Following The Housing Market At Above A Third Grade Level

Supply and demand is a well-worn concept in economics, especially as it pertains to the housing market. Rising sales and falling inventory usually result in higher prices. Pretty basic, easy to digest information. Kind of like the lyrics in today’s number one music singles are at a 3rd grade reading level.

Appraiser Treated As Elementary School Students: Automating Quality and Regulating Expertise

Take the debacle near and dear to my appraiser’s heart, the robotization of the appraisal part of housing process – since the financial crisis. [Read the following with sarcastic tone>] Let’s reduce the fees paid to appraisers by 50% and force impossible turnaround times and submit the appraiser to a barrage of phone calls by 19-year old gum chewing clerks checking status and then we’ll have more appraisers than we’ll know what to do with because we can automate quality and regulate expertise.

Hey, hold on a second.

That’s not what’s happening. There’s a different kind of gum in the headlines [register]: Appraiser Shortage Could Gum Up The Works At Mortgage-Lenders. There are fewer licensed appraisers since the financial crisis and from my front line observations, there are much fewer appraisers that are competent.

Does a driver’s license insure that you are a good driver?

Industry experts suggest that these bottlenecks will only get worse as mortgage volume picks up and the number of appraisers continues to shrink…as many as 30% of the roughly 61,000 nation’s certified and licensed residential appraisers are no longer in the business but just haven’t surrendered their licenses. Another 20% to 30% are “grumbling about retiring, so the actual number of working appraisers could be cut in half,”…

Largely because the mandated “customary and reasonable fees” regulation is not being followed by the appraisal management companies [AMCs] and their inundation of addendums, phone calls and status checks to prove their value add to the lenders for taking half of the appraisal fee. I’ve written about this a lot in my blog over the past several years, and my favorite effort was called Working for an AMC is like delivering a pizza. I actually got calls and emails from AMC’s asking me what they need to do to change. I shared my thoughts but that was where the interest ended.

And here’s another take on fees over at Appraisal Buzz:

The first time I heard the phrase “customary and reasonable fees,” I literally laughed out loud. One of my trainees came bounding into the office one morning with a big smile on his face. “Did you hear the news,” he asked? “It will now be the law that we get paid customary and reasonable fees for our appraisal work.

Because of the excess time spent helping the AMC justify their existence to their client and the lack of “customary and reasonable fees,” and the continued efforts by federal and state agencies to regulate expertise through more coursework and providing more appraisal hoops to jump through, the appraisal industry is not attracting new blood and more importantly, experienced appraisers can no longer afford to mentor trainees. More course requirements do not equal experience.

It’s Just Weird: Of Cats Dogs and Turtles
How do valuation analytics pick up things like this?

CATS DOGS A friend and appraisal colleague of mine recently told me: “I did [an appraisal] one time out in the country and the lady had 150 dogs! One could not tell a dog from a rat or raccoon. She took in strays and never saw a stray she didn’t like.” The client didn’t do the deal.

TURTLES My firm appraised a nice new condo about ten years ago. Subsequent to purchase the buyer sued anyone who touched the transaction: the developer, contractor, real estate broker, appraiser (us), and others because mold developed in the unit after the purchase. It got so bad that the owner moved out and rented a similar place nearby but it too soon developed mold. Eventually the suit was thrown out once the judge understood what actually happened:

We were told that the buyer who sued everyone was having dinner at a restaurant and saw that the customer at the other table was having turtle soup. The buyer had some sort of epiphany and from that point on his mission in life was to save all turtles. He filled his apartment with supposedly a 1,000+ turtles and to make it habitable, kept the heat and humidity at a level that rapidly fostered mold. The same thing happened at the rental apartment, thus a pattern was developed.

Of course this doesn’t relate to the point I’m making but it is a good story because it is so hard to believe. As the eyes and ears of the client in coming up with valuations, we see things that analytics can’t see…like cats and turtles.

Don’t get me wrong. I’m not a Luddite. I believe technology tools for risk assessment are a good thing, as long as they are not confused with providing a reliable value as of a specific moment in time – an appraisal. Since the financial crisis this concept has been lost. Lets look at the appraisal process at more than a fifth grade level, shall we?

Touring the country, making charts (at above a fifth grade level)

I took a spin around some of the Curbed Network this week with my Three Cents Column that I’ve began writing for Curbed New York more than a decade (OMG). You might want to visit any of the Curbed Network sites for some terrific insights on housing and neighborhoods. Here was this week’s path across the U.S.

Curbed New York (Three Cents Worth)
Renters Love Small Apartments; Buyers Are Relegated To Them

Curbed Miami (Three Cents Worth)
Miami Drill Down: Picking Up the Scraps of the Financial Crisis

Curbed LA (Three Cents Worth)
How Much Does It End Up Costing When a House Lingers on the Market in Los Angeles?

Curbed Ski (Three Cents Worth)
Aspen Real Estate Has Had Many Peaks, But It’s Not Peaking

Final Analogy

I’ll close out with a third grade analogy that I’m not sure I fully believe:

Remember that making the speed of a home sale or mortgage transaction as fast as a rabbit (or hare) is somewhat important but in the long run, the quality and reliability of a turtle (or tortoise) always wins.

See you next week.

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

ps Please feel free to share.  If you get tired of all the charts, real estate commentary and articles presented in each weekly note, just opt out.  I always appreciate feedback so please email me.

Must Reads

• At Harvard, Natalie Portman acknowledges what many of us feel: Impostor syndrome [The Washington Post]
• The Economist Who Realized How Crazy We Are [Bloomberg View]
• On the Midtown Skyline, a Race to the Clouds [NYTimes]
• New Census Numbers Show That America Is Enjoying a Patio Boom [CityLab]
• DiNapoli: Wall Street Bonuses Edge Up in 2014 [NYS OSC]
• San Francisco Rejects, Luxury Housing Moratorium [WSJ]
• Beige Book: Housing continues to expand through the spring [HousingWire]
• The Life-Changing Magic of Losing Shit [Medium]
• Develop a Virtual Rental Building—and Just Try To Break Even [Curbed NY]
• RACE DAY: FINESTRE [Strava]
• Stiglitz: Fed’s Zero-Rate Policy Boosts Inequality [WSJ]

New Research

• Comparing Price Trends in the Hamptons and Manhattan [3CW/Curbed Hamptons]
• Costly City Housing Is an Economic Drag [Bloomberg View]
• Tracking New York Rents and Asking Prices Over a Century History Lessons [3CW/Curbed NY]
• Manhattan Apartment Sales versus Rentals [D-o-D, CPI-adjusted, D-o-D CPI-adjusted [Miller Samuel]
• Is Gentrification a Four Letter Word? [Matrix]
• How Many NYC Apartments Are Bought With Cold Hard Cash? [3CW/Curbed NY]
• Aspen Real Estate Has Had Many Peaks, But It’s Not Peaking [3CW/Curbed Ski]