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Posts Tagged ‘Appraisal Process’

Some Financial Institutions Care About The Safety Of Appraisers, While Most Do Not

March 18, 2020 | 10:08 pm | Investigative |

[Johns Hopkins University]

As co-owner of an appraisal firm for 34 years, while based in Manhattan, we generally don’t drive to appraisal inspections. Our staff relies on public transportation to get around including buses, subways, and commuter rail. I’d been following the coronavirus in the news since early this year, and became quite alarmed by mid-February and soon suggested my staff work remotely. By the time the first Fed rate cut was made in response to the coronavirus on March 3, we adopted a screening process for appraisal inspections. When our team made an appointment for the inspection, we inquired about the health of the occupant, and then on the day of the inspection, the appraiser called again to confirm that conditions had not changed.

Soon after we learned that we could be carriers of the virus without knowing and infect someone vulnerable, we stop performing interior inspections.

My appraiser colleagues around the country have become very concerned, if not plain scared.

Here are two scenarios shared by appraiser colleagues in another part of the country. Imagine if the appraiser was a carrier?

Scenario 1 Conversation
Sounds good 10 am is better
Kids are home
With no school
If your sic with a cold or similar please reset appointment

Scenario 2 Recap
Borrower is elderly and on a respirator
Says the appraiser can walk through the house by himself
And reminds the appraiser to keep their distance

Appraisers should not be placed in harm’s way or be in a position to be forced to unintentionally harm another.

So let’s look at some industry actions of the past few days:


These lenders have shown how much they respect the appraiser’s role in the mortgage process and their concern for the appraiser’s health and welfare as well as the borrower.

First Republic Bank
I submitted a temporary driveby appraisal solution to First Republic Bank, a large CA/NYC+ lender we have worked with since 1999. I feared for the safety of our appraisal staff and didn’t want to risk infecting others. Plus we were starting to get pushback from homeowners who are getting uncomfortable. They embedded this solution within days. I challenge any appraiser to name any other bank that is more professional, more appraiser-centric than they are. Here is the note they sent out to their panel.

We’ve been working for Citibank since 1986 and have enjoyed a great relationship. This policy treats appraisers as human beings. I’m not sure how closely this policy will be observed by the AMCs they engage to manage their appraisals orders (read-on).


To combat the COVID-19 outbreak in the appraisal industry, Appraisal Management Companies (third-party institutional middlemen that account for as much as 90% of residential assignments) have essentially provided a lethal magnanimous gesture by simply telling appraisers to wash their hands often and stay away from people that are sick and that they must go inside the property. While I anticipate that many AMCs would defend their position of placing appraisers in harm’s way because their bank clients require it, I say that indicates selective morality or incredible ignorance. They could push back and make a strong case for public safety.

We are in the early stages of a global pandemic that may infect 100 million Americans (1 out of 3, conservatively) with a 3% death rate (that’s 1 million people if you do the math). The appraiser population has an average age in the high-50s, and we have been told that the older populous is the most vulnerable.

In reality, these AMC policies show disdain not only to appraisers but to their own (bank client’s) borrowers by letting a fee appraiser, who is paid only for the assignments they accept, determine whether or not the appraisers themselves are carriers of this pandemic and whether they can assess the safety of the property they inspect. Here’s a key point.


The following AMCs opted to treat appraisers as a widget instead of a human being requiring them to physically inspect a property when they now know that it is not safe to do so. Today I was told that one federal agency lost 20% of their appraisers because they have refused to continue doing interior inspections. Different cities and states have different rates of infection. Because we don’t have full testing in place as a country, the number of infections might be significantly higher than we might anticipate. My particular location in Manhattan is highly problematic because of the reliance on public transportation – buses, subways, commuter rail, and just walking down a crowded street – no social-distancing here. And based on the comments the NYC Mayor made yesterday, it is possible that tomorrow could see NYC restricted to “shelter in place” like San Francisco.

If you’ll note in this pattern of negligent behavior, great efforts were made to plan for the safety of order staff, but no regard for the safety of the appraiser, who is providing the service – telling appraisers to wash their hands and practice social-distancing when they know that it is not enough. When you get right down to it, these companies sent similar silly instructions so they can check off a box to be compliant. Yet they must know that appraisers could be carriers, and occupants in the property could be carriers. This is not business as usual.

When we pushed back the appointment on a few of our AMC clients for safety concerns, they simply took away the assignment and rescheduled with another appraiser. No human contact to assess the risk. In good conscience, even if the new appraiser doesn’t have symptoms or doesn;t think the occupant does, that AMC or lender is placing the public at risk, going directly against CDC guidelines. This is what robots would do.

Here is a sampling of AMCs that provided COVID-19 instructions in the past few days shared by my appraisal colleagues – this is clear evidence that they see appraisers as widgets instead of human beings. To save you the trouble of reading all of these INSTRUCTIONS, here’s the translation: WASH YOUR HANDS A LOT

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Infographic: 25 Year Demise of the Bank Appraisal Industry and the Rise of AMCs

May 31, 2015 | 8:05 pm | Infographics |

[click to expand]

I thought I’d build a visual representation of the decline of the appraisal industry – sort a flow chart, but really an excuse to use different colored shapes and sizes. This is a work in progress so please feel free to let me know what I’ve missed, which presumably is an infinite amount of detail.

Open the timeline as pdf.

UPDATE – Fixed a few typos and grammar weirdness in graphic.

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[In The Media] Neil Cavuto/Fox Business News 3-27-09

March 28, 2009 | 8:50 am | Columns |

Friday morning I was invited to be a guest to talk about appraisers and how they are impacting the flow of housing sales. I was initially concerned that this would be an appraiser slam piece, blaming our industry for killing sales, causing global warming and low salaries of central bankers but it wasn’t and I think I covered the bases. Kinda surreal – met and spoke briefly to Dick Morris in the green room. Cavuto was very personable before the segment, we talked about the issue before we went on.

  • Sellers are generally a year behind the market
  • The ranks of good appraisers were decimated by the mortgage boom
  • Appraisers have long been the “punching bag” of blown deals
  • Lack of data is a huge issue

Connie De Groot, who was the Beverly Hills real estate agent who is a regular on FBN recommended that buyers get an appraisal when pricing their property for sale – as Cavuto commented on my neutraility point, a “Swiss Appraiser.”

Watch the clip here or you can watch it here.

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[Commercial Grade] Remember the Marketing Period?

March 19, 2009 | 11:05 pm |


John Cicero, MAI provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know.
…Jonathan Miller

Buried in all USPAP appraisal reports is a comment on the property’s exposure period and marketing period. Simply put, the exposure period is intended to reflect the time that the property hypothetically would have been exposed on the open market prior to the effective date of value. Alternatively, the marketing period is an estimate of the time that it would take for the property to sell after the date of value.

The requirements to add exposure and marketing periods to appraisals came about during the S & L crisis of 1989. Then, as now, there was a dearth of sale transactions and to a large extent the only sales taking place were under distressed conditions. The intent of these exposure/marketing time concepts was to put the value conclusion in context. A marketing period of up to 18 months says that in the appraiser’s opinion the property could sell for X dollars within the 18 months following the effective date of value. This would differentiate a property’s inherent value in a “temporarily impaired” market, and prevent banks from being required to write down loans to liquidation value.

While the exposure period/marketing time sections became part of the boilerplate over the past five years, in the current market it has taken on new meaning. When we interview brokers for our appraisals they often comment on how values are down 30%, 40%, 50%, etc. However, these discounts reflect what the broker believes that he/she could sell the property for if he had the listing today. A broker is not thinking about a 12 to 18 month marketing period. He/she wants to list the property and sell it in 3 to 6 months. To an appraiser this may represent a liquidation or disposition value; to the broker it is reality.

Like everything else in this market that has come full circle, the exposure/marketing period is once again an integral part of the appraisal. I think it’s time to dust off that section of the report and break it out from the rest of the boilerplate.

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[Straight From MacCrate] Air Rights in New York City Where’s the Market Hence Where’s the Value?

February 7, 2009 | 5:24 pm |

Jim MacCrate, MAI, CRE, ASA has his own firm, MacCrate Associates, but has worn many hats as a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim.
…Jonathan Miller

By James R. MacCrate MAI, CRE, ASA

Appraisers are often confronted with an extremely difficult task in New York City and that is to estimate the market value of the excess development rights or air rights associated with an improved parcel of real estate. Point estimates of value are provided by appraisers that may far exceed the potential value contributed by the air rights as of the date of valuation. In fact, in most instances these excess development rights have little or no value as of the date of value, and more importantly, if these rights possess any value there is no exact point estimate of value for a variety of reasons.

In order to have value, in the basic courses of the Appraisal Institute state four factors influence value:

  1. Utility
  2. Scarcity
  4. Effective purchasing power.

In order to have adequate demand to create a market in which to estimate value, there must be a number of buyers that are interested in the excess development rights. But, generally, this is not the case. In most locations in New York City, there must a “receiving site” nearby that meets the exact specifications of the New York City regulations to qualify to acquire and benefit from receiving the additional development rights. A market is required in order to estimate market value.

A market is defined by the Dictionary of Real Estate Appraisal as:

  1. A set of arrangements in which many buyers and sellers are brought together through the price mechanism.
  2. A gathering of people for the buying and selling of things; by extension, the people gathered for this purpose.

The restrictions placed on the transfer of air rights or excess development rights are limited by the New York City regulations. In most instances, the demand for excess developments rights is limited, if they exist at all. Therefore, there is no market as defined by the Appraisal Institute. So, I pose a question as to how can real estate appraisers give added value to a parcel of real estate when there is no market as defined above for air rights or excess developments rights?

Appraisers often, incorrectly, add additional value when in fact there is no market or demand. What’s worse is that financial institutions lend on the higher value that includes a speculative assumption that a market exists for these rights when, in fact, there is no market. Improperly trained review appraisers and loan underwriters fail to catch this situation. (Oh well, we are bailing out the financial institutions).

In the Appraisal Journal, October 1982, an article appeared “Valuing Real Estate under Conditions of Bilateral Monopoly” which addresses many of these issues. In most instances, only one potential buyer exists and possibly several potential sellers, if any and this is known as “monopsony.” This is a classic bilateral-monopoly problem where both the added value to the receiving parcel (buyer) and the diminution in value to the seller can only be estimated after negotiation between the two parties involved. The appraiser does not know the value of the excess development rights to the seller as of the date of the appraisal unless those rights have been sold. And, just because the rights may be sold and under contract does not mean that the price paid represents market value.

Assuming that the owners of the excess development rights and the “receiving site” are well informed or well advised, and acting in what they consider their own best interests, individual specific values for the excess development rights or air rights can be determined that establishes the negotiating range between the parties. The final transaction price is determined by the negotiating skills of the two parties to protect their own interests.

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[Straight From MacCrate] Ellwood – A Beautiful Mathematical Formula But Often Misused

February 3, 2009 | 1:18 am | |

Jim MacCrate, MAI, CRE, ASA has his own firm, MacCrate Associates, but has worn many hats as a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim. His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime.

…Jonathan Miller

By James R. MacCrate MAI, CRE, ASA

I have had the opportunity to review many real estate appraisal reports over the last two years and I am amazed by the number of real estate appraisers who only use

to develop overall capitalization rates. Commonly known as the Ellwood formula. No wonder why folks question real estate appraisals on commercial properties. This formula does not reflect the actions of informed real estate investors. In fact, in 1971, Max Ramsland, MAI pointed this out succinctly in his article “Ellwood: A Practitioner’s Observations” in The Appraisal Journal. In English, this formula basically states that an indication of the overall capitalization rate can be developed by taking the following steps:

The Ellwood formula was designed as an analytical tool for real estate appraisers, investors and other real estate professionals. Its misuse was clearly evident during the real estate collapse of the 1970’s and 1980’s. The model above is for a level income stream over a specific number of years. Who buys real estate expecting the income to be level over the projection period? If income and value are expected to change over time, the Ellwood J or K factor must be applied and incorporated into the formula. It appears that it is being misused again by real estate appraisers. Mr. Ramsland points out several weaknesses that are worth revisiting at this juncture.

First, it is extremely difficult to verify the equity yield rate required to attract investors to real estate investments. Many real estate investors will not disclose their “hurdle rates” to invest in real estate. Abstraction of the required information to properly apply this methodology is difficult. During the last several years many transactions that occurred were the result of a 1031 or tax-deferred exchange which created aberrations in the observed overall rates, sometimes below 4.00%. These transactions were driven by after tax returns and appraisers generally do not have access to the information required to develop a proper analysis. Many of the transactions were not economically justifiable and this is becoming evident now. If this information is abstracted from historical transactions it can be very misleading without proper consideration of the market conditions as of the date of sale. Mr. Ramsland points out that investors have various reasons for making an investment decision: some of which are well thought out and others who dream about the future and hope, but are incorrect.

Appraisers often assume that investors will hold the property for ten years and that the property will appreciate in value. The market indicates that values do not always go up and, in fact, can decline for long periods of time and/or stay stabilized. Finally, what investors use this analysis to make an investment decision? I have been in this business for more than 25 years and the last time investors used this model the real estate market collapsed.

Mr. Ramsland further points out that “the allowance for depreciation can have a measured affect on the final value estimate if not realistically applied. A more serious problem could exist, however, if the appraiser projects an equity-yield and depreciation factor inconsistent with safe investment practices.”

Terry Grissom, PhD, at the University of Ulster, Ireland points out that the issue of stable income and the assumptions behind an accumulated sinking fund growth factor is an accrual valuation measure that is inconsistent with discounted cash flow analysis and the cyclical nature of real estate investments. Valuation needs to explicitly cope with changes over time to return to equilibrium or growth assumptions during down phase. Don’t misunderstand me, the Ellwood formula is an excellent tool in the arsenal that appraisers have to utilize to develop overall rates if applied correctly; but with computers available today, appraisers should apply the methods employed by investors who acquire real estate. In addition, more than one method should be used to support a capitalization rate. The appraiser can consider the following methods to develop an appropriate overall rate:

  • Interview market participants
  • Review published surveys
  • Abstraction from comparable sales
  • Abstraction from multipliers developed from comparable sales
  • Developed by the band of investment method
  • Estimated by the debt service coverage ratio method
  • Abstraction from expected property yield rates.

All techniques to develop a capitalization rate should produce similar results if properly constructed with the correct assumptions.

Note – Thanks to Max Ramsland, MAI, Duluth Minnesota and Terry Grissom, PhD, University of Ulster.

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[Palumbo On USPAP] Common Sense Not Perfection: Can You Block Tackle And Pass?

July 21, 2008 | 1:25 pm |


Palumbo On USPAP is written by Joe Palumbo, SRA, a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP].

…Jonathan Miller

Appraisal is far from a perfect science. My favorite line in USPAP is one I wish more appraisers and users of appraisal services would take note of. The comment to Standard 1-1 (c) reads:

Perfection is impossible to attain and competence does not require perfection.

Over the past 12-18 months I have heard the current real estate climate described many different ways: depression-like, recession-like, anemic, soft and turbulent just to name a few. Suffice it to say that the national market is generally much less favorable than it was several years ago when the fraternity party atmosphere prevailed. Credit flowed like wine and all involved were happily attending the party. Buyers stuffed as much home as the could into “creative financing”, sellers cashed out or traded up and investors risk was mitigated by the rapid appreciation that even in a short time period paid dividends and made just about every deal worthwhile. The “you can’t go wrong in real estate” cliché’ became the staple notion.

One thing is for certain: today the market is clearly different.

For practitioners such as brokers agents and appraisers the normal market indicators are more important than ever. If these indicators are ignored or misread the likelihood of accuracy will fade. The good news is that what it takes to read and interpret the “good” market is also the same for the “bad” market: supply and demand, absorption, the principal of substitution and good old common sense. Unfortunately it seems as though some appraisers and realtors have forgotten about the basics. Existing supply of homes in relation to demand and in-turn local absorption rates are the foundation for existing market conditions. Coupled with price trending, absorption rates are the backbone of a good “micro analysis”, but it does not stop there. The principle of substitution is fundamental in determining what options exist for buyers in your market. Historical data (closed sales) is relevant to confirm trends and extract adjustments, but the recent and more current indicators of active and pending sale data is where the gold is.

It seems to me that this is not so much a real estate principle as it is common sense The reason is simple: why would a buyer pay your estimated ANTICIPATED SALE PRICE for the subject property when a less expensive alternative exists? Maybe you’re in a sub-market that does not yield a lot of very “truly” comparable listings, still if these are the only alternatives the market sees than it is all relative. Although ERC guidelines do not call for “adjustment” of competing properties, it can be a sound practice as a high benchmark “check” and some relocation companies have asked for such. The trend of requiring and adjusting listings is also becoming more common place in the lending environment.

Clearly the times have changed. As they say though, “the more things change the more they stay the same”.

At Weichert Relocation Resources Inc, we require that the competing listings be adjusted. For the most part our appraiser panel is diligent and understanding in that exercise. I have been personally involved in cases where it is evident that this very basic concept is misunderstood. On those few occasions when I have questioned appraisers whose final value is well above all adjusted listings, I have received responses that concern me very much. “They are just listings” I am told or “they have not sold so they mean nothing”.

They mean nothing? Actually, they mean something: that you, the appraisal professional do not clearly understand the principle of substitution.

Believe it or not football can be like real estate. No matter how complex the situation is winning a game can come down to the execution of the very basics: blocking tackling and passing.

I had a mentor who once told me “don’t be smarter than the market, let it tell you what is happening”. I have tremendous confidence in the appraisal profession. I see hundreds of appraisals via my current job responsibilities and speak with hundreds of students giving classes. Sometimes you have to offer something other than pearls of wisdom to make an impression so I will offer no such thing here. Just a plea to my fellow appraisal professionals: get back to the basics in real estate appraisal: the principle of substitution, your block tackle and pass concept.

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[Sounding Bored] Hiding Behind USPAP To Avoid Getting Sick

July 20, 2008 | 10:03 pm | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Take the case of Mike Lefebvre, a Realtor in Massachusetts, who also happens to have an appraisal background.

There are many appraisers who were originally real estate agents and in fact, I believe there are still states that require appraisers to have a real estate sales person’s license in order to get their appraiser license.

Mike has an interesting approach to getting a listing. He performs an appraisal on a potential listing rather than a broker market analysis (BMA) because it is more detailed and helps him properly price the property. He uses that appraisal as part of his marketing effort. In many ways, he is being more professional as an agent by providing a more thorough analysis for his clients than a BMA affords.

Since pitching a listing is not a federally related transaction and he discloses (and it is apparent) that he has a vested interest in the eventual transaction by the fact he is an agent paid on commission, I don’t see this being a problem or a violation of USPAP.

Of course, I would love another perspective on this.

However, I often see more seasoned appraisers make a habit of needlessly scaring clients, banks and agents by using USPAP as a grey fogging tool…almost like the way a consumer feels reading an insurance policy…it is something so confusing that it is not meant to be understood, except by appraisers.

And THAT, in my humble opinion, is one of the things that is killing the appraisal profession. USPAP was in place during the housing boom so it is apparent that this standard alone is not the panacea of the lending industry. Create so much confusion that you motivate the industry to find alternatives.

Others see it differently, and this email is the inspiration for this post.

Mike forwarded me an email sent by an appraiser. I am not familiar with him but he appears to be well-qualified as an appraiser in his market judging from his web site. I’ll even assume he is a good appraiser and a nice person.

The appraiser was “sickened by Mike’s performance of an appraisal on each of his listings to more accurately price the property and alludes to connecting him to bank fraud (the irony is that USPAP clearly forbids appraisers to mislead their readers, which this email is treading awfully close to that, no?):

From: [kept anonymous]
Date: June 6, 2008 10:07:42 PM EDT
To: mlefebvre
Subject: Re: Inquiry About 30 Jefferson Road, Franklin, MA – why would you bias yourself like this? Ever hear of USPAP?

You do understand that when you do an Appraisal you must adhere to USPAP including “I have no present or prospective interest in the property that is the subject of this report…..”

How can you do an Appraisal on a property you list, this is sickening to see.

Do you know what constitutes acceptable versus unacceptable business practices? This is required in all 50 States. Follow this link…

Giving a comp check without an Appraisal IS BANK FRAUD.

Ethics? Do you understand them? Follow this link to learn more about what an Appraiser is required to do and what not to do.

In addition to our Appraisal services we can also offer sessions for your office on how to be compliant with USPAP.

We “VALUE” your business! Specializing in honest and accurate results!

[deleted content to keep anonymous]

“Think about USPAP and how to follow it now, or you may get a long time to think about it in prison later.”

“People only think USPAP Requirements are stupid until they are caught and punished for not following them.”

I think having USPAP is a good thing, a necessary thing. The fact that the lending industry went to hell in a handbasket isn’t because every appraiser didn’t follow USPAP. The problem is much bigger than that.

We all need standards to live by and the public needs to have comfort that when they order an appraisal, they understand what they are being provided. If an appraiser has a potential conflict, it must be fully disclosed.

I also think this sort of threatening message is self-serving and shouldn’t be tolerated either. You don’t use USPAP as a weapon to create mass hysteria in the public domain as a way to generate business. That makes the profession look even worse than it already does.

Good grief.

Here’s Mike’s post on the subject.

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[The Hall Monitor] There’s Room For Improvement

July 20, 2008 | 6:05 pm |

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 Soapbox readers tongue-in-groove insight on appraisal issues. In this post Todd structures the building argument for a change in terminology. …Jonathan Miller

Improve v 1. To raise to a more desirable or more excellent quality or condition; make better. 2. To increase the productivity or value of (land or property). 3. To put to good use; use profitably.

Improvement n 1a. The act or process of improving. b. The state of being improved. 2. A change or addition that improves.

These definitions are from the American Heritage College Dictionary, fourth edition, published in 2002. This same dictionary does not include an entry for “teardown”, as this is a relative “arriviste” in the lexicon of real estate. However, the term teardown has become ubiquitous among people living in the many places across the country where they are common. The New York Times, in an editorial on July 1, 2008 entitled Holding Back the Wrecking Ball, makes reference to a Westport, Conn. Web site featuring Teardown of the Day.

The Appraisal of Real Estate, thirteenth edition, has recently been issued (so says Jonathan Miller in Soapbox) but I’m still working from the twelfth edition and I have no plans to buy the new one. The index in my book does not include a reference to “teardown”. I am genuinely curious as to whether or not the thirteenth edition does. Consider this a plea to those of you who have the new book. Does the word teardown appear in the index, or doesn’t it? In my opinion it absolutely belongs there. What no longer belongs there is the word “improvement”, or any derivation thereof.

From this point forward, in appraisal parlance the word improvement should be replaced with the word structure. (or perhaps you have a better word) “As improved” should be “as structured”, “unimproved” becomes “unstructured”, you get the idea. The reason should be obvious. The very definition of the word improvement carries with it the implication that the “structure” always adds value to the land. And until fairly recently that was generally true but it is no longer necessarily so. An “improvement” that does not enhance the value of the land IS NOT AN IMPROVEMENT. If it were then “teardown” wouldn’t have become the commonly used word that everyone understands.

In the case of a teardown, not only does the structure not add value, it diminishes the value of the land, as unstructured. The word “structure”, which makes no premature judgment as to any contributory value of an existing building, allows for the critical question to be asked in a way that the word “improvement” does not. Does the existing structure enhance the value of the land, or does it diminish it? In places where teardowns are common the answer is clear the value of the land, as vacant, is greater than its value, as structured. It’s misleading, ridiculous even, to call these buildings “improvements”.

In real estate appraisal the word “improvement” is an archaic term reflective of an early 20th century truism land was cheap (dirt cheap) and most of the value (75% or more) was in the building. In the early 21st century, in many urban and suburban places this notion is demonstrably false. In these areas the land component may account for as much as 50% of total value and that’s with new construction! The best way to acknowledge this reality is to replace the heavily biased word “improvement” with the more neutral “structure”.

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“Near Zero Default” A Recent IndyMac Conversation About Speed

July 18, 2008 | 10:51 am |

also posted on Matrix

In my continuing obsession with appraisal/lending issues given the bank shakeouts that will occur over the next 12-18 months, here’s an email conversation with IndyMac on an appraisal assignment occurred in late May with my appraisal firm Miller Samuel.

The report was ordered with a specific inspection date needed. Up until then, our turn time was consistently 7-10 days, usually inspecting the property within a day or 2 after the order depending on the contact info accuracy and customer cooperation. Granted, 7-10 days is not stellar, but we are very busy, ours clients know this in advance and our competitors (that I would consider competent) have the same turn times as well.

You can see one of our employees frustrations toward the end because we had gone through great effort to accommodate the bank to inspect the property on the day they needed it done and they did not indicate early on that there was any “rush” plus they basically told us we were not needed, after a warm and fuzzy relationship that preceded this conversation. Very odd.

I guess what annoyed me in seeing this email later on, was the comment about their 0 default rate and yet the lender collapsed 2 1/2 months later. I am sure this person was responding to their own branch’s experience but its weird they brought up such a reference in the dialog, inferring (to me, anyway) that it was a big problem looming at the bank).

Incidentally, 300 banks are projected to fail in the next 3 years.

May 28, 2008 email dialog

IndyMac Please provide status on this report – thanks

Miller Samuel [address omitted] will be inspected tomorrow, May 28th.

IndyMac And how soon thereafter can we expect the completed report? Thanks

Miller Samuel All appraisal turnaround time is currently 7-10 business days starting from the time of inspection.

IndyMac We are going to have to cancel this order- sorry but your turn around time is just too long.

Miller Samuel [name omitted] we have worked an entire schedule around this appt. When do u need the hard copy and we will deliver it.

IndyMac We have appraisers that give us reports back within 2 days of the inspection. This is still not going to work. If you can get us the reports back in that time frame we will have a lot of business for you. I am sorry

Miller Samuel Yikes! That’s called bang it out, hit the number appraising. No that’s not something we participate in. That’s how subprime occurred and why the housing market continues to fall. Conditions for mortgage fraud remain in tact with many lenders because of a lack of concern for quality. 48 hr Speed = Bad appraisals and ultimately bad loans. We can do 5-7 business days. I really hope you guys don’t end up like countrywide and all the rest. But with 2 day turn time its inevitable.

IndyMac I understand your position and would never ask you to do something you are not comfortable doing. This branch does AAA business with typically low ltv’s, high credit, etc. Our default ratio is nearly 0 pct and we pride ourselves on efficiency and effectiveness. I think going forward we should help you gain access earlier in the transaction so you can adequately do your job. If there is something we can do on our end please let us know.

July 11, 2008

IndyMac collapses

July 17, 2008

FBI fraud inquiry after IndyMac collapse

IndyMac Collapse Fuels Fears About WaMu

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[Squeaking By] Somehow It All Comes Back To Appraisals

July 15, 2008 | 10:59 am | Radio |

“The appraisal industry is the lubricant of the mortgage industry” …Inventor of WD40 (just kidding)

In addition to Soapbox which contains the terrific contributions of my appraisal colleagues, appraising has made its presence known on our other blog Matrix via the current turmoil in the lending/mortgage industry.

[Other Shoe Drops Department] IndyMac Needed Appraisals Done Before Judgement Day

[In The Media] Real Estate Radio USA Appraisals & Bits

[In The Media] 4Realz Roundtable On Appraisals Cuomo/GSE Agreement For 1-1-09


[Subprime Truth In Lending] From A To Regulation Z

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[Sounding Bored] Not All Of Us Are The Square Round Peg

July 15, 2008 | 9:57 am | Columns |

Sounding Bored is my semi-regular column on the state of the appraisal profession. Righteous USPAP indignation runs rampant in the appraisal profession and I worry it is leading to our demise as an industry.

Update: “This commentary was NOT submitted by Adam Johnston as originally presented in the post on July 15, 2008. He is not the author of this commentary. I regret the error and any inconvenience it may have caused.” Jonathan Miller

Let’s put things into current affairs, this profession is changing, unfortunately. The federal government is overtaking the profession and we all know they will mess up the profession.

Allowing AMC’s to control the mortgage lending area will be the downfall of the independent appraiser. The AMC’s will feed their staff, which is primarily made up of appraisers that cannot compete in the profession or have no outside experiences to survive outside of mortgage work. I am trying to get out of the mortgage affairs and diversify as most of the mortgage review appraisers probably have never written an appraisal. These reviews are typically out sourced. Who are these reviewers? and who oversees the AMC’s and how they conduct their appraisal affairs?? NO ONE.

All the small appraisal shops and good appraisers are giving up. Just like the small hardware stores or small grocery stores are giving up to the larger, corporate owned Home Depot, Lowes or Cub.

Personally, this profession needs to go back to old way of doing business where all appraisers can complete with the AMC’s. This current mess is not totally an appraisal problem. Who allowed no doc refinances?, Who allowed interest only loans?, Who oversees predicator lending? Who governs the mortgage brokers? The mortgage brokers have ruined the mortgage profession as they have abused most all responsible lending practices, and the big banks buy these sub-prime loans. WAKE UP.

The big banks are controlling the AMC’s as they also have a vested interest in these companies to make additional profits off the consumer. Some of the big banks own and service some of these sub-prime lenders. Pay the appraiser a proper fee for their work and spend the additional costs on reviews of their work. If the appraiser provides poor appraisals, remove or suspend them from the panel.

As a former staff appraiser, I guarantee the staff appraiser gets more benefit than an independent. I have NEVER been asked by the clients I work for to inflate an appraisal to make a loan. There are still some of us doing a responsible job in appraisal work for my clients. Yet I am being lumped into being that all appraisers being controlled by the loan officer to get business. I don’t fit this image, so why do I need to suffer? A lot of this is due to poor state licensing and supervisor appraisers role by signing off on work they review. I’ll bet better than half of the distress home loans fall into this situation. This is where the true problem is.

The passing or consideration of the current HVCC policy will demise the appraisal profession. Is their no consultation with the working professionals in the appraisal business. The professional and responsible appraiser knows the real problem with the mortgage lending profession, yet we are never consulted as to our opinion. The future lending practices are being depicted upon the major lenders in the industry and the federal government.

From 2003 to 2006 shown times of excelled home values and the lending requirements were relaxed. Home and town home prices were rising faster than the appraiser could keep up with, especially in new construction. People were willing to pay for these new homes and builders responded by increasing their prices.

Mortgage brokers capitalized on this and now where are they?? Easy, file bankruptcy and start a new company and let the larger mortgage company they sold the loan to struggle to find a buyer for the sub prime loan.

Just my thoughts.

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