Matrix Blog

Over the past couple of weeks there has been extreme outrage expressed by the chapters and membership of the Appraisal Institute towards “National” leadership and their stealth policy culture. The last straw was “The Taking” policy of nearly all chapter funds and then charging the chapters to manage them. This major AI policy initiative was passed without vetting of the chapters or the membership. I have written about this in two recent blog posts that went viral.

Sadly, The Appraisal Institute is now working against its local chapters

Incredibly, The Appraisal Institute is taking chapter “excess cash” and charging them for the privilege

Emails, letters and documents are flying everywhere.

On Thursday it was suggested I set up a central repository for all this information since not everyone in the chapters and membership are seeing all the same information.

So we set one up and it is ready to go. This new web site is a forum that allows users to either lurk or register. If you register you can add content and comments. If you’d rather lurk, that’s ok too since the goal here is to create transparency. I preloaded REIC with some of the information I have. I’m happy to upload information for those of you that are less tech savvy…just use my email address below.

But for now, the best thing you can do is SEND THIS URL TO EVERYONE YOU KNOW and start UPLOADING AND SHARING INFORMATION RIGHT NOW!!!

https://realestateindustrialcomplex.com

Tags: Appraisal Institute, AI National, real estate industrial complex, REIC

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After last week’s post went viral: “Sadly, The Appraisal Institute is now working against its local chapters“, I thought I’d follow up with additional thoughts on AI National’s chapter money debacle.

On November 18, 2016 the Appraisal Institute Board of Directors adopted their Chapter Financial Management and Administration Policy. I assume most chapter officers are not aware of the details of this major AI financial chapter restructure plan whose policy is officially in place.

How the sausage is made

Here is a relevant excerpt from the new AI November policy on chapter finances:

Make the phrase “excess cash” part of the professional vernacular going forward. Here is a key detail from the policy:

6. Reserve Fund

a. Cash and Investments Held by Chapters
Excess cash held by Chapters shall be consolidated with the Appraisal Institute’s Reserve Fund Portfolio (“Portfolio”).
In determining the initial deposit into the Reserve Fund Portfolio, cash and investment balances greater than three months of the average monthly Chapter operating expenses will be considered excess cash. The average monthly operating expense will be based on the last three fully closed years.
b. Portfolio Structure
Deposits from Chapters to the Reserve Fund shall be comingled with Portfolio assets, however will be accounted for and tracked separately.

So here’s a hypothetical scenario based on the way the policy reads to me:

Lets say a chapter has $200,000 in the bank. This money was collected from chapter members with their hard earned appraisal fees. The money enables a local chapter to function, bring in guest speakers, cover operating deficits, pay for an executive secretary and other operational items. I already know there are chapters with as much as $100,000 to more than $300,000 in their chapter bank accounts.

Lets say the three year average of my example chapter’s monthly expenses is $5,000. By the AI policy formula, all cash in the chapter’s account above $15,000 (3 x monthly average) will be sent to National. AI has said they will keep records of where the money came from. So in my example, $185,000 ($200,000 less the $15,000 calculated amount) immediately goes to National where it is commingled with other chapter’s funds.

There is a complex (to me) protocol for getting the money back to use at the chapter level. It makes me wonder what happens when a chapter needs money to keep the doors open but doesn’t have it or has a short term financial emergency. For most chapter members who already have full time jobs or a part time executive secretary, the process of getting access to cash at last minute to solve an unforeseen problem seems like an unfair burden. Contrary to the sales pitch given by the president in the previous post, I believe this policy will create additional clerical burdens and reduce the flexibility of the chapters.

As time passes, combined with National’s inability to keep chapters and membership informed in recent years, the details of this “taking” will get hazy as time passes. Over the long term it is unclear what will happen with each chapter’s money. This and other AI policies are being written in such an open ended way, clearly banking that membership or the chapters won’t read it and won’t have a way to stop it once they do. Once National takes most of the money from the chapter bank accounts, the chapters are forever at their mercy. Do chapters really want to be placed in this position?

I recently spoke to an AI member, with a reputation among local peers for cheerleading AI mandates for his own political gain. This person told me that the so-called chapter money was really “National’s money.” I can only believe that such an orientation came from National. I immediately corrected the member, saying that “no, it was the chapter/members’ money.” This position spoke volumes about how National sees the chapters as working for National rather than as National working for the members.

But gets better…

Chapters are literally paying National to manage the chapter fees National has decided to take from the chapters without advanced warning.

Here is a relevant excerpt from the new AI November policy on chapter finances:

Incremental costs (“Incremental Costs”) incurred by the Appraisal Institute Finance Department to execute the responsibilities delineated to it within the Policy shall be funded by a fee payable by Chapters. Incremental Costs represent expenses incurred that otherwise would not have been payable by Appraisal Institute without this Policy and may include, but are not limited to, personnel, technology, banking, audit and tax services. The amount payable shall be calculated for each Chapter as a Base Fee plus a Variable Fee Percent of such Chapter’s average annual expenses. The Base Fee and Variable Fee Percent shall be established by the national Finance Committee, subject to the national Board of Director’s approval, so that total amounts paid by Chapters under this section of the Policy shall reimburse the necessary Incremental Costs incurred by Appraisal Institute to execute its obligations under the Policy. The combined Base and Variable Fee shall be paid in four equal installments on a quarterly basis.

Please get familiar with this policy document and remember that the AI board has already adopted it without vetting it with the chapters. I repeat: this is now an active policy of the AI.

After National takes the “excess” chapter funds (my example of $185,000), it charges the chapter to manage it including costs for additional staff. And even more of a concern, the amount of the fixed plus variable cost structure the chapter will pay has not been determined yet. All AI chapters are effectively losing control of their “excess funds” but don’t know how much National will charge them to manage those funds.

Being penalized for success

Based on the fixed plus variable format, a large chapter will probably pay more than a small chapter for National to manage the chapter’s money. I would argue that the larger chapters are being financially punished by National for being larger. The irony here is that larger chapters reflect a certain level of success by attracting and keeping more members or being able to generate funds for a rainy day. Plus the AI money management process is the same for a chapter with $10,000 in excess funds and one with $200,000 in excess funds. Since the chapter funds are tracked on a spreadsheet or accounting software, the number $10,000 is not easier to enter into a spreadsheet cell than the number $200,000 so the size of the chapter is immaterial. If National maintains that chapter size is material, then the unannounced variable plus fixed management fee should be much larger than if size didn’t matter. I would argue that smaller chapters will require more management than larger chapters, no?

I find the commingling of funds unnerving since membership generally does not trust National leadership and this massive shift in policy was done without communication to the chapters, let alone the membership. The scope of this change is not a simple matter. It should have been vetted on a chapter level if National truly respected their chapters.

Can there be a solution?

Two suggestions for AI National:

1. I’d like to naively suggest that the National board adopt a chapter level opt in policy so chapters can decide individually whether to allow AI to run their chapter finances. I can see how a few very small chapters that don’t have executive secretaries could be inclined to ask National to manage their funds. However all chapters will be making quarterly management fee payments to National and be subjected to a myriad of rules in this controversial policy. The very idea of an outside party managing chapter funds seems to add more operating burden to understaffed chapters and their executives who already have full time jobs (usually).

2. The “taking” of chapter funds should be cost neutral. The proposal by National should not cost the chapters a penny. If chapters save operating costs that equals the management fee, then perhaps this can be explored. Otherwise our industry has endured a long term period of fee compression, and this policy simply becomes a money grab by National.

What happens next?

At this point, it looks like the majority of the membership and the chapters are against the AI Board decision to take most of each chapter’s cash.

If chapters resist giving their “excess cash” to National, would it not be too far to suggest that National will nullify the designations of chapter members in a rebellious chapter? Otherwise, what other action could National take to enforce this “taking”? This recent policy and the unrest it stirred has already tarnished the AI brand and will likely accelerate the exodus of existing members. When leadership of an organization is unable to deliver value to their members, the next step seems to be to take something of value from their members. In this case…cash.

The president and board members of the Appraisal Institute demonstrated how little they understand and respect their membership. I believe this is why they enacted a policy to take each chapter’s cash without telling them in advance. As I said in my prior post, AI National is officially obsolete.

Tags: Appraisal Institute, AI National, policy, Board of Directors, money grab

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I have a lot of good friends and colleagues who frequently give at least a passing thought to quitting the Appraisal Institute, the largest real estate appraisal industry trade group. At the national level, the association has lost the ability to work for its members and has instead, shifted into a political failure spiral by enacting policies that are against their chapters’ and members’ best interests.

I get these types of comments from members at get togethers who say things like…

“I am only paying my dues to retain my designation.”

“The chapters are the only relevant thing AI provides to help me.”

“The self-dealing politics at National sickens me.”

Their announcement of the new administrative policy on November 30, 2016 continues the trend:

As you might have heard by now, the Appraisal Institute Board of Directors recently took a significant step to enhance your chapter’s ability to focus its attention on providing member services by reducing your current administrative burden. This is great news for chapters.

Here’s the letter that was sent to chapter leaders:

It reminds me of an old IRS joke: The IRS agent walks into your office with arms extended for a handshake and says:

“I’m from the IRS and I’m here to help you.”

It has been discouraging to watch the Appraisal Institute (National) erode into irrelevance while the appraisal industry is crying out for leadership at a seminal moment in our history. Dodd-Frank is about to be gutted and appraisal management companies have run out of appraisers willing to work for half pay. Instead they have morphed into a trade group that is unable to help its members. I challenge my readers to provide any evidence of such leadership since the financial crisis.

One of the only remaining redeeming features of the Appraisal Institute aside from their SRA and MAI designations has been the strength of local chapters. It’s where the rubber hits the road, where appraisers press the flesh at local meetings, take classes and listen and interact with guest speakers. The real value of AI membership remains at the chapter level.

At the Appraisal Institute headquarters in Chicago (National), they clearly recognize the power of the local chapters. For an organization that has been encumbered by procedural minutae, they developed the ability to enact policy without input or oversight. Here’s the current controversy over a non-vetted decree from National that involves money.

National has enacted a new policy that requires all money at the chapter level be administered by National. It’s a political power grab that will further alienate dues paying members. This is part of the growing pattern of AI’s lack of communication to their members.

The response

The very large New York Metro chapter responded in a letter from their board 2 days later – about being blind sided by the new policy. It’s an incredible read – a full-on indictment of the thinking of National. So many great appraisers in that chapter but how long will they put up with this? You can see how hard the local chapter is holding back it’s anger for such a policy. See link for pdf or the full text below. Bold emphasis provided by me.

AI Metropolitan New York Chapter Board Letter to AI National Board

December 2, 2016

Dear Members of the Appraisal Institute Board of Directors:

This letter is being submitted on behalf of the Board of the Metropolitan New York Chapter of the Appraisal Institute as a response to the National Board’s recent decision to implement a new Appraisal Institute Chapter Financial Management and Administration Policy. The Metro New York Board met this week and unanimously agreed to communicate our disapproval of the new policy and our astonishment that such a major change could be effectuated without any sort of prior notification or consultation with the Chapters and the Membership. Furthermore, to announce this decision as a fait accompli late on a Friday before a holiday week is alarming to our Chapter’s Directors.

The Metro New York Board finds it surprising and unacceptable that such a significant policy change in the governance of Chapter finances could be constructed without any transparency, input or dialogue with the Chapters and Membership. Simply being informed that national will take over our Chapter funds, albeit with assurances of our continued control of our finances, is outrageous paired with the admission that “Adjustments may have to be made to the policy as implementation progresses.” By creating this plan, effectively behind closed doors, you have not instilled any sort of confidence that the policy you are demanding we accept is acceptable to the Chapter. Given that the Appraisal Institute has a model for gaining feedback from the Membership – with the 45-day notice model provided for other significant actions impacting Members and Chapters – the Metro New York Board feels it is not at all appropriate for the national Board of Directors to unilaterally create this new policy in such an opaque manner. Given the potentially serious impacts of this new policy on the individual Chapters, we believe a more extended, perhaps 90-day notice would be minimally appropriate particularly given that this change was basically “sprung on” the Chapters on the advent of the holiday season that creates extra demands on all of us.

Beyond our uneasiness with the lack of transparency and how this new policy was implemented, the Metro New York Board finds the policy itself to be unacceptable. We believe that turning over our funds to national would limit and impact the autonomy of our Chapter and potentially diminish our stature in the local real estate community. The Metro New York Chapter is one of the most active Chapters and has been diligent in providing necessary education opportunities for our members and candidates, organizing enriching events for our members and the broader New York City real estate community, and fostering a supportive framework to help candidates work towards their designations. Importantly, this last goal contributes to the health of the organization nationally. Many of these programs are supported by our members through a historically successful Chapter sponsorship program. We believe our success in these endeavors illustrates that we are proficient in managing our own funds, maintaining reserves, and knowing how to do what needs to be done on a local basis. Certainly stripping the Chapter of its funds, particularly under terms that may be subject to change, will undermine the Chapter membership’s confidence that our efforts to maintain the economic health of the Chapter constitute time well spent. Furthermore, several Chapter sponsors who have consistently supported Chapter endeavors have expressed concern about this change in policy and that it may impact their willingness to continue such sponsorships in the future considering the substantial loss of Chapter autonomy as a result of the new policy changes.

While we look forward to hearing more details regarding the new policy from National on Tuesday’s call, the Metropolitan New York Chapter Board strongly urges the National Board to reconsider implementing this new policy.

Appraisal Institute, New York Metro Chapter
John A. Katinos, MAI, President
On behalf of the Metro New York Chapter Board of Directors

I heard a rumor that AI wants to do away with chapters and I’ve also been told that is not true – but with the opaqueness of National, I don’t know what to believe. And I keep hearing rumors about AI spending millions to expand their footprint across the globe but haven’t seen any measurable success let alone share the status of this effort with members. Is esoteric global expansion worth raising dues in a compensation compressed environment? Is the membership even aware of this effort and the millions supposedly lost?

Most of my peers nationwide have expressed frustration with an organization mired in self-serving politics. And it only seems to be getting worse.

My moment of zen was their self inflicted and childish exit of the Appraisal Foundation a few years ago. I eventually left AI and moved on to two other organizations that provide what appraisers are looking for. Remember that most of us are “lone wolves” and belong to organizations to get other perspectives. I can’t tell you how many SRAs and MAIs I know are talking about leaving the organization.

And did you ever wonder why there are so many statewide appraisal coalitions popping up? It’s largely because of inaction by National or their opposition to issues important to appraisers.

Incidentally, this new policy parallels the changes made by the Chinese government a while back. They moved the majority of the tax income stream from the provinces to the national government. This forced the provinces to go hat in hand to the national government to beg for an allotment of income each year. Sound familiar?

Lots of graft ensued for the provinces to get their “share” of revenue. In fact one of the reasons there are as many as 40 ghost cities in China right now is because the provinces were incentivized to generate GDP. What better way to do that then to build cities for several hundred thousand residents that would never come.

The moral of the story: central planning is never efficient. Through the loophole that National installed allowing them to modify this policy at anytime in the future is a recipe for disastrous self-dealing.

This is the appraisal industry’s moment to have some impact on our future. There are many challenges in front of us. The Appraisal Institute on a national level is now officially obsolete.

Enough with the self-dealing. We don’t make enough money collectively to fund their boondoggle. We need leadership, not politics.

Tags: Appraisal Institute, Metropolitan New York Chapter of AI, AI National

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I was invited to speak at the Great Lakes Chapter of the Appraisal Institute last week and met a lot of great appraisers who cover the state of Michigan.

I spoke about the housing market and the misinterpretation of residential housing metrics, inspired by this article and the following infographic from the Detroit Free Press.

Inkster +106.4% !!!!! a largely distressed market with what I was told only has a handful of rock bottom sales ie $10K in 2009 becomes to $30k in 2014 – a perfect example. Hot? Hardly.

As much as I think I held their attention for the entire hour allotted, my presentation fell short of getting audience adrenaline pumping like the Jordan Petkovsky, the Chief Appraiser of a TSI Appraisal, a large national AMC and affiliated with Quicken Loans. I still wonder how beneficial this public relations could be by talking to the industry like a politician – as if residential appraisers were clueless to the “incredible benefit” that AMCs provide our industry.

Here are a few of the questions (paraphrased) posed to an audience comprised of heavily experienced residential and commercial appraisers:

Q: “I realize there is friction between AMCs and appraisers. What has to happen to solve this problem?”
A: Someone in audience: “Someone has to die” followed by a burst of laughter from the entire room.

Q: “We spend millions on powerful analytics. Wouldn’t it be great for appraisers to get their hands on this technology?” (repeated 2 more times slowly for effect).”
A: Someone answered: “You have to spend millions on technology because the appraisal quality is so poor you need to analyze the markets yourself.”

Q: “How do we attract new appraisers into the business?”
A: My answer “Until appraisers are fairly compensated when banks are made to be financially incentivized to require credible reports, nothing will change.”

Q: “How do you think banks feel about the reliability of appraisals today? They don’t feel the values are reliable.”
A: My answer “Because AMCs pay ±half the market rate, they can only mostly attract form-fillers (aka “corner-cutters”). They don’t represent the good appraisers in the appraisal industry.”

Q: “We focus a tremendous amount of effort on regulatory compliance on behalf of banks and boy are they demanding! We even have a full time position that handles the compliance issues.”
A: My comment – that’s a recurring mantra from the AMC industry as a scare tactic to keep banks from returning to in-house appraisal departments. Prior to 2006 boom and bust cycle and the explosion of mortgage brokers with an inherent conflict of interest as orderers of appraisals, the profession was pretty good at providing reliable value estimates. The unusually large demands by regulators (if this is really true and I have serious doubts) is because the AMC appraisal quality is generally poor. If bank appraisal quality was excellent, I don’t believe there would be a lot of regulatory inquiries besides periodic audits.

What I found troubling with his presentation – and I have to give him credit for walking into the lion’s den – is how the conversation was framed in such an AMC-centric, self-absorbed way. I keep hearing this story pushed by the AMC industry: The destruction of the modern appraisal industry was the fault of a few “bad actors” during the boom that used appraisal trainees to crank out their reports. That’s incredibly out of context and a few “bad actors” isn’t the only reason HVCC was created – which was clearly inferred.

Back during the boom, banks closed their in-house appraisal centers because they came to view them as “cost centers” since risk was eliminated through financial engineering – plus mortgage brokers accounted for 2/3 of the mortgage volume. Mortgage brokers only got paid when the loan closed, so guess what kind of appraisers were selected? Those who were more likely to hit the number – they were usually not selected on the basis of quality unless the bank mandated their use. Banks were forced to expand their reliance on AMCs after the financial crisis because the majority of their relationships with appraisers had been removed during the bubble – the mortgage brokerage industry imploded and banks weren’t interested in re-opening appraisal departments because they don’t generate short term revenue.

The speaker spent a lot of time talking like a politician – “we all have to work together to solve this problem” “appraisers have to invest in technology.” When asked whether his firm had an “AVM”, he responded almost too quickly with “No” and then added “but you should see our analytics!”

The residential appraisers in the audience were largely seething after the presentation based on the conversations I heard or joined with afterwords.

It’s really sad that appraisers don’t have a real voice in our future. We’ve never had the money to sway policy creation and we can’t prevent the re-write of history.

But we’re clearly not the “bad actor.”

Tags: Appraisal Management Companies, HVCC, Appraisal Institute, AMC, Home Valuation Code of Conduct, Michigan, Quicken Loans, Jordan Petkovsky, TSI Appraisal, Great Lakes Chapter

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A while back, I was invited by the Long Island Chapter of the Appraisal Institute to keynote for their winter dinner/seminar tonight in Westbury, Long Island:

LI Housing Market: Transitioning from “Recovery” to “Recovered”

It’ll be great to catch up with my friends and colleagues and I always love to talk appraisalspeak for extended periods of time.

The presentation will cover (2 CE credits):

Long Island Market Reports, Key Trends, Drivers of the Current Residential Market, Fiscal Cliff, Pent-Up Demand, Record Low Inventory, Mortgage Rates, Federal Reserve, Transitioning to a Sustainable Long Term Housing Market Recovery

In a question and answer period, discussion will include Snapshot of the Long Island Housing market, including 4Q 2013 market research results in Long Island, Hamptons and the North Fork; Affordability, What is driving Sales Activity?; The relationship between Sales and Prices – Why is inventory low?; Spike in Mortgage Rates; Federal Reserve taper miscommunication; Why are Housing Prices Rising?; Long Island and Manhattan real estate economy, Credit Issues, Lending, Market Trends, Impacts, and Challenges in Year 2014.

The latest Nor’easter is supposed to start at about 2AM so it looks like we’ll get this done just under the wire!

Tags: Appraisal Institute, AI Long Island Chapter, Keynote, appraisalspeak

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Every so often, a Matrix reader submits something they feel very strongly about it and bravely enter the Vortex where I post it.

Guest Columnist: Cecil Simon

Cecil has been a New York general state certified appraiser since 1992. He takes a look at the intersection of professional education and licensing. He’s weighed in here before. Like me, Cecil was an appraiser before the licensing law in 1989 and in fact wrote Congress about this matter as early as 1986.

Admittedly this is super appraiser wonkiness, but it’s worth the read.

-Jonathan Miller

May 12, 2012

Did we get there? the promise of Licensing Appraisers.

How technically prepared are Certified General Appraisers? A recent editorial by Henry H. Harrison in his Real Estate Valuation Magazine, suggested the answer is not very well. In fact, Mr. Harrison even challenged readers to provide evidence that Certified General Appraisers did not make at least 80% of their living writing residential work.

I believe he is correct on the preparation issue, and incorrect on what Certified General Appraisers do in the industry. Most Certified General Appraisers have now become the workhorses for fee shops run by designated appraisers, working as independent contractors at low rates and without benefits. This was by design, and the education and experience requirements set by the Appraisal Qualifications Board in the early 1990s, later amended in 2008, bears me out.

It is now generally accepted that the requirements for General Certification set in 1991 were deplorable, although Harrison and other in his group did not think so when I first wrote to him in 1993. The 2008 fix with the addition of a course in Highest and Best Use and Market Analysis, and one in Report Writing was a plus, but the remaining content was just a split of two former lower level courses into some 120-140 hours. The final product was three hundred classroom hours, more than were required for the MAI in 1990, yet these were junior courses.

FIRREA had a specific mandate. That mandate required that the education and experience required for General Certification be such, that a person with those qualifications would be able to appraise any property without regard to value in a Federal related transaction. That is a high standard, which was well known to the Chairman and members of the Board from 1991 to 2004, yet they did otherwise. The reasons often given in support of the lower standards were the use of the term minimal education required, that States could add to the basic core, and that Certification requirements were intended as a beginning. But the mandate certainly does not imply that.

Basic appraisal education requires only six courses, seven if you add the new Quantitative Analysis course, which is a plus. The seven courses are Appraisal Principles and Procedures, Highest and Best Use and Market Analysis, Land Valuation and the Cost Approach, Direct Sales Comparison Approach, Income Approach, Quantitative Analysis, and Case Study and Report Writing. These names can be applied to Residential and General [Vortex] Did we get there? the promise of Licensing Appraisers.

Certification courses with different content, and all that is currently listed by the Appraisal Institute as Level 1 and 2 and required for their MAI designation can be covered in those seven courses. Hours can be assigned based on the content to be covered.

The seven basic courses plus four years of experience, and the State Exam, is more than adequate to lay the groundwork for Certification as well as any designation. It should be noted that the six courses used prior to 1990 for the MAI, and the four used for the SREA (101, 102, 201, 202), were all taught in less than three hundred hours. These courses produced some of the best educators and practitioners currently working in the industry, including Mr. Harrison. Even Universities that grant Undergraduate and Graduate Degrees in Real Estate offer only one or two courses in Valuation.

I took the trouble to review the education requirements for all of the original members of the Foundation that deal specifically with Real Property interest. The Appraisal Institute of Canada arguably has the best program, and the Appraisal Institute is the only one with Advanced Courses. Some startling facts also come to mind. The education requirements for the MAI designation have increased from 267 hours in 1990 to 482 in 2008, an increase of 215 hours, all without any change in the theory and methodology of valuing real property. The only industry change during that period was the use of software that makes database searches and data analysis easier. In fact, one group, The American Society of Appraisers could not even remember when they last hosted a basic course.

I believe that The Appraisal Institute is the best professional association representing appraisers and the leader in the industry, but its continued creation of advanced courses in order to create the illusion that its members and candidates are better prepared than Certified Appraisers is a farce. The same seven courses could easily serve as the core education requirements for candidates as well as General Certification. Additional requirements for designations can be added. The MAI designation is a highly recognized brand, and could be granted based on work experience and peer review. Downgrading the education requirements for Certification is a dumb idea, and it is clear that The Appraisal Subcommittee fell down on its mandate to monitor and review the practices and activities of the Foundation.

There are a few good textbooks out there on Appraising Real Property, and I place The Appraisal of Real Estate, published by the Appraisal Institute at the top of that heap. Now I would hope that any State that puts its imprimatur on the qualifications of any individual to call that person a Certified General Appraiser, expects that they have covered the content of that text from cover to cover. That was the intent of FIRREA. But it appears that by separating the content into General and Advanced sections, both the Appraisal Institute and the Appraisal Qualifications Board that it has controlled since 1989 seems not to think so. This difference in education is the centerpiece of Harrison’s thesis.

The Qualifications Board should simply set the education requirement as successful completion of a course in the seven areas and forget hours, and if a rigorous State exam is made part of the process, then The Appraisal Institute will be sure to include much of what it now calls advanced content in those seven courses.

On the issue of college education, professional associations may find this a plus, and hopefully the appraiser has written enough college papers to be able to write properly, but degrees in most disciplines will not make you a better market analyst.

The answer to my original question is yes and no. We now have a mechanism to punish bad apples, although better enforcement is needed, but the standards for education, experience and testing did not.

C M. Simon.

Tags: Appraisal Insititute, The Appraisal Foundation, Cecil Simon, Articles, Appraisal Institute, Canadian Housing Market

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Tags: The Appraisal Foundation, Appraisal Institute, David C. Wilkes

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Last month I spoke to and interviewed Tony Pistilli, a certified real estate appraiser on the Minnesota Department of Commerce Real Estate Appraiser Advisory Board. He’s got a possible solution to the current appraiser – appraisal management company conflict. Its all about conforming to RESPA and preventing banks from shifting the burden to appraisers to pay for bank compliance.

Its the first logical solution I’ve heard. The banks are essentially making the appraiser pay for their RESPA compliance by taking it out of the appraiser’s fee, often 50% of the stated appraisal fee. The consumer is being mislead by the appraisal fee stated by the lender at time of mortgage application.

• – Appraisers and borrowers are paying for services the banks receive, not the bank.
• – Banks should pay for the services received from the AMC’s who manage the appraisal process.
• – Appraiser’s fees should be market driven.
• – Banks should be held accountable for the quality of the appraisal.

He’s been spreading the word through all the channels/usual suspects in the blogosphere. Here’s my original post, including his article:

[HVCC and AMCs Violate RESPA?] Here’s a possible solution

His views seemed to have been picked up by the Appraisal Institute, the largest appraisal trade organization in the US, in their letter to HUD looking for clarification on RESPA and the disclosure of fees paid by consumers. Here’s the FAQ on the new RESPA rule.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

Tags: Appraisal Management Companies, Tony Pistilli, HVCC, Appraisal Institute, AMC

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Tags: Appraisal Management Companies, HVCC, Appraisal Institute, AMC

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[click to open article]

In the current issue of Valuation Magazine, the quarterly publication of The Appraisal Institute, the largest US appraisal trade group, featured me in their membership profile feature called “Face Value.” The article is called “Empire Building: an appraiser in NYC takes on $1 billion conversion venture“. The article covers a venture I am participating in called Condominium Recovery, LLC.

The Appraisal Institute approached me to seek understanding of how I leveraged my appraisal expertise towards a non-traditional use.

Whats great about the article is that I get to use appraisal terminology like “highest and best use” without having to elaborate. Whats great about the venture is I get to work with legendary coop/condo converter, builder and manager Gerald Guterman.

It’s going to be an interesting couple of years.

Tags: Appraisal Institute

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Guest Columnist:
Todd Huttunen

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Matrix readers tongue-in-groove insight on appraisal and housing issues. View his earlier handiwork on my first blog, Soapbox

Jonathan Miller

In estimating the value of a house, appraisers are concerned with answering two fundamental questions.

1 – What is the value of the land, as vacant?

2 – What contribution, if any, does the existing improvement make to the underlying value of the land?

A recent study (pdf) conducted by the Lincoln Institute of Land Policy suggests that in the higher priced regions of the country, the land-to-value ratios range from 50% to 75%. In areas where “teardowns” are common, land values can actually exceed 100%, since the buyer looking to construct a new house has to add the cost of demolition to the price paid for the existing house before she can build the new one.

Although this is the reality in many parts of the New York metropolitan area, Boston, Southern California, and other regions, for a long time now banks and the appraisers who work for them have pretended otherwise. For some reason banks want to believe that the mortgages they make are on properties where the land represents between 25% and 35% of the market value and that the improvement represents the bulk of the value, 65% to 75%. Even as far back as 1985 when I started appraising and the land-to-value ratios were not as high as they are today, we were required to add a comment to our reports stating that “land values in excess of 30% of market value are common in this area,” whenever we estimated land value above that “magic number”.

Appraisers I’ve spoken to say the reason they estimate land values at say, 30 – 35% of overall value, irrespective of the fact that it may be much greater, is that they are under pressure from lenders and underwriters who won’t approve loans on properties whose land-to-value ratio is more than roughly one-third. Conventional wisdom says banks don’t want to make loans on land, so they instruct their appraisers to say the land is 30 – 35% of market value (the fact that it may really be 80 – 90% doesn’t seem to bother them, as long as the appraiser says otherwise). The reality however, based on this Land to Value Ratios study from the Lincoln Institute of Land Policy, is that in many of the country’s higher priced locations, it is the land which comprises 50% to 75% or more of the value of the property.

This is important for a couple of reasons, one of which is the fact that appraisal forms are geared toward the notion that most of the value is in the improvement, and not the land. The adjustment grid, wherein the appraiser compares the subject property to the comparable sales, gives short shrift to factors relating to the land value and focuses instead on the improvements such as square footage of the house, number of bedrooms and baths, condition, and on the amenities such as fireplaces, patios and pools. Most of the dollar adjustments appraisers make are for differences in the improvements and amenities. But if 75% of the value is in the land, then why are we bothering to make an adjustment for the fact that one property has a fireplace and the other does not? Shouldn’t the focus be on factors relating to the land instead? These would include site size, shape, views, elevations, topography, frontage, etc.

Appraisers have been subject to scrutiny in recent years, given their role in the mortgage lending process, and some have been implicated for their unethical participation in the sub-prime debacle. I believe most appraisers are ethical, professional, and serious about the work they do. But I do think it’s time to recognize reality when it comes to the allocation of value between land and improvements. If the land value represents 50% or 75% or 100% of the value of the property, as it does in many parts of the country, then appraisers have an obligation to their clients to say so in their reports. And if that means the appraisal form itself needs to be redesigned to reflect the market as it is now, and not as it was in 1930, so be it.

Editor’s note: I find it amazing how so few consumers realize that changes in value during a period like we just went through is in the land, not the building (improvements) – jjm.

Tags: Todd Huttunen, Appraisal Institute, Sub-Prime, The Hall Monitor

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[click to open report]

Zillow has been one of the most visible and talked about AVMs (Automated Valuation Models) in the US and enjoyed considerable press during the housing boom. Of course they have always been at the mercy of the quality of public record data despite their technology prowess.

Perhaps they were more guilty of overhyping the reliability of their “Zestimates” in the early days by presenting value estimates precisely down to the dollar. But hey, it was cool to see how much your neighbor’s house was worth.

There was an interesting article in Valuation Review (subscription) and HousingWire.

The study concludes that:

Zestimates on Zillow.com are no more accurate than homeowner’s estimates.

When it comes to using the Zillow.com automated valuation model (AVM) to get a free listing price on a house, users may be getting what they paid for, according to a report published by the Appraisal Institute that finds the Web site overestimates the values on homes almost as often as the actual homeowners.

Zillow has become the real estate punching bag to the real estate community. And once again, they are on the defensive in the media coverage of this report.

Here’s the issue:

The key issue regarding Zillow’s Zestimates is whether they reflect transaction prices. Zillow has been described both as “a useful site” and as “categorically wrong.” There have been many instances of praise and many instances of complaints by homeowners using the Web site to estimate the value of their homes. Realtors in general have also been critical of the values produced by Zillow.

Agents had issues with over valuation because they tended to set seller’s expectations too high. Of course, appraisers have an ax to grind with a service that was perceived to trivialize their expertise in valuation.

The report, “Zillow’s Estimates of Single-Family Housing Values,” was authored by Daniel Hollas, Ronald Rutherford and Thomas Thomson, doctors in economics, real estate and business, respectively. The report was published in the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest association of real estate appraisers.

View the report.

Tags: Zillow, Appraisal Institute, Zestimate, NAR, National Association of Realtors

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