Zestimate Gone Wrong

by Hamp Thomas on 01/05/16

Once again the Zestimate has a home-owner up in arms. In a small town in North Carolina a home just sold for $20,000. It was listed at $55,000, then reduced to $45,000, and finally sold in 2015 for $20,000. Safe to say it needed a little TLC.

It was a shell in need of, well everything. But, we have to remember that automated valuation services don’t know anything about condition or circumstances. Before the house was listed for sale, the owner (from a different state) thought they had inherited a nice little nest egg. Not a fortune, but if it was close to the Zestimate, they would have quite a nice amount to play with.
The Zestimate in this case came in at – $139,973. Yes, you read that right. Almost $140 grand for a house, that even without the bad condition, was never worth anything close to that amount. Even the tax value was at $51,000.
Think this home-owner was unhappy with Zillow? That’s NOT a small error, it is huge and changes people’s hopes and expectations. They had a very hard reality check. And, this is not some rare example but an everyday occurrence.
As far off as most automated valuations are, big banks are still hard at work trying to convince the public (and the government) how accurate these electronic valuations tools are, and that real live appraisers are not needed any longer. It is frightening because they have to know the problems, but they choose to overlook them. Why? Simple answer, profits. The less appraisers are involved in the process, the more liberties they can take with the loans. “It’s all about the people.” I’ve heard that so many times and if they believe so much in the “people” they are loaning money too, why not keep the loans in-house? They don’t care about the home’s value because they are not holding the loan on their books. Same ole pre-crisis problems.
Big banking is at it again and this has been the plan since the HVCC started – get rid of appraisers. At the end of every discussion, it all comes down to money and profits. Banks are looking for new ways to add profits and the appraisal industry is on their radar. Don’t be fooled into thinking banks are pushing E-Valuations because they trust them or think they are good for consumers. E-Valuations are good for one thing – bank profits. Welcome to the new home loan with at least two appraisal charges – both an online service – and both not worth the paper they are printed on. When will the madness stop???

Why Does Square Footage Matter To Me?

by Hamp Thomas on 03/21/15

Many agents have asked; “Does this square footage stuff really matter to me? Isn’t it more of an appraisal issue? Fair questions. Let’s take a look at one sale where the agent now understands just how square footage affects a listing value. It was a hard lesson in the importance of square footage, and one they will not soon forget.

The house was listed at $259,900. The tax records showed the heated living area as 2,318. After completing a CMA, it appeared that most homes in the neighborhood were selling between $110.00 and $114.00 per-sqft. Taking an average of $112.00 and applying that to 2,318 sqft, the agent and owner agreed to list the house at $259,900. There was never a discussion of measuring the home, no talk of the square footage from the appraisal when they bought the home, there was never any discussion about square footage. It was simply assumed that the square footage in tax records was accurate. It is the “official record” according to many agent’s viewpoint. This was just the way it was done in their office, and the thought of any potential square footage problems never entered the thought process.

The home stayed on the market without an offer and, after six months, they decided to lower the price. They decided on $254,900 and felt they were offering a good deal too any potential buyer. At this price, they were listed at $109.97 per-square-foot and at the very low end of properties in that neighborhood. The agent was confident this would do the job and they waited. Sure enough, within three weeks after the price reduction they received an offer.

The first offer was $248,000 and after a great deal of conversation, they countered at $252,500 and thought that was their bottom line. For them, who paid $183,900 six years ago and had spent a great deal of time and money working on the house, they just knew the house was worth that amount. They didn’t want to lose the buyer, but also didn’t want to give the house away too cheaply. This time, the buyer said “YES” and the contracts were quickly signed. Feeling partly relieved and partly like they took less than they should have, they decided to focus on the future and find their new home.

They spent the next two weeks looking at every home available on the other side of the county and closer to the husband’s new job. They finally found “the one,” and worked out an agreement to purchase their dream house. The money was tight, but they had just enough for the down-payment with the proceeds they would receive from the sale of their home. Excited about their new home, they looked forward to the move.

Everything was starting to fall in place. The utilities were scheduled to be changed and the moving companies lined up. The home inspection had gone through without issue and as soon as the appraisal was finished, they were set to close. The day of the appraisal came and the appraiser walked through with note pad in hand, taking pictures and pulling a tape measure. The appraiser said thank you, good luck with your move, and he was gone. They thought that seemed pretty painless and felt good about everything coming together.

Three days later the phone rings and it’s their agent. He is in a panic. “Wait, slow down, what are you saying?” The agent tried his best to get it out; the house appraised at $239,000. The buyers are not willing to pay more than the appraised value and we’ve got to get together to talk about our options. Feeling overwhelmed, they agreed to meet the next morning. When the agent showed up, the home owners felt there was something more to the story and asked “how could this happen?” Is this appraiser an idiot? We priced it below where it should have been.

“That’s not it,” the agent told them. “We do seem to have lots of problems with low appraisals these days, but in this case we have an issue with the “size” of your house. I’ve never had this happen before and we have to get this re-checked, and fast. I’ve asked another appraiser to come out and measure your home, just to be sure. Then we’ll decide if we can fight this low appraisal. But, I have your home listed with 2,318 sqft and this appraiser came up with 2,146 square feet.”

The second appraiser came out and carefully measured the home. About two hours later they got the call. This time, the measurements came in at 2,148 sqft. In either case, that’s well below the tax department’s measurements of 2,318 sqft. 2,318 minus 2,148 equals a difference of 170 sqft. That is a huge difference. If you do the math, at $239,900, with 2,146 sqft, that comes out to $111.79 per-sqft. That’s really close to what we thought it should be, and the only difference is in the square footage total we used to calculate the price. I can’t believe the tax department has this large of a mistake. I’ve never seen anything like this before. But, at this point, the appraised value appears to be fair. I am so sorry this happened.

After all was said and done, the buyer was not happy about getting a smaller home than they had been told and were afraid there might be other problems, and they backed out of the deal. The seller could not move forward with the purchase of their dream home, and those sellers also lost a deal on the home they had under contract. When the dominoes stopped falling, six transactions had been killed or delayed. It took a lot of people a lot of time, and caused a great deal of stress all around. Talk about a bad day!
The original listing agent could have avoided all these problems by having the house measured, before they ever determined a listing price. One agent that didn’t think square footage was important, ended up causing a very bad series of events that influenced the lives, hopes and dreams of a large number of consumers (and other agents). So, the next time someone asks you if square footage “is really that big of a deal?” You might want to say that, like most of the real estate industry, “It Depends” can apply to almost every situation. This case might be an extreme, but it’s not as rare as you might think and deals are lost due to nothing more than the square footage number used to calculate the list price. Indeed, Size Matters!

The CU, Realtors & the Future of MLS

by Hamp Thomas on 01/23/15

For 10 years I have been screaming about sqft problems within MLS and tax records. The problems are real and happen in most states. Some counties are better than others, but without going inside the house, the tax assessor can only do a so-so job. It’s bad enough on two story homes but especially bad on homes with basements. If you’re lucky enough to live in an area without basements, count your blessings. For those of us where basements are common, the CU is going to expose the unprofessionalism in reporting square footage that agents get away with every day. Maybe then we can convince Realtors that “their” info does matter and sqft classes will be on the horizon for every real estate agent.  The “Machine” will never work because appraisal is an art (opinion) not a science. Big data is just dots and dashes without the ability to select the right info and analyze the data. A computer can’t do it, not accurately. The MLS (and the public records data that currently fills the MLS) is going to be uncovered for the information accuracy problem they have now, and that has been growing since the mid-nineties. Their magic price-per-square-foot formula doesn’t work with inaccurate data and if you don’t think agents use price-per-sqft, check out a few CMA’s. Also check out HGTV®. They teach consumers every day about that over simplified magic formula that prices the American dream. Get ready for the square footage revolution! The good fairy DOES NOT work for the local tax department and providing accurate sqft information should be the responsibility of the listing agent. If they want better appraisals, they need a better MLS. Time to turn attention away from appraisers and towards Realtors®. And yes, I am also a Realtor®. (:

Where Do You Get Your Square Footage Number From?

by Hamp Thomas on 11/25/14

This numbers matters more than you might imagine! Just this morning I found a large brick ranch that was reported “Closed” with 3,880 sqft. I had done an appraisal about a year ago and measured it at 3,511 sqft. Nothing really complicated, just a basic design. That’s a difference of 369 sqft. That works out to a difference of $9.86 per sqft. Doesn’t sound all that bad, but if the next house in that neighborhood sells with 3,000 sqft, that works out to a difference of $29,580. That thirty grand might be just enough to create a low appraisal and cost someone a sale.

This is a very real problem and the mistakes are often much larger, especially when the info is taken from the tax records. Remember, the Real Estate Commission specifically states that you should NOT use the sqft reported in tax records. The mistakes would shock you! The vast majority of your peers use price-per-square-foot in some manner to determine values. It influences listing prices, offer prices, appraised values, and it happens every day. Your best bet is to make one call to the appraiser who did the report for the buyer (unless you had a prelisting appraisal), and ask for the square footage total. Use that number to report to MLS. This can make our MLS better and make all of us better at our jobs.

Appraisal Adjustments, AMC’s and Talking to a Brick Wall

by Hamp Thomas on 08/21/14

The passion of many appraisers faded with the HVCC and completely went out when Dodd-Frank showed up. When you have to work for someone else (AMC’s) and work harder for less money just to make money for them, then any passion for the job is lost. Appraisers need to be concerned about protecting consumers (and lenders), but most of their reasons for doing so have been taken away. Nobody wants to hear their opinions of value. Banks only want a form to fit percentage guidelines so they can make their loans work. It’s sad to see the lenders that appraisers are trying to protect still don’t seem to want their protection. The true property value appears to concern no one but the appraisers.

The government took one problem and made it into five more to supposedly fix “it,” although the “it” in question is debatable. Did it really fix anything? If we read the news, the lending industry is full of fines and penalties (in the billions-17 Billion announced today for Bank of America), while they keep on making more. But, the little guys (appraisers) are still under the scrutiny of people who really know very little about the industry. It’s like Ambulance Drivers trying to tell Doctors how to do their jobs better.

“I love this profession but cannot stand the business. I am totally burned out. It is so stressful I get physically sick. It’s no longer worth it to me.”  Too many lines like this are posted in appraisal forums and blogs every day. Appraisers are being insulted and intimidated, and I have to ask “what has really changed?” A quality appraiser loves the challenge of creating a fair value and doing everything in their power to be the voice of reason in an emotional process. Everyone else is motivated by a paycheck. Agents and lenders only get paid if the loan goes through and that sometimes allow s them to overlook things they should not. Appraisers are unbiased voices in a very tough business.

In the current system, appraisers can’t do their jobs the way they were trained. Appraisal is an art not a science and it can be deciphered by a computer program. If it was possible to put everything in the real estate valuation process through a computer system, AVM’s would be more accurate and could replace the appraiser’s role all together. It can NEVER happen, because real estate is a complex business and there are things an appraiser learns over the years that simply don’t fit into any standardized form. There are dozens of adjustments or differences between properties that must fit into a few lines for a computer to read.

There are only so many line items on the mandatory appraisal form and many times the numbers are not “black and white.” Condition, quality, site, location, age, etc., there are numerous things that have to be considered in an appraiser’s adjustments. And, there is simply no room on the standardized form to adjust for such items. Without having room for far too many single line adjustments, the “condition” and “quality” adjustments are often a combination of a great many factors. It may be only a few things, or it can be a dozen items or more, on each comparable that have to be factored into the total adjustments somewhere.

And, try explaining the adjustments to an untrained or unlicensed AMC employee and it’s like talking to a brick wall. No matter how many explanations an appraiser writes, they don’t understand the language or logic and ask for more. For many appraisers, frustrating is an understatement.

There are many adjustment nuances in order to “fit” into the highly regulated appraisal underwriting guidelines. For instance: Differences in a yard, landscaping, the slope of the lot, the neighbor’s $30,000 landscaping view or lack of maintenance, the pond, the trailer through the woods, the horse farm across the street, the abandoned warehouse one block away, the park two blocks over, schools, employment, etc.; the difference between laminate and solid surfaces countertops, hardwood vs laminate flooring, smooth ceilings vs popcorn; the difference between a 10×10 deck or a 20×14 deck with Trex type materials, a fenced back yard with a 10×20 wired section vs a six-foot privacy fence surrounding the entire back yard; location within the street/neighborhood, views, privacy, etc. etc.; or what is known as enjoyment of ownership; which is based on the total value, not just a price-per-square-foot. Or, one of a hundred other scenarios that must be consolidated somehow into a standardized form. While some adjustments may not appear logical or mathematically feasible, there is a total logic behind them based on an appraiser’s experience in the local market. On the mandatory appraisal form there is a reason for each number. The appraiser understands the reasoning, but a computer never will.

You can see why it’s hard for appraisers to get excited about adjustments between a C3, C4, etc., when there are so many things that must be considered in a truly credible appraisal report. We have to decide if the appraiser should use their expertise to determine a fair value, or use their skills to fill out a form to make bankers happy. Appraisers solve valuation problems, and if you think earning an appraisal license is easy take a look at what is required. All the training that is required and then they are expected to earn a similar wage to an unskilled laborer? This system is destined for failure and death unless changes are made soon. And, consumers will pay the price for the downfall of the appraisal industry.

I say, train appraisers well and let them do their job. The more the government tries to fix the appraisal system the worse it gets. Bad appraisals account for only a small portion of the lending problems. Take the time spent trying to better appraisals and focus on the lending industry. And then, take a long hard look at the source of information that appraisers use. If you really want to uncover some problems, look to the MLS. The problems are easy to discover. It’s a nightmare that no one seems to want to talk about. Every appraiser knows of the mistakes and exaggerations in the MLS. Hec, most agents know about the problems. For me, after ten years of studying the MLS and square footage problems, many MLS systems are nothing more than advertising sites. The property details and descriptions are basically useless. Harsh, maybe. But very true.

Agents using inaccurate square footage data in their price-per-square-foot calculations cheats consumers out of millions every year. Appraisals are filled with mistakes that come directly from the MLS. There are lots of problems in the home selling/buying process that have nothing to do with the appraisal industry. Cumo got us on the appraisal bandwagon and it’s time to get off.

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Appraisal Adjustments, AMC’s and Talking to a Brick Wall

by Hamp Thomas on 08/21/14

The passion of many appraisers faded with the HVCC and completely went out when Dodd-Frank showed up. When you have to work for someone else (AMC’s) and work harder for less money just to make money for them, then any passion for the job is lost. Appraisers need to be concerned about protecting consumers (and lenders), but most of their reasons for doing so have been taken away. Nobody wants to hear their opinions of value. Banks only want a form to fit percentage guidelines so they can make their loans work. It’s sad to see the lenders that appraisers are trying to protect still don’t seem to want their protection. The true property value appears to concern no one but the appraisers.

The government took one problem and made it into five more to supposedly fix “it,” although the “it” in question is debatable. Did it really fix anything? If we read the news, the lending industry is full of fines and penalties (in the billions-17 Billion announced today for Bank of America), while they keep on making more. But, the little guys (appraisers) are still under the scrutiny of people who really know very little about the industry. It’s like Ambulance Drivers trying to tell Doctors how to do their jobs better.

“I love this profession but cannot stand the business. I am totally burned out. It is so stressful I get physically sick. It’s no longer worth it to me.”  Too many lines like this are posted in appraisal forums and blogs every day. Appraisers are being insulted and intimidated, and I have to ask “what has really changed?” A quality appraiser loves the challenge of creating a fair value and doing everything in their power to be the voice of reason in an emotional process. Everyone else is motivated by a paycheck. Agents and lenders only get paid if the loan goes through and that sometimes allow s them to overlook things they should not. Appraisers are unbiased voices in a very tough business.

In the current system, appraisers can’t do their jobs the way they were trained. Appraisal is an art not a science and it can be deciphered by a computer program. If it was possible to put everything in the real estate valuation process through a computer system, AVM’s would be more accurate and could replace the appraiser’s role all together. It can NEVER happen, because real estate is a complex business and there are things an appraiser learns over the years that simply don’t fit into any standardized form. There are dozens of adjustments or differences between properties that must fit into a few lines for a computer to read.

There are only so many line items on the mandatory appraisal form and many times the numbers are not “black and white.” Condition, quality, site, location, age, etc., there are numerous things that have to be considered in an appraiser’s adjustments. And, there is simply no room on the standardized form to adjust for such items. Without having room for far too many single line adjustments, the “condition” and “quality” adjustments are often a combination of a great many factors. It may be only a few things, or it can be a dozen items or more, on each comparable that have to be factored into the total adjustments somewhere.

And, try explaining the adjustments to an untrained or unlicensed AMC employee and it’s like talking to a brick wall. No matter how many explanations an appraiser writes, they don’t understand the language or logic and ask for more. For many appraisers, frustrating is an understatement.

There are many adjustment nuances in order to “fit” into the highly regulated appraisal underwriting guidelines. For instance: Differences in a yard, landscaping, the slope of the lot, the neighbor’s $30,000 landscaping view or lack of maintenance, the pond, the trailer through the woods, the horse farm across the street, the abandoned warehouse one block away, the park two blocks over, schools, employment, etc.; the difference between laminate and solid surfaces countertops, hardwood vs laminate flooring, smooth ceilings vs popcorn; the difference between a 10×10 deck or a 20×14 deck with Trex type materials, a fenced back yard with a 10×20 wired section vs a six-foot privacy fence surrounding the entire back yard; location within the street/neighborhood, views, privacy, etc. etc.; or what is known as enjoyment of ownership; which is based on the total value, not just a price-per-square-foot. Or, one of a hundred other scenarios that must be consolidated somehow into a standardized form. While some adjustments may not appear logical or mathematically feasible, there is a total logic behind them based on an appraiser’s experience in the local market. On the mandatory appraisal form there is a reason for each number. The appraiser understands the reasoning, but a computer never will.

You can see why it’s hard for appraisers to get excited about adjustments between a C3, C4, etc., when there are so many things that must be considered in a truly credible appraisal report. We have to decide if the appraiser should use their expertise to determine a fair value, or use their skills to fill out a form to make bankers happy. Appraisers solve valuation problems, and if you think earning an appraisal license is easy take a look at what is required. All the training that is required and then they are expected to earn a similar wage to an unskilled laborer? This system is destined for failure and death unless changes are made soon. And, consumers will pay the price for the downfall of the appraisal industry.

I say, train appraisers well and let them do their job. The more the government tries to fix the appraisal system the worse it gets. Bad appraisals account for only a small portion of the lending problems. Take the time spent trying to better appraisals and focus on the lending industry. And then, take a long hard look at the source of information that appraisers use. If you really want to uncover some problems, look to the MLS. The problems are easy to discover. It’s a nightmare that no one seems to want to talk about. Every appraiser knows of the mistakes and exaggerations in the MLS. Hec, most agents know about the problems. For me, after ten years of studying the MLS and square footage problems, many MLS systems are nothing more than advertising sites. The property details and descriptions are basically useless. Harsh, maybe. But very true.

Agents using inaccurate square footage data in their price-per-square-foot calculations cheats consumers out of millions every year. Appraisals are filled with mistakes that come directly from the MLS. There are lots of problems in the home selling/buying process that have nothing to do with the appraisal industry. Cumo got us on the appraisal bandwagon and it’s time to get off.

Appraisal Bullying, Still Going Strong!

by Hamp Thomas on 08/15/14

Even today there is undue pressure being put on appraisers to make loans work. All the new regulations in the appraisal industry did nothing for the bullies who work for AMC’s now. It’s sad to hear veteran appraisers talk about the way they were disrespected and treated unprofessionally, and how they are making plans to leave the industry. It happens every day in appraisal forms and blogs all across the country. The bullying and intimidation is as bad now as it ever was before.

This would never happen in any other industry and there is obviously a huge discrepancy between how appraisers are trained and what the mortgage industry expects from them. Appraisers are taught from day one; protect the buyer, lender, and mortgage investor. Make sure the value is fair to the best of your ability. 100% imbedded in every appraiser’s brain; be ethical and fair, you are there to protect the public and are influencing large financial investments. Then they discover this is NOT what lenders want. They might say they do in public, but their day to day business operations tell another story. The lenders and AMC’s (who pay the appraisers) often could care less if the loan is secure, not their problem. Make the loan, get paid, and let the next guy worry about it. Sound familiar?

So, what has really changed? It appears not much in the mortgage lending industry. Oh, except for the fact that prior to the HVCC each lender handled appraisal ordering and reviewing, and paid their own appraisal related expenses. Now, they pass that expense along to an AMC, who in turn takes it from the appraiser. Yet consumers are paying more than ever. Not because of appraisal fees, but due to AMC increases, which are conveniently listed under “appraisal fees” on a closing statement. I’m still amazed that lenders do not have to disclose AMC fees to consumers. If they are not trying to hide something, why would they care about having their fees disclosed on a closing statement? Every single fee related to the home buying process is listed on a HUD1. All except one; AMC fees. It’s a flat out deception of the home buying public.

Let’s call a lemon a lemon. AMC’s are not in the best interest of the public and basically add zero value to the mortgage lending process. Far too many AMC’s are all about getting appraisals done faster and cheaper. They force appraisers to complete work so fast it has to hurt quality. Then, the reports lay around on some lenders desk until the rest of the process catches up. Do we really think the lending process is any faster now than it was prior to the HVCC? No way, it’s slower than it ever was, and it is now obvious the appraisal has no bearing on the speed of the lending process. Getting appraisals done cheaper only helps AMC profits. Appraisers have to do more work for less money, so what do you think happens to the end product? Try this process at your job, more work for less pay. It’s a system doomed for problems. And, those problems only hurt the consumers who we have been led to believe they are designed to help. There’s no logic in this process. It’s all about profits and power, certainly not consumer protection.

Appraisers are being harassed and threatened by untrained and unlicensed people (often in another country), that understand little or nothing about the appraisal business. They only know forms, distances and percentages. They expect perfection from a system where perfection is not an option. Real estate will never be a form filler, computerized process. At least NOT if you want accurate results. The AMC’s goal is to find a way to force the appraiser to make the loans work, whatever it takes. There’s even appraiser’s being blacklisted for not accepting their low fees. AMC’s are bully appraisers by saying you will work for what we tell you, or we will make sure you don’t work for anyone. That’s absolute intimidation and it should be illegal. But wait, it is illegal, but no one enforces it! File a complaint and an appraiser will never work again.

How about an in-depth study by one of the television news shows looking into AMC practices? If the public knew what was happening and what they were paying more for, they would be outraged. And, they should be. The only ones being served by AMCs are AMCs (and big banking). Oh yea, remember the Golden Rule? This is a perfect example. The ones with the gold (big banks) are making all the rules.

Why teach appraisers to be so ethical and hold them to such high standards, when the people that pay them don’t want them to be that way. Talk about a communication gap! There needs to be an appraisal product that lenders actually want, that still protects consumers and mortgage investors, and that allows for some common sense back in the appraisal process.

For the appraisal industry, and most importantly for consumers, AMC’s don’t work as promised. The home buying public receives zero benefit from an AMC controlled appraisal industry. The only ones who win are the banks (who no longer have to pay for appraisal management), and the AMC’s (who literally got business dropped in their laps the day after the HVCC). They did NOT earn their place in the market, one government official gave it to them.

When will it stop? When one politician stands up and says enough is enough. Remove the HVCC and Dodd-Frank from the books. Good try, but didn’t work. We are no better today than we were prior to the HVCC. Focus on lending practices and let appraisers do what they have been trained to do, the right way. Give consumers an unbiased appraisal and give the appraisal industry back to the people who actually care about doing things fairly. After seeing all the fines and penalties placed on the banking industry the last year (in the BILLIONS), I think it’s clear that the focus needs to be on the banking system. And after that, we need to take a look at Realtor® quality.  Remember, appraisers are only as good as the data they rely on. The MLS is another story, but is also is a large player in appraisalquality. It’s time to stop appraisal bullying for good and put some teeth in any new law.

Citigroup Pays Record Penalty

by Hamp Thomas on 07/16/14

Citigroup will pay $7 billion to resolve claims it misled investors who purchased shoddy mortgage-backed securities that helped lead to the financial crisis six years ago, Reuters reported July 14. The deal includes the largest civil fraud penalty ever levied by the U.S. Department of Justice. The multibillion-dollar settlement is more than twice what many analysts expected but less than the $12 billion the government sought in negotiations with Citigroup.

All those who argue about the causes of the real estate crisis cannot discount yet another billion dollar settlement. Over and over again we see large settlements for mortgage securities fraud, where the problem was not with the appraisals, but the crooked financiers who manipulated the system, stealing money from homeowners all across the country. While appraisers are still being punished for the sins, big banks obviously have ample funds to pay these fines and continue with business as usual, while appraisers are being regulated to death. Every day more skilled appraisers are leaving the business while AMC’s steal profits and do little if anything to improve the home buying system. It’s time to take AMC’s back to the pre HVCC days where they can earn a market share the fair way, rather than by government intervention. It’s time to get the government out of the appraisal industry. Let’s says goodbye to AMC’s, and hello to sanity back in the appraisal industry.

Adjustments Fitting the Form-Real Estate Appraisal

by Hamp Thomas on 07/16/14

There are only so many line items on the mandatory appraisal form and many times the numbers are not “black and white.” Condition, quality, site, location, age, etc., there are lots of things that have to be considered in the adjustments (such as a back yard superior to another). And, there is simply no room on the form to adjust for such items. Without having room for far too many single line adjustments, the condition and quality adjustments are often a combination of a great many factors. It may be a few things or it can be a dozen items, on each comparable that have to be factored into the total adjustments somewhere. It took me ten years to learn all the nuances that “fit” into over-regulated appraisal underwriting guidelines. “Condition” adjustments they understand. Differences in a yard, landscaping, the slope of the lot, the neighbor’s 30,000 landscaping view or lack of maintenance, the pond, the trailer through the woods, the horse farm across the street, privacy, etc. etc.; or what I call enjoyment of ownership, which is based on the total value, not just a price-per-square-foot. Or, one of a hundred other scenarios that must be consolidated somehow into the form. Oversimplified maybe, but that’s a summary of what happens. While some adjustments often don’t appear logical, I understand the total logic behind them. On that mandatory appraisal form there is a reason for each number, even when it may encompass more than just quality or condition.

Realtors® – No, I Won’t Work with this Appraiser

by Hamp Thomas on 07/25/16

The lender gets a call. Agent tells them that appraiser “X” just called to set up an appointment to do the appraisal for 123 Main St. That darn appraiser killed my last deal and if he is appraising this house, I will have my clients find another lender. I flat-out refuse to work with this appraiser.

Whether it’s the listing or buyer’s agent, who put this person in charge of the appraisal process? Does the banker have to listen to them and risk losing the loan? It depends.

What’s his motivation? To protect his client and do the best job he can; or to simply get a commission. Far too often the commission wins. Many could care less if the appraiser is honest. They think they have already figured out the value and they don’t need someone coming in and checking their math. They just want an appraiser who understands their job, which is their mind is to bring the appraisal in at the contract price. The agents have already set the value and no appraiser knows better than they do about the current market.

This is happening all across the country and is getting out of control. How much power does a Realtor® have over the appraisal process? Apparently, they have decided they know best and are taking charge.

Then there’s the MLS. That’s a whole different set of problems that keeps getting worse. Puffery and flat out exaggerations (lies) are filling the MLS. Anything to get a sale and get paid. And, square footage being correct is getting worse in more and more places. Most agents aren’t going to measure a house, or pay to have it measured. They are leaning towards using tax records and figure it’s close enough. Reality is – It IS NOT!

If appraisers don’t help protect buyers, lenders and mortgage investors, and keep doing their job the best way they can, with fair and honest values, many of these rogue agents will say anything to get a deal done. Consumer protection is going backwards at an alarming rate and no one seems to be looking at agents and the MLS. Why is that? Reform needs to make a beeline for Realtors® and the MLS!

Have you got the Integrity to be an Appraiser?

Have you got the Integrity to be an Appraiser?
by Hamp Thomas on 07/26/16

Appraising real estate is a tough job, even under the best of circumstances. There are too many occasions where every person involved in the transaction is upset and all eyes are focused on you. Even if you’ve done the best appraisal of your career, had perfect comps, and though you did a great job that no one could argue with; argue they do and at the end of the day, you are the only person screwing up the deal for everyone involved.

And, we’re not talking about being a little upset. We’re talking about downright mad as hell angry. The kind where they will tell everyone they know. They will do their best to hurt you, the way you (in their minds) have hurt them. You single-handily took their dream home right out from under them and how are they supposed to forgive that? It’s not your job to be the know everything better than everybody else, real estate God that never makes a mistake, it’s only your job to complete what the bank needs to get the loan approved. A lot of other people have already figured out the price long before you got involved. They looked at the competition and know what’s going on in the current market. You come along with these closed sales and say that the sellers, the seller’s agent, the buyers, the buyer’s agent, and the lender must all be wrong. The appraiser is basically saying everyone else is wrong and they are right, deal with it. Now that is power!

Welcome to the world of a residential appraiser. Sometimes, not matter your best intentions, the value just isn’t there. You really think the agents must have done a sale’s job on the buyers and the sellers are trying to make a huge profit that’s not even close to what the value of neighboring houses has been.

Sellers overprice a home – anyone ever heard of that?

Real estate agent take an overpriced house just to get a listing – anyone ever heard of that?

Buyer’s love that design or location or something. They are willing to pay whatever, but they want that house. Maybe their best friends live next door, or parents live down the street, or they just have to be in that school district. For whatever reason, they want that house and don’t really care about the price – anyone ever heard of that?

A buyer’s agent go along with what his clients want just to make a commission – anyone ever heard of that?

A lender who only gets paid if the loan goes through – they don’t really care about a house being priced twenty grand over current market value – anyone ever heard of that?

It comes down to motivations…

The question is – what is the appraiser’s motivation?

For the majority of seasoned appraisers (not the ones who came along during the boom years), there is one mandatory goal – price it fair. Nothing complicated about that. The comparable’s paint a picture, that (even in a rising market) shows a pattern of current market value. The appraiser doesn’t personally decide the value, they just report the market. Appraisers are taught to be fair and honest and not swayed by motivations. They are working hard to protect people who often don’t want their protection. When that loan is sold in the secondary market, if that appraiser doesn’t do their job right, then someone’s retirement account may get the short end of the stick. But that doesn’t seem to happen very often and they are not the ones on your phone and in your face. Buyers and sellers, agents and lenders have an emotional and financial interest in this transaction. Today, they want what they want.

It takes a strong mentality and confidence in your ability to be, and to stay an unbiased appraiser. All these people, with far less training than you have, read your report and tell you where you made errors. Is it really our job to say to them that “because we are smarter than everyone else, you can’t buy this house?” Where do we draw the line?

? Seller is mad

? Both agents are mad

? Buyer loves the house and really just wants to loan to go through. They are mad

? Lender is mad and doesn’t get paid unless the loan goes through

And there lies the appraiser’s dilemma. Do you have the courage to stand in the face of all this pressure and stick to your guns about a value? Do you trust your skills and experience? We’re not talking about a few thousand dollars on a $500,000 contact, none of us are that good. But, how about a $20,000 difference on a $250,000 house? The comps are perfect, you used everything close and used six closed sales plus two active listings.

What would it take for you to change your report?

How much pressure is there to make changes?

Do you have what it takes to stay firm with your valuation?

Should you really care?

If you don’t, maybe you shouldn’t be an appraiser. Yes, it matters. No one wants to bring in a low appraisal. But we also don’t want to see a buyer overpay, even if they are okay with it. If you can hold firm in the face of adversity, then you may have what it takes to be a residential real estate appraiser.