You almost don’t have to comment on something like this:
Effective immediately, it is against Lenox Financial Mortgage Policy to have any appraiser collect their check at the door of the customer. Given the fact that diminishing property values are crippling the industry, when an appraiser is paid up front at the door, there is no incentive for the appraiser to work as hard to attain the true value of the property. Not only does the appraiser have no incentive to assist the client in obtaining the true value of the property, in many instances the appraiser will take an extremely conservative approach to limit their exposure. Taking an extremely conservative approach at this time only exacerbates the problems our clients are experiencing with respect to refinancing or purchasing a home.
Please take immediate action to:
1) ensure that all appraisal requests clearly indicate that the appraiser will be paid at the closing,
2) adjust your fee sheets accordingly so that the appraisers do in fact get paid at the closing,
3) in instances where value may be an issue, ensure that the appraiser does a comp check before proceeding to the property to complete a formal appraisal, and
4) in instances where an appraisal is completed and for some reason the loan does not close, make arrangements with the appraiser to pay him twice out of the proceeds of your next deal.
Of course, plenty of people are, starting with the link above:
If appraisers only get paid at closing, doesn’t this incentivize appraisers to value the house at an amount that is more likely to foster refinancing? What if the true value of the house isn’t enough to justify refinancing? If that were the case, under this policy, the appraiser would not be paid at all!
Naw, you just get paid out of the proceeds of the next deal that closes. Everybody wins!
At Appraisers Forum, e-mails are flying to Mr. Jack C. Stevens, COO, whose imprimatur was attached to the policy, and one prompted a response:
Please keep in mind that this proposal was not implemented as policy.
The first sentence of the e-mail is probably what tripped everybody up, Jack. More hilarity ensues later in the e-mail: “Quite honestly, I am not sure why you have access to our company’s intellectual property (policies, emails, etc.) but I will sort that out as time permits.” Dad-blammed Internets.
And at the Georgia Appraisers forum, this in re: the Atlanta-based Lenox:
Call 911….
Reno 911 is more qualified to investigate this than Georgia Politicians and Bureaucrats.
Yes, well.
Just got my copy (well, not my copy–whatever) of the October Research National Appraisal Survey Volume II in the mail. This volume is about “customer relationships,” which I gather is what they’re calling “client relationships.” I’ll be going over it more closely in the next few days, before I’ll have to mail it off, but something in the Executive Summary struck my eye.
You may know that October Research did a similar survey in 2003. (It’s the survey I didn’t name in the post immediately below this one.) Some of this edition’s charts compare responses to the same question between 2003 and 2007. In one question they asked appraisers what would an AMC have to do, or do differently, to recruit you to join their fee panel or approved vendor list?
In 2003 the most popular answer, at 50 percent, was nothing, not interested in AMCs. Fast forward to 2007 and the same choice gets picked by all of 19 percent. (I’ll give you three guesses what the most popular answer [60 percent] is now, but you’ll only need one. Hint: $$$$)
Assuming AMCs haven’t suddenly learned how to treat appraisers less like fungible commodities or started to pay them well, what happened? It must be a combination of the following:
Consolidation of clients. The biggest lenders are eating the smaller ones. AMCs work for the biggest lenders, either because they’re sister companies or because huge national mortgage lenders can’t be bothered futzing with fee panels.
Fewer alternatives. The mortgage market declined and the largest lenders’ share of it increased. There are fewer alternatives today to working through an AMC.
No powerful friends. In the early part of this decade I routinely heard appraisers say that they were taking a stand against the ridiculous fee pressure AMCs often represent, and that everyone else should, too, and someone — the Institute, other trade groups, some fabulously wealthy company whose bread is buttered by appraisers — should step to the plate and fight for more realistic fees and expectations. They called, and no one answered. It doesn’t help that just about everyone they thought might take up their colors and charge in to save the day themselves work with and for AMCs.
Remember, the change we’re looking at isn’t from “I’ll never work for AMCs” to “I now work for AMCs,” it’s more likely from “I’ll never work for AMCs” to “I would if they paid better.” The principle of passive resistance is what’s gone, not the aversion to management companies.
I’m not just speculating. Another data point in the survey reveals that in 2003, about 58 percent of respondents got 20 percent or less of their work through AMCs. In 2007, that figure was: 60 percent, a statistically insignificant change. View this in light of the data that show that 63 percent of respondents say they’re working with AMCs now, versus 53 percent four years ago, and you can account for most of it as appraisers holding their noses and doing business with management companies — as little as they can get away with — because their clients are increasingly demanding it.
In other words, it’s not that more appraisers are willing to work for AMCs, it’s that fewer appraisers are willing to stand on principle, when it so obviously isn’t going to do any good.
But the San Jose Mercury News does:
A recent study found that 90 percent of appraisers reported pressure, mainly from mortgage brokers, to overestimate values. That figure is up from 55 percent in 2003.
Well, no. The 2003 survey to which the item refers was an impenetrable mess, the best translation of which was: 55 percent of respondents said they believe a lot of their colleagues and competitors sometimes knuckle under to pressure. Objection! Hearsay. I believe a lot of people I meet envy me my good looks, but that data isn’t going to be cited with any authority anywhere. This is not as difficult a question to ask as the survey’s contorted attempt would lead one to believe.
To be fair, two years later the Appraisal Foundation had its own hard time defining “pressure.” Its attempt was markedly better than the 2003 mess but still flawed: It said 55 percent of practicing residential appraisers have been “expected to hit a prescribed value or risk losing specific clients.”
What if you’re asked whether a property is likely to come in in a certain range and if not, you don’t get that particular assignment? You’ve neither been expected to hit a prescribed value — just asked what, generally, the chances are before you’re given the assignment — nor have you risked losing the client, just the assignment. What if you turn in a report your mortgage broker doesn’t like, then refuse to consider their “better” comps? That’s also lender pressure, and it also risks business, but it doesn’t fall under the Foundation question either.
There was (unpublished) data as far back as 2004 showing that more than 90 percent of appraisers were pressured to overstate values. This is not the new phenomenon the Mercury News and the companies hawking appraisal industry surveys make it out to be. (Almost) everyone has just been having a hard time figuring out what “pressure” is.
After years of fits and starts, the FHA has banned a form of down payment assistance that has grown exponentially in popularity but which government research says significantly increases the risk of default. You’ll have to take my word for it, because federal regulations remain impossible to link to.
HUD’s FHA rules already prohibited down payment assistance paid by sellers. But increasingly, nominal nonprofit groups have been putting the FHA-required 3 percent down on a home for a borrower, with the amount of the “gift” plus a “service fee” repaid to the nonprofit by the seller or another party with a financial interest in closing the loan.
In 2000, about 2 percent of FHA loans included down payment gifts from nonprofits. Today, fully one in three do, and HUD thinks upwards of 90 percent of nonprofit “gifts” are actually repaid, plus a fee, by sellers. HUD and the Government Accountability Office each say that down payment gifts from nonprofits double or nearly double the rate of mortgagor default.
To close what is essentially a loophole allowing sellers to contribute to the buyer’s down payment, the new FHA regs ban “gifts” that are reimbursed directly or indirectly by sellers, Realtors, builders or others with a stake in the loan closing. What are the likely consequences for a reeling housing economy?
The practice the new rule prohibits may have contributed to some 750,000 FHA loans since 2000, with more every year than the year before. The housing market is already deflating (to be charitable) from its highs of the early 2000s, and the buyers who have left it are generally the ones with the most choice about whether to buy. Investment home sales fell sharply in 2006, off nearly 29 percent from 2005 levels, according to the National Association of Realtors. There were about 670,000 fewer investment homes purchased last year compared to 200,000 fewer primary residences.
Growing families, renters trading up, immigrants and others needing to buy more than wanting — those most often helped by down payment assistance — remain in a down market, making the likely impact of a curtailment of down payment assistance by sellers more troubling economically.
If it’s a good idea for sellers not to help buyers with their down payment, then surely closing such a gaping loophole is a good idea in theory. You do have to wonder about the timing.
If you had free access to a network:
- that attracts 230,000 new registrations per day
- whose users expect people to contact them to opt-in to their communications
- with an ultra-powerful brand that makes many younger mortgage brokers, Realtors and homeowners consider belonging to it a “must”
what would you do? You’d take advantage of that free access, wouldn’t you? That’s what thousands of real estate appraisers are doing today at MySpace.
These appraisers have entered some information about themselves and their interests, chosen a Web address, www.myspace.com/[theirname], and have a MySpace profile. Creating one is as easy as that.
Your first MySpace profile
But clients won’t flock to you simply because you’re one of the almost 200 million people who have created a MySpace profile. MySpace can work for you and your appraisal business, but only if you invest time and effort. Here are some important things to make sure you do with your new MySpace profile:
- MySpace is a “personal” site. (Its terms of use technically forbid commercial profiles.) MySpace users don’t want a hard sell – tell them a little about yourself, your favorite books and movies, your interests. You’ll want to upload a profile photo – consider making it a candid shot.
- That said, make sure all the information on your profile is professional. Don’t put anything in there you’d be uncomfortable with a client seeing.
- If you browse MySpace for, oh, three minutes or so, you’ll see some ugly profiles. Go easy on their owners — MySpace is, to be charitable, about a 4 out of 10 on the ease of customization scale. You just want to be sure your profile is clean, attractive and professional looking.
Ok, great, you’ve planted your flag on MySpace. You’ve correctly decided there are lots of younger potential clients there, and you want to tap in to that market. How does an appraiser do that?
Mining MySpace for referral partners and homeowners
- Your first and most important goal is to establish a network of “friends.” The top of your login and profile pages let you search for other MySpace users in your area. Search for “[your market] Realtor” or “[your market] mortgage.” That’s a great start toward finding other real estate professionals in your area. Click on their profile pages to see their “friends,” and visit their profile pages, too. Another great start.Each profile page, including yours, has a link to “add” the person or business to your friends list. It doesn’t happen automatically – they have to approve your request to be added, just as you will have to approve anyone who asks to be added to your circle. Once someone “adds” you, you’re each on each other’s “friends” list.
So, what’s the point?
You can post “bulletins” that all your “friends” can read through their login pages. Want to announce some company news? Want to ask for some referrals? Your network of friends has “opted in” to receive and read your bulletins. They’ll be posting similar material for you, too – there’s something in it for everybody.
- Myspace includes “groups” of users with similar interests, providing another, more direct way to communicate with other professionals. Atop each profile page and your login area you’ll see a link to browse or search groups. Searching for “real estate” gives you among many others a “Real Estate Networking” group with 19,100 members (as of this writing), a “Mortgage Brokers & Real Estate Agents” group with 10,800 members, and many, many more. Searching for “appraisers” will give you similar groups. Most profiles include links to the “groups” the user belongs to as well. Once you’ve found some friends, visit the groups they belong to and join up. So, what’s the point? Groups are a more direct way to network with other professionals on MySpace. Groups include forums – Internet message boards, where group members post and reply – and bulletins like the ones you can send your “friends.” The “Mortgage Brokers & Real Estate Agents” group includes such forum and bulletin topics as “What happens to the victims of preforeclosure?”, “5 Print Advertising Tips for Real Estate Professionals” and “Expired Domain Traffic… This Is Better Than SEO!!!” (You will have to get used to a more liberal use of capital letters and punctuation on MySpace.)
- But now the rubber meets the road. You can mine MySpace for potential homeowner/homebuyer clients. Click “Browse” in the row of links atop any MySpace page. Then you can search for MySpace users in your service area (you decide the radius from the ZIP code you input) in a certain age range. Searching for users in their 30s within a five mile radius from your office may give you thousands of results, depending on how dense your area is. Sort them by last login, or last profile update, to highlight the more active users.Take some time to click through to the profiles that come up on your search results. You’ll want to add as many as possible to your friends list. Maybe you’ll want to prequalify them a bit first. Can you tell from their profile page if they own a home? Are they blogging about looking to move? When you click “add me” on any of their profiles, remember, you’re asking them to opt in to your bulletins and link your profile page for others to find. And they expect you to!
So, what’s the point?
Read on!
Invest in MySpace and You’ll Be Rewarded
Appraisers are sitting on a gold mine of data that represents their intellectual property: Descriptions, measurements, observations and conclusions about properties they’ve appraised or used as comps. What if three, five, 10, 20 appraisers in a given area could pool their databases together and use the aggregated information to do better, more reliable, quicker work?
That’s the concept behind a la mode labs’ CompsXchange project, being headed up by Woody Fincham. I recently wrote and published the “project page” text for it, “borrowing” generously from Woody’s published articles about peer-to-peer data sharing (which are linked from the project page). See it here. Excerpt:
Does this sound familiar? You’re doing a property that has old and outdated MLS and tax records. You have measured the property, only to find that there is 300 square feet of extra gross living area, with a full bathroom. We see this everyday, and a situation like this can blow your preliminary data out of the water. On top of it all, it’s a rush order and the client sending you the work is one of your big ones. Unless you have a previous file on the property, you are stuck with the data you pulled, and now have to re-pull and replace it.
Now imagine this: same property, same situation, except you have a verified data source set up and managed by other professional appraisers that shows all instances and updates to the property as seen every time it was appraised. You look into the database and see that it was appraised three times in the last five years, all for refinance purposes, by three different appraisers. Of course the data may vary a little depending on measurement technique and site data collection, but it all correlates into essentially the same information.
Wouldn’t you take that over an agent’s sales oriented comments, or unreliable public record data, any day?
Read the whole thing. It’s one of the very cool projects the labs has going, but it’s the one that I think has the best chance to impact the entire profession.
The San Francisco Chronicle has a piece today about a wild-eyed, floaty-haired “bubble blogger” whom everyone thinks is prescient now that the California real estate market is… slowing a bit.
Killelea didn’t set out to become an apostle of housing pessimism. He says he just applied the same analytic skills he uses in programming to the housing market after his first brush with house hunting.
In 1999, he and his wife tried to buy a house in Berkeley at the height of both the dot-com bubble and housing mania.
“It all felt rigged,” he said. “Everything was set up to get me to overbid and not do an inspection; basically throw caution to the wind. It just felt really wrong. I felt like a sheep among wolves.”
After being consistently outbid, the couple decided to rent instead. They found a charming Menlo Park two-bedroom on a tree-lined street for $2,700 a month. After a couple of years when the rental market softened, they asked for a rent reduction and now pay $2,350. “I would be paying out and losing about three times as much” to own the equivalent house, he said. “In some big urban areas like Manhattan and the Bay Area, it may never be cheaper to own” than rent.
Sort of unremarkable except it includes a link to the blog’s “Housing Bubble Glossary” which is kind of funny. Excerpts:
CPI: Government price index that only tracks goods and services that consumers don’t actually use or need, such as Chinese-made plastic lawn furniture.
Credit Score: Easily manipulated number allowing lenders to underwrite “exotic” loans to anyone with a pulse. Scratch “with a pulse” –made to ANYONE, period.
Real Estate Appraiser: A person who lies for a fee.
Unemployed Real Estate Appraiser: A person who refuses to lie for a fee.
Magick Golden Wonka Housing Ticket: Metaphor for the highly cyclical and volatile housing market, that is increasingly being driven by wildly fluctuating credit expansion, the international carry-trade and mass mortgage securitization. Coined by HARM. This puts the “traditional” homebuyer (who intends to *gasp* actually live in the property) at an extreme disadvantage during the “up” market cycles vs. risk-loving speculators and flippers, who are awash in easy credit during these periods. This RE market model (”new paradigm”?) contrasts with the more conservative housing market of previous generations, when mortgage credit expansions were generally not as extreme (Roaring 20’s excepted), and when housing prices mostly tracked overall inflation.
