- Miller Samuel Real Estate Appraisers & Consultants - https://millersamuel.com -

February 24, 2017

Housing Rhubarb: Seller Takes Steve Miller’s Money and Runs

Back when my two oldest sons were teenagers, they had a garage band called “Electric Ruubarb” [spelling modified for extra coolness]. They built a stage in our garage and practiced regularly, but never quite got the point where they performed in public (the world’s loss). My wife and I can’t say “rhubarb” without adding the punchline from this tv commercial: “It’s a plant.”

Well, I recently discovered the snarky Merriam-Webster twitter feed [1] and was schooled on rhubarb [2]. Apparently, it is also:

One of my favorite mainstream musicians while growing up was Steve Miller. His greatest hits [4] album sold 13 million copies and is the 37th highest selling album of all time, plus his last name is simply awesome. So I thought I knew his work [5]. I didn’t. Last fall I saw him play T-Bone Walker [6] music with Jimmie Vaughan (Stevie Ray’s brother) at Lincoln Center [7] and was blown away.

Obviously, this introduction thread brings me straight to the housing market.

Steve Miller Backs Out of Sales Contract

I thought I would take the high road and keep my puns on his song titles to a minimum since I remain in awe of his musicianship. New York Times’ Ronda Kaysen covered the musician’s withdrawal from a sale after a low appraisal, in her 360 View column: Steve Miller Sues to Get Out of Buying a House [8]. Even the New York Times didn’t go all pun with this story. Here’s the beautiful home in question.


The story starts like this:

Last month, the musician Steve Miller backed out of a contract to buy a sprawling estate in Dutchess County, N.Y., for $6.7 million when a bank appraised it for $2.4 million less than what he had agreed to pay.

He wants his $670,000 deposit back. What’s tricky with the contract is that either party can cancel the sale if the buyer can’t get a mortgage commitment. But the contract is also not contingent on the appraisal.

To illustrate how much of an outlier this sale is for Dutchess County, the median sales price in our Elliman Report was $270,000 for the fourth quarter of 2016 [10]. That’s 40% of the deposit Mr. Miller is seeking to get back.

Let’s just assume the appraised value is reasonable and the listing is simply overpriced, then the seller may have severely reduced the odds of getting another seller to pay close to the asking price of $7.75 million. The seller already agreed to accept a “discounted” price that was 13.6% below their ask. By fighting a high-profile buyer like Steve Miller, they risked placing this situation out in the open, likely damaging their ability to sell it for anything close to what Mr. Miller originally agreed to. Even if the appraisal is inaccurate, the seller’s strategy is likely to work against them in future transactions. It will also convey to the brokerage community that the seller is difficult. I hope this situation eventually works out for both parties.

NBC Outed Me For Having A Hobby

There was a fairly stale [11] article on a $175 million Connecticut listing (in my home town) that came online early last fall [12].

The record for the most expensive American home was set by a property that sold in 2014 in New York’s Hamptons for $147 million, according to Jonathan Miller, president of Miller Samuel Real Estate Appraisers & Consultants, who also tracks luxury home sales as a hobby.

‘Nuff said.

Where Will Mortgage Rates Go?

The highly anticipated release of the FOMC minutes [13] this week on the potential rate hike suggested increases will begin fairly soon.

FOMC members cited “considerable uncertainty’ regarding yet-to-be implemented Trump policies, which suggests that “officials want to see the specifics as well as their eventual impacts on the economy.”

But the theme of uncertainty ruled the day. Market mortgage rates have held tough as uncertainty about future economic policy offset some better economic conditions. Even if the Fed opts to raise rates, the continued economic uncertainty may prevent mortgage rates from seeing the same increased.


REITS/National Homebuilders Don’t Address Seismic Changes

The prolific development of multi-family rental nationwide has been well-chronicled. Their press releases and guidance calls were easy. However, over the last year, it has been painful to watch them slowly acknowledge that conditions are much softer and makes me appreciated that biased sources aren’t worth the pdf they’re written on (my modern take on an old saying). E.B. Solomont of The Real Deal New York gets the details from a couple of analyst calls.

Equity Residential
I love billionairespeak [15]:

“The surge in supply is starting to slow down as banks and investors become concerned about the impact of supply and demand,” he told Bloomberg.

So when inventory stops growing rapidly, that’s when participants begin to worry about supply and demand? I’m never going to be a billionaire.

Toll Brothers
So they are offering [16] about a 2.5% concession off the top…

Last week, the company rolled out incentives at three buildings…where it will cover the buyer’s transfer and mansion taxes. “Even with our increased incentives, our gross margins have exceeded company averages,” Yearley said Wednesday.

It’s not gloom and doom, but I have been taken aback by how slow large homebuilders have been to react to their overbuilding and its impact on rents in New York City.

‘I haven’t seen anything this seismically different since 2008’
The Wall Street Journal’s Laura Kusisto had a great recap article this week on the same subject: Banks Retreat From Apartment Market [17]

Swelling supplies of apartment units are prompting big banks to pull back from new projects, forcing developers to scramble for capital, in a sign that the U.S. apartment industry headed for a downturn.


This section is on steroids this week.

If you are an appraiser and skipped down to this section, take a minute to scroll up to the section titled: Steve Miller Backs Out of Sales Contract.

How America Lost Faith in Expertise
I have long subscribed to magazines like Foreign Policy and Foreign Affairs after growing up in the Washington DC metro area (“The DMV”) and living in an international city like NYC. But I also subscribe to Hemmings Muscle Machines Magazine [18] so I’d like to think I am a cool geek. There was a spectacular article in Foreign Affairs called: How America Lost Faith in Expertise [19]. Sorry but its a subscription.

The theme of this article seems to be exactly what the appraisal industry is going through right now. We are merely widgets in the mortgage lending process. There has been a wholesale commoditization movement that is replacing experts with technology. It started with more menial tasks like “highway toll collectors” but has morphed into the legal and medical professions and more. Users of these services don’t seem to care or understand what the risk is by using services that are run by widgets – just like the appraisal industry. If you and I and a banker and an AMC executive (sounds like an old joke) got in a room with a couple of beers and just talked candidly and off the record – obviously the room would be swept for hidden microphones beforehand – it would be clear that appraisal quality has collapsed. But that won’t ever happen. Hopefully, I am wrong about having that conversation someday.

From The Foreign Affairs article [19]:

…I started hearing the same stories from doctors and lawyers and teachers and many other professionals. These were stories not about patients or clients or students raising informed questions but about them telling the professionals why their professional advice was actually misguided or even wrong. The idea that the expert was giving considered, experienced advice worth taking seriously was simply dismissed.

Housingwire Happily Presents A Webinar That Is Misleading
A good non-appraiser friend of mine shared the notice of a free webinar that she knew would make my blood boi:

This is from the invite [23]:

Is this something that will help address the appraiser shortage, get fees back in line and get new blood into the appraisal industry? Or will it open the floodgates to poor valuations throughout real estate sales?

There are so many things wrong with the premise and I sent a letter to Jacob Gaffney of HousingWire and did not get a reply.

The speakers in this webinar – which I assume is a paid advertisement product for HousingWire includes a very controversial AMC owner and a past president of AI National who was running it when the threatening letter was sent [24] over the FNC deal with AI National that we still don’t know anything about.

Updates from Real Estate Industrial Complex
I’ve been very busy this week over at my forum known as Real Estate Industrial Complex [25] where I have been chronicling the activities of AI National.

Voice of Appraisal: The Montana State Board of Real Estate Appraisers Successfully Fights Back AI National’s Political Assault

One of the great things about working for transparency within our industry is that you get to meet a lot of good people. I stumbled across Pete Fontana, an appraiser in Montana and a tireless protector of the public trust. He is the Vice Chairman of the Montana State Board of Real Estate Appraisers and has a clear understanding of how the appraisal regulatory process works and the relationship between federal and state responsibilities.

I’ve been to Montana a couple of times in my life but only because of bicycling – but that’s another topic.

In his interview on Phil Crawford’s Voice of Appraisal this morning, Pete talks about how AI National’s President Jim Amorin sent a letter to the Montana board [26] and to the Montana Governor [27], telling them (incorrectly) what they were allowed to do while at the same time stepping on the AI Montana Board by having no contact or providing no notice.  I’ve covered all this in recent posts.  Pete makes it clear that he is not against the AI itself but he is very much against the false narrative they push and the damage they have caused to their own members and the industry in general. A recurring theme in this interview is “why is AI doing this?” We can only speculate that AI is focused on getting rid of the current regulations to insert their own to make themselves relevant and financially viable in the future.  To do this they seem to believe that they have to mislead their members and the public. Pete makes the point that adding additional layers of standards creates untenable confusion for the industry especially since regulations are not the problem.

Check out the interview.

Dave Biggers of a la mode software addresses the false narrative of an appraisal shortage pushed by AI National and AMCs.

Twenty something years ago I stumbled into Dave Biggers, founder of a la mode [28] appraisal software, from afar. He was in the trenches on appraisal bulletin boards, answering questions and pontificating about the challenges facing the appraisal industry. He was a tireless participant in these circles and I’m sure the feedback served him well in his software development.

We crossed paths several times since then. Once when our appraisal firm admitted to ourselves that we weren’t a software company. We had abandoned our efforts to develop and maintain our own custom software after 20 years of building our own to run our business. It was economic. Technology changed more quickly than we could afford to keep up with. Our firm investigated all the appraisal software options out there and we went with a la mode. That was nearly a decade ago and we don’t regret the decision.  About five years ago, a la mode approached me to be part of their marketing effort [29] and I did it (for free) because I believed in the product. I ended up on their home page and in thousands of appraiser’s mailboxes – how cool is that?

Recently he and I were trading emails about the false narrative being pushed by AI National and the AMC industry concerning the shortage of appraisers. AI National told Congress last fall that the shortage was caused by too much regulation. This is clearly false and reflects the disconnect with their own residential membership. Just ask their residential members what is causing the shortage! AMC’s have made a concerted effort to exploit this untruth and AI National has readily perpetuated it, likely to further their appraisal standards over TAF in an anti-regulatory administration, no matter the harm it causes their own residential members.

I’ve been addressing this “appraisal shortage myth” by describing it like this:

There is no appraisal shortage – there is only a shortage of appraisers willing to work for as little as half the market rate. Why can’t appraisers – who measure supply and demand for a living – participate in the free market economy like AMCs do?

Dave described the false appraisal shortage narrative like this (I’m clearly stealing his better version of my own lawyer analogy.)

I have the data to prove there is no shortage — at any given time, our data shows that about 26% of appraisers are “sitting out” daily and weekly appraisal assignments. They come back in to the active pool later, within days, and they’re not part-timers. They simply aren’t willing to do the current scope of work for the current going rate, and nobody should blame them. The way I always put it is simple: There’s not a shortage of appraisers. There’s a shortage of appraisers willing to do AMC work at AMC fees. AMCs are simply not willing to pay the rate demanded to get rapid service. They are the bottom of the pile. And at the bottom, it of course feels like a shortage. If I went looking for $50 an hour lawyers, I’d claim there was a lawyer shortage too. We live in interesting times.

Yes, we sure do.

Burning Question: Will AI National Ever Talk to its Members About What Transpired with FNC?

Last October I attended the ASB public meeting in Washington, D.C. The next day I took Amtrak back to NYC and somewhere around Baltimore, some passengers got off the train, and the adjacent seat was now empty. A few minutes later, as new passengers were making their way through the train, a gentleman sat next to me. He and I looked at each other and did a double take. He said “Jonathan Miller?” I said “Bill Rayburn?” What an incredible coincidence!

Bill is a founder of FNC [30] and a controversial character in the appraisal industry. I had run into him a decade or more ago when his firm was interested in running analytics on Manhattan co-op apartments. At that time, co-op sales were not a matter of public record (and we don’t have an MLS either), and my firm had amassed the largest collection of co-op sales in existence used for our appraisal practice. Co-ops are about 75% of our owned housing stock. I had several research positions in our firm calling around for the raw data all day long and then piecing it together with other information we had such as “schedule a’s” (share allocations), floorplans, offering plans, financial statements as well as information collected during appraisals. Many of FNC’s clients were headquartered in Manhattan; therefore, this was of interest to FNC. I got to know the COO Bob Dorsey – when he was developing his hedonic price index [31] – and other executives. One of their executives was and is a friend of mine. But that was about it businesswide. I never pushed the concept, and they lost interest. They built their web portal known as AppraisalPort, and they effectively became the communications tool and toll collector for the interactions between lenders and appraisers. Fast forward to 2015, he and his partners sold FNC to CoreLogic in December 2015 for $475 million [32] and moved on to other things.

According to CoreLogic, FNC platforms provide “broad connectivity” to approximately 80,000 appraisal, title and inspection vendors, and FNC’s solutions allow industry participants to automate the collateral valuation and diligence process, monitor and optimize vendor performance and facilitate compliance with regulatory and internal risk management policies.

In the early days, FNC needed a data source to run their analytics for banks behind the scenes – the public record wasn’t granular enough. From my vantage point, I always assumed that the FNC backroom business was their real value proposition to lenders [33] so I assumed mining appraisal data was always of critical interest. The Appraisal Institute worked with them to develop or they simply agreed to license their name on a standard called “AI Ready [34].” This specification was marketed as a value add to software providers [35]. In the AI-Ready FAQ under the section “How does AI Ready(tm) Help Keep Your Appraisals Secure?” I thought this paragraph was particularly interesting:

Does AppraisalPort keep a copy of your appraisal after you send it? As part of keeping your appraisals secure, AppraisalPort keeps a copy of the appraisal long enough to assure that it was actually delivered to and properly received by the client (we all know that computers are not perfect). After the audit period, it is deleted. It is never shared with anyone. No data is stripped out, separated or used for any other purpose.

A lawsuit filed by appraiser Pat Turner and others [36] claimed that it was a way to farm their appraisal data despite being told AppraisalPort was secure and private. The defendents responded [37] and the case was eventually settled.

Here are a few excerpts from Ken Harney’s 2007 article on the FNC lawsuit in the Washington Post: Reprisals on Appraisals [38]

The suit was filed last month by appraisers in Maryland, Virginia and Oklahoma against FNC of Oxford, Miss. FNC markets a high-tech system that converts traditional appraisals into electronic formats, then sends them to mortgage lender customers. FNC says it processes about 400,000 appraisals a month and deals primarily with the 45 to 50 largest mortgage lenders in the country.

and the big one…

The suit quotes Bill Rayburn, FNC’s chief executive, as telling an industry publication, “When an appraisal is transmitted to the lender, we are able to pop it open and suck all the data out.”

I’m confused.

CoreLogic may have found another route to collecting hedonics by providing software to many MLS systems to that use it to manage their data. However, FNC clearly remained very attractive to CoreLogic evidenced by the 2015 sale.

To my knowledge and what has been told to me for years, is that AI National has never shared the terms of their arrangement with FNC to their membership. This topic is a sore point among many members I know. I find it amazing that AI National had branded a technical standard with a private firm and was given future compensation potential by a firm that was just purchased for nearly a half billion dollars and remains silent. There has been no discussion with the membership I or anyone I know in the membership is aware of. The repeated refrain from the top executives of AI National continues to be “I don’t know anything about that.” So much for establishing trust with membership.

My good friend Tom Allen, a widely-respected appraiser from Oklahoma and one of the most decent, upstanding men I have had the pleasure of knowing, got a threatening letter in 2004 from an attorney representing AI National for some comments he had made about AI National. Tom was told to apologize in the letter as if he was a two-year-old, but consistent with the bullying culture of AI National. I previously posted it in this forum but have included it again because it provided the terms of the AI National/FNC deal. Here is the letter in all its glory.

In a questionable display of legal prowess, AI’s lawyer provided the conditions of the AI/FNC contract to give himself credibility in his rationale to Tom for threatening him.

Now with the mega sale of FNC, AI National is in an awkward position. It’s a game I call “stupid or liar.” AI National either looks like:

Either way, AI National hasn’t told their members anything.

UPDATE This FNC-CoreLogic sale link was just shared with me. I wonder if any of the 45 millionaires created by the FNC purchase [39] were connected with AI?

UPDATE2 Apparently there is an AI Ready website [40]. The “PARTICIPATING AIREADY SOFTWARE VENDORS” section indicates the site has been kept updated. The “about” section shows how AI Ready was a branding vehicle for FNC to move data into a universal format:

Before AI Ready™, which uses FNC’s Open Appraisal Document Interface (OADI) technology, industry consensus on a standard for appraisal transmission was non-existent. The OADI was designed as an interface specification for the transfer of proprietary appraisal data formats into the open AI XML standard and vice versa. The interface provides appraisal document software companies a common application programming interface (API) for translation of their data into the standard format.

Update3 AppraisalPort [41] – the appraisal web portal of many mortgage lenders to communicate with appraisers, was built by FNC and displays the AI Ready brand on their home page suggesting there is a continued relationship between the firms.

A Brilliant Idea

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 [42]. And be sure to share with a friend or colleague if you enjoy them. They’ll avoid getting immersed in the pineapple on pizza [43] debate, you’ll run through NYC like a bull [44] and I still won’t be able to find my keys [45].

See you next week.

Jonathan Miller, CRP, CRE
Miller Samuel Inc. [46]
Real Estate Appraisers & Consultants

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Appraisal Related Reads

Extra Curricular Reads