I Appraised Housing Down By The River

September 24, 2021

While I can’t stand raw distortion in my news feed, I’m all in on raw distortion in my music – I was nearly nine years old when this event happened.

But I digress…

Bidding Wars Drop From Insanely High To Incredibly High In August

According to Redfin, bidding wars are on the decline but there are still a lot of them.

The New York Times’ Calculator Column breaks out the cities with the highest and lowest bidding war shares:

USA Today Interviews A Bunch Of Housing Pundits And None See A ‘Bubble’

Including me.

Chicago Saw The Same Misleading “Fleeing The City” Narrative That NYC Saw

The problem with the early days of the pandemic, urban out migration stories were devoid of “inbound” until consumers felt safe and that began with vaccine adoption.

Here’s an interview from a real estate brokerage owner in Chicago (I lived there for 4 years in the 1980s!).

Existing Home Sales Are Reverting To The Mean

Here’s a good read on monthly existing home sales by Calculated Risk:


[click on chart to read the post]

One Of Reasons Arizona Housing Is Booming Is Jobs Are Ahead Of Pre-Pandemic

The 432 Park Supertall Is In The News Again

Now the unit owners are suing for “one of the worst examples of sponsor malfeasance in the development of a luxury condominium in the history of New York City” and there has only been one sale since January – chronicled in the New York Times: Residents of Troubled Supertall Tower Seek $125 Million in Damages

The condo board at 432 Park Avenue is suing the developers for construction and design defects that have led to floods, faulty elevators, and electrical explosions.

And the height of 432 Park is a mere stepping stone for taller buildings in the future…the gif file in this article is crazy!

Bloomberg: Luxury Supertowers Are Going Even Higher (Don’t Mind the Swaying!)

Advances in concrete, elevators, and engineering have created a new breed of buildings.

Newsday Takes A Look At Long Island Markets Without The Hyperbolic Price Growth

In a refreshing take, Newsday published this piece: 5 lively communities where home prices have risen 10% or less in the past year

In Long Island’s soaring real estate market, would-be buyers may be overlooking communities where home prices have stayed more down-to-earth.


[click on image for article and tables]

Appraiserville

(For earlier appraisal industry commentary, visit my old clunky REIC site.)

‘AI PAREA’ Being Positioned As Low-Hanging Fruit To Bypass Mentor System

I’m being told that TAF just gave the Appraisal Institute a $500,000 grant to fund a PAREA model but the catch is they have to develop it in one year. Let’s now call PAREA, “AI PAREA”.

If my history is correct, PAREA was first discussed by the Appraisal Institute by Craig Harrington in 2014 at an AI Connect conference so it has come full circle.

Here is a meandering discussion on what is happening to PAREA while using excessive acronyms without explanations…here are some thoughts:

Dave Bunton of The Appraisal Foundation has maintained they have a list of 900 people who are want to enter the profession and are ready to use PAREA because they can’t find mentors. If that is true, there is already a market for PAREA education. It is not a singular solution to the lack of mentorship but it is a vehicle to enhance the number of individuals that can enter the profession. Oh, and help result in the stunning lack of diversity in the appraisals industry (96.5% of us are white and dead last in the BLS rankings out of 400 professions they track).

That number is significant enough to justify TAF investment in developing a PAREA module that was championed by John Brenan back in the day when he was at TAF. Since he left, it was clear that TAF didn’t want to proceed with PAREA and an outside consultant came up with a cost estimate that made it easy for TAF to cry poor (except having ≥ $11 million in reserve and could pay for it completely without financial damage to TAF).

Now that TAF is about to get PAVED, they are suddenly pushing for PAREA to get done after their bat-shit crazy letter.

One of the debates swirling around this topic is to make PAREA for “licensed-residential” only and not “certified-residential” because conventional wisdom says that no states support licensed residential anymore. Actually, this is a false assumption since at least 42 states still support licensed-residential status and 6 have it on hold. I’m not clear on the status of the remaining 2 states and 5 territories.

The real issue, just like it is for the banks with allowing trainees, is to teach, champion, and press banks to accept residential licenses and to allow trainees. This is the role the Appraisal Institute must take immediately or this will be a failure. Remember that Fannie has no issue with trainees and is encouraging banks to allow them. Since the financial crisis, banks, not the GSEs have not allowed trainees to sign appraisal reports, which is misplaced risk mitigation.

To get the regulators and the states comfortable, these licensed appraisers through PAREA could then go through their states and meet the criteria to upgrade to state-certified. PAREA gets them over the mentorship gap.

One other key reason the mentorship gap has been so debilitating to the industry is the dominance of Appraisal Management Companies (AMCs) since HVCC in May 2009. They significantly reduced the margins of appraisers by taking 50% to 70% of the appraisal fee the applicant pays and lobbied heavily to prevent their fee from being broken out on mortgage applications. In fairness, many AMCs have now reigned in this type of behavior, but the damage was already done. This sea change made the mentorship route unaffordable for most senior appraisers. The math no longer works to mentor a trainee so there needs to be alternative solutions and PAREA is one of them.

I also understand that 31 states have already adopted the annual AQB changes “by reference” and the language for PAREA has been inserted into these states through RAPAC since January 2021.

AI PAREA will be a work in progress.

Freddie Mac Research Note: Racial and Ethnic Valuation Gaps In Home Purchase Appraisals

While I’m concerned with the over-reliance on “big data” and the GSEs (at least Fannie’s) long game seems to include the possibility of eliminating appraisers and go full speed without us, and the magical timing of Freddie Mac’s release of this research in the middle of the PAVE initiative, our industry finds ourselves without leadership on diversity which has the potential to be our industry’s death knell. After all, 96.5% of appraisers are white, based on BLS data which ranks dead last of all 400 tracked professions, so how do we have any credibility to defend ourselves or solve the problem in the public eye?

Here are the findings in Freddie Mac’s Own Words:

– Is there an appraisal gap in minority neighborhoods?

Appraisers’ opinions of value are more likely to fall below the contract price in Black and Latino census tracts, and the extent of the gap increases as the percentage of Black or Latino people in the tract increases.

– Is there an appraisal gap for minority applicants?

Black and Latino applicants receive lower appraisal values than the contract price more often than White applicants.

– Are the appraisal gaps for minority tracts driven by only a small fraction of appraisers?

An analysis of the group of appraisers with enough observations in both minority tracts and White tracts to yield valid t-statistics reveals that a large portion of appraisers are generating statistically significant gaps.

– What causes the appraisal gap?

We conduct exploratory research to begin to understand what causes the observed gaps for minority versus White tracts. We focus our research on the fact that appraisers primarily determine the appraisal value of a property by comparing the historical sale prices of comps. By leveraging our in-house appraiser and appraisal expertise and through discussions with researchers who are experts on this topic,13 we identified several candidate factors and explored them in isolation, including comp distance, comp reconciliation, comp variance, and purchaser overpayment.

– Does the race and ethnicity tract flag explain appraisal gaps beyond structural and neighborhood characteristics?

Our preliminary modeling results suggest that even when taking structural and neighborhood characteristics into consideration, a property is more likely to receive an appraisal lower than the contract price if it is in a minority tract.

I’d appreciate feedback from my readers on the statistical aspect of this research.

Dave Towne Tells Us ‘The Highly Un-Eagerly Awaited GSE New Forms Won’t Happen for 1.5 – 2 Years

Dave Towne is good at keeping us informed about the changes in the nooks & crannies of the appraisal industry, and in this case with an “old-timey” feel. Here’s his latest regarding the new appraisal forms. And be sure to drop him a note to get on his mailing list. (Bold his emphasis)

Just found out the ‘new forms’ updating process (taking multiple years) will result in the highly un-eagerly awaited GSE appraisal process won’t happen for about 1.5 – 2 more years.

Not sure if we should applaud or cry? Maybe I and lots of other appraisers will be retired by then???

This is the latest notice from Fannie and Freddie:

“Updated UAD timeline: Fannie Mae and Freddie Mac have updated the UAD redesign timeline to reflect the latest estimates for high-level milestones. Publication of the UAD specification, which will enable software vendors, lenders, and other industry stakeholders to start the planning and implementation process, is estimated to occur in the third quarter of 2022. Development of the specification and other work on this multi-year industry project continues, with limited production expected to begin in 2024.”

I’m not sure the above statement makes sense. Implementation in 2022, but production in 2024?

Lessee…..by 2024 Windows OS will be up to version 11.5, Apple’s OS will also be one or two generations ahead of today’s, desktop computers will be about the size of a cigarette pack and 4x faster, tablets will be flip open pads attached to the forearm of the wearer with Velcro, cell phones will be even much smaller, worn on a finger, using an ear implant.

And to simplify everything, the remaining independent report software companies will have sold out to the giant world-wide firm that owns one of them at present, with all their processes amalgamated into one product.

Oh, and let’s not forget…..rather than a couple hundred+ AMC’s as there are now, only 2 giant ones will remain. And Covid 19 will be eradicated, along with human-caused climate change.

Those are my predictions. Shall we start an “office pool” to see when the exact date of ‘new forms’ actual required use will occur??

The current ‘forms’ are 16 years old…..with exception of the UAD overlay….which only took a few months to implement. No reason to expedite the updating process to get them modernized.

Like West Virginia, A Texas State Agency Can’t Make Things Up

Jeremy Baggott, who I always refer to as the “Cosmic Cobra Guy” for his book that outed TAF’s self-dealing, has “a must subscribe to” free newsletter.

Here is the latest version that just dropped into my mailbox:

Dear Colleague,

It’s worth revisiting. A Texas occupational licensing agency subverted the will of the state’s Legislature by enforcing a “confession rule.” The latter required an applicant with a prison record to confess to his crimes. One such applicant challenged the practice, and the Texas Supreme Court found what we all know to be true – a state agency can’t simply make things up. The extra-statutory enforcement mirrors how the Texas Appraiser Licensing and Certification Board – along with sister licensing bodies in Washington State, New Mexico, California, West Virginia, South Carolina and, until last year, Arkansas – unlawfully enforces each new version of the copyrighted “Uniform Standards of Professional Appraisal Practice.”

Like the “confession rule,” enforcement of the continually changing standards has been on the fly and without an adoption of each revision as Texas law requires. Please read on.

–Jeremy

Jeremy Bagott, MAI, AI-GRS
Telephone: (805) 794-0555
Email: jbagott@gmail.com

***FOR IMMEDIATE RELEASE***

LICENSEE, REPENT! TEXAS AGENCY TOOK CUE FROM SPANISH INQUISITION

(September 24, 2021) – John Thompson was an airman assigned to Kirtland Air Force Base in New Mexico in the mid-1980s. In his early twenties, Thompson had married a woman with children from a previous relationship. As reported in court filings, the union soured, and Thompson was awarded custody of the children and moved out of state. During divorce proceedings in 1985, his wife alleged that Thompson had sexually abused the children in both New Mexico and Pennsylvania and assaulted her while they lived in New Mexico. Civil authorities declined to prosecute, but the military justice system elected to try the case.

Thompson was court-martialed for the disturbing crimes, and for eighteen years he was imprisoned in Fort Leavenworth. With time credited for good behavior, Thompson was released in 2005. Throughout the trial and his incarceration, he steadfastly maintained his innocence.

While in prison, he trained for 174 hours to attain certification as a mechanic, and he earned a college degree. Thanks in part to these improvement efforts, Thompson was self-sufficient within weeks of his release. He supported himself by holding a number of odd jobs, including cleaning houses, doing construction work, and working for a towing company. In July 2008, with the support of his employer, Thompson applied to the Texas Department of Licensing and Regulation for a tow truck operator’s license. His bid was backed by many supportive letters from employers, relatives and community members – all of whom attested to his impressive work ethic and moral probity.

One recommender wrote that Thompson had helped her with her six-year-old child, and that she trusted him around her son unreservedly. Another recommender recalled that Thompson had made a number of repairs on her house, and that she had entrusted him with the keys to her home during that period without incident. Thompson’s landlord described him as an ideal tenant, and his employers at the towing company called him a model employee.  

Nonetheless, the department issued a proposed denial of Thompson’s application based on his conviction. The department contended that his conviction directly related to the duties and responsibilities of the licensed occupation, and it denied the license application.

Thompson contested the denial and received a hearing in front of an administrative law judge from the State Office of Administrative Hearings. The administrative law judge recommended that the Department issue a license, observing that Thompson had not committed any crimes in the years following his release from prison and the conviction was more than two decades old. Specifically, the administrative law judge noted that Thompson demonstrated that he could discharge the duties and responsibilities of a tow truck driver and was unlikely to commit a similar crime in the future.

While the administrative law judge deemed Thompson’s consistent proclamations of innocence marks of character, the department concluded Thompson’s unwillingness to confess ruled out any possibility of rehabilitation.

The case bounced around in the courts.

The Texas Occupations Code lists factors a licensing authority must consider when an applicant has been convicted of a crime. Nowhere is a confession required. The Department simply embroidered, adding an additional, extra-statutory requirement of confession.

In what came to be known as Thompson v. Texas Department of Licensing and Regulation, 455 S.W.3d 569 (Tex. 2014), the Texas Supreme Court made short work of the matter, writing unanimously:

“Thompson served his time, behaved commendably while imprisoned, and has dedicated himself to re-acclimating to society in the years following his release. Throughout, he has maintained his innocence, despite the knowledge that even a rote confession offered a path of less resistance. Thompson’s case received a thorough hearing before the administrative law judge, who evaluated the 1988 conviction against evidence of subsequent lawful behavior, unwaveringly supportive letters of recommendation, and Thompson’s sedulous efforts to make an honest living.”

Accordingly, the Texas Supreme Court granted the petition for review and reverse the court of appeals’ judgment.

Appraisers can learn something here. The manner in which the Texas Appraiser Licensing and Certification Board enforces the continually changing “Uniform Standards of Professional Appraisal Practice” on licensees – there have been 24 different versions in all – mirrors the flawed enforcement of the “confession rule.”

The board’s commissioner has not submitted any known version of the appraisal standards to a required notice-and-comment rulemaking pursuant to the procedures set forth in the Texas Administrative Procedure Act (Texas Government Code § 2001.021). Also, Title 1 of the Texas Administrative Code § 91.40 requires the state agency adopting by reference (ABR) a document into law to “note the revision date of the ABR information” and to “amend the rule to adopt a newer version of the ABR information.” This requirement has not been satisfied either.

Finally, the Texas Constitution’s One-Subject Clause, Article III, Sec. 36, bans any law being revived or amended by reference to its title alone.

The standards are a dead letter in Texas. They always have been.

OFT (One Final Thought)

From last to first place, this is a worthwhile way to spend 11 minutes and 52 seconds of your Friday afternoon.

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 down by the river;
– You’ll be more into distortion;
– And I’ll race a car.

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 J. Miller, CRP, CRE, Member of RAC
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog
@jonathanmiller

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