bad not yet anyway.

The 2008 median price of $650,000 roughly equals the 2004 level of $645,000. But even if this market is destined to roll back just to its 2003 level, that would require a decline of 13.2% from its current level. And if 2002 represents the bottom then we have another 19.2% to go before reaching it, and a median price of $525,000.

As to mortgage interest rates, one would expect that lower rates would correspond with higher prices, which they do with a couple of notable exceptions. From 1991 through 1996 interest rates went down yet selling prices remained flat. However, from 1998 through 2000, both interest rates and selling prices spiked. Rates went from 7.09% to 8.43% at the same time as the median price increased from $320,000 to $407,000. Go figure.

So the question remains, where is the bottom of this market? After doing all the research necessary to write this, I still have no idea. But don’t hold your breath.

Tags: Soapbox Blog, Todd Huttunen, The Hall Monitor

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John Cicero, MAI 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

My firm is quite busy with “updates” these days. More and more lenders are being asked to extend or renew loans for projects, or their loans are ending up in “special assets” (or whatever term the bank uses for their loan workouts.) So we find ourselves more and more being asked to “just go back and update what we did a year or two ago”.

There seems to be an expectation amongst some lenders that since we had been out to the property within the past two years (or had previously reviewed plans for a proposed property) that we can just bang out a new appraisal in no time and at a nominal cost. They often fail to recognize that in order for the new valuation to be meaningful, the same appraisal process must be followed.

According to USPAP (Advisory Opinion 3):

regardless of the nomenclature used, when a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not at extension of that prior assignment that was already completed-it is simply a new assignmentThe same USPAP requirements apply

Now, more than ever, focused market research is required for any appraisal. The most recent comps and/or, in the absence of empirical market data, broker interviews are critical. For new construction projects, it is imperative that the new plans (or project that was eventually constructed) are the same as what was originally submitted.

That is not to say that having some familiarity with the project won’t expedite the process, and in many cases my fee for the “new assignment” of a prior appraisal will be 25% or more below the original fee. Just as often, however, I find that because I know the complexity of the project, a discount off the original fee is not warranted.

Tags: Soapbox Blog, USPAP, Commercial Grade

1 Comment

Appraisal Contemplations is a column written by native Californian and a certified real estate appraiser, Aaron O. Thomas. He began appraising in Arizona and eventually ended up in San Diego where he owns and runs San Diego Appraisers. His firm specializes in greater San Diego County area residential properties and his clients include mortgage brokers, CPAs, lawyers, businesses and homeowners. Aaron is very outspoken and passionate about real estate appraising. Colleagues on Appraisers Forum have long known him as “Tucson Appraisals.” Good thing it’s too warm in San Diego to have the wool pulled over his eyes to the unethical business practice of the day: “comp checks.” Like me, he experienced a growing frustration in recent years with the form-filler mentality that many appraisers and users of appraisal services have embraced.
…Jonathan Miller

I received a phone call from a home owner yesterday complaining about the last appraisal that was done on his home. He didn’t think the Appraiser should have utilized all bank owned comparables and that the comparables were inferior in condition compared to his home. After complaining for several minutes, the home owner finally said that he would give my information to the new finance company since the last refinance did not go through with the previous one. I told him it would be great to have the business, but I could by no means promise that I wouldn’t use bank owned comparable sales.

The reason I tell this story is because I knew that I had to respond in a way that did not take the side of the home owner or the Appraiser. Why tear down another appraiser for a report I have not seen? After all, don’t most home owners think that their home is gold? I am by no means saying that there was nothing wrong with the appraisal. My point here is that too many Appraisers are ready and willing to tear each other down in the name of more business with little proof or no proof that what people are saying about the “other” Appraiser is accurate. Another thing I see wrong with this picture is that this information mostly comes not from another licensed Appraiser, but from someone who desperately needs the loan to go through.

I can sum up this entire situation with one word; “biased”.
 
If I am getting these types of phone calls, I am almost positive others have as well. I just hope other Appraisers return the same professional courtesies I extend to them. Our industry sure could use more people that extend a level headed approach to have the awareness of where they themselves stand in the midst of the circle of bias that we are constantly surrounded in on a daily basis.

Tags: Soapbox Blog, Aaron Thomas, Appraisal Contemplations

4 Comments

I was reading TechCrunch, an essential resource on technology. The post was about a service called “Wordle” which is described as

a toy for generating “word clouds” from text that you provide. The clouds give greater prominence to words that appear more frequently in the source text.

It takes feeds from a blog to create the graphic.

I thought it would be a good way to check out Matrix periodically to see what I am emphasizing at the moment.

Apparently my word of the day seems to be “rights”.

See the redux on Matrix.

Tags: Soapbox Blog, Jonathan Miller

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Would you like to write a column for Soapbox? Since Soapbox is a service by and for appraisers, we are always looking for input from the appraisal community. One of the ways has been to create a column for individuals who wish to provide commentary on the profession but don’t want to run a blog to be able to do it. Drop us a line if that interests you.

Tags: Soapbox Blog

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Soapbox is written by appraisers for appraisers and related services. Your contribution of ideas and suggestions are very helpful in keeping the content as current as possible. Send us an e-mail with your ideas for future posts. It can be a new idea or an elaboration of something already submitted.

Tags: Soapbox Blog

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Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions on Soapbox.
…Jonathan Miller

If there is one thing that is NOT debatable about USPAP, it is that everyone knows (and agrees) that sales that occur 3 years or less from the effective date of the appraisal need some “attention and addressing”. That is the easy part. Now for the hard part: SR 1-5 (b) indicates that such sales need to be “analyzed”. At a minimum, that translates to “making sense out of the prior sale with whatever information is available in the normal course of business” and beyond if you seek a higher standard of quality.

Analyze like many other words used in USPAP is not defined but is taken as the “normally used context in the English language. ANALYZE: to study or determine the nature and relationship of the parts of by analysis. synonyms analyze, dissect, break down mean to divide a complex whole into its parts or elements. analyze suggests separating or distinguishing the component parts of something (as a substance, a process, a situation) so as to discover its true nature or inner relationships. dissect suggests a searching analysis by laying bare parts or pieces for individual scrutiny . break down implies a reducing to simpler parts or divisions . analyze. (2009). In Merriam-Webster Online Dictionary. Retrieved February 5, 2009

I realize appraisers are always under the gun when it comes to the search for critical info. Sometimes information conflicts with fact, is available in bits and pieces, does not make sense, is sometimes wrong, and sometimes even raises more questions.

When all is said and EVEN beyond the course of normal business when extra efforts are made there is very little to be found. In those cases where a effort has been made, narrative commentary would likely suffice for the reader to ensure the report contains sufficient information (2-2 ( b)) for the users to understand the report.

Problem is most times appraisers do a great job of STATING sale prices and dates and doing little if anything to “dissect” these sales (if the do, they do not tell me in the report).

There is a whole advisory opinion (AO-1) on what the language can be used as it relates to the normal course of business and prior sale information. In keeping with my previous articles mantra (thou shall not be boring), I will not recite the AO or even aggregate. Maybe there is nothing to say on a prior sale maybe there is? In today’s environment one would be prudent to investigate concessions (they are giving away vacations and 4-wheelers with homes these days people). Some sales have limited exposure to the market and may not be arm’s length some sales take MONTHS to close and some are not even in line with “market prices” (my wife to me for $1).

Here is the point: an appraisal is like a story and the reader (often a client) is seeking to connect the dots. In relocation appraisal both past and future price trends are part of the analysis; in a market value (mortgage appraisal) the historical trend is inherent in the (dated) sales if they exist. When you present your conclusion, and the analysis unfolds, there should be some consistency with the market trends, or the story you told. If Mr. X paid $100,000 10 months ago and you have indicated the market has been stable for the past 12 months and conclude $80,000 I need to understand more about that $100,000to make a business decision. And by the way.NO, I am not asking for two appraisals (someone accused me of that once) just the info THIS one is supposed to have. Sadly the last discussion I had that spurned this blog article (we get two appraisals on every file) went this way. Client: “Hi Mr. Appraiser #1 & Appraiser #2 , I see in your report the subject sold 2 years ago. You have stated the price and sale date (thank you) but have not analyzed that sale”. Appraiser #1 response: “I can not comment on value without doing an appraisal per USPAP”. Appraiser #2 response: “I did not do the appraisal on the home 2 years ago so I can not comment”. Just for the record, these appraisals were “ok sans this issue” and the appraisers are long-time partners that we have worked successfully with for several years, so please refrain from the “your using the wrong guys” thought. This problem is PERVASIVE in the appraisal industry. I have personally experienced this dozens of times.

Here is the wrap. This home sold new 2 years ago and was the builder’s last model prior to a subsequent price decline for such model. It contracted and closed new in less than one month and included a laundry list of “extras” that increased the purchase price substantially. The sale included a concession and a copy of the (major lender’s) appraisal the we received (later) once the owner screamed of his “recent purchase” revealed no way was the sale price market at that time (all 3-bedroom comps, 1-bedroom home). That’s a whole other story but isn’t that how we got here?? Now the appraisers would not have the appraisal but my simple research from 1000 miles away got me the other information. Second disclaimer: 3-year sale analysis is ONLY a requirement for Market Value Appraisals and a relocation appraisal is not market value. Still though, the report did not contain sufficient information (2-2 (b)) and the prior sale issue is just plain common sense and a prudent practice in all appraisals.

So again I askhelp out an old friend, leave the macro paragraph about the future uncertainty of the bailout, economy and the stimulus effect (blah, blah, blah) out and give me a few sentences on that prior sale..just a few quality sentences..please?

Tags: Joe Palumbo, Soapbox Blog, USPAP, Palumbo on USPAP

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