Deeds and Leases

Jonathan Miller, the President of Miller Samuel and the Premier Residential Appraiser in NYC has just published the following article that is well worth reading.

I have discussed the changes in appraisal rules and operating procedures in deedsandleases.com in the past, and I felt then, and do now, that there has been an over-correction in the market. The “AMC’s” that John mentions (Appraisal Management Companies) are utter failures. The premise is good: independence, integrity, quality, but in reality nothing is further from the truth. The reality is appraisal mills, LACK of independence and a bureaucracy that has made things worse and cut the incomes of residential appraisers. This is a recipe for disaster, and at some point in the future as I have said before: this is a scandal waiting to happen.

For you the buyer, this sounds like a horrible situation, and it is problematic. A good Realtor can help to some extent. Regardless of the regulations, I believe that it is the Brokers job to at least supply the appraiser with verified comparables. The appraiser can throw them in the garbage if he/she desires. Nonetheless, since I either represent the seller or the buyer in the transaction, in my opinion I have a fiduciary obligation under the Real Property Law to represent my client, and insure that accurate information is made available to the appraiser who in many instances is sent from outside the area and knows little about the submarket and its dynamics. Let them take my MLS printouts, do their own due diligence, and do a proper analysis.

I realize that some in the banking community will get offended. So be it. It is my responsibility as a Realtor representing my clients jealousy, as well as my 20 years experience as an appraiser, to insure that the person showing up at the front door of the property that I am selling be provided with accurate information that they can verify on their own. Please read on, and post your comments!
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By Jonathan Miller
The lending business has a love-hate relationship with appraisers – now appraisers seemed to be blamed for preventing the housing recovery. The following WSJ article from about a week ago has been making the rounds through the real estate world.

The orientation of those interviewed in this article come strictly from those heavily involved in the process of making deals during boom times. If someone prevents a deal from happening, they are an “obstacle.” Literally that is true, but there needs to be context applied.

Appraisals are becoming one of the biggest obstacles for Americans trying to sell their homes, refinance their mortgages or tap into home-equity credit lines.

During the housing boom, appraisers often complained of pressure from lenders to inflate home-value estimates to justify dubious mortgage lending. Now, some people in the mortgage business — and some borrowers — say the pendulum has swung too far the other way.

Hmmmm….the old on-off switch.

Neutral observer v. party to the transaction
Protector v. deal impeder
Watch dog v. cost center
Risk Management Tool v. Tool
Back in the day (I love that phrase, especially now because it is only 2 years ago), appraisers were marginalized because of our lack of organized political influence. We were treated as a commodity – like a flood certification rather than as a housing expert. Rubber stamping brought in a lot more business to those who played ball..

Valuation disputes are becoming more common now (translation: appraised value falls below purchase price).

Lenders are licking their wounds from billions in losses and the majority of appraisers, raised on a 7 year dose of housing boom, tend to more conservative about market value knowing they won’t be removed from a list because they won’t play ball. Most national retail banks are using AMCs. AMC appraisers are doing just what independent appraisers with integrity never stopped doing during the boom: estimate market value.

The problem is, many of the AMC “appraisers” (who are really form-fillers), are simply reading into the minds of their clients, and giving them what they think they want – low values. In other words, AMC appraisers are all over the map, depending on what their client wants and right now, lenders are not overwhelmingly excited about lending (measured by tightened underwriting) so these appraisers tend to be biased low – just the opposite of 2 years ago.

How about removing bias altogether and estimate market value?

The appraisal management company (AMC) phenomenon, which delivers some of the worst elements to the valuation process, enables legions of inept appraisers to thrive.

Kris Berg, a real estate agent in San Diego pens a perfect picture of the robotic nature of AMC appraisers and lack of competency when meeting them at the inspections for property sales. That’s because most lenders have found the AMC religion and appraisals are being ordered in conveyor-belt fashion, rather than matching up the appraiser with the assignment.

Here is one quote in the article that is absolutely ridiculous and speaks for the AMC phenomenon:

Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, said AMCs typically take about 40% of the fees and appraisers get the rest. Mr. Schurman said he has seen no evidence that AMCs’ practices lead to lower quality.

This trade group continues to claim the average fee is 40%. My experience and my colleagues rule of thumb is about a 50% discount in fees or more. Put that aside and consider this real world translation:

If you posted a job listing at a company for $100k over the past several years. Due to budget cuts, you offered the same position, when it became vacant at $60k. And hundreds of companies did this, do you think the experience and educational backgrounds of the majority of applicants would be exactly the same in either salary scenario?

Yet that’s the message being conveyed by Title/Appraisal Vendor Management Association. As Warren Buffet once said, “Never ask a barber if you need a haircut.”

Good grief.

Kris Berg and many good agents like her are seeing the adverse impact of AMC appraisers first hand. After all we have been through, the appraiser function as it relates to lending remains as it was, unreliable.