Matrix Blog

Homebuying Process

Demanding More: terms of sale are now as important as the price

May 18, 2014 | 7:00 pm | | Articles |

demandingmoreEMarticle
[click to open article]

Sellers and their real estate brokers are more focused on the qualifications of the buyer than ever before. “Flexibility of terms,” “limited contingencies,” and “paying with cash” have become well-used phrases in the current home-buying process.

Here’s an article I penned for the current issue of Elliman Magazine. It’s about the concept that the terms of a sale are now just as important as the price.

The latest issue of Elliman Magazine, including my article, as well as the most recent market reports we author are available in the Elliman App.

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[Book] Next Generation Real Estate by Brendon DeSimone

May 4, 2014 | 5:10 pm | Books |

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My friend Brendon DeSimone has penned a tome on today’s relevant issues in the home buying and home selling process. Yes, there are a lot of real estate “how to” books out there, but his presentation is refreshingly straightforward. He provides a slew of tips from well regarded people in various walks of real estate life.

Even better, Brendan allowed me to rant about the current state of the appraisal industry and how buyers and sellers can navigate through the process in today’s challenging and confusing market conditions.

And yet even better, here’s my back cover quote for Brendon’s book:

nextgenbook

You can pick up a copy in a bunch of places, and here’s one:

Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling [Amazon]

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How Real Estate Brokers Can Negotiate With Foreign Buyers, Illustrated

March 29, 2014 | 12:33 pm |

Saw this visual over at Business Insider that shows how communication patterns differ around the world – from Richard D. Lewis’s book “When Cultures Collide“.

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[Source: Crossculture.com Click to expand]

I haven’t read the Lewis book yet but I’ve always been fascinated by the topic of communication and linguistics – another book got me interested in the topic: That’s Not What I Meant!: How Conversational Style Makes or Breaks Your Relations with Others by Deborah Tannen circa 1992. I’ve read it three times.

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[Appraisal Infographic] Common Myths About The Homebuying Process

March 15, 2014 | 1:07 pm |

The Appraisal Foundation published an appraisal infographic that attempts to clarify common misconceptions by the borrowers about the appraiser’s role in the home buying process. The content is amazingly simplistic, but that’s the point.

I continue to be amazed at how so few people don’t understand what the appraiser’s role is in the home buying process. Perhaps this is why the appraisal industry continues to be marginalized in the lending process (ie appraisal management companies, Appraiser Independence Requirements) and the exodus of competent appraisers into other disciplines outside of residential mortgages continues.

2014-03-06-BorrowersinfographicTAF

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[In The Media] WNBC Channel 4 “Tightest Squeeze In Years” 2-11-2013

February 12, 2013 | 5:00 pm | Public |

Andrew Siff, a reporter for WNBC Channel 4 in New York did a great job articulating the tight inventory phenomenon we are seeing in both the region and nationally.



Tri-State Real Estate Market Under Tightest Squeeze in Years [WNBC Channel 4]
Listing Inventory Is, Well, Listing [Matrix]

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Falling Inventory Has Created a Housing “Pre-Covery,” not “Recovery”

January 28, 2013 | 9:00 am | |

I was speaking at the New York Real Estate Bar Camp recently and asked the audience what to call the state of housing market right now, since I objected to the use of the word “recovery” and “a period of better stats without underlying fundamentals” wasn’t catchy. Philip Faranda came up (more like shouted out) a brilliant suggestion. We’re in a “Pre-Covery!” I loved it and it stuck.

I thought about the new word when I read a great Robert Shiller piece in the New York Times this weekend called: A New Housing Boom? Don’t Count on It.

Shiller questions the substance of the happy housing news we’ve all been reading about:

It’s hard to pin down, because nothing drastically different occurred in the economy from March to September. Yes, there was economic improvement: the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. But that extended a trend in place since 2009. There was also a decline in foreclosure activity, but for the most part that is also a continuing trend, as reported by RealtyTrac.

What’s missing from all the metrics being tracked and discussed is sharply falling inventory – that’s what is driving prices higher even though little else has changed.

The reason for falling inventory? Sellers, when they sell, become buyers (or renters) and with >40% of mortgage holders having low or negative equity, they don’t qualify for the trade up. We have been so focused on negative equity that we’ve paid short shrift to the impact of low equity.

Not only don’t many sellers qualify – they simply aren’t under duress i.e. they haven’t lost their job, don’t need to move, etc. so what will they do when they realize they don’t qualify?

Nothing.

They expect/hope hope the market improves eventually.

This has created yet another form of “shadow inventory.”

Although I certainly agree that the long term trend of mortgage rates doesn’t really correlate with housing prices since rates have been falling for years, weak employment and personal income are not justifying the last 6 months of housing market improvement.

I see falling mortgage rates as simply keeping demand steady (but rates can’t fall much further) and falling inventory is either pressing prices higher or to stabilization depending on the market.

Here is a simplistic generic but typical scenario in most of the markets I follow over a 2 year window:

  • The number of sales in a market rises 2%.
  • The number of listings in same market falls 30%.

In this scenario the rise in sales is NOT working off inventory – the math doesn’t work so something else is in play – low or negative equity is choking off new listings entering the market against steady demand caused by falling rates.

Since low inventory is not a local market phenomenon but is happening in nearly every housing market I can think of (sales rising modestly and listing inventory falling sharply) it makes this a credit phenomenon. I like to say “housing is local but credit is national.”

To make this discussion really crazy we could even say that tight credit conditions are actually prompting the pre-recovery something that on the surface is very counterintuitive. But in reality, tight credit is choking off supply and low rates are keeping demand constant. Then prices rise.

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Having Fits With Appraisal In Home Buying Process

January 13, 2013 | 9:27 pm | | Public |

The New York Times Real Estate goes gonzo this weekend with a nice write-up AND a large color artwork on perhaps the least understood part of the home buying process.

No not the radon test…

The appraisal. Can’t live with them, can’t live without them.

Here’s my stream of consciousness on the topics brought up in the article:

  • “Sale and “Comparable” are not interchangeable terms. Really.
  • There is no ratings category for (like totally) “super excellent.” The checkboxes provide good average fair poor with “good” at top end (but fear not, “super excellent” is marked “good” and like total adjusted for).
  • Not all amenity nuances that are important to you as a seller (ie chrome plated doorknobs), are important to the buyer.
  • Not all amenity nuances that are important to you as a seller, are measurable in the market given the limited precision that may exist.
  • Not all appraisers have actually been anywhere near your market before they were asked to appraise your home, so technically they shouldn’t be called appraisers. Since their clients don’t seem too concerned about this, something like “form-filler” seems more appropriate.
  • Most appraisers who work for appraisal management companies are not very good, but some actually are.
  • When an appraiser makes a time-adjustment for a rising market, understanding whether a bank will accept that adjustment or not is (should be) completely irrelevant and quite ridiculous (unless they are “form-fillers” and not actual appraisers). I have always believed that the appraiser’s role is to provide an opinion of the value and that occurs in either flat, rising or falling markets.
  • HVCC was a created with best intentions by former NY AG Cuomo by attempting to protect the appraiser from lender pressure, but it has literally destroyed the credibility of the appraisal profession by enabling the AMC Industry.
  • The 12% deal kill average of an AMC an arm’s length sale properly exposed to the market is absolutely an unacceptably high amount and a major red flag for appraiser cluelessness about local markets.
  • I’ve never heard of a major bank since the credit crunch began who would throw out the original appraisal found to have glaring errors that would severely impact the result. My quote on this nailed that sentiment with brutal precision, if I do say so:
“You have a better chance of winning Powerball than getting a lender to abandon the first appraisal.”



Understanding the Home Appraisal Process [NY Times]

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Yes, Mortgage Rates Impact Housing Prices

December 26, 2012 | 4:50 pm | Charts |

I few weeks ago I was dressed down by an analytics friend of mine who is in the business. Based on his employment and housing sales analysis in Alabama (I’ve never been) he suggested my comments about mortgage rates influencing housing prices as anecdotal and hypocritical (who says analysts have to have tact) – that only employment can be correlated. And further…since mortgage rates can not be proved to influence housing sales through multiple regression, any such claims are hearsay and anecdotal. While I agree that housing’s largest influence comes from employment, I was a bit surprised by the out-of-left-field agita I inspired.

He was focused on the predictive element of a trend versus a knee jerk reaction to a sudden change in a metric. My comment about a spike in mortgage rates at this moment (not predicting it) as ending the party – is apparently what caused him to lose faith in my analysis. Appreciative of the constructive feedback, I whipped up a couple of US macro price charts.

Yes, US employment trends correlate with US housing prices and mortgage rates correlate by showing an inverse trend against housing prices.

Predictive? Only if considered with other metrics.
Anecdotal? Hardly.

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Money Mag Shows Us How To ‘Think Like an Appraiser’

July 23, 2012 | 3:18 pm | Public |

The August 2012 issue of Money Magazine on the newsstands now has a nice article penned by Ali Rogers called “Think Like an Appraiser.”

It’s not available online yet but the magazine is always a good read. Although Money Magazine has named me “Best Online Real Estate Expert,” I swear I have offline expertise too.

Ok before you go on with snarky comments about the last appraiser that screwed up your deal, I’ve heard it all before, much of it spoken here on this blog. The article is more about the concept of “contributory value” – how certain modest improvements help provide additional value of your home. In theory, an appraiser is going to walk through your home at time of sale just like your buyer would and place a certain value on things you may have done to improve the property. First impressions are important in building a sense of value for the property.

I’d like to expound on the contract “data” point in the article to provide context (not something I commented on for the article). Appraisers absolutely consider contract data in addition to closed data (and listing data). We can place them in the report but normally are not the sole basis of determining value.

What often happens is that we are told about a home that is under contract nearby but we don’t know the sales price. We will call the listing agent of that “contract” and try to get a sense of the interior condition and the actual price (99% of the time we are NOT successful getting the price) but we sometimes we might get feedback like “sold at list” or “sold very close to ask” etc. This can be a helpful gauge on value but not the key factor in the report presentation, especially since there is a higher probability in today’s market than in year’s past that homes under contract don’t always close.

These bits of info from a little detective work are among the subjective elements to valuation that help “tell the story” of the transaction. It’s not about dropping raw data on a spreadsheet and taking an average.

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[Interview] Debra Taylor Blair, Owner, LINK Boston

March 9, 2010 | 1:50 pm | Podcasts |

Read More


[Interview] Sami Inkinen, Founder, COO of Trulia.com

August 3, 2009 | 12:50 am | | Podcasts |

Read More


[Chip Shots] Accurately Calculating Gross Living Area

July 5, 2007 | 6:47 am |

[Alvin “Chip” Wagner III, SRA, IFA, SCRP is third generation appraiser from Chicagoland who is a public figure and well respected within the appraisal industry. Along with his business partner, Bob Headrick, they run the firm Headrick-Wagner Appraisal Group, which has been providing appraisal, consulting and research services throughout the Chicagoland market for more than 35 years. I met both Chip and Bob through RAC (Relocation Appraisers & Consultants). When I met Chip in the late 1990’s we both spoke together at a national conference about our appraisal web sites, both among the first in the country. I have learned a lot from Chip and I am thrilled to use his firm’s market stats on my Matrix blog and post his Chip Shots column on Soapbox. Like me, he has an enthusiasm for market analysis.

In this week’s Chip Shots column, Chip shows his annoyance with the “dumbed-down” check box appraisal culture and elaborates on one of critical measures of being good appraiser: having the ability to accurately measure the property he or she is appraising.
…Jonathan Miller

All appraisers have been taught how to calculate Gross Living Area. Often times mistaken with the term “square footage,” Gross Living Area it a very important component in real estate appraising, but is often overlooked and rarely challenged for accuracy.

As defined by the Appraisal Institute’s Dictionary of Real Estate 4th Edition: “Gross Living Area (GLA) – The total area of finished, above-grade residential space excluding unheated areas such as porches and balconies; the standard measure for determining the amount of space in residential properties.”

What has been bothering me in recent weeks? Today it is the appraiser who cannot measure. I have been challenged 5 times in the past week on my measuring ability. I have been right on every appraisal, and I’m getting tired of this trend. This is high school geometry, not physics or engineering. Please understand, I admit to making mistakes and am far from perfect.

I was brought up in this business during a time where we didn’t have APEX, Win-Sketch and the sketching programs out there. I had the graph paper and architectural rulers and drew floorplans and manually calculated my Gross Living Area.

If you are doing residential appraisals only for lenders, you are likely never challenged on how accurate you can measure a home. You go about your business with your tape measure, Roto-wheel, or laser device, while others just may be lazy and use the survey or blueprints and don’t measure anything. Not even a spot-check against that survey.

I specialize in corporate relocation appraisals. This is a niche in the residential appraisal profession when a corporation or the government transfers one of its home-owning employees. Two “relocation” appraisals are averaged together to form a buyout offer to purchase the home of a corporate transferee.

When doing this type of work, the two appraisals have to be within 100 square feet of each other. This is a reasonable request, given one appraiser might round up or down a couple of inches, or measure an open two story foyer differently by a couple of inches.

But more and more often, I am hearing: “you and the other appraiser both measured the subject property, yet you are 250 square feet apart.” (Not on a 5,000 square foot home, but on a 1,900 square foot home, mind you). So, you politely tell the reviewer that you will be happy to take another look at your measurements, and would also like to review the other appraiser’s sketch. This is common-practice, and I get to review a lot of sketches of my peers some good, some bad. A good reviewer will look at both sketches, find where the differences are and try to get to the bottom of it. A lazy or untrained reviewer will simply allow the appraisers to hash it out.

But the other appraiser sketches I have seen recently makes me really embarrassed for my profession. Pulling a tape measure isn’t a requirement for your appraisal license, it is just expected for you to pass high school math!

Some sketches are hand-drawn and have simple multiplication errors. Okay, it happens if you are living in the 1980’s. Use your appraisal software with the sketching programs. If you are using a computer but still hand drawing your sketches and scanning them into your reports, take a few minutes to learn how to use these programs the are great and once you learn to use them, they are accurate 100% of the time.

Other discrepancies might be the other appraiser misses an “overhang” or a cantilever. Although I strive for perfection, I have been known to miss that one from time to time. Nobody is perfect all of the time.

One of the more common problems I see is measuring open areas of two story foyers. Did you know that the first stair tread is considered part of the second floor? Stupid as it sounds, that is one of the most common mistakes an appraiser makes. Approximately half of the appraisers measure by removing the entire open foyer space, the other half measures correctly around the stair treads. Assuming that an average stair width is 3.5′ and 10′ long, this can change the sketch by 35 square feet. Not a big deal? It is when the two appraisers GLA’s are different by 125 square feet. Measuring the foyer properly will bring the difference to less than 100 square feet, and no calls and exchange of sketches will be needed.

Another common problem I see is the other appraiser rounds up or down to the nearest half-foot, or even the nearest foot. Again, the guidelines for calculating Gross Living Area requires the appraiser to measure to the nearest inch or 1/10 of a foot.

How about dormered areas on second floors ever heard of the 5′ rule? At least half of the appraisers competing with me for relocation appraisal work apparently have not. Gosh, I’ve even seen some appraisers swear that a cape cod without dormers is measuring the first floor and multiplying by 1.5; and if there are dormers, you multiply by 1.6; and if there is a shed dormer, you multiply by 1.7.

Then, there are renderings that don’t even look remotely like the house. I can recite many sketches where one appraiser calls a wall a 50′ straight wall on the rear, yet there are clearly bay windows, 3′ extensions, and enlarged and extended rooms. Hey, if you are using that survey, it probably only gives the dimension at the foundation, not any siding that goes over the foundation.

And by the way, never trust the blueprints or the survey I see errors all the time. Blueprints often change during construction. They are a great guide, but spot-check them on at least 50% of the dimensions. And the survey? I have a collection of inaccurate surveys as well. I suspect most are typographical errors in this case, but surely don’t rely upon someone else’s calculations. Again, spot check that survey before you leave the property.

You don’t believe me? What are these “guidelines” I am referring to? Yes, there is a guideline for calculating the Gross Living Area. Check out the ANSI guidelines (American National Standards Institute and purchase the “Method for Calculating Square Footage” guideline ANSI Z765-2003. The original standard was developed in 1996 and adopted by dozens of organizations including appraisal associations, builder associations, National Association of Realtors, Fannie Mae, Freddie Mac, and ERC to name a few. Updated recently in 2003, the standard describes the procedures to be followed in measuring and calculating square footage of detached and attached single-family homes. It is the purpose of this standard to describe a method of measurement that will make it possible to obtain accurate and reproducible measurements of square footage in single-family homes. The ERC Relocation Appraisal Guide, the book describing how to complete a relocation appraisal, has instructions following these guidelines.

Our profession continues to be “dumbed-down” by box-checking forms, and accurately measuring a property is quickly becoming a lost art. In the Sales Comparison Approach, the GLA is obviously an item of comparison. The Cost Approach seems to not be relevant to anybody anymore (another Blog topic), but if you don’t measure the home accurately, your Cost Approach to Value will be flawed. And although the Income Approach is seldom considered appropriate in residential appraisals, if it is relevant, you better accurately measure the home to apply to the Gross Rent Multiplier.

A final thought, not only will mis-measuring a home lead to a flawed value through any of the three approaches to value, it could lead to a lawsuit down the road for the appraiser. Take a few extra moments to make certain you are doing the job right.

Chip Wagner’s field measuring tools include: Leica Disto Classic 5A laser measuring device, 3′ tape measure on a keyring attached to the Disto, Laser Shades (for the bright sunny days), “Rite-in-the-Rain” paper (for those rainy days), 7-inch pocket size angle tool (for homes that are not square), legal-size clipboard with one-inch hash marks carved into the underside (old-school trick I learned from my father), Lufkin 100′ fiberglass open-reel tape measure (collecting dust) and a Rhino heavy-duty six-foot flexible fiberglass folding engineer’s ruler (my retired appraiser-father’s tool of choice, not used in 2+ years).

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