Buy a house and get a free Ferrari. Its a compelling presentation and I don’t have enough time to dig further but it gives me the creeps. They list offering prices by the developer (I assume) but show no closing prices.
You know the old saying, if its too good to be true, then it usually is…
Next property to move:
Swampland in Florida that comes with a free RV.
thanks LS!
The sale of unused common area can be a win-win transaction for both buyer and seller. The buyer is likely an individual apartment owner or purchaser. The seller would be the coop corporation (or condo association). As operating costs continue to rise, boards are considering other sources of income to operate their buildings and keep maintenance increases and assessments to a minimum. The sale of common area to in-house residents has become more commonplace in recent years and provides an opportunity for additional income. At the same time, apartment owners have had fewer purchase options as a result of the limited housing inventory in the Manhattan real estate market over the past five years. It may be easier for a shareholder to fulfill an immediate housing need by purchasing common space to enhance their apartment.
A typical scenario might go like this: A couple is expecting their first child and currently occupy a 1-bedroom coop apartment. They search for 2-bedroom apartment but cannot find any suitable choices in their price range with the level of amenities they currently enjoy. With the time constraints and inconvenience of moving, they approach the owner of the studio apartment across the hall. Since both apartments in this example are situated at the end of the hallway and the layout would be enhanced if the hallway is incorporated into the layout, the coop board was contacted.
The coop corporation would benefit from the capital infusion from the sale. The re-allocation of shares would result in increased revenue from higher maintenance charges paid by the shareholder in perpetuity. Both parties should seek out legal advice for matters such as the potential modification to the certificate of occupancy, zoning considerations, architectural integrity of the project, and approvals needed. Associated costs are usually paid by the purchaser. Our firm has seen include the end of a hallway between two apartments, basement storage room, a small closet adjacent to an apartment, double-height ceiling space over a basement garage, unimproved roof area, former elevator shaft and an unused rooftop water tank. How can market value of so many types of space be estimated?
Market value is defined by the Appraisal Institute as “The most probable price in cash, terms equivalent to cash, or in other precisely revealed terms, for which the appraised property will sell in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.” The sale of common area is not based on its market value, since it is not exposed to the open market and the buyer and seller are captives by its location. It usually has no practical use to any parties but the owner of adjacent apartment and the corporation. The space would not be sold to purchasers that do not own an apartment in the building or to an owner on another floor. Therein lies the problem since there is no “market” for the property. The value of the space is therefore termed “value in use” defined by the Appraisal Institute as “the value a specific property has for a specific use.” It is essentially the establishment of a reasonable relationship between the price and size of the space between the two parties.
The challenge to the board is to be fair to the purchaser yet responsible to the shareholders. The challenge to the apartment owner is to establish whether the finished result will provide additional value to the apartment, both in a financial and functional sense. As is often the case, there are usually no recent sales of common area within the subject building to use as a basis for comparison. Data on common area transactions are often not released because they are not representative of market transactions in a given building, although the release of such information would not impact market values in the building. In addition, these transfers are often combined with the purchase of an adjacent apartment.
A reasonable method of valuing common area is to abstract the relationship between actual common area sales and apartment sales within that same building on a per square foot basis. Although such transactions do not indicate market value on their own, they establish a relationship with the sales in their respective buildings. This ratio can then be applied to a representative price per square foot indicator in the subject building. This value indicator is based on the market segment the newly configured apartment will fall within.
It is important to note that the estimation of the common area value should not be subject to the actual condition of the adjacent shareholder apartment, but rather the typical condition of an apartment in the building. In other words, a shareholder should not pay more or be allocated more shares for adjacent common area based on the condition of their apartment. This is an important point and is consistent with allocation methods at the time of the conversion of the building.
Unlike the estimation of “value in use”, the share allocation should be made as if the space were incorporated into the adjacent apartment. The shareholder benefits from the additional space in perpetuity. Shares per square foot are the determinant factor because the space is usually incorporated into the existing apartment indefinitely and the shareholder enjoys an ongoing benefit. The original share allocation at conversion varies by many factors including floor level, number of bedrooms, square footage, outdoor space and view. The share per square foot ratio of other similar sized apartments on the same or similar floor levels should be analyzed and compared to the subject space.
The sale of common area can be a win-win scenario for both the coop corporation and the individual shareholder. The corporation benefits from a capital windfall and additional revenue in perpetuity. The shareholder benefits from an expanded apartment and additional value. Who says there isn’t value at the end of the hall?
After paying $15.5 million last November for a 3,000-square-foot apartment at the Carlyle, you would think the Hollywood power broker Brad Grey could rest easy knowing he had bought into a hot Manhattan luxury market.
But there is the little matter of the $455,352 a year that Mr. Grey, the chairman of Paramount Pictures, will have to cough up in maintenance charges. The storied co-op hotel on the Upper East Side, where President John F. Kennedy kept a penthouse suite, charges more per square foot in monthly fees than any other residential building in New York, according to Miller Samuel, a property appraiser.
Still, when you want the best pampering Manhattan has to offer, you find the money. Mr. Grey hasn’t been heard complaining about the $37,946 a month he has to pay to maintain his four-bedroom apartment.
After all, for the price of a new BMW each month, he gets the prestige and prized location of the Carlyle, at 35 East 76th Street, not to mention twice-daily housekeeping service, daily newspapers, and use of Frette bathrobes and 600-count Yves Delorme bedding. There are discounts on laundry, personal training sessions and room-service food and drink.
Sound like a bargain? That depends on what your priorities are.
For those willing to put down millions to own an apartment in Manhattan, a high tolerance for some of the highest monthly charges in the world is almost a prerequisite. Imagine the privilege of paying the equivalent, on an annual basis, of the cost of a new home in many parts of the country — all to ensure that you can get a cup of coffee, or a shirt ironed, at all hours of the day.
“It is a way of life that people really appreciate whose lives are quite busy and full,” said Kathy Sloane, a broker at Brown Harris Stevens who has sold apartments in the Carlyle. “They want everything to be organized for them, and they don’t ever want to question the standard.”
Aside from the Carlyle, which charges monthly maintenance fees of $10.23 per square foot on average, the buildings charging the most every month include the Sherry-Netherland ($6.03), the Lombardy ($4.24) and the Pierre ($3.37), according to Miller Samuel.
Then there are the condo hotels like Trump SoHo, which charges $7.60 per square foot, with Trump International, charging $6.72.
Some condops also rank high among the buildings whose residents are cutting the biggest monthly checks. The Mark charges $4.47 a square foot. At 995 Fifth — formerly the Stanhope Hotel — you’ll be paying $4.32.
By comparison, Manhattan co-ops charge an average of $1.70 per square foot in maintenance fees, while condos charge $1.57 a square foot on average for the common charge plus real estate taxes, according to Miller Samuel.
So what else do you get for the more than $10 a square foot you would pay at the Carlyle?
Well, there’s window-washing, heavy cleanings, bath amenities, cable television and telephone voice mail. Discounted services also include preferred pricing on treatments at the hotel’s Sense spa, and 20 percent off on parking rates in the garage.
But don’t delude yourself that you’ll get services like dog-walking, couriers and personalized flower arrangements. Those are all extra, said Jennifer Cooke, a spokeswoman for the hotel.
The full-time staff of 400 people — for the 187 hotel rooms and 51 residences — make the maintenance charges palatable to buyers, brokers said.
“You are really looking at buyers who, in order to maintain a staff in any residence that could deliver all of the things that are deliverable at the Carlyle, would have to look at spending hundreds of thousands of dollars a year on that staff,” Ms. Sloane said.
Brokers say they have to price apartments very carefully at the hotel co-ops. Emily Beare, a broker with CORE, said she had had clients looking to spend $10 million or less who had turned down the Pierre because of the monthly maintenance. But she said she had never had a well-heeled buyer looking to spend more than $10 million reject the idea of hotel living simply because of high monthly charges.
When a prized apartment in one of the hotels becomes available, “there is a very immediate market for it,” Ms. Sloane said. Before selling a unit in the Carlyle a few months ago, she invited a group of brokers to help her price it. “We settled on a price, but everyone said that with that maintenance, the apartment is bound to be there a long time.”
She sold it in four days, she said.
How does the Carlyle justify charging more than three times, on average, what the Pierre charges its co-op residents? Christopher Burch lived in the Pierre for about 20 years and headed the co-op board before his divorce from the fashion designer Tory Burch. He later spent more than a year at the Carlyle as well. He sees a comparable level of service at the two hotels, but says the ownership structure is different at the Pierre, allowing for lower monthly fees.
“The Pierre is a tremendous deal,” Mr. Burch said. “It’s a steal.”
Ms. Cooke said the “manner in which we charge at the Carlyle has been the same since the co-op was first formed in 1970.”
For many buyers the Carlyle’s Upper East Side address is simply more prestigious than the Pierre’s, closer to Midtown, brokers said. And some brokers claim that the elevators at the Pierre are not attended 24 hours a day, seven days a week, as they are at the Carlyle, though a spokeswoman at the Pierre says they are.
You buy into an iconic New York experience at the Carlyle. Where else can you hobnob with world leaders, rock legends like Mick Jagger and Hollywood aristocracy like Woody Allen, who performs with his jazz band at Café Carlyle?
President Kennedy was said to have sneaked Marilyn Monroe into the hotel for visits — most famously through a series of tunnels under the property — after she sang “Happy Birthday, Mr. President” at his birthday gala at Madison Square Garden in 1962, according to the author Nick Foulkes, in the book “The Carlyle” (Assouline, 2007). Ms. Cooke said nobody currently on staff was there in 1962, but “that is the rumor that has been passed through the years.”
That lore has value. The pampering tradition at hotels like the Carlyle has inspired developers to try to emulate much of that service experience in new condo developments like 15 Central Park West and the yet-unfinished One57.
It’s hard not to see those buildings as a bit of a deal compared with the Carlyle. The steel magnate Leroy Schecter has listed two apartments together at 15 Central Park West for $95 million. The common charge and taxes (with a 10-year tax abatement helping out) come to about $1.86 a square foot.
“Why not be in a building that is giving you everything you want and yet your monthlies don’t have to be astronomical?” asked Ms. Beare, Mr. Schecter’s broker.
Elizabeth Sahlman, a broker at Corcoran, can understand why that wouldn’t work for some.
At the hotels, “it is the twice-daily housekeeping that a lot of residents just love,” she said.
Gary L. Malin, the president of Citi Habitats, New York City’s largest rental brokerage firm, has seen the real estate market at its giddiest heights and its deepest despair. There should be little that surprises him. But when Mr. Malin’s company was preparing its latest analysis of the rental market, he was taken aback.
In March, the firm found, the average rent in Manhattan — now $3,418 a month — surpassed the all-time high set in the real estate frenzy of 2007. “Right now, landlords can go for pie in the sky — why not?” he said. “But when are people going to say enough is enough and look at other options?”
The last time rents shot up in a similar fashion, they were tied to a strong economy, low unemployment and booming business on Wall Street.
But this spring, Manhattan rental prices seem to be divorced from the larger economic picture. While the city has added jobs in recent months and growth in businesses like technology has helped make up for losses in the financial sector, much of country is still struggling.
That disconnect has only increased resentment levels among many tenants, already reeling from a year or more of rent increases.
“I felt trapped,” said Jaclyn Barrocas, who was recently hit with a big rent increase on her East Side apartment. “It was too expensive to move and too expensive to stay. And it feels like I am not even a person to the landlord.”
There is evidence that rising rents are driving prospective renters into the sales market. But for those who find buying a home in New York City is not an option — whether because of bad credit, tougher lending standards or lack of a down payment — the choices are limited and often unappealing.
Landlords and brokers say more and more young people are sharing, even if it means sacrificing a living room to add a bedroom or two. There has also been a surge of interest in the other boroughs, with many neighborhoods reporting record rents of their own.
Some tenants may be able to negotiate with their landlords, especially if they are long-term renters with good track records. But property owners have little reason to cut deals, because the vacancy rate in Manhattan is hovering around 1 percent.
And just 2,229 rental apartments are scheduled to be added to the market this year in Manhattan, a 30 percent drop from the average number over the last seven years.
The uncoupling of the national economy from New York rents is not typical, said Jonathan J. Miller, the president of the appraisal firm Miller Samuel. “When you see rents rising, it is usually reflective of a strong economy,” he said. “That is not the case now.”
Instead, he said, prices are being driven up by a tight credit market that forces people to stay in the rental market and limits new construction.
Some renters feeling the squeeze have resigned themselves to paying more for less.
When Ms. Barrocas, 26, first found her one-bedroom apartment with views of the East River on the 19th floor of a Murray Hill apartment building in 2010, it cost $2,550 a month. She and her boyfriend quickly signed up for a two-year lease.
With the lease set to expire in June, she recently received word that her landlord wanted to raise the rent by more than $500 a month. “I started freaking out,” Ms. Barrocas said. “It is a huge increase.”
She was not ready to buy, but she could not afford to stay in her current apartment. The landlord would not negotiate. But moving, even if she found a cheaper place, would most likely force her to shell out around $5,000 for broker fees, security deposit and moving costs.
Fortunately, a cheaper apartment was available in her building. It was smaller, had little natural light and lacked river views. But at $2,745 a month it was in her price range, and there was no broker’s fee. She made the move.
Ms. Barrocas says many of her neighbors feel similarly trapped. “People just want to leave,” she said. “I would have preferred to leave.”
Landlords like to have leases signed in the spring, when they can command the highest rent because so many people are moving for work or school. So across the city, thousands of renters are facing a similar dilemma.
Rental averages are up in every category, with one-bedrooms rising the most, by 6.5 percent over the past year, to $2,747, according to the Citi Habitats report. Studios rose 3.6 percent, to $1,953; two-bedrooms climbed by 6.1 percent, to $3,865; and three-bedrooms rose 4 percent, to $5,107.
Surveys by the other major brokerage firms show similar leaps in pricing.
Mario Gaztambide, the vice president for residential asset management of the LeFrak Organization, said interest in lower-priced neighborhoods had surged. In Queens neighborhoods like Rego Park and Forest Hills, rents are surpassing peak prices from 2007, Mr. Gaztambide said, adding that newly renovated one-bedrooms are commanding around $1,700 a month.
“The amount of rental supply that has come on the market in the last two to three years has simply not kept up with demand,” he said.
It is important to remember that New York’s rental market is not monolithic. Although the rental averages calculated by the brokerage firms are based on market-rate units, the majority of apartments in the city are rent-regulated in some fashion and are not included in the averages.
Similarly, it is hard to get an accurate snapshot of the rents that small landlords are charging, since many do not use the services of a major brokerage. Renters often find that small landlords are more willing to negotiate because they do not want to have an apartment sit vacant for a prolonged period.
Joseph Rosati, 25, and his roommates adopted a different strategy: Pay more for more.
Last year, Mr. Rosati and two friends were living in Murray Hill, paying $3,700 for a two-bedroom apartment that they had converted to three. When the landlord decided to raise the rent to $4,300 last July, Mr. Rosati decided to shop for a new place.
The group could not find anything acceptable for under $4,700. They decided that if they were going to shell out that kind of money, they might as well spend a little bit more to be in a neighborhood they liked better.
They found a two-bedroom apartment with an office at 37 Wall Street for $5,400. Although they are paying more, they are happy in their new quarters. They signed a two-year lease, fearful that they would get hit with another increase if they did not.
“I did not move to New York City to live in Hoboken or Jersey City,” Mr. Rosati declared.
Jonathan Wilf, a principal of Skyline Developers, which owns 37 Wall Street, says landlords looking to get top dollar must set their properties apart. That means renovated apartments and lots of amenities. His company also owns the building at 75 West Street. But prices there are more stable, he said, because the building is older and has not been renovated to the same degree as 37 Wall.
What would bring a halt to spiraling rents? It took a financial meltdown in autumn 2008 to topple the last rent peak. After the fall of Lehman Brothers, big landlords, able to pivot on a dime, started offering incentives like two months’ free rent on a one-year lease. Those incentives lingered until 2010.
Barring a similar event, experts say it may simply be an issue of supply and demand, and woes will ease once developers start to bring more new units to market. But for now, more pain may lie ahead: Mr. Malin of Citi Habitats said he did not expect relief for renters anytime soon. “This summer,” he said, “everyone is gearing up to push their rents until tenants say, ‘This is just too much for me.’ ”
Of course, one escape from the gut-twisting rental market is to leave it entirely.
Kimberly Kreuzberger and her husband, Bryan, both 32, were thrilled when they first moved into their loft studio at 666 Greenwich Street in March 2009.
The rent was $3,200 a month, but with the two free months they were offered, it worked out to just over $2,800. Last year, when the rent was bumped up to $3,450, they reluctantly signed on for another year. It was a lot to pay, but they loved living in one of the rare doorman buildings in the West Village.
Then they got word that the landlord was planning another increase this June. The rent would rise to $3,795.
“We were furious when we got it,” said Ms. Kreuzberger, who works in advertising sales. In the elevator, the increase was the sole topic of conversation among neighbors. “People will be like, I got hit for 13 percent, someone else 7 percent,” she said.
The couple made up their minds to move; but rents for the kinds of two-bedrooms in elevator buildings they desired would be at least $6,000 a month.
Their broker, Scott Elyanow of Citi Habitats, urged them to think about buying an apartment, and to look in neighborhoods they might not have considered.
At first, the idea of leaving the Village “was like a death to us,” Ms. Kreuzberger said.
But the more they saw of the rental market, the more convinced they became that the time had come to buy.
The couple settled on a two-bedroom apartment at 100 Jay Street in Dumbo, Brooklyn. They paid just over $1 million, putting 25 percent down, and recently moved in. Their monthly outlay is $4,250, which covers their mortgage, common charge and taxes.
“It was such a leap,” she said. “But we could not be happier.”
Gary L. Malin, the president of Citi Habitats, the city’s largest rental brokerage firm, has seen the real estate market at its giddiest heights and its deepest despair. There should be little that surprises him.
But when Mr. Malin’s company was preparing its latest analysis of the rental market, he was taken aback.
In March, the firm found, the average rent in Manhattan — now $3,418 a month — surpassed the all-time high set in the real estate frenzy of 2007.
“Right now, landlords can go for pie in the sky — why not?” he said. “But when are people going to say enough is enough and look at other options?”
The last time rents shot up in a similar fashion, they were tied to a strong economy, low unemployment and booming business on Wall Street.
But this spring, Manhattan rental prices seem to be divorced from the larger economic picture. While the city has added jobs in recent months and growth in businesses like technology has helped make up for losses in the financial sector, much of country is still struggling.
That disconnect has only increased resentment levels among many tenants, already reeling from a year or more of rent increases.
“I felt trapped,” said Jaclyn Barrocas, who was recently hit with a big rent increase on her East Side apartment. “It was too expensive to move and too expensive to stay. And it feels like I am not even a person to the landlord.”
There is evidence that rising rents are driving prospective renters into the sales market. But for those who find buying a home in New York City is not an option — whether because of bad credit, tougher lending standards or lack of a down payment — the choices are limited and often unappealing.
Landlords and brokers say more and more young people are sharing, even if it means sacrificing a living room to add a bedroom or two. There has also been a surge of interest in the other boroughs, with many neighborhoods reporting record rents of their own.
Some tenants may be able to negotiate with their landlords, especially if they are long-term renters with good track records. But property owners have little reason to cut deals, because the vacancy rate in Manhattan is hovering around 1 percent.
And just 2,229 rental apartments are scheduled to be added to the market this year in Manhattan, a 30 percent drop from the average number over the last seven years.
The uncoupling of the national economy from New York rents is not typical, said Jonathan J. Miller, the president of the appraisal firm Miller Samuel. “When you see rents rising, it is usually reflective of a strong economy,” he said. “That is not the case now.”
Instead, he said, prices are being driven up by a tight credit market that forces people to stay in the rental market and limits new construction.
Some renters feeling the squeeze have resigned themselves to paying more for less.
When Ms. Barrocas, 26, first found her one-bedroom apartment with views of the East River on the 19th floor of a Murray Hill apartment building in 2010, it cost $2,550 a month. She and her boyfriend quickly signed up for a two-year lease.
With the lease set to expire in June, she recently received word that her landlord wanted to raise the rent by more than $500 a month. “I started freaking out,” Ms. Barrocas said. “It is a huge increase.”
She was not ready to buy, but she could not afford to stay in her current apartment. The landlord would not negotiate. But moving, even if she found a cheaper place, would most likely force her to shell out around $5,000 for broker fees, security deposit and moving costs.
Fortunately, a cheaper apartment was available in her building. It was smaller, had little natural light and lacked river views. But at $2,745 a month it was in her price range, and there was no broker’s fee. She made the move.
Ms. Barrocas says many of her neighbors feel similarly trapped. “People just want to leave,” she said. “I would have preferred to leave.”
Landlords like to have leases signed in the spring, when they can command the highest rent because so many people are moving for work or school. So across the city, thousands of renters are facing a similar dilemma.
Rental averages are up in every category, with one-bedrooms rising the most, by 6.5 percent over the past year, to $2,747, according to the Citi Habitats report. Studios rose 3.6 percent, to $1,953; two-bedrooms climbed by 6.1 percent, to $3,865; and three-bedrooms rose 4 percent, to $5,107.
Surveys by the other major brokerage firms show similar leaps in pricing.
Mario Gaztambide, the vice president for residential asset management of the LeFrak Organization, said interest in lower-priced neighborhoods had surged. In Queens neighborhoods like Rego Park and Forest Hills, rents are surpassing peak prices from 2007, Mr. Gaztambide said, adding that newly renovated one-bedrooms are commanding around $1,700 a month.
“The amount of rental supply that has come on the market in the last two to three years has simply not kept up with demand,” he said.
It is important to remember that New York’s rental market is not monolithic. Although the rental averages calculated by the brokerage firms are based on market-rate units, the majority of apartments in the city are rent-regulated in some fashion and are not included in the averages.
Similarly, it is hard to get an accurate snapshot of the rents that small landlords are charging, since many do not use the services of a major brokerage. Renters often find that small landlords are more willing to negotiate because they do not want to have an apartment sit vacant for a prolonged period.
Joseph Rosati, 25, and his roommates adopted a different strategy: Pay more for more.
Last year, Mr. Rosati and two friends were living in Murray Hill, paying $3,700 for a two-bedroom apartment that they had converted to three. When the landlord decided to raise the rent to $4,300 last July, Mr. Rosati decided to shop for a new place.
The group could not find anything acceptable for under $4,700. They decided that if they were going to shell out that kind of money, they might as well spend a little bit more to be in a neighborhood they liked better.
They found a two-bedroom apartment with an office at 37 Wall Street for $5,400. Although they are paying more, they are happy in their new quarters. They signed a two-year lease, fearful that they would get hit with another increase if they did not.
“I did not move to New York City to live in Hoboken or Jersey City,” Mr. Rosati declared.
Jonathan Wilf, a principal of Skyline Developers, which owns 37 Wall Street, says landlords looking to get top dollar must set their properties apart. That means renovated apartments and lots of amenities. His company also owns the building at 75 West Street. But prices there are more stable, he said, because the building is older and has not been renovated to the same degree as 37 Wall.
What would bring a halt to spiraling rents? It took a financial meltdown in autumn 2008 to topple the last rent peak. After the fall of Lehman Brothers, big landlords, able to pivot on a dime, started offering incentives like two months’ free rent on a one-year lease. Those incentives lingered until 2010.
Barring a similar event, experts say it may simply be an issue of supply and demand, and woes will ease once developers start to bring more new units to market. But for now, more pain may lie ahead: Mr. Malin of Citi Habitats said he did not expect relief for renters anytime soon. “This summer,” he said, “everyone is gearing up to push their rents until tenants say, ‘This is just too much for me.’ ”
Of course, one escape from the gut-twisting rental market is to leave it entirely.
Kimberly Kreuzberger and her husband, Bryan, both 32, were thrilled when they first moved into their loft studio at 666 Greenwich Street in March 2009.
The rent was $3,200 a month, but with the two free months they were offered, it worked out to just over $2,800. Last year, when the rent was bumped up to $3,450, they reluctantly signed on for another year. It was a lot to pay, but they loved living in one of the rare doorman buildings in the West Village.
Then they got word that the landlord was planning another increase this June. The rent would rise to $3,795.
“We were furious when we got it,” said Ms. Kreuzberger, who works in advertising sales. In the elevator, the increase was the sole topic of conversation among neighbors. “People will be like, I got hit for 13 percent, someone else 7 percent,” she said.
The couple made up their minds to move; but rents for the kinds of two-bedrooms in elevator buildings they desired would be at least $6,000 a month.
Their broker, Scott Elyanow of Citi Habitats, urged them to think about buying an apartment, and to look in neighborhoods they might not have considered.
At first, the idea of leaving the Village “was like a death to us,” Ms. Kreuzberger said.
But the more they saw of the rental market, the more convinced they became that the time had come to buy.
The couple settled on a two-bedroom apartment at 100 Jay Street in Dumbo, Brooklyn. They paid just over $1 million, putting 25 percent down, and recently moved in. Their monthly outlay is $4,250, which covers their mortgage, common charge and taxes.
“It was such a leap,” she said. “But we could not be happier.”
There will be a lot of foot shuffling and blank stares when real estate professionals are asked about the impact of last night’s proposed tax cut plans from the House and the Senate. I’ve always found the topic of taxes as interesting as watching paint dry. But this time it’s a little more important. You see, housing doesn’t defy gravity.
In a general sense, the tax plans from the House and Senate will disproportionally impact high-cost housing markets on the east and west coasts. The cuts as proposed will add $1 trillion in debt to the U.S. after considering economic growth as presented. The Penn Wharton School of Business indicated:
the House plan would boost growth by 0.4 percent and 0.9 percent in its first 10 years. But it might not improve growth at all in the subsequent 10 years.
There are many issues in play in this rush to ram this bill through both houses such as the mortgage interest rate deductions, state and local tax deductions (SALT) and gutting affordable housing funding which I won’t go into here – but my larger concern is the high cost of nominal GDP growth (that won’t drive salaries higher, which is the real issue for housing. Lackluster growth at significant expense will probably keep mortgage rates low which will then keep credit conditions tight. This also could set us up for another housing crisis as regulators loosen the oversight on mortgage lending to goose mortgage volume higher. There is plenty of that type of behavior occurring right now behind the scenes.
Remember that banking regulators are dependent on income from large banks, much like credit rating agencies are dependent on Wall Street and appraisers were dependant on mortgage brokers during the housing bubble. Conflicts of interest become critical problems over time.
Completely redrawing tax rules isn’t always a good thing – it creates many unforeseen problems.
HSH Associates published a widely referenced study looking at the median home price of the 50 largest U.S. cities to determine what your salary would have to be to qualify.
New York City is about $100,000 but Manhattan’s median sales price was $1,170,000 in Q3-10217. This was similar to San Jose’s $1,165,000 median sales price that required a salary of $216,181.25.
[HSH.com]
What is property value? Is it today’s value influenced by the future use of the property? Absolutely. There is no better example of this than the 3,000 feet of Boston sidewalk that was originally valued at $55,000, based on unusable slivers of land. In 2016, the Boston Globe uncovered this situation when a developer submitted a proposal to acquire city land to enhance his development site. After a public outcry, the developer agreed to pay $1,950,000. Why? Because now that sidewalk was in the context of the $260 million luxury development. In other words, this land wasn’t “unusable.”
Jason Barr, a Professor at Rutgers University, Newark in the Department of Economics, calls them “Superslims.” His blog, “Building the Skyline” has a 2 part post the economics of building them.
Revenues are not “superslim.”
Dottie Herman and Elizabeth Stribling are friends of mine and have been strong leaders within the real estate brokerage industry. I have had the pleasure of knowing them for much of my career. Elizabeth Stribling is being honored by REBNY for a lifetime of leadership. Dottie Herman provided the vision to develop the largest firm on Long Island and then with her partner Howard Lorber, built the fourth largest brokerage in the U.S. Saw this quote by her on Forbes.com.
The Appraisal Waiver “Slippery Slope” Becomes A “Cliff”
TriStar Bank is the test case for the appraisal waiver concept. Read the letter to Jim Park at ASC. By the way, this is made possible by the U.S. taxpayer backstop to banks proven by bailouts during the financial crisis a decade ago. Moral hazard, baby.
I’ll translate the TriStar letter for you.
Mr. Park,
Because we have no concerns about the risk to U.S. taxpayer and feel there is no incentive for due diligence in lending, it is much more beneficial to our bottom line in a booming real estate market like Nashville – prices are rising at an alarmingly fast rate – that we don’t worry about the value of the collateral. We’ll let the U.S. taxpayer worry about that. And just because real estate prices there are exploding, it’s not fair that appraisers can charge more for their services when market forces dictate it – but we have no problem when their fees collapse when the market isn’t booming. We don’t think it is fair for appraisers to participate in our economic system and provide a valuation benchmark so lenders can make an informed lending decision, because, hey, we want our customers to be happy.
We think it is better for people with conflicting interests, like one of our senior officers to search the MLS because even though his compensation is dependent on bank performance, we feel it is ok. And a realtor, who is in the business of helping buyers and sellers and who may do work for us if there is a foreclosure, can give us the value even though most court systems won’t allow them to opine of value in place of an appraiser. And we also like the idea of an AMC doing an evaluation for $20 in 24 hours because, other than it not being a credible valuation, it’s cheap and super fast.
Remember, it’s not about understanding the value of the collateral, it’s about setting reasonable expectations based on nothing but our gut.
We have some thoughts on eliminating our underwriting department because it is so unnecessary but I don’t want to confuse the reason for the letter.
We don’t need to get a value from a neutral market expert because everyone knows its all about making our customers happy. Those are our truths.
What could go wrong? Is it not like we didn’t learn our lessons from the financial crisis.
Here’s the actual letter. It’s mind-boggling. There is a hearing in Tennessee that is making the rounds. I’ll share more thoughts on that video next week.
Appraising for AMCs Can Be Like Delivering Pizza
Here’s a 2012 blog post I wrote from the archives – it still holds up.
The result has been the crushing of appraisal quality because trained, experienced professionals are opting out of this madness because time = money. Cut the fees 50% and then waste another 30% of an appraiser’s time with this meaningless activity and you don’t end up with a more reliable valuation opinion.
Voice of Appraisal E182 Do we have an “Appraisalgate” Scandal?!?!
This is a fun listen.
Phil and Kevin welcome Ron Stickelman to the show. Are AMC’s keeping appraiser trainees from inspecting properties? Are they hiding something from the big banks?!?
Appraisers raise $12K for the 100% Appraisers Hurricane Relief Fund and the Voice of Appraisal Cancer Relief Fund
The 100% Appraiser Movement has tapped into the collective energy of independent appraisers nationwide, demonstrating that our industry voice remains strong and our concern for our peers is even stronger. Appraisers Mark Skapinetz of the 100% Real Estate Appraisers Facebook Group, Lori Noble of the West Virginia Council of Appraiser Professionals, Phil Crawford of the Voice of Appraisal Podcast and I got together to ask our colleagues for help. And appraisers responded immediately!!!!
There’s a lot more to it than that – Lori Noble tells the story.
When the collective efforts of a larger pool of professionals come together to uplift the moral of others, the results are significant and powerful. We’ve seen the graciousness of appraisers throughout the year with more involvement on the front lines of the business than ever before and state and national collaboration. One stands out that showed the gift the 100% Appraiser movement brings to the market. A series of text messages between appraisers who’ve experienced a natural disaster and a common goal to help any appraisers damaged by incumbering tropical storms Harvey and Irma get ahead of their recovery. The 100% Appraisers Hurricane Relief Fund was created in a matter of minutes; there was no red tape or big to do, just a voluntary act of honest service and kindness that we knew was needed. We didn’t know how many or who would experience loss and damages from the storms but knew there would be someone.
The responsiveness of appraisers was astounding. To see appraiser’s leverage their nationwide social media network in a united effort. Through thoughtful sharing, the crowdfunding campaign gained enough awareness to raise $12,000 over only a few short weeks. Appraisers were ahead of the curve and showed how small contributions from a large pool brought the fund raiser to a meaningful level. Meanwhile, appraiser networks coordinated and used social media to get the word out so appraisers knew funds were available for any who experienced loss from the storms. Fortunately, it seemed appraisers skirted big damage until a very sincere email from an appraiser in Houston Texas was received.
“One never knows when one may be on the receiving end of compassion.” That’s how Zolee Thomas, an appraiser transplant to Houston who relocated from New Orleans after Katrina described it in our conversations. “Life can turn upside down in the blink of an eye.” Zolee’s home is not located in a flood zone yet she was seriously flooded during the storms. When I asked how she found out about the 100% Appraiser’s Hurricane Relief Fund, she explained through one of the industry related newsletter subscriptions she receives. Ultimately, the power of social media brought the right people together at the right time. Zolee sent a great progress report and thank you to all appraisers who donated to the fund.
During this season of expressing gratitude, I recognize each contributor of the 100% Appraisers Hurricane Relief Fund. Your generous rebuild donation was used to build walls (of love and not division though)!! Not only was your donation put to good use, it was received right at the time I needed it most. It invigorates me as I realize the good in this world does outweigh the bad.
Thanks, is really not enough in this case. But from the bottom of my heart I’m appreciative….see Attached.
Since the catastrophic event and after rigorous outreach, we are happy to report our colleagues were mostly spared from serious damages from Harvey and Irma. We’re very lucky in that respect considering the amount of devastation that occurred. That said, with holidays here and funds remaining, a poll was taken to a predominant representation of relief fund contributors and a unanimous vote to transfer remaining contributions to the Voice of Appraisal Cancer Relief Fund was made. There was no debate to transfer the remaining funds to Appraisers fighting the good fight as soon as possible. This is where the magic is; appraisers engaging in strength in numbers that make a difference when it’s needed most. There’s no doubt, the little things add up and one never knows when they might be on the receiving end of this graciousness.
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. They’ll paint new lines, you’ll discover gravity and I’ll buy a sidewalk.
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
I was crossing Madison Avenue in Manhattan the other day and one of the lanes was closed. I didn’t have the good sense to snap a picture of a utility company using a vacuum to suck out the loose dirt in a hole that was beginning to reveal a labyrinth of pipes and conduit. It made me think of Elon Musk’s Hyperloop One concept but not for the wonderment of underground transportation. As a self-proclaimed “dull and boring numbers guy” I regretted not coming up with his company name “The Boring Company” before he did – and why didn’t I think of that name back in 1986 instead of “Miller Samuel” for our appraisal company?
Hyperloop, explained. pic.twitter.com/ZHY3iBjhjL
— Hyperloop One (@HyperloopOne) August 2, 2017
I had a long sit down and good conversation with an Australian news reporter. A few segments or our interview ended up in the story about a condo project known as 220 Central Park South, and the penthouse unit. Their chyron tagged me as a real estate agent (I’m not) although I’d love to enjoy the commission paid on the US$250± million sales price. #appraiser
Australian developer LendLease is doing business in the Big Apple, and the top secret project includes a luxury apartment. @campricenews pic.twitter.com/695W56w6HQ
— 7 News Melbourne (@7NewsMelbourne) September 3, 2017
Real estate market participants are aware of the affordable housing in the U.S. and worldwide. Developing affordable housing, especially in urban areas, has always been a challenge. But in the past five years, affordability has become a full grown crisis. Richard Florida has been the leading speaker of the new urbanism movement and he now has some revisions to his original thoughts. In my view – and I’ve said it before here on Housing Notes – that housing supply creation is not elastic like corresponding demand. And housing regulations are one of the key drivers of high urban market housing costs. My other view relates to credit conditions have not normalized since Lehman and that low-interest rates inflate asset prices.
Here’s a good PBS interview with Richard Florida on the disconnect with the creative class movement and the high cost of housing. It is well worth listening (no multitasking while doing so!) to understand the nuances. Plus he talks with his hands like I do.
While we all seem to love info graphics and worry about the reliability of Zillow data, I chuckled when I saw the 1,113 average square footage for New York State presented by Howmuch.net. In Manhattan, $200k will get you about 100 square feet of living area, 1 tenth of the statewide average.
Curbed New York does a masterful (and mapful) job presenting the NYC new condo projects hitting the market over the next few months.
When an appraiser walks up to a house like this, the first thing we think of is “Why me?” Well, there is always a story behind a property like this and its part of why working in the real estate industry can be so interesting. In Manhattan, the asking price would not get you a 29,500 square foot home. You’d get the equivalent of a 900 square foot one bedroom.
Support Texas/Florida Appraisers In Need #Harvey #Irma
We’ve raised $11,400 as of this morning but need to reach our goal of $20K. Please help!
So it’s come to our attention that some appraisers are in need of help that were impacted by the flooding of Hurricane Harvey in Texas. We are an amazing group of people in this profession and group and we all know the hardships we face on a daily basis on any ordinary day. Well, now some of our very own have even more of a hardship than we could ever imagine. Please take the time to donate anything you can so that we can help them out. Let’s show our support and flex our muscles yet again. Thank you all.
This is co sponsored by Mark Skapinetz, Joe Mier, Lori Noble, Jonathan Miller and Phil Crawford.
Appraisal Industry Letters to Party Leaders of House Committee on Financial Services and Senate Committee on Banking, Housing and Urban Affairs on “No Appraisal” Waivers
The Appraisal Institute led the charge for the industry to write letters to the House and Senate that were critical of the GSEs new “no appraisal” waiver programs. I just sent Bill Garber at AI National a note suggesting they delete a duplicate entry of the “Mississippi Coalition of Appraisers” but other than that minor clerical issue, it is a great letter.
See both letters attached.
Fannie-Freddie-Appraisal-Waiver -House
Fannie-Freddie-Appraisal-Waiver -Senate
9 Unintended consequences from no appraisal mortgages by Tom Horn, SRA
Editor’s note: I can’t seem to reconcile the incredible urgency toward super fast and cheap appraisals and now no appraisals by the GSEs, lending and appraisal management company industry with creating a long term disaster. I probably sound like grandpa whittling on his front porch reminiscing about a simpler time when he could “put a penny in a burnt out fuse” (borrowed from John Prine). Are consumers truly begging to save some money by not knowing if a seasoned market expert thinks the home they just bought is wildly over priced? While I’m sure there is plenty of concern about keeping costs low, is it at the level being shouted by industry stakeholders? How about if there was no Federal backstop this time around? I’d be willing to bet that the moral hazard of this path and where it eventually ends up would evaporate if there was no potential for future bailouts? What about a clear criminal culpability as the slippery slope gains speed with future steps by over confident GSEs with low credit score portfolios?
Tom gave me permission to share his August 31, 2017, blog post 9 Unintended consequences from no appraisal mortgages in its entirety that sits on his must read Birmingham Appraisal Blog. Make sure you go to Tom’s blog and sign up for his weekly email and be sure to read through the comments on this post over at his site.
Are no appraisal mortgages a wolf in sheep’s clothing?
I’ve seen a lot of celebration recently from various players in the home purchase and mortgage game regarding the decision by Freddie Mac to skip getting a traditional appraisal. While it may sound good up front because they promise to reduce the cost to the buyer and reduce turn times, will this really occur? Are no appraisal mortgages too good to be true?
There most likely will be some unintended consequences from the transactions where a traditional appraisal is not used. Today I thought I’d share my thoughts, however, I’d like to hear from you as well. What do you think about eliminating the traditional appraisal from a mortgage transaction? They say this option will not be used all the time but only for qualifying purchases. Will it eventually include all purchases? Tell me what you think in the comments section below.
Possible consequences from no appraisal mortgages
1. Independence is lost- The appraiser is the ONLY unbiased party to a home purchase transaction. Everyone else from the agent to the loan officer has a financial stake at risk if the loan does not close.
When you remove the appraiser from the picture you risk removing the voice of reason. Appraisers are trained to measure the market value of collateral to protect the interests of the lender.
The steps involved in the appraisal process include weighing and comparing sales to the subject property in order to properly reconcile value. When an automated valuation model is used it is possible to be overly optimistic when interpreting the data and the independent nature of the appraisal is lost.
2. Inaccuracies in the size of the house will grow- When a traditional appraisal is performed the appraiser measures the home according to a generally accepted standard (ANSI). Using a set standard on every property helps the appraiser to compare apples to apples when it comes to the gross living area of a house.
Comparables are selected based on bracketing the gross living area of the home. If you use an inaccurate square footage figure from county records or from the owner and then bracket this amount it will prevent you from getting an accurate value indication from the sales.
Automated Valuation Models (AVM’s) look at the price per square foot of sales and then apply it to the subject. Whenever you have inaccurate square footage of the comps you arrive at a flawed price per square foot to apply to the subject. This inaccuracy is multiplied when you apply the wrong price per square foot to the subjects perceived living area.
3. Comparable selection- Choosing comparables is more than picking the 3 most recent sales that occurred within a one-mile radius. It takes human reasoning to pick comps that are the most similar to the subject property.
They say that choosing the right comps is 90% of the task in an appraisal assignment. If you choose the right comps the adjustments will be minimized and the value indication for the subject will be more accurate.
Appraisers have had a taste of the quality of comps that an AVM would provide with the Fannie Mae Collateral Underwriter (CU). The Collateral Underwriter is supposed to provide an automated risk assessment of an appraisal report. Part of this is looking at the comps the appraiser used and then possibly suggesting other comps that were not used.
The comparables that CU suggest are a joke at best. I have had lenders provide me with comps that the CU came up with that are not even in the same city as the subject. They include foreclosure sales when they are not even appropriate. We all know that school systems are a driving force in value, right? Many of the comps provided are from different school systems and would not provide an apples to apples comparison of properties.
4. Checks and balances for AVM’s will be lost– It is possible to compare a real appraisal with a Zestimate or other AVM to see how they vary but if the AVM is the only thing used then you don’t know how accurate it is.
Automated Valuation Models have been used for a long time, and in certain circumstances can be useful. They can be used to initially estimate a property value to make a preliminary loan decision, however using it exclusively is not prudent in my opinion.
Numerous appraisers have analyzed Zestimates and other AVM estimates by comparing them to appraisals they have done to see how closely they match up. The AVM’s are not consistent in their accuracy and can vary by a wide range. For lenders interested in having the most accurate value for their loan portfolios this is definitely not the way to go.
5. Consumers may not see the cost savings since the AMC or lender will keep charging a full appraisal fee- Will the consumer really see cost savings? Or will it be like it is now in areas where there are supposed shortages?
Why didn’t my house appraise for what I thought it would?I have heard instances where the borrower was told that there was a shortage of appraisers and the lender had to charge upwards of $1,500 to get the appraisal done. The borrower was charged this amount but the appraiser was only paid $300-$400, if that much, and the Appraisal Management Company (AMC) pocketed the rest of the money. Sacramento appraiser Ryan Lundquist wrote of a similar situation about appraisal fees that you should check out.
Why would a lender or AMC pass on the savings to the consumer and give up money that the borrower is used to paying anyway? In my opinion, this is just a way to increase profits. There may be a savings in time, but at what cost to the consumer?
6. Owners will not know the true value of their assets- Sale price does not always equal market value. Some people think that if someone is willing to pay a certain price and someone is willing to sell for a certain price then that is market value, but that is not always the case.
With all of the inaccuracies that AVM’s provide how will the homeowner know the true market value of their largest asset? It reminds me of several situations I have seen in the past when buyers were paying cash and did not get an appraisal to make sure that the price they were paying was too much.
Life situations necessitated the owners sell shortly after they purchased the home, but they could not resell the home for what they bought it for because it was overpriced. If no appraisal mortgages result in a similar situation it can lead to short sales, which is discussed in #7.
7. Short sales could increase- If a home sells for more than its true market value, and the AVM does not provide how to appraise in an appreciating marketan accurate value indication, the buyer could immediately be underwater in their mortgage. This could result in a short sale situation because the lender will need to accept less than the amount owed on the property.
We all know how short sales affected overall property values during the recession, right? If you have enough short sales, overall price trends could take a dip downward.
8. No brakes put on bidding war situation- The word on the street is that inventory levels are down across most of the country. This has resulted in a seller’s market with buyers becoming frantic that they will not get the house they want.
One tactic that real estate agents have used for their buyer clients is to create a bidding war situation where they offer a price over the list price in order to have the winning contract. If the contract is accepted by the seller and the transaction qualifies for a nontraditional appraisal mortgage this could create a problem that was outlined in #6 and #7 above.
In situations like this where a traditional appraisal is performed the high contract price would probably be questioned based on recent sales and active listings. The boots on the ground appraiser would be able to let the lender know that their collateral is worth less than what they are lending on it, which would help them make a better-informed loan decision.
9. Lawsuits against agents could increase- Many of the above-noted situations could result in consumers becoming frustrated when they find out that they bought a house for more than it was worth. This could increase liability to real estate agents since buyers may choose to sue agents.
Since an appraisal was not done, the true market value of the home was not determined. As I noted previously, some believe that if a buyer is willing to pay a certain price and a seller is willing to sell at a certain price then that should constitute market value, but in reality, it may not. A traditional appraisal determines the most likely price after looking at numerous transactions, including closed sales and active listings. It goes beyond the agreed upon price, although it also is taken into consideration.
As you can see, there may be some unintended consequences from Fannie Mae’s decision to provide no appraisal mortgages. Appraisers provided valuable input into the last housing recession before it began to happen, although many did not listen. Will eliminating appraisers from future mortgage transactions be worth the risk to the housing market? Only time will tell.
June 6, 2017, Appraisal Foundation Letter to FHFA over Waiver of Appraisals Issue
Now that the false narrative of “appraiser shortage” by AMCs, Lenders and Large Appraisal Firms has been countered by the appraisal industry (absent AI National), the discussion of new policies from the GSEs concerning appraisal waivers seems especially irresponsible. In addition to the false shortage narrative, it was a reaction that was enabled by the refinance boom that is now over. It also shows how little the GSEs understand about the appraisal industry and the damage done by AMCs. FHFA has been spoon-fed an out of context storyline by parties with a financial gain. I also assume they are feeling particularly confident with a very high portfolio credit score created by mortgage underwriting disconnect from current risk reality.
Here is the letter sent by TAF to the GSE regulator FHFA that clearly outlines the FHFA disconnect concerning “No Appraisal” waivers.
I like to paraphrase Mark Twain, “history doesn’t repeat itself but sometimes it rhymes.”
APPRAISER FORUM & FESTIVAL – Real Estate Appraisers Are Holding A Convention for Real Estate Appraisers
In the rush to hold conferences for the real estate appraisal industry, the big stakeholders forgot about the real estate appraisers themselves. Next year there will be a new event and we hope you can make it. Details coming. I can’t wait.
RAC Conference Frisco TX: Changes, Challenges, Solutions
As I’ve said many times, the annual RAC conference is the best appraiser-centric conference I’ve ever attended. It is developed and operated by active appraisers who are working to help you thrive as a professional.
As the current president of RAC, I’m proud to be part of an organization comprised of the best residential appraisers in the U.S.
Click here for more information.
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. They ‘ll become boring, you’ll discover a Hyperloop under your garden and I’ll keep digging.
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
You think that there is a lot of news and controversy coming out of Washington, D.C. these days? Well, the appraisal industry is seeing just about as much (Russia, aside) so be sure to read through the supercharged edition of the Appraiserville section below.
It is also important to note that on June 1st, we will celebrate the 50th anniversary of the Beatles’ Sgt. Pepper’s Lonely Hearts Club Band, the number one rock album of all time.
One could argue that this seminal album does not contain many deep tracks.
However, when you find deep tracks in the housing market, they provide a complete context to the market (or band) you thought you understood.
So let’s play that album. Ready?…1..2..3…4…Go!
In this NY Fed Business Leaders Survey, you can see how pronounced the pause in activity was late last summer into the fall before the U.S. election.
There was a listing with this description on Zillow.
The single-family home with a cottage has been listed on Zillow since April and is priced at $130,000. This listing says in full:
Please read carefully before scheduling showings. May not qualify for financing. Great “diamond in the rough” investment property or primary home needing separate apartments. Little is known about condition except that property has active roof leaks.
Property is being sold “as-is” with no repairs, no clean-up, and no warranties expressed or implied. Upstairs apartment cannot be shown under any circumstances.
Buyer assumes responsibility for the month-to-month tenancy in the upstairs apartment. Occupant has never paid, and no security deposit is being held, but there is a lease in place. (Yes, it does not make sense, please don’t bother asking.)
Downstairs has 1,742 sq.ft, central HVAC, 2 large bedrooms, and ceramic tile bath w/separate tub and shower areas, living room w/fireplace, dining room, kitchen, utility/breakfast room and studio/study w/antique pine paneling and tile floors. Living room, dining room, and bedrooms have wood floors.
Berber carpet in central hall. In 2000, some electrical and plumbing were upgraded. Upstairs unit has 914 sq.ft. w/gas heater, large great room, built-in storage areas, small study/library w/bookshelves, bedroom, kitchenette (all in original pine paneling) and bath. Some electrical upgraded ’07.
Backyard cottage has gas heat, 563 sq.ft. of area including 2 rooms, bath and great room with kitchenette. All units have been used as rentals at some point. In the past, downstairs has leased for $1000, upstairs (occupied) $450, and cottage for $350.
One of the reasons our housing market still remains distorted is because mortgage lending standards have not normalized. The credit scores for portfolio mortgage loans is incredibly higher than during the housing bubble era. In fact, 61% of all mortgages have an average credit score of 760 which is basically quadruple-mint territory. This is why I contend that credit conditions for mortgages – unlike auto loans, credit cards and student loans, remaining irrationally tight.
Goldman Sachs predicted that Canada’s housing market had a 30% chance of collapse within two years. Those odds seems fairly reasonable if not low considering their market kept on going after the U.S. collapsed.
Nobel Laureate and economist Robert Shiller connects the dots between housing data at the time and the price bubble through social narratives at the time – ie getting rich through flipping.
There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future.
As the search for affordability increases, there has been an outward push in demand extending to the outer boroughs and suburbs. When Queens began to boom a few years ago I described it as “Queens is the new Brooklyn.” Now “The Bronx is the new Queens.” As this recent TRD article says, Investors are placing huge bets on the borough – but the numbers may not pencil out. Sales since 2010 show prices far outpace building fundamentals: TRD analysis
An interesting conversation with Justin Davidson, architecture critic for New York magazine on an article he wrote in 2015. This dovetailed nicely with a great Citylab piece I mentioned last week but still am reveling in the content: Why Do Autocracies Build Taller Skyscrapers? which had an even better short answer: Because they can!
Some Gramercy Park area residents in Manhattan have access to a beautiful 2 acre private park. Many years ago, New York City hired consultants to value direct access to the Highline for real estate purposes. They approached me to discuss the Gramercy Park premium although I’m not sure how they used that or even if they even used my feedback for their analysis of the Highline.
This weekend’s New York Times real estate section has a great piece on people that have the way, but not the will to buy their homes. Remember that roughly two thirds of residents in many urban markets are renters despite the fact that two third of U.S. residents are homeowners. NYC is no exception it is a two-thirds renters market. Manhattan is 75% rental.
And here’s an interesting NYT Magazine read on How Homeownership Became the Engine of American Inequality
Here’s a chart i created on the homeownership rate nationwide. The rate appears to be rising – or at least not falling unabated. Notice the Fannie Mae projection made during the bubble?
Sprinklers accidentally turned on and damaged three escalators at the 86th Street station on the new Second Avenue subway line. We New Yorkers love to complain.
I’ve always seen pools as one of those amenities that are nice to think about but few actually use them. If the building is big, then a pool will likely have a nominal influence on your HOA fees. I remember appraising a loft-like townhouse in downtown Manhattan where a roof top pool was positioned directly above the master bedroom on the floor below. I couldn’t imagine getting comfortable with the thought of thousands of pounds of water suspended over me.
No, not one of these.
High-end appraisal lock by AMCs is collapsing
In my own practice, we are seeing some rumblings on the AMC front that is encouraging for our industry. Because these actions were fueled by upper management of banks, they could even be seen as a “tipping point” for the AMC stranglehold on the appraisal industry.
3 major Wall Street investment banks that handle a lot of residential mortgage volume have called me to warn my firm to expect significant work volume from them soon. They are either not renewing their AMC agreements or requiring their AMCs to create high-end appraisal groups that cater to high-end mortgage loans. The blowback from their own client base has been significant and they needed to take action. Apparently, all those AMC analytics run on crappy appraisals don’t take the place of competent appraisers with local market knowledge.
1 major wealth management banking group that is locked into AMC agreements from their larger retail group has formed a high-end review group so that the same people that review the slog presented by AMCs aren’t the same people who review high-end appraisers in specialized markets. So far they have been very refreshing to work with. We no longer get stupid requests that wear us out; i.e. “What does a doorman do in a condo building?” and “Do you really think this co-op is worth this amount?” We were close to the point of firing this long time client for demeaning addenda requests.
From the Desk of Dave Towne: Your Appraisal Signature
For excellent periodic insights, send appraiser Dave Towne a request to be added to his email distribution list: dtowne@fidalgo.net and tell ’em Jonathan Miller sent you.
Appraisers…..
Yesterday (5/17/17), a CA based ‘low echelon’ AMC sent an email to APPRAISERS requesting REAL ESTATE AGENTS upload their signature to the AMC website, for use in BPO’s.
Many appraisers began circulating messages about and questioning this request, and the blogosphere and forums are now filled with various comments. That’s excellent, because appraisers were paying attention.
This morning, a manager with this ‘low echelon’ AMC issued a retraction and apology, saying that the message was not meant for appraisers.
The problem with this situation is a number of appraisers are “dual licensed,” meaning they have BOTH a real estate sales person’s license in their state, plus an appraiser’s license. Some of these licensed appraiser people may in fact do real estate BPO’s for extra income.
The other major issue with this is apparently this ‘low echelon’ AMC thinks it’s perfectly acceptable for any REAL ESTATE AGENT to willingly fork over their signature, separately, irrespective of any actual BPO performed on behalf of this ‘low echelon’ AMC.
Appraisers are reminded that USPAP’s Ethics Rule, Management section (Pg 9, lines 276-282) clearly states that the APPRAISER is responsible for exercising due care to protect the unauthorized use of the APPRAISER’s signature.
One problem with unencrypted digital signatures – which are nothing more than an ‘image’ – is the signature can be removed from a PDF or the actual signed report if it is sent in native software. This is one key reason why I have major concerns about using the AppraisalPort delivery process. AP can, and often does, remove and re-use the appraiser’s signature when converting reports to the AP .env format when making the ‘new report document’ sent to lenders.
By the way, the .xml data sent with UAD reports does not have the signature [embedded]. But the signature is on the PDF report that accompanies the.xml.
Zillow’s Zestimate Under Siege
Phil Crawford Spews Out Verbiage That Makes Us Smarter
As a fan of Phil Crawford’s Voice of Appraisal, I signed up for his $4.99 monthly subscription because it’s not just his weekly must-listen show. He also shares some suggested verbiage for appraisers to address various issues they run into. This verbiage came out today:
The appraiser understands that the subject property may have a publically reported estimate of market value known as a “Zestimate”. The real estate technology firm known as Zillow uses an algorithmic propriety formula to compute this value. It is important to note that Zillow makes the following statement on their website about this product: The Zestimate® home valuation is Zillow’s estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home’s value. The Zestimate is calculated from public and user-submitted data, taking into account special features, location, and market conditions. We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as:
• Getting a comparative market analysis (CMA) from a real estate agent
• Getting an appraisal from a professional appraiser
• Visiting the house (whenever possible)
The appraiser performed a detailed market and valuation analysis within the appraisal assignment. The opinion of market value is based on applicable and peer reviewed and accepted market data and not on a “proprietary formula” that has not been reviewed or verified by the appraiser.
Tom Horn Gives us Zestimate Artwork to Cherish
I’ve included a number of links below to the Zestimate Lawsuit – actually including two for Kenneth Harney’s syndicated column. But this was really an excuse to post Tom Horn’s real estate graphic with a useful description of a Zestimate:
The Outside World Continues to Fail to Understand Our Role in the Homebuying Process
From the Denver Post: Metro Denver’s average home sale price hits record $487,974 in April, even as number of closings cools
“Agents are experiencing a higher degree of cancellations and of contracts falling through,” he said. Part of that could reflect offers from buyers that are going above what appraisers are willing to support.
Willing to support?
Updates from the Real Estate Industrial Complex
Here are some posts over at my forum known as the Real Estate Industrial Complex where I have been chronicling the unfortunate anti-membership activities of AI National.
Woody Fincham, SRA, AI-RRS penned a summary piece on this effort in Joan Trice’s Appraisal Buzz site yesterday. His public reputation is one of absolute loyalty to the policies and practices of AI National, so it invites analysis to make sure a balanced message is conveyed.
I’ve written about this residential committee before, here on REIC. Here are my thoughts after reading this post. I’ve broken it down into two viewpoints; cynical and optimistic.
— Cynical Viewpoint
— The title of Woody’s blog post Appraisal Institute Addresses Residential Appraisers’ Issues is weakly worded. Full disclosure – Woody and I have a history. He has been critical of me in social media and behind the scenes with people I know. But still, I respect anyone who enters the arena of discourse at a seminal moment in our industry’s history. I just wish he would rely on facts and not simply go with the default storyline of AI National. Critical thinking as a lucrative appraisal skill can apply to everyday life including the actions of a trade group or professional association. His post title choice infers that AI National is in the middle of resolving residential membership issues. They are not – to my understanding from Woody’s recent email to me. Granted the committee has already been getting together to create recommendations for AI National to consider. This is great news. However, I don’t believe AI National has “addressed” anything yet and hopefully, when they do, they will tell their members. Better title: ‘Appraisal Institute Will Review Input From New Residential Appraisers Committee.’
— Quoting from his blog post: “Appraisal Institute research shows that the number of licensed U.S. appraisers has declined nearly 23 percent since 2007, a drop of approximately 3 percent each year.” Unfortunately, the membership decline of the Appraisal Institute has fallen by 35% over the same period – relying on AI National statements and documents on their website (facts). The decline in membership can be seen in charts from an earlier post on REIC. In other words, the rate of decline of membership of AI National has been more than 50% faster than the appraisal industry itself since 2007. Because AI National membership decline is faster than market forces facing the industry, it is reasonable to suggest that the excess decline is due to the mismanagement including the lack of attention AI National has provided to their residential members.
— Specifically, Woody gets passive-aggressive by lecturing bloggers like me with the “noise in the blogosphere” comment. The “blogosphere” on this issue is essentially me and a handful of others because we are the only people blogging about this issue. He pulled out an old family chestnut saying we (the blogosphere) are a bunch of whiners because we aren’t doing something about the damage done to the SRA designation (also see Brad Bassi’s eloquent response in the original post). It looks like he forgot to consider that if it weren’t for my “whining” back in December with my “taking” post and Jim Amorin’s subsequent trip to Dallas to pause the “taking” action due to the massive organizational backlash, then Woody wouldn’t be on this residential committee because it wouldn’t exist, because Jim Amorin wouldn’t have been pressured to suggest it, and therefore Woody wouldn’t have felt the need to lecture us on not taking action.
— Let’s remember that the Appraisal Institute’s lobbying thrust (advocacy) in 2016 was towards alternative valuation standards and was to the tune of at least $100,000 based on public disclosure filings. As far as we can tell – and their silly press releases aside – the key lobbying efforts were centered on the fight for an appraiser’s right to switch off and on their license to take $25 evaluation assignments. Jim Amorin, Bill Garber and Scott DiBiasio of AI National feel strongly that all their residential members want the option to do evaluation work and don’t believe it damages the value of the SRA and the standing of appraisers in the industry. Jim Amorin has formed this committee to provide solutions to stop their neglect of residential membership. Logic follows that because they don’t understand the needs of their residential members as evidenced by the formation of this committee, they don’t realize how Scott DiBiasio’s stealth lobbying effort on a statewide level severely damages the public trust and is a betrayal of AI National residential membership. I hope the committee addresses this specific issue and refutes what Bill Garber inaccurately represented to Congress last fall and what Scott DiBiasio asserted in various state legislatures.
— The same people – literally the same leadership for at least a decade – that have ignored the SRA brand are the same people that are going to implement the committee’s recommendations: all, some or none.
— As the article correctly states, this committee process will be a long slow effort. Unfortunately, the Appraisal Institute is in a state of crisis and doesn’t have the luxury of time. In all due respect, how can this process not take more than a couple of months if it was of such importance to AI National? AI National is losing membership at an alarming rate. I have been told they spent heavily on their international recruiting and apparently it continues since Scott Robinson just spoke in Serbia. They are also spending on lobbying for alternative standards at a statewide level and in DC. It feels like they see the end is near, and these are their last ditch efforts but aren’t sharing their strategy with anyone. When the “taking” policy is enacted on January 1, 2018, as stated, and AI National – in theory – will have nearly all chapters’ money, how much will AI National care about the residential committee’s recommendations? My guess is they won’t need to care because the implementation of this committee appears to be done to appease residential membership during a significant membership backlash. “Throw the residential membership a bone to keep them occupied,” so to speak.
— Optimistic Viewpoint
— I agree with Woody’s assertion that the SRA designation holds value to some clients. However one can’t hide behind that assertion and apply it to the whole membership, or otherwise, there wouldn’t be a reason to have this committee. A lot of time and money has been spent by the residential membership to earn their SRA designations. The function of AI National is to create a branding value-add to hold such a designation. Let’s apply “paired sales analysis” to extract the value of the SRA designation. If you took the value of the SRA designation in 2007 and compared it to the value in 2017 – What is the contributory value between the periods? Are they different? Yes, of course, they are quite different. Why are they different? Because AI National has largely ignored this designation for years relying on decades-early momentum. Running the same old ads isn’t supporting the brand. I believe it can be revived to a limited degree if AI National gets behind it instead of funding speeches in Serbia and Romania. However, deep down I suspect it is too late – AI National missed their moment.
The time for lecturing those who criticize AI National is over because to do so is self-serving. Criticism is the engine that promotes improvement. Whining about critics like me not having the facts is disingenuous. Focus on the actual problem and help the membership…now.
I truly wish the committee well and hope they are able to make effective recommendations to AI National to implement immediately for their residential members. The residential designations for AI members that possess them were hard-earned. I’m with you and hope the committee does a thorough job keeping the membership informed and specifically recommends to AI National how important timely communication is to their residential membership.
The time is now for the committee and roll up their sleeves and get something constructive accomplished for the hard-working residential appraisers in the Appraisal Institute sooner than later. There isn’t a lot of time left. These efforts are greatly appreciated. Fingers crossed.
The “Zestimate” AVM results are being tested by the courts as a homeowner (who happens to be a lawyer) sued them over the results. While I don’t know if the accuracy is an issue in this case, conceptually it always has been an issue. I’ve railed about this tool for a decade, specifically because the presentation infers a precision that doesn’t exist. I have been in several articles on the topic over the years relating to my own home’s value including the WSJ. When our market was stable, my home value plummeted 25% almost overnight. When I modified my square footage and number of bedrooms to reflect actual conditions (my house is a 200-year-old historic home) the value of my home increased 5 fold. I met former Zillow president Lloyd Frink and their chief economist at the time. Stan Humphries in my office to discuss it. Both very nice people who have a strong belief in this tool despite the real estate industry’s concerns, namely from appraisers and agents. Zillow’s response to me on this issue was along the lines of “the consumer is smart enough to know when the results are off.”
Now that the AVM has been in use for more than a decade, it is ubiquitous. And the fact that it still continues to be presented as rounded to the nearest dollar, infers precision.
The following feedback was just shared with me by an attendee.
The Regional 8 meeting was on Saturday. That is generally composed of Central Texas, El Paso, North Texas, South Texas, Houston and Austin. In short nothing has changed with respect to AI. Beta testing will begin in the next few months with some chapters for the new policy and most larger chapters are not. One stat that Stephen Wagner provided is that “only” 20 % of the chapters do not like the policy. Well that means nothing – the chapters who do not want the policy “as is” are the large chapters with the highest number of members. So if some chapters need the AI Mothering FINE. But those of us who do not what AI to provide this mothering want an opt in opt out provision. In short after many of us telling them “they owe the membership more than they giving, provide this extra provision and that their arrogance is going to be the final straw that puts us down – they refuse to acknowledge these issues!! I am totally ashamed of our leadership and embarrassed at what this is doing to our reputation nationwide.
As a reminder, Stephen Wagner is part of the inner circle of leadership that is driving this train wreck. He is also the co-chair of the Residential Appraiser Project Team (I addressed this previously in REIC on May 16, 2017). The silliness of the 20% figure either disqualifies him as co-chair as a defender of the leadership status quo, or it makes the committee’s efforts moot. Or both. How about presenting a list of the chapters that are either for or against the “taking policy” in the interest of transparency, since there is so little trust between membership and AI National?
Good grief.
I remember when Saddam Hussein won re-election with 100% of the vote.
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. They’ll listen to your Beatles collection, you’ll get some HELP! and I’ll finish listening to all my Beatles music after I play my new Richard Hell & the Voidoids ‘Blank Generation’ album.
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
I just moderated a panel discussion in Boca Raton at a real estate event and it was disorienting. It was 80 degrees and there were palm trees, bright aqua colored water with whitecaps, strong winds blowing inland across the beautiful sand and everyone seemed to be lounging by the pool eating fresh seafood. Admittedly I wasn’t that comfortable being so relaxed in this nirvana so I’m glad I’m back in Connecticut where the temperature is 30 degrees colder, the leaves are turning colors and not a coconut in sight. Apparently I thrive on cold and stress.
To re-orient myself, I wrote quite a bit in the “Appraiserville” section on the appraisal industry. Even if you are not an appraiser, the appraisal process impacts anyone in the real estate business. But before you work your way down this Housing Note, check out this cool info graphic on commuting.
With declining affordability in urban markets, the suburbs are booming.
Back in the mid 1990s after my wife and I moved to Fairfield County, Connecticut from Manhattan, I noticed the decline in housing prices further from the first express stop on the commuter train in Stamford, CT.
I worked on an updated version of the concept for last weekend’s New York Times Real Estate section: What’s Your Commute Time Worth? They did an amazing job on the graphic. I’m working on another idea for them to be shared here in a couple of weeks.
There was a great WSJ article on the migration patterns out of metro areas: More Americans Leave Expensive Metro Areas for Affordable Ones The article spoke to me because we are seeing this EXACT pattern in a big way in NYC metro and in other large high cost urban markets. Megacommuting is expanding into a huge deal in Silicon Valley/LA.
Those mostly likely to move from expensive to inexpensive metro areas were at the lower end of the income scale, under the age of 40 and without a bachelor’s degree, the analysis by home-tracker Trulia found.
That’s why we are seeing heavy sales volume in the suburbs while the high end remains weak. This WSJ graphic says it all.
A parking space in Hong Kong sold for 550,000 euros (US$610,000) and that’s not uncommon in New York. Despite the high cost, it is fairly rationale when you consider the unit was a modestly priced $HK 56 million ($US7.2M) if you look at these amenities in the context of the properties they are associated with. Hong Kong has the least affordable housing in the world.
In Manhattan, there are parking space sales for $400,000 or more but they are associated with super luxury new developments. I found the average price for a garage space was $191,025 in 2016 year to date. The spaces that have been marketed for $1 million in recent years have never sold.
Parking Irony Alert: I think we are going to be seeing more of these headlines: Oakland council approves sweeping reductions to parking for new developments because walkable cities thrive when parking is reduced. However, it makes them less affordable and consumers are being priced out to the suburbs.
Speaking of affordable, the New York Post presented our info in technicolor, sort of.
[click to read article]
This should probably be a regular column of mine since I obsess with this sinking luxury condominium projects in San Francisco known as The Millennium Tower. From the perspective of an appraiser, a valuation of a condo unit there would be chock full of hypothetical assumptions that would take up more space than the appraisal itself.
San Francisco Sues Developers Over Sinking Tower [AP/Bloomberg]
Source: Curbed SF
There was a terrific article about the vulnerability of the former GSEs in the Washington Post: Is it time to start worrying about Fannie Mae and Freddie Mac again? The initial title was “Is it time to start panicking about Fannie Mae and Freddie Mac again?”
Fannie Mae showed a profit of $3.2 billion in the third quarter so what’s the problem?
In 2008, more than 90 percent of the companies’ revenue came from risky investments involving borrowed money. Today, their revenue come primarily from guarantee fees, which are reliable and stable.
The U.S. Treasury has enjoyed taking all the profits of the former GSEs for themselves and that works while interest rates are low.
Here’s the problem:
When mortgage rates rise, which they inevitably will, the decline in the value of Fannie’s and Freddie’s mortgage holdings could well exceed their operating earnings for a given quarter, creating an overall loss. Under the companies’ agreement with the Treasury, they are required to borrow money to cover the loss. That will likely trigger headlines along the lines of, “They’re Back! Fannie and Freddie Get Another Bailout.” And that will attract the attention of the markets, which will begin to focus on the companies’ lack of capital, realize that the Treasury’s support is not open-ended and possibly start a panic.
Mortgages are a fundamental underpinning of the U.S. housing market so the sooner this misunderstood issue is resolved the better.
Appraisers Are Not Good At Being Criminals, Just Like to Appraise
In the aftermath of the financial crisis, there have been many mortgage fraud schemes revealed, using appraisers as the enablers. What has been consistent in the process has been the motivation of the appraisers – to get a few more appraisals at the typical fee. The ringleader in these schemes makes off with tens of millions of dollars while the appraiser that enabled the deal got 20 more assignments at $300 a pop. Here’s the story of a trainee who flunked the appraisal licensing test (how is that possible?). Instead of studying, he decided it would be better to steal his mentor’s license and undertake a complex fraud. Jail is next.
Maybe it is something that drives us. Appraisers actually love to appraise. Anne O’Rourke’s Appraisal Today presents a great chart from Appraisal Port.
Speaking of AppraisalPort…
As I returned from Washington DC on Amtrak, after attending the Appraisal Standards Board Public Meeting, Bill Rayburn, founder of FNC who just got a huge payday from their sale to CoreLogic, literally sat next to me. What are the odds? Crazy. Bill has a polarizing figure in the appraisal industry, but it was certainly interesting to connect with him again and hear what he is working on next. His firm FNC had reached out to me a decade ago to try and leverage our Manhattan co-op data into some sort of analytics but ultimately I wasn’t interested. I even interviewed Bill and the COO, Bob Dorsey in separate podcasts in 2009 and 2010 respectively.
MMJ Appraisals Wins Battle, But War is Still Pending
The formerly biggest appraisal firm in the New York City region and our main competitor was known as Mitchell, Maxwell and Jackson (MMJ). The two partners, Jeff Jackson and Steve Knobel, started out in the early 1990s with a couple of assistants and made a name for themselves. During the housing bubble they exploded in growth, at one point touting an appraisal staff as high as 100. They were the beneficiary of the mortgage broker lending system that accounted for nearly two thirds of residential mortgage lending. MMJ essentially cornered the market on mortgage broker appraisals. By dominating the market, they actually did my firm a big favor by crushing all the suburban appraisal firms that would have one token appraiser cover Manhattan. Since my firm avoided mortgage brokers as much as possible during the housing bubble, MMJ’s largess essentially removed a lot of potential competition by being so dominant. Since banks never had fewer than two firms on their appraisal panels, we were unaffected.
While our firm employed salaried appraisers performing 6-8 assignments a week, the MMJ appraisers were fee based, often working 7 days and I was told could complete as many as 45 assignments in a week. It was the housing boom after all. Aggressive in sales and growth, the sky was the limit until Lehman Brothers collapsed, marking the beginning of the credit crisis. Jeff had already been phasing out of the firm to sell property in Greenwich, CT. Steven kept the business going as volume fell sharply in the post-housing bubble appraisal world that destroyed most high volume mortgage brokers.
By 2012 MMJ began a new saga, battling the NY State Department of Licensing Services. Their licenses were revoked after a year’s worth of hearings over the use of a former fee appraiser’s digital signature. Then the revocation was undone and restated a few more times as MMJ battled through litigation up the department’s pecking order. After reading the initial 2012 decision it appeared that their legal representation was so over the top with state officials that it became personal. It was my read that this is what got the state got in trouble, eventually losing a recent decision and being forced to reimburse MMJ for $115,000 in legal fees. There is a pending lawsuit against the state from Steven at this point in the amount of $10 million.
Here are the legal documents I’ve seen during this saga. This isn’t a statement or testament about the quality of MMJ appraisals or their business practices. The courts found the state over reached on the MMJ situation. Here are the documents I have. They make a good read.
2012-12-27-initial-license-revocation
2014-1-21-annulment
2016-9-13-reimbursement-of-legal-fees
Wells Fargo $50 Million Appraisal Fee Settlement
There has been a lot of talk about Wells Fargo lately but the latest has been a recent settlement of $50 million charge because Wells saddled homeowners who defaulted on their mortgages an additional fee for the appraisal without their knowledge. Here’s the part that confused me about these appraisals:
Wells Fargo typically charged $95 to $125 for the type of expedited appraisal at issue, when the actual cost was $50 or less, the complaint said. The charges added hundreds or thousands of dollars to borrower’s mortgage loans over time, the lawsuit said.
An expedited appraisal fee of $95 to $125? What are their normal turn time appraisal fees? $50? These “appraisals” had to be broker price opinions, no? Please tell me these were not standard appraisals.
Freddie Mac will waive appraisals in certain instances, including first-purchase loans
It was refreshing to see the Appraisal Institute be proactive on this new development with their letter of concern.
Unlike the Property Inspection Waiver policies announced by Fannie Mae this week which are limited to lower- risk refinance transactions the policy change by Freddie Mac appears to be oriented to purchase-mortgage transactions or transactions with the highest risk to the agency. It has become standard practice to obtain a complete interior inspection appraisal to understand things such as property condition. Unlike a refinance transaction, where a previous appraisal is likely to be on file, loan purchases generally have less information available to the agency, which is where appraisal data provides added input to risk management.
Ryan Lundquist shared this link to a Ken Harney appraisal article on December 16, 2001.
The nation’s biggest source of home loan money quietly has been moving to minimize the cost and eliminate the required use of one of the most traditional elements of the mortgage process — the appraisal.
Here’s a followup question to Fannie Mae and Freddie Mac. How’d that decision work out? As I like to use Mark Twain’s quote (paraphrased) “History doesn’t repeat itself but sometimes it rhymes.”
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll become your doppelgänger, you’ll get a cheaper luxury rental apartment and I’ll finally find those Swedish Fish.
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
It’s very late and I am writing this abbreviated Housing Note at the annual RAC conference, located just outside of Dallas. On the ride to the hotel, I brought up the topic of the $50 vomit cleanup charge posted in all Chicago cabs I had observed a few weeks ago, to the cab driver. He explained that in Dallas they don’t have a set charge for vomit cleanup and he assured me that after 30 years, he has never had someone vomit in his cab.
In addition, Dallas seems to be a big believer in keeping me hydrated – after all, it was the 92 degrees outside when I arrived. When I reached the hotel, the doorman gave me a bottle of ice cold water as I checked in. My hotel room had free water bottles in the fridge. The cafe and restaurant refilled my water glass every time I took a sip. Perhaps if Chicago emphasized hydration a bit more, they could remove that unpleasant vomit charge sign in their cabs that greets all newcomers (admittedly I like repeating this word for its shock value).
Correlation versus causation.
but I digress…
A few days ago the Starwood Capital CEO Barry Sternlicht said, while speaking to the CNBC Institutional Investor Delivering Alpha Conference in New York ‘You can’t give away a house’ in Greenwich Connecticut, saying it was the worst housing market in the U.S.
This benign article completely frazzled Greenwich real estate agents, thinking Sternlicht had just destroyed their market with his vitriol. I heard from an agent that the Starwood CEO had listed his house in “backcountry” Greenwich a while back, eventually dropping the price by a third and it still didn’t sell. That drop in price without a sale gave me the impression that the listing was “aspirationally priced,” something we’ve talked about in these Housing Notes on many occasions. In addition…
Sternlicht said that high income taxes made all of Fairfield County, Connecticut, a “terrible” place to live, and that declining home prices are reflecting that.
He was judging the real estate of the entire town of Greenwich Connecticut and state of Connecticut based on the sour experience of trying to sell his own home. It looks like titans of industry get a pass – when they can’t sell their homes – to lump their woes onto the shoulders of an entire town and state and play victim – I suppose some egos require that. I author a market report for Douglas Elliman that tracks the Greenwich market and the numbers, whether prices or sales, have ranged from weak to neutral for most of the market for several years but the high end remains the weakest segment by far which is the market Sternlicht was really speaking about.
The next day a Bloomberg followup piece on Greenwich came out. What Good Is a $20 Million Mansion if You Can’t Walk to Dinner? In it I discussed a metric within our report showing how the further away locations such as “back country” are seeing an absorption rate of 33.3 months, compared to the closer “mid country” locations with a 15.2 month absorption rate.
The concern of local agents is not warranted and I completely disagree with correlating Sternlicht’s home sale experience as a cause of a weaker market in the future. Much like how I disagree with Sternlicht’s correlation of his home selling experience with the entire town of Greenwich and the state of Connecticut. The same psychology emerged in Manhattan with state of the super luxury new development market. The mantra of “if we stay positive and say little, then the issue will blow over” was the common refrain from market participants. This “safe” approach never works out as actual facts get in the way. But I get it. It is a change from a comfortable conversation. However you can’t talk over a housing market.
The main perception challenge with the high end Greenwich market and Sternlicht is that property owners remain anchored to prices from 2007ish in a period driven by Wall Street. I think local agents who default to this way of thinking, miss their opportunity to be the trusted advisor to their buyers and sellers.
However in today’s market, Wall Street is not seeing the same compensation or employment it saw 9 years ago. So Greenwich is stuck with weaker demand. It missed the boom experienced in the city over the past 5 years. We are also seeing soft conditions in high end towns across Fairfield County, Connecticut (where Greenwich is located) despite near record sales volume across the county.
No, I’m not listing my home for sale.
Another biggie just came to market for a mere $175 million. Locally it is known as the Ziegler estate in Darien, Connecticut, about a 10 minute drive from Greenwich. My wife and I have anchored our boat in coves on either side of it and the location is spectacular.
I really wonder if this will ever sell close to that price. It includes 63 acres but the main house supposedly needs a gut renovation. The thing is, there have been a parade of $100+ million single family homes in the U.S. in recent years that were launched with great PR fan fanfare like this one. Only one ever sold that I can think of. It was a $120 million sale in Greenwich that is mentioned in the article, but that transaction was hard to understand since the mortgage debt on the property was reportedly about what it sold for. This reinforces the idea that $100 million+ homes are usually “one-off” transactions and there is not a wide and deep market for them.
I needed a few absorption charts to clear my head.
This just in: The laws of supply and demand also apply to appraisers who analyze the laws of supply and demand.
Syndicated columnist Ken Harney wrote a piece this week I first saw in the Chicago Tribune and the Washington Post. It was a well written piece that discussed how the appraisal process is being interpreted in sales transactions. Few in the real estate economy outside the appraisal industry have any real understanding of the challenges our industry has faced in the aftermath of the financial crisis. Our valuation expertise is not a commodity like a flood certification.
I shared with Ken my thoughts on the piece:
From the consumer standpoint, there are clearly delays but that is a by product of Brexit – the drop in mortgage rates and the corresponding surge in refi volume. From the mortgage industry standpoint, the economic model doesn’t work so supply and demand rules kick in. The limited supply of half priced appraisers cause fees to rise, even setting aside the collapse in appraisal quality through the AMC process.
He understood my point and shared a story he came across in his reporting that he allowed me to share.
In brief, after being given the unacceptable October 6 date for delivery of an appraisal, the mortgage broker threw up his hands and asked the AMC what it would take to get a rush report out of the appraiser assigned to the work. The AMC rep had no idea. So the mortgage broker started pulling numbers out of the air –would $1,000 do it ? $2,000? the AMC rep promised to check. Not surprisingly the answer came back from the appraiser : $2,000 would definitely speed up the process.
My reply:
Irony alert: It’s called supply and demand. Appraisers have been starved for income since the financial crisis, largely because the AMC system has taken 1/3 to 1/2 of our industry’s income since 2009 and NOW we are being greedy? LOL. Surge pricing a la Uber.
I also tweeted this…
Funny how the laws of supply and demand also apply to appraisers who analyze the laws of supply and demand https://t.co/ULiSw55q7F
— Jonathan Miller (@jonathanmiller) September 15, 2016
The concern I have with this misleading appraiser shortage narrative is that banks and AMCs are already lobbying in Washington to enable more automated valuation to be used in lending to offset the “shortage.” I suspect that there is no concern being expressed in Congress about the collapse in quality due to reliance on AMCs by commercial banks since the Federal government has already demonstrated its willingness to bailout these players when (not if) there are problems in the future. Correlation versus causation.
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll overprice your house, you’ll hydrate and I’ll aspire to be a water drinking titan of industry.
Sorry but I gotta cut it short and get back to the conference….
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
I did a lot of reading this week, plus we proudly attended my youngest son’s high school graduation and his college orientation. As a tradition, my wife gives each of our sons a copy of Dr. Seuss’ “Oh, The Places You’ll Go” on their graduation day. Of course plenty of eye-rolling ensues. And there are other ways to interpret this book.
For some reason I read a lot of music related stuff but all along I paid short shift to the Brexit actually happening – I just didn’t think it would. I was wrong or just too lazy to think of the housing or economic repercussions. So this week’s Housing Note was a mad dash to the finish line on Friday morning after the overnight results came in. I pushed a bunch of what I planned to cover to next week. The Brexit is our new reality.
For loyal readers of Housing Notes, you’ll remember this tweet as homage to the topic of a prior post on Boaty McBoatface:
I feel like if the Brexit people had called it Leavey McLeaveface, this vote wouldn't even be close.That's how much people love that meme.
— Noah Smith (@Noahpinion) June 24, 2016
another quick aside
The biggest news of the week: a court found that Stairway to Heaven wasn’t plagiarized. That might have had bigger repercussions to the zeitgeist than the the Brexit, no? And imagine if the song was called “Hairway to Steven?”
Great Britain voted to leave the European Union last night and their Prime Minister resigned as a champion of the #remain campaign. The Brexit is one of those global events we’ll be talking about for generations to come.
What does Brexit mean to the U.S. housing market?
Here are some first impressions, even though I don’t think anyone really knows the extent of the global impact yet.
Low interest rates will remain in place, probably for years, keeping credit conditions for bank mortgage lenders tight. The Federal Reserve has been working hard to change the market psychology in order to normalize mortgage rates and spur more economic growth with normalized lending conditions. It hasn’t worked as planned. The Fed has reduced forward guidance for future rate increases already and I think this event prevents such an increase for a number of years. Economic conditions don’t seem to be hurting the existing home sale market which showed the most U.S. home sales since 2007.
New York City will crush London as the world’s financial capital. Ok, thats an exaggeration, but it should give NYC further competitive advantages in the financial sector which could translate to jobs and profits. A number of years ago I attended a friendly debate at Columbia University between then NYC mayor Mike Bloomberg and then London mayor Boris Johnson (who attended Columbia). There was no winner in the debate then (although it was enormously entertaining), but there is a winner now: New York City.
The USD is now even stronger against the GBP. It is more expensive for the Brits to purchase NYC housing than it was yesterday. With about 15% of their economy connected to the EU, I suspect it will be a number of years to untie the connection, providing a continual drag on their economy. It is not realistic to think that UK investors will surge towards New York City tomorrow. It is now more expensive for them and many may have less disposable income on hand in the short term as the economy weakens.
Super Luxury housing in NYC may see tiny upside. I do think there is some benefit to the super luxury segment in NYC since London as a competitor is probably off the table for many global investors. New York super luxury remains challenged by over supply – with more supply coming – but its still a better outlook for the NYC market, if only a a nominal amount.
and finally,
Actress Lindsay Lohan is my new favorite economist. Let me get this out of the way. Yes, Actress Lindsay Lohan is my new favorite economist, specializing in the Brexit. After all, her twin sister in the ‘Parent Trap‘ was from London! Lindsay has since deleted all her Brexit rant tweets but her 9.3 million followers got some great insights last night.
Over the past few years, the narrative about foreign buyers of real estate has been at full volume. Vancouver has continued to see a tremendous amount of Chinese buyers of real estate. In fact 90% of sales in that market are in excess of $1 million. In Manhattan, that number was (only) 53.8% in the first quarter of 2016.
But with the heavy volume of speculative investment world wide, many governments are beginning to push back, perhaps out of concern that such activity is making housing costs more expensive for locals. I linked out to this Mansion Global article last week on times getting tougher for foreign buyers but it is worth revisiting now. In the case of Vancouver, if the province, British Columbia, doesn’t act, the city is proposing a tax on empty or under utilized homes.
And it appears that talk of a Canadian housing bubble is back. The Bank of Canada issued a review of the financial system with some significant regional concerns. British Columbia and Ontario post the highest risk due to a sharp rise in housing prices and an increased use of leverage.
And now with the Cavs win over the Warriors a few days ago a distant memory with the Brexit news, here’s the Russian’s take on LeBron’s #TheBlock
LeBron's block, as called on Russian TV: pic.twitter.com/IqrNQ9jrMN
— Deadspin (@Deadspin) June 20, 2016
In the past month I’ve returned to writing my Three Cents Worth column again on Curbed I seem to be obsessed with the mix of what is selling. This week I looked back over the past 5 years to show how housing prices have risen much more in lower priced markets than the upper priced markets. Here’s the chart:
The banks have won and the appraisal industry has lost. At least for now.
Here is a series of feedback from Rob Chrisman in his must read newsletter on the mortgage industry. It is a heavily read source of in-the-trenches mortgage insights that I subscribe to. He gave me permission to share his recent content on the appraisal industry and will share more of it in the coming weeks. I inserted my thoughts following each quote:
And appraisals are always a hot topic. I received this note from an originator. “Our appraisal environment is out of control. Appraisals we used to get in 1-2 weeks have quickly gone to 3-4 weeks. Appraisals that were just $400 are now $550 and sometimes up to $1,100 for FHA and conventional appraisals. With the rules regulating appraisers on how to become an appraiser and how appraisers have to monitor everything an apprentice appraiser does, it is causing our homebuyers hardship. With the appraiser’s current workloads and the amount of appraisers we have lost in recent years, there is no motivation to bring apprentices on (due to those regulations), leaving the current appraisers working night and day to keep up with their workloads. That is also causing them to keep moving up the appraisal fees (basically rush fees to keep pushing who can pay the most up the line).
It’s called “market forces” and because the AMC movement has gutted the industry, there are much fewer competent appraisers left. And please lay off the “hardship” angle. It’s tired and worn out. Mortgage rates are at historic lows and with the Brexit they will likely stay that way for a while. As I have said before, there is not a shortage of appraisers, there is a shortage of appraisers willing to work for half the market rate.
“I don’t say this to be negative against the appraisers; they are doing what they can to keep up but we are left with $700 appraisal fees for our 1st time homebuyers on top of the other closing fees that are steadily climbing. Something has to be done. Either make becoming an appraiser a stringent faster process or make it where current appraisers can bring people on to help without having to monitor every process. Any thoughts?”
If you keep thinking of appraisals as a commodity rather than a profession and this will continue as the industry is gutted.
And this one. “The appraisers in my area are so buried, with turn times of 1+ months, they rarely consider training a new appraiser and eventual competitor. Are there ways we can start any program in our area to begin to train new appraisers without their help? Most real estate agents don’t care that LOs are struggling with this issue – they just want their transactions closed in a timely manner and rightly so. Borrowers, especially 1st time homebuyers, are struggling with the increasing appraisal costs. There should be discussion with Fannie Mae and Freddie Mac regarding going back to more appraisal waiver options from DU & LP approvals. We used to have more of those (800 credit score borrowers, 40% equity loan to values, rate/term non cash out refinances where we could get an exterior appraisal or even an appraisal waiver to get the loan completed) but now most automated approvals are requiring full interior/exterior appraisals. That is also burdening the system and the appraisers.”
With AMCs taking half the fee for appraisals, we can no longer mentor and train new appraisers. Established and reputable firms are going under and loan officers wonder why turnaround times in some markets are so slow. Look at the cause, not the effect.
The appraisal situation isn’t simple since a) nearly every home loan requires one, and b) the supply and demand of appraisals and appraisers is off-kilter in many areas of the U.S. I asked Michael Simmons, SVP of Axis AMC, a nationwide company. “Your reader raises several timely questions. Has the cost of appraisals risen? Yes, they have. Have the number of appraisers declined in the last 5-10 years? Again, yes they have. Have the rules governing the qualifications for becoming an appraiser changed? Not really – unless you count needing a 4-year college degree now to even be eligible to work toward certification – but then that’s part of the problem; we haven’t adapted qualifying criteria to the times.
As Warren Buffet famously said “Never ask a barber if you need a haircut.” The decline in appraisers is due to the influx of AMCs taking half of their fees. It’s an economics principle commonly known as “supply and demand” and since AMCs do not bring any “value add” to the appraisal process, the extra fees being charged are not bringing in more expertise.
This isn’t communism or socialism. The banking industry has promoted the AMC system to cut costs. They forgot about the part where appraisers have to make a living and are not widgets on an assembly line. Appraisal fees cannot be pigeon-holded into a flat fee across the U.S. Does it cost me, an appraiser in Manhattan, New York, the same as someone operating in Manhattan, Kansas?
Watch LA Dodger announcer Vin Scully take down socialism in between pitches.
Vin Scully has strong feelings on socialism pic.twitter.com/7XEnF56EOy
— Timothy Burke (@bubbaprog) June 18, 2016
Yes, it is.
If you need something rock solid in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll feel like Brexit, you’ll feel bigger than LeBron’s Block and I’ll channel my inner Leavey McLeaveface.
See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Last December there was a tremendous amount of hand wringing in the housing market about rising interest rates. The Fed felt the improving economic news was strong enough to move the federal funds rate up a notch to keep potential inflation in check.
The future of the economy seemed to sound something like this.
Despite the upbeat economic messaging last December, the housing market faced a double edged sword. Economic conditions, while improving (or the world around the U.S. is falling), have been offset by tepid gains in wages by current and potential homebuyers. Tight lending conditions have persisted.
Yes, the U.S. economy is improving but wages have been lagging all through the financial crisis and have only recently began to rise.
In other words we can see things improving but we can’t feel things improving yet.
For most of the U.S. housing market, rising home prices, limited inventory and tepid wages are not a great match for rising interest rates. As it turned out, that car sounded great, but it never got out of the garage. The 30 year rate has since slipped below the December rate at the time of the previous Fed announcement.
At this week’s FOMC meeting, they decided to hold off:
Federal Reserve officials dimmed their view of the economy and said they likely won’t raise interest rates as swiftly as they had previously anticipated, a nod to lingering risks posed by soft global growth and financial-market volatility.
And here is an always awesome Fed Statement Tracker – sort of like the “review” function in MS Word to track changes. Over many decades, the FOMC release documents are perhaps on of the world’s most scrutinized.
Within the Fed Statement Tracker, the partial sentence about the housing market near the top: “and the housing sector has improved further” has remained unchanged since the September 17th letter. Yet I wonder what the basis of “improved” means? Are they referring to sales? Pricing? Both? Something else entirely?
There was an amazing Bloomberg News article this week by Oshrat Carmiel and David Levitt that helps us understand how the world is beginning to realize there is a new development supply overhang.
All those super smart MBA, Wall Street master of the universe types armed with HP-12C calculators missed another overheated cycle.
A mentor of mine once told me (paraphrased) “never rely on an MBA with a HP12C, it’s the basis of all financial engineering.”
The article describes a deal by Extell, one of the most prolific NYC developers, to bring in a partner to help out. The article detail that jumped out at me was the way investors are pricing the bonds that were used to raise money for new condo development. It’s actually quite amazing:
The firm’s 6 percent bonds were trading at a yield of 9.4 percent on Tuesday, a sign that investors view the debt as risky. Extell has raised 1,650 shekels ($424 million) in Israel’s corporate-bond market.
Since there is no transparency of new development contracts IN NYC, this is a new way to understand the perception of risk by the investors of these new projects. All those anecdotal accounts of a slow down have been validated.
Here are some of the recent articles on the most talked about topic in real estate circles these days:
Speaking of ROI…
Aside from Waffle House having their own record label with songs like “There are raisins in my toast” – nothing is more confusing than calculating the return on homeownership. Especially when those returns are compared against other asset classes like stocks. In NYC, home of Wall Street, we LOVE to compare housing to stocks for no particular reason other than proximity.
But that’s the wrong way for most homeowners and would be homeowners to think about housing as an asset class.
The majority of U.S. homebuyers use leverage to purchase a home via a mortgage. Aside from the value of their use of the home and tax deductions, a return on investment of a home should be based on the downpayment, not the original purchase price.
[click to expand]
But in the condo market, the use of cash is more common than for the majority of U.S. homebuyers This is one of those “perfect storm” elements behind the recent new development condo boom. The consumers of super luxury real estate generally did not use or need leverage at a time when credit conditions remain unusually tight.
[click to expand]
Yesterday I had a great conversation with James Nelson, Vice Chairman at Cushman & Wakefield for his monthly “Nelson Report” where we spoke about the shift in the new development market over the past year. My key points were:
But it clearly doesn’t feel that way to this appraiser. In a Bloomberg News analysis of an upcoming IPO Real Matters Deal Said to Set Stage for Canada’s Next Tech IPO, there was a golden nugget of a quote by a large investor in the firm. It was hilarious because it speaks to the disconnect that the public and banks have with the AMC industry.
The U.S. housing crash put pressure on mortgage providers to have a better understanding of the homes they were financing, said Thomas Caldwell, chairman of Caldwell Securities Ltd., who invested in Real Matters in 2013 through investment firm Urbana Corp. “Real estate appraisals are a big, big deal since 2007, 2008,” Caldwell said. “You’ve got to start having real numbers.”
LOL. “You’ve got to start having real numbers.” Think about how insane that comment really is. And the idea that numbers were bogus in 2007 and 2008 and somehow they aren’t now. Numbers are less reliable now than during the bubble but instead of being high, they are simply more random as the appraisal ranks are filled with non-mentored form fillers.
I’ve written about this a lot in the past and some of these posts went viral within the AMC and appraisal industries (hopefully for their accuracy and candor).
The parent company known as Real Matters has an AMC known as Solidifi and is perhaps one of the best AMC’s out there because they pay the appraiser the market rate and charge a fee to the bank on top of that instead of take half the fee as is commonly done in the AMC industry. We dealt with them once because a client wanted us to do the complex appraisal and we had to go through them.
Perhaps saying that Solidifi is one of the best is technically correct. But when adding context like the consideration of the entire AMC industry, is like qualifying it as on the top of a large steaming pile of cow manure. You’ve got the elevation but it still stinks. The AMC industry has worked hard to commoditize a profession and the mortgage system as a result remains deeply flawed.
I’m not sure why I’m more comfortable using the Crayola color palette other than as I like to say – I took band instead of art in high school and I’m making up for lost time using a non-serious format for serious presentations.
The opposite of this was apparent in a commercial property listing sent to me the other day. Notice the former tenant in the description section. I’ll stick to drawing charts with crayon colors.
Long Island
Los Angeles
Miami
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See you next week.
Jonathan Miller, CRP, CRE
President/CEO
Miller Samuel Inc.
Real Estate Appraisers & Consultants
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Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc.
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