Sgt. Pepper’s Lonely Housing Market Deep Tracks

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!

NYC metro area NY Fed Business Leaders Survey [Sgt. Pepper’s Lonely Hearts Club Band]

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.

A Listing Description for the Ages [With a Little Help from My Friends]

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.

U.S. Borrowers Credit Scores are insane. [Lucy in the Sky with Diamonds]

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.

Getting Tired About Predicting Canada’s Housing Bust [Getting Better]

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.

The ‘Flipper’ Narrative Led to The Housing Bubble [Fixing a Hole]

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.

The Bronx is bubbling [She’s Leaving Home]

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

Mile High Buildings? [Being for the Benefit of Mr. Kite!]

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!

Premium for private park access [Within You Without You]

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.

Renters That Want To Rent [When I’m Sixty-Four]

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?

Second Avenue Subway Access Problems [Lovely Rita]

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.

Buying in a building with a pool [Good Morning Good Morning]

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.

Forward-Looking Sentiment Cooling Off [Sgt. Pepper’s Lonely Hearts Club Band (Reprise)]

Appraiserville [A Day in the Life]

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: and tell ’em Jonathan Miller sent you.


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.

  • Appraisal Institute Committee (RAPT) Working to Develop Recommendations To Address Neglect of Residential Members

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

  • The group includes some terrific residential professionals and good people – some of which I have the pleasure of knowing and some others I simply know from their reputations shared by people I respect.

— 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.

  • Kenneth Harney, syndicated columnist writes: “Zillow faces lawsuit over ‘Zestimate’ tool that calculates a house’s worth”

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.

  • Stephen Wagner, MAI, SRA, AI-GRS justifies implementation of “Taking” policy on January 1, 2018, saying vast majority of AI Chapters want AI National To Take Most of Their Money.

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.

A Brilliant Idea

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See you next week.

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

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