Dividing by Zero Gets You A House With A Tub

Yes, I love numbers. But I am selective about them. I love to clearly explain what market analysis results mean to people who don’t love numbers like I do or have much more important uses of their time. I hate accounting and they are chock full of numbers. But authentic and impassioned delivery of the dull and boring really works for me. Some try to hind behind numbers and others get out in front of them as the video below shows. Try to follow his rationale. I hung on by my fingernails but the process of hanging in there was itself fascinating.

Everything in Housing Notes can’t be high brow because like the chips & dip you are going to eat during Superbowl Sunday, low brow is darn important. Like Dads.

Dad reflexespic.twitter.com/qaMkSidWeF

— Classic Dad Moves (@ClassicDadMoves) January 27, 2018

Back to high brow…

Market Report Gauntlet Week 5: 2008-2017 Manhattan Decade and Townhouse Reports

This week the fourth largest real estate firm in the U.S., Douglas Elliman published our market research. At the end of each year, I provide a numeric recap of the prior year as a ten-year moving window. Here are the two for this week:

2008 – 2017 Manhattan Townhouse Report (1-3 family sales, ±2% of the market, 3 pages)

– Price trend indicators were mixed as sales declined
– Inventory fell sharply as overpriced listings came off market
– Faster marketing times as negotiability saw little change
– Northern Manhattan price trend indicators set new records
– Luxury average price per square foot set new record as average sales size fell sharply

2008 – 2017 Manhattan Decade Report (co-op/condo sales, ±98% of the market, 59 pages)

– All market-wide price trend indicators set record highs even with the decline in “legacy contracts” closings at year end
– All market-wide price trend indicators rose year over year for the fifth consecutive year
– After three years of declines, the number of sales increased year over year as the market rebound of the 2016 doldrums
– Marketwide sales activity was 11.2% below the sales record set in 2007
– Listing inventory rose nominally from the prior year yet remained below the midpoint between the record low and high

I used to nickname this Manhattan Decade Report as the “phone book” but Millenials in real estate don’t know what a phone book is – so that’s that. Bask in the beauty of the cover page of the…phonebook and be sure to dig in.

And some charts…

Get a Bathtub But Not Get Soaked

Thre was a fun piece on the tub amenity in Realtor Mag by Barbara Ballinger.

In fact, the New York Times did a big story on tubs at the end of the year.

I’ve been sticking to the shower circa 1968.

Admittedly this week I was a little obsessed with my phonebook market reports and the appraisal world and a slew of appraisal work. For those none appraisers out there who skip over the Appraiserville section each week, re-consider that this week. There are forces out there, both within our profession and government related, that is damaging the service we provide to you. Read-on!

Appraiserville

The Appraisal Question of 2018

The Appraisal Institute is spending heavily to insert evaluations into state laws that confuse the public, dilutes the credibility of what an appraisal is and seemingly no one in their residential membership aside from a tiny sliver of wanna-be insiders or the industry at large, who are facing their own demons. Why? They’ve never told us “why” aside from lying that many appraisers are begging them to do $25 evaluations. Why?

The Appraisal Institute Seems Hellbent On Breaking Florida’s Public Trust

As I’ve said many times here on Appraiserville, the efforts by Scott DiBiasio and AI National senior leadership to undermine residential appraisers including those that pay for membership in AI National only to keep their designations – continues to damage the profession. AI National’s actions diminish the value of the role of an appraiser and the value of their AI designations in the marketplace as evidenced by declining membership.

Scott has been working hard in Florida to jam through evaluation legislation to allow appraisers to turn off/on their designation so they can cash in on all that $25 appraisal work while confusing the marketplace on what constitutes an appraisal. In Florida’s case, it looks like he has AI insiders to work with on their real estate board.

Thankfully I’m told that the AI National backed amendments to the Florida license law were sloppy, not well thought out and rushed through without much discussion to catch everyone off guard. Predictably the result is confusing to appraisers, regulators, and the public.

But thankfully Florida appraisers are lucky to have my friend and colleague Frank Gregoire on our side who is one of the most respected appraisers in the U.S. He says:

The Ethics Rule of USPAP has a Catch 22; services provided as an appraiser require compliance with USPAP. Public trust in the profession requires compliance.

Here is his January 28, 2018, letter to the Florida Real Estate Appraisal Board to provide his views on the changes AI National is trying to ram through. Because I am not as smart as Frank, I translate this letter to:

If it walks like a duck and talks like a duck – evaluations versus appraisals as terminology, then it will be subject to USPAP – and on top of it – the board will no longer have the ability to provide oversight of evaluations as well which means they can’t protect the public interest. Here is some good reading for you.

– Frank’s Letter to FREAB 18.1.28
– ETHICS RULE from USPAP 2018-19 (002)
– FDIC: Supervisory Expectations for Evaluations
– Advisory Opinion 13 from USPAP 2018-19 (002)
– Interagency Appraisal and Evaluation Guidelines
– JURISDICTIONAL EXCEPTION RULE from USPAP 2018-19 (002)
– Georgia Evaluation-Table of Contents 539-3-.04

In the Appraisal World, The Expertise Only Gets Ten Percent of Fee

An Indiana state certified appraiser based in Indiana who is also certified in other states including Georgia did an evaluation of a number of properties in Georgia. The “appraisal fee” was $250 but the AMC (Clear Capital) got $225, and this appraiser got $25 for each evaluation. I’ve blocked out the specifics of one of the orders except for the fee – in this disclosure form required in Georgia.

In other words, the administrative fees for Quality Assurance, Broker/CMA fee, Home Data Index Fee (whatever that is) and of course, the all-important “Data entry fee” is many multiples more important than actual valuation expertise.

Key Points:

1. The administrator (Clear Capital) gets 10x more to do administrative work than the valuation expert.
2. The valuation expert is not a valuation expert because real local market experts can’t afford to accept evaluation requests. These evaluation assignments are built on a fraudulent premise that credible experts will do them*.
3. The public perception of an appraiser gets lumped in with evaluation producers, doing significant harm to the appraisal industry’s reputation and violates the premise that these assignments are effective in protecting the public trust.

*Note: You can’t become an actual market expert working for a $25 evaluation fee, especially from thousands of miles away – it requires shortcuts to do so.

Conclusion

“Maintaining the public trust” is ignored with the evaluation product which is why the Appraisal Institute was booted from TAFAC the non-profit side of The Appraisal Foundation) – I’ve mentioned this before – AI National refused to sign off on the mission statement of TAF that refers to protecting the public trust.

TAF Vision Statement To ensure public trust in the valuation profession.

TAF Mission Statement The Appraisal Foundation is dedicated to promoting professionalism and ensuring public trust in the valuation profession. This is accomplished through the promulgation of standards, appraiser qualifications, and guidance regarding valuation methods and techniques.

Please absorb the ramifications of this situation to the boots-on-the-ground appraisal professional:

– Someone based in Indiana, arguably not “just over the line” was hired to do a number of evaluations in Georgia for $25 each, presumably very quickly.
– Borrowers relied on this “market expertise” for a $250 fee and used this expertise (from someone who only got 10% of the fee) to make decisions that could damage their interests (bring in the lawsuits!).
– The Appraisal Institute has continued to hard-sell Congress and state legislatures on giving the ability of certified appraisers to flip the “on/off” switch of their license to do these $25 evaluations even though most of the AI residential membership – aside from AI Institute blind loyalists – would tell you that the three “key points” above will happen. In fact, top executives at AI National give the impression that their own residential members are desperately clamoring to do $25 evaluations yet, in reality, AI National never actually sought real input from their own residential membership other than from wanna-be insiders.
– A living breathing human certified appraiser actually accepted this assignment and was able to sleep at night.
– Clear Capital got 10x the fee the actual valuation expert did and was clearly super talented at data entry – presumably demonstrating a skill more vital than the valuation.

Why are evaluations being allowed to normalize in the industry? Their reality is defrauding the public of expertise they think they are paying for and tarnishing the contribution and risk management the qualified appraiser provides to the mortgage process. It’s not a difficult concept to grasp – even ten percent of it.

Old Guard Continues to Lead AI National Into Oblivion By Not Understanding What Happened in 2017: Jim Murrett

The latest edition of Valuation Review came out this week (I am a subscriber) and the cover story was an interview with Jim Murrett, the 2018 President. The interview quote struck me very hard because it made me sad that nothing has changed at AI National:

“In May 2016, the Appraisal Institute announced a three-year strategic plan to address challenges and opportunities facing the organization and the real estate valuation profession,” he said. “We are continuing to implement that plan. AI also continues to enhance its reputation and leadership across the country and around the world by expanding its thought leadership.

1. “Taking” Chapter Funds The 2016 Strategic Plan wasn’t fully disclosed to the membership as evidenced by the late 2016-2017 outrage after AI National leadership’s “pre-authorized by the board without sharing with membership in advance” vote to take nearly all chapter funds. This literally was a pre-planned looting of local members hard-earned and long-saved funds so that AI executives can continue to lead a lavish professional lifestyle. By saying they are “continuing to implement” means they are still planning to take nearly all chapter funds. To AI National, the money is clearly needed to offset the combination of rapidly declining membership, high salaries (guess how much Jim Amorin makes as interim CEO?), expensive and oversized Chicago office space and of course many, many trips (for years) to Europe and China via first class with spouses – to attend valuation conferences around the world while Rome is burning.

2. Kicked out of TAFAC, Ostracized by the appraisal industry as irrelevant Aside from being rejected 2:1 by TAFAC membership, AI National received widespread criticism by its members in 2017 after realizing their leadership was “taking” chapter funds for no justifiable reason. AI National created the false optics of forming a residential committee to look into why they have fully ignored residential members for over a decade yet that committee already positioned itself to take a long time – it is run by the Old Guard. The committee was formed a year ago, and nothing has been accomplished to benefit the residential membership. The only leverage AI National still has is to threaten designated members who speak against them. The problem with their autocratic tendencies is that the value of their designation brands has diminished significantly over the past decade reducing their power.

3. Old Guard is fully insulated from everyday appraising AI National top-down leadership style receives no direct feedback from their membership or chapters (outside of aspiring member politicos/wanna-be insiders) as evidenced by how AI National routinely approaches state legislators without notifying the local chapter boards in that state – largely because AI National actions wouldn’t be accepted by those local members.

AI is also keeping a close eye on the many regulations and policies affecting appraisers. Some considered a bit “archaic” and clearly not keeping up with the changing times and appraisal environment have been widely addressed and officially discussed by way of direct testimony before Congress.

Their continued efforts – at what must be a significant expense (Does Scott DiBiasio get to keep all his travel miles?) – to undercut The Appraisal Foundation by promoting $25 evaluations and especially by misleading Congress in the fall of 2016 about regulations and the false “appraisal shortage” narrative that has been proven overwhelmingly false. In reality, they have so little outside contact with the front line of the industry that they probably don’t have any idea it was proven false and that Jim’s quote is embarrassing.

“While it’s impossible to predict what will happen in Washington, the Appraisal Institute is optimistic that Congress will address regulatory modernization this year,” Murrett told us. “Perhaps now more than ever, we see the need for an overhaul of the current U.S. appraisal regulatory structure as appraisers are crushed by a stack of growing, outdated rules and regulations. Regulatory modernization is an opportunity to fix a broken system.”

The above quote is basically a lie, reflecting their self-serving agenda – probably to get their hands on the $13 million in annual appraiser registry fees administered by the Appraisal Subcommittee. Those funds are needed to solve their pending financial crisis of declining membership and unabated spending – if the chapter “taking” doesn’t happen fast enough.

What reasonably intelligent person out there thinks that confusing the marketplace with evaluations that allow switching on and off an appraisal license depending on the assignment – in a compressed fee environment – is to the appraiser’s benefit? Our largest industry trade group is irresponsibly diluting what we do in the eyes of the public.

When will the Appraisal Institute begin to work for the benefit of the appraisal industry and not themselves?

The new president looks like he is running things on autopilot. His PR comments are already a disservice to the hard-working AI members who pay AI National dues. Active AI members have to be asking themselves, why am I paying for the slow destruction of my livelihood with self-serving absentee leadership?

I am not looking to see AI National go under soon as is their current trajectory. I simply want the appraisal industry to fully recognize what AI National really is:

1. A threat to the residential appraisal industry’s future.

2. A very real distraction from progress during our “moment” to influence our future.

What other professional services industry has had to not only fight for its survival but fight our largest trade group at the same time?

Good grief.

The Fall Appraiserfest Conference in San Antonio Promises To Be The Residential Appraiser’s Counterculture Answer to The Current Dull and Boring National Norm

As the current president of RAC, I am quite proud to say that our last two annual appraisal conferences have been the best I’ve ever attended in my 31+ year appraisal career and it’s not because I’m biased (ok, maybe a little). They were thoughtfully produced and provided high-quality content.

The evolution of 27 state coalitions to date with more coming and an alternative national appraisal conference that doesn’t overemphasize Appraisal Management Companies is the new way to help front-line residential appraisers be informed and make a living that has risen from the inaction of the old guard.

Appraiserfest 2018

Mark your 2018 calendars for November 1, 2, 3

We hope you can make it!

Here’s the first video cut of the conference announcement.

Fannie Pulls Back Requirements on Field Reviews

Here’s the first Selling Guide Update for 2018 (h/t to Tom Allen) Fannie is waiving their requirement for field reviews on properties over $1 million.

I have some thoughts on this decision since our Manhattan housing market has a median sales price of just over $1 million. This ruling would have made sense to me years ago when appraisal quality was reliable and credible. This was before AMCs and desktop reviews accounted for 90% of residential mortgage lending and the work I have seen here really sucks. Out of market appraisers are the norm and they are appraising these properties without much local market knowledge (we do not have an MLS). And now reviews are being done by those same AMCs. So the data embedded in the desktop approach is contaminated and probably generating false positives.

Here’s the announcement:

Currently, we require a field review (Form 2000 or 2000A) on properties valued at $1,000,000 or more when the LTV, CLTV, or HCLTV ratio exceeds 75%. The purpose of this requirement was to mitigate the perceived risk of overvaluation on properties with high appraised values. Based on our analysis of field reviews, and advances in property valuation due to the use of Collateral Underwriter® (CU™), we are removing this requirement for field reviews. CU and the independent risk assessment it provides and other tools and advances in managing appraisal quality, enable us to mitigate this risk.

Effective Date:
Lenders can take advantage of this change immediately. The field review messages will be removed with DU Version 10.2 (weekend of March 17, 2018). Until that time, lenders may disregard the messages.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

– They’ll be better at math;
– You’ll be bad at accounting;
– And I’ll soak in the tub.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog
@jonathanmiller

Dividing by Zero Gets You A House With A Tub