Boo-Hoo: Tighter Standards Help Kill Chances of Bubble Returning

I’m starting to sense something of a theme in some recent news pieces about the housing market. Consider the following quotes from two recent articles (emphasis mine).

Reuters, June 22:

Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

SeattlePI.com, June 25:

Are new appraisal rules holding back the nation’s real estate markets?

Lawrence Yun, chief economist for the National Association of Realtors, sure seems to think so.

“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” Yun said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

What do you suppose folks like Laurence Yun mean when they use the phrase “housing market recovery”? Given the types of things they are objecting to, I’m inclined to conclude that what they really mean by “housing market recovery” is a return to the days of double-digit appreciation, frenzied buyers engaging in bidding wars and waiving inspections, and flippers snatching up pre-sales to turn a huge profit once construction completes.

Newsflash folks: It ain’t gonna happen.

You can cry all you want about the new tighter standards that are slowly but surely coming online in lending, appraisals, and other aspects of the home-buying process that were allowed to get wildly out of control during the bubble, but even without these new standards, we’re not likely to see a return of a real estate bubble in our lifetimes.

Too many people have been burned—and continue to be burned—by the rampant dangerous excesses of the housing bubble for things to just ramp right back up into an out-of-control mania again after just a few years of contraction.

Tighter regulation is just one of the necessary consequences of the housing bubble. Real estate professionals need to spend less time complaining and more time finding ways for their businesses to thrive within the framework of a housing market in which people buy reasonable homes, for a reasonable amount of money, as a place to live not a super-leveraged jackpot mega-investment.

0.00 avg. rating (0% score) - 0 votes

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

85 comments:

  1. 1
    Ellie Fields says:

    I agree. Sure, we can inflate the housing market temporarily, but I hope we all just learned that it doesn’t work in the long run.

    Barry Ritholz at the Big Picture posted some of the NAR’s letters advocating against appraisal reform. good reading..http://www.ritholtz.com/blog/2009/06/dastardly-real-estate-lobbying-letters/

  2. 2
    Kary L. Krismer says:

    Tim, I’d agree with you on the condo issue, but are you even familiar with the issues on appraisals? The problem is a third party entity is taking 60% of the fee for doing the appraisal, which means the appraisers are either going to be less experienced or do the job too fast. I think the new system is just as likely to have too many too high appraisals as before, but now we’ll also have too many too low appraisals. It’s a lowering of the quality. You simply cannot appraise a property for $200.

    The problem is they punished the appraisers rather than going after the unscrupulous mortgage originators that pressured the appraisers. I think there were probably a lot better solutions, but this one could work if they limited the third party compensation to $50. How much do they need to check a list and make a phone call?

  3. 3
    Acerun says:

    I think it is i ridiculous to not compare all sales for comps rather than short sales vs non short sales. A sale is a sale, period. Joe Bob thinks his house (same floor plan) is worth more because it was not sold for pennies on the dollar like the bank sold the same home that was foreclosed on then tough noogies!

  4. 4
    deejayoh says:

    This “faulty appraisal” meme was also picked up by the Seattle Times today

    Low appraisals may be chilling home sales

    There may be another culprit scuttling a U.S. housing recovery: low home appraisals.

    Flawed appraisals are derailing real-estate sales and depressing values across the U.S., the National Association of Realtors (NAR) said Tuesday as it reported that existing home prices declined 17 percent in May from a year earlier.

    “It’s pointing to thousands of delayed or canceled transactions,” said Lawrence Yun, NAR chief economist. “We’ve had a massive inundation from members saying this is a big problem.”

    Appraisal rules that went into effect on May 1 require lenders that sell loans to Fannie Mae or Freddie Mac to set up a firewall between appraisers and loan officers to prevent improper influence.

    The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders.

    we should just let people fend for themselves. worked so well before…

  5. 5
    Kary L. Krismer says:

    RE: Acerun @ 3 – Why would you use a comp that markets to only 10% of the market? That would be like using a comp where the listing said they would only sell to left-handed people.

    When marketing a property you do have to account for short sales and REOs, but you don’t have to price at their level.

  6. 6
    Acerun says:

    RE: Kary L. Krismer @ 5
    I guess I am thinking of markets where shorts account for 60% of all sales.
    Just wait a year and that 10% will be much higher and this wont be an issue.

  7. 7
    DrShort says:

    By Kary L. Krismer @ 5:

    RE: Acerun @ 3 – Why would you use a comp that markets to only 10% of the market? That would be like using a comp where the listing said they would only sell to left-handed people.

    When marketing a property you do have to account for short sales and REOs, but you don’t have to price at their level.

    You can probably disregard distressed sales when it’s only 10% or the market, but in parts of the country its 50+% and those sould be included — they are the market.

  8. 8
    Kary L. Krismer says:

    RE: Acerun @ 6 – I’m talking about 10% of the buyers, not 10% of the sales. Most buyers can’t buy a short sale property–they need to have some idea when they’re going to move. They want to be able to lock interest rates. They don’t want to waste 4 months of their life waiting to hear no.

    Short sales are mainly for investors.

  9. 9
    jon says:

    There is a big hassle factor in buying a short-sale property. Use that in a non-short sale comp is like lumping wholesale and retail prices together, even when the wholesaler is the next state over.

  10. 10
    Acerun says:

    RE: Kary L. Krismer @ 8

    So houses that Investors buy should not be compared to houses that others buy.

  11. 11
    Kary L. Krismer says:

    RE: Acerun @ 10 – Houses that do not attract the same market as the general market should not be used. The goal of an appraisal is to find the value on the market, not a sub-market (unless maybe that sub-market is higher).

  12. 12
    Sniglet says:

    I wonder if it has occured to these unfortunate people who find an appraisal coming in for less than the agreed sale price that perhaps having the lender refuse to finance a property for more than the actual market value is a good thing.

    Instead of complaining that appraisers are being too conservative, I think we should be chastising buyers who are trying to overpay for a property, and giving thanks that more home-owners aren’t being setup for ruin, buying houses that are under-water the day they take occupancy.

  13. 13
    Kary L. Krismer says:

    By Sniglet @ 12:

    I wonder if it has occured to these unfortunate people who find an appraisal coming in for less than the agreed sale price that perhaps having the lender refuse to finance a property for more than the actual market value is a good thing..

    Well if that was the case, then yes. For example, as I’ve mentioned before I once had a client make three offers in excess of the price I thought prudent. Fortunately the deal never came together, but if it had I wouldn’t have lost sleep over a realistic appraisal.

    But the issue here is inaccurate appraisals. If they’re inaccurate, they’re just as likely to be high as low under this system.

    BTW, an additional issue with this is timing. When an appraisal will be done is now subject to great uncertainty, even when using the same lender. I heard of one situation where the appraisal was done within a week and another not done after three, both with the same lender. You didn’t have that problem with the old system.

  14. 14
    Acerun says:

    If I were purchasing a home I would use short sales as a comp to come up with an offer. I would hope that it would not insult the seller in a way that they would not deal with me anymore.

  15. 15
    Kary L. Krismer says:

    RE: Acerun @ 14 – They probably wouldn’t be insulted, but I don’t think that comp would be of much use to you in getting them to agree to a price. You could use a 2 bedroom, 1 bath home built in 1947 as a comp for a 3000 square foot house built in 2003 also.

  16. 16
    Sniglet says:

    Are REO sales valid for comps? Or should they be excluded from any appraisal valuations as well as short sales?

    What about a situation where the only sales for the last year in a given neighbourhood were of either the short or REO variety? Would the best judge on property values then be the sales that occured over a year ago?

  17. 17
    Kary L. Krismer says:

    REOs would be suitable for a much larger percentage of buyer, but they are often in horrible condition, so they might be comps only for properties in horrible condition.

    The biggest problem with REOs is the bank required documents. The last ones I saw were actually pretty good, and I told the agent he should get permission from his client to post them as attached documents to the listing so that agents could review them. It’s a real gamble as to what you’ll get when you get docs back from a bank.

    A fairly significant percentage of the bank owned seem to be properties where the prior owner was attempting to remodel, and that might not show through in just looking at a listing.

  18. 18
    Herman says:

    RE: Kary L. Krismer @ 11 – I disagree, Kary. The appraisal is meant to establish the value to the bank in the event that they have to foreclose and sell off the property. In these days, the best estimate for a bank in that position is to compare against other foreclosures and short sales.

    In fact, Kary, I’d go directly to the opposite of your position. I think the only relevant comps for the banks are the asset-dumping sales by other banks.

  19. 19
    Kary L. Krismer says:

    RE: Herman @ 18 – That would go more to what percentage the bank wants down. The less down, the more at risk the bank is in the event of a default. But when they say they will finance 96.5% of the FMV of a property, that is of normal listings.

  20. 20
    Ross says:

    I just went through an appraisal on my home purchase, under the new appraisal rules. I didn’t see good value for money in terms of what the lender got.

    – Paid $350 (which I understand is on the low side) in late May
    – Though the actual appraisal was done fairly quickly (in early June), the report and review of the report by the lender were not completed until earlier this week, almost killing the whole deal
    – There were no recent comps in the project I bought (last sales were in 2007)
    – Appraiser was based in Renton, home is located in Redmond
    – Comps chosen, in my opinion were _far_ inferior quality and therefore not good comps (Yeah, I know, buyer is usually biased and things their home is better — I’m trying to be objective)
    – Comps chosen were: 1) either not on the lake (my unit was) or 2) were a very different style of home (condo as opposed to town home)
    – Low and behold, in the end the appraisal came to _exactly_ what the contract price was for the home

    As some of you may recall, I bought a foreclosed unit that last sold for $550K in 2006. There has been no recent comps in the exact project I bought at.

    I kind of look at this as a $350 report, with a couple pictures of my home and the comps. I’m really not sure what the lenders get out of this, except to filter out some homes that are selling way over market. The only use I see out of it, is if I plan to appeal the tax assessment, the appraisal report could save some of the legwork in finding comps.

  21. 21
    M Long says:

    I have to disagree. I thought that their was no way that the financial industry would get away with avoiding much needed reforms. However, the only outcome of this entire mess is that the big banks now have an explicit government guarantee as opposed to just an implicit guarantee. If anything the financial market got worse. Banks were allowed to suspend mark-to-market accounting, allowed to borrow money from the fed at no cost, and then to make matters worse claimed that they never needed the bailout in the first place.

    We were forced to pay for the bailout but the banks got zero reform. Even credit card companies, 401ks and mortgage companies were not forced to show hidden fees. The banks need to be broken up. Off book entities such as structure investment vehicles need to be shown the light and derivatives need to be regulated. None of that has happened. Amazingly the big banks were able to get an even better deal and small responsible banks were killed. Since the real estate market is simply the mortgage market I doubt anyone will see any real reform but you’ll probably see a repackaging of the same old scams.

    Just when you think it cant get any worse. It does.

  22. 22
    Ray Pepper says:

    “Real estate professionals need to spend less time complaining and more time finding ways for their businesses to thrive”

    WOW……..What a novel idea?? How about 400.00 Realty? Or 100.00 Realty? Plenty of room for more “consumer friendly” models.

    Models that actually “give” to the public not “extract” !

    Day by day, more and more Buyers are realizing the money is theirs if they just ask for it. Thats all it takes. Just ask? As for sellers……..even more so…….The insanity of 4-6% is nearing an end!

  23. 23
    Hector says:

    In discussing refi’s with friends lately, their appraisals have all been identical to Zillow…Just saying…

  24. 24

    I’ve seen no evidence that the big national appraisal companies are more efficient or more honest than the local, independent companies, but the new appraisal procedures strongly favor the big national companies.

  25. 25
    Teacher_Greg says:

    Actually I can say, with 100% accuracy, that there will in fact be another real estate bubble…its just that it will “re-inflate” and “pop” about 80 years from now…

  26. 26
    S-Crow says:

    RE: Hector @ 23

    Had two transactions fall-out of escrow today due to appraisal coming in substantially below assessed value and Zillow. In fact, the LO stated that the appraisal was about $100K below—and that was after an appeal. I think opening escrow on a refi based upon what you can pull up from assessed value or Zillow is becoming less and less reliable.

    Also, with all the 2nd mortgages that people have obtained during 2005,2006, and 2007 the subordination’s that are having to take place with today’s refi’s are becoming a tough work-a-round. For those that have enough equity to spare, some lenders are requiring the line of credit to be reduced to meet loan-to-value guidelines—sometimes by as much as half or more.

  27. 27
    Ex_Boat_Tester says:

    The Snohomish County Assessor has some big reductions in assessed values for next year. The numbers bellow are for parcel number 00846300000200, as an example:

    Tax Year 2009 Market Land $260,000 Market Improvement $276,400 Market Total $536,400

    Pending Property Values for Tax Year 2010
    Market Land $220,000 Market Improvement $216,900 Market Total $436,900

    How is this fact going to influence appraisals in 2010? It sure looks like the biggest drop I have seen in my 12 years in the States.

  28. 28
    3rd Generation says:

    Who could me more of a laughing-stock bought-and-paid-for discredited shill hack than Funny Yunny (oops, there IS David Lereah, NAR members, remember it?)?

    Well, I guess the answer would be any typical 6%er… Your days are numbered, your ‘profession’ (you know, the one you studied those two weekends for) is doomed.

    Shakespeare Was Right. But he should have inserted ‘realtors’ not ‘lawyers’ in his prose.

    DIE 6%ers.

  29. 29
    Sniglet says:

    the issue here is inaccurate appraisals. If they’re inaccurate, they’re just as likely to be high as low under this system.

    Perhaps valuations done under the new appraisal rules aren’t perfect, but I haven’t heard anything to say that they are less accurate than they used to be prior to the recent rule changes. There were countless horror stories of wildly errant valuations in recent years.

    I find it hard to believe that appraisers are now (on average) making overly conservative valuations today. When I see the insane prices the majority of Puget Sound homes are still selling for, I can’t help but think there was an appraiser who contributed to this insanity by offering an oppinion which justifies the over-bidding. Just look at the skyrocketing 0 day default rate, with record numbers of new home-owners becoming delinquent the moment their first payment is due.

    If anything, appraisers need to ratchet down their valuations even more to prevent another wave of defaults, as the purchasers of 2009 become under-water debtors who go into default. Instead of lamenting “low” appraisals, industry pundits ought to be demanding that appraisers get tougher.

  30. 30
    Ray Pepper says:

    Listen to this today. It will be well worth your time.

    http://www.mynorthwest.com/?nid=76&sid=182502

  31. 31
    Kary L. Krismer says:

    By Sniglet @ 29:

    Just look at the skyrocketing 0 day default rate, with record numbers of new home-owners becoming delinquent the moment their first payment is due.

    That has nothing to do with appraisers and everything to do with the loan officer.

    But do you really think you can get better quality for less money?

  32. 32
    Kary L. Krismer says:

    RE: Ray Pepper @ 30 – Not really. I’m not a fan of McDermott, but there are lots of areas where properties are underassessed. I just mentioned that yesterday.

  33. 33

    HERE’S WHY THEY WANT THE BUBBLE BACK; OR THE SAME OLD GROWTH PATHWAY THAT LED US TO THE CURRENT ECONOMIC CRISIS PIT IN THE FIRST PLACE

    The spendthrifts wiped out our State budget surplus in a few years and the last I hear, the deficit was like $9-11B [it keeps going up in billion dollar chunks, almost monthly?]….even using the low ball estimate, Hades, we’re three times worse than California per capita.

    To counter the budget red ink, we’ve installed stop lights with cameras, seat belt laws, massive proposed tolls on our floating bridges [paid for or not], a proposed milage tax on automobile use, etc, etc…..

    But none of this is working. We’re closing schools, county workers are getting laid off and the ones still working are taking 5% pay cuts too, we’re cutting aid to the disabled and elderly, etc, etc….

    In 2010, the new property tax estimates will be down at least 10% on a three year average, unemployment will run out for many by year’s end, etc, etc….

    That’s when the manure will really hit the fan and I expect a huge spike in foreclosures by the end of the year, since recent home purchases in the high priced real estate Seattle almost entirely depend on two incomes, with twice the probability that one is laid off.

    Ditto for California and Oregon too…

  34. 34

    IMAGINE THERE’S NO GROWTH BUBBLE IN SEATTLE

    Like John Lennon’s song, “Imagine”, imagine everone in America debt free and a good savings pile in the bank.

    What’s wrong with lower prices homes?

    What’s wrong with banks with cash they’ll readily lend, to spur a new industrial base for America?

    What’s wrong with 6-8% interest on your retirement savings and banks charging 8-9% for mortgage loans again?

    What’s wrong with a stock market gradually adjusting and permanently repairing the damage done to it by reckless growth spending destroying retirements?

    What’s wrong with being frugal, environmental and smart?

  35. 35
    The Tim says:

    Here’s my observation about the appraisal issue. When (most) real estate agents today complain about “inaccurate appraisals” or “faulty valuations,” that is code for “the appraisal was too low.” You never heard complaints from real estate agents about “faulty valuations” during the boom, although I am certain there were plenty.

    Really the complaint boils down to “when we try to do business just like we always have, we’re getting lousy results.” So find a new way to make appraisals work. What good does it do to complain and whine about the appraisal management companies if you just keep going back to them? Find a better way to do business.

    The P-I article describes one possible solution:

    Hagar said appraisal management companies are telling lenders the code requires use of such companies, which is not the case. For instance, Mortgage Master Service Co., in Kent, created its own, separate appraisal department, according to Rhonda Porter, a loan originator with the company.

  36. 36
    Ray Pepper says:

    RE: Kary L. Krismer @ 32

    yes but its under assessed by 50%+?

    Thats worth a listen.

  37. 37

    WE NEED RECKLESS SPENDTHRIFTS FOR THE NEW BUBBLE CREATION

    Stocks Fall as Savings Rate Jumps- AP
    Investors are nervous because consumers are saving rather than spending. Stocks fell Friday after the Commerce Department reported that personal spending, incomes and savings all rose in May.

    I’d add that personal income is household income and with families shacking together more and more with this recession/depression, just what does the term household/personal income as a YOY comparison mean anymore?

  38. 38
    Kary L. Krismer says:

    By The Tim @ 35:

    Here’s my observation about the appraisal issue. When (most) real estate agents today complain about “inaccurate appraisals” or “faulty valuations,” that is code for “the appraisal was too low.” You never heard complaints from real estate agents about “faulty valuations” during the boom, although I am certain there were plenty.

    Agents don’t typically see the appraisal or even know what it came in at when the appraisal is at or above the sale.price.

  39. 39
    Kary L. Krismer says:

    RE: Ray Pepper @ 36 – I’ve seen numbers like that in South Seattle based on purchase prices about the same time as that one.

  40. 40
    mark says:

    RE: Ray Pepper @ 36
    You can do better than that Ray. Property taxes are a little more complicated than that.
    As a political statement for the wingnuts that listen to hate radio that sort of thing gets a lot of traction.
    As a serious discussion of property taxes or political favoritism goes, that is very weak.

    McDermotts property looks like it is valued fairly closely to the neighboring properties.

  41. 41
    Greg Perry says:

    No, the appraisal issue really is a cluster puck. Good and honest appraisers are thrown into the same bin as the incompetent lot. It is really “socialism” in business at best, as we have leveled the playing field with the great and the incompetent AND removed any incentive for excellence in their work. The AMC’s are charging up to 50% more for appraisals and giving the appraisers 30-50% less. Crummy appraisers now have work, and the good appraisers are receiving much less business AND receiving less for their appraisals.

    I am in a transaction right now where the appraisal was ordered on June 4. Nothing was happening and I started to aggressively follow up with the originator, who followed up with the bank (a large bank), who was at the mercy of the assigned AMC. It was finally completed in-field on June 18th (14 days from order to execution). Then the AMC had issue with the appraiser’s work, sent it back to be corrected and we finally received the completed appraisal yesterday, at value. (This appraisal was done by an out of county appraiser)

    The transaction is supposed to close today and now today is the first day lender docs can be ordered.

    The Buyers are frantic. They have nowhere to live and are forced to incur storage costs. All the help they had lined up for their move is now gone. Thankfully they can camp out with friends and don’t have to foot the bill for a motel. If the deal doesn’t get done in 5 days however, they lose their rate lock.

    The Seller, who is very thin in proceeds, runs up interest, taxes and utility expenses now by the day.

    Everything could be solved for the satisfaction of the everybody, at a fraction of the costs and hassle, if a simple checks and review procedures were implemented.

    Appraisal fraud is a huge issue, but the concept of the AMC’s are like taking a blow torch to a match fight. Incompetency in the system is hurting the consumer by:
    1. Losing rate locks
    2. Buying more than one appraisal. (if the buyer must change lenders, transfers are almost impossible)
    3. Increase in the costs for appraisals done by incompetent appraisers.
    4. Extenuating expenses caused by properties not closing on time.
    and many, many other misc. expenses.

    The only benefactors are the AMC’s, and the group of appraisers that were so bad that they weren’t getting business. The consumer is getting a screwing.

    I know of two excellent appraisers that have high integrity who are leaving appraising and interviewing now for jobs. What the industry is left with is the dregs of the lowest common denominator.

    Put your self into a buyer’s shoes (or sellers) who is paying extra, needless and unanticipated expenses and the good appraisers with integrity who can’t make a living.

  42. 42
    Sniglet says:

    The AMC’s are charging up to 50% more for appraisals and giving the appraisers 30-50% less. Crummy appraisers now have work, and the good appraisers are receiving much less business AND receiving less for their appraisals.

    This may very well be the case. I certainly do NOT want to defend the new appraisal system, and problems with lengthy delays or improperly written documents are valid criticisms. What I do take issue with is complaints about appraisals coming in below the agreed sale price. I have very little sympathy for this kind of problem. While there may be a few situations where the home really is worth more than what the appraiser determined, I think this is extremely rare.

    I would much rather side with the appraiser (in cases where the valuation was less than the sale price) rather than automatically assume that they somehow messed things up.

  43. 43
    Kary L. Krismer says:

    By Sniglet @ 42:

    While there may be a few situations where the home really is worth more than what the appraiser determined, I think this is extremely rare.

    I would much rather side with the appraiser (in cases where the valuation was less than the sale price) rather than automatically assume that they somehow messed things up.

    As to the first point copied, you have absolutely no basis to make that determination. No agent or broker could make that determination either. All they would know is what happens on their transactions. You don’t even know that! You have a sample size of zero.

    As to the second point, I’d agree you shouldn’t automatically assume anything as to whether it’s high or low. But I am willing to assume that when appraisers are picked randomly and paid less, that the results will be less accurate. This, however, assumes that it was in fact a relatively small percentage of appraisers that gave into lender pressure.

  44. 44
    The Tim says:

    By Sniglet @ 42:

    I would much rather side with the appraiser (in cases where the valuation was less than the sale price) rather than automatically assume that they somehow messed things up.

    Exactly. That’s what I’m taking issue with too. The attitude we’re seeing reflected in the types of news reports I quoted in the post is “if the appraisal comes in lower than the purchase price, it’s obviously flawed, if it comes in at or above the purchase price, it’s a success.”

    The problem is this mindset that seems to permeate among real estate agents and mortgage originators that the appraisal process is a mere formality that gets in the way of “getting the deal done (no matter what).”

  45. 45
    Greg Perry says:

    RE: Sniglet @ 42

    Hi,
    I had a home a month ago that closed for $317K with an appraisal that came in at $350k. It was a VA appraisal to boot….go figure.

    At any rate, I haven’t experienced a low appraisal problem, yet.

    I more offended by the inequities and inefficiencies in the new system. The problem is not that difficult. A more stringent review process would police the fraud issues, which afterall is the core issue.

  46. 46
    Kary L. Krismer says:

    RE: The Tim @ 44 – Well obviously the agent’s opinion can be biased, but if you can actually see an appraisal (which you can when it’s low) you can often determine its faults. I mentioned that recently talking about a refinance appraisal from early 2008. The faults were obvious in that the comps didn’t match the type of property well, they were of widely varying sales prices (something many lenders would reject), and the time period for the comps went too far back (also something many lenders would reject). So it’s not like it’s necessarily just a “it’s too low it’s bad” type of an analysis.

  47. 47
    Greg Perry says:

    By The Tim @ 44:

    By Sniglet @ 42:

    I would much rather side with the appraiser (in cases where the valuation was less than the sale price) rather than automatically assume that they somehow messed things up.

    Exactly. That’s what I’m taking issue with too. The attitude we’re seeing reflected in the types of news reports I quoted in the post is “if the appraisal comes in lower than the purchase price, it’s obviously flawed, if it comes in at or above the purchase price, it’s a success.”

    The problem is this mindset that seems to permeate among real estate agents and mortgage originators that the appraisal process is a mere formality that gets in the way of “getting the deal done (no matter what).”

    Yet at this time we’re seeing very bad appraisers coming in from out of county. The good appraisers are leaving the business. When they don’t get bedroom, bathroom and fireplace counts wrong — an’t figure square feet, there’s something very wrong. This is not an exaggeration. I’m hearing it all over.

  48. 48
    Kary L. Krismer says:

    By Greg Perry @ 45:

    A more stringent review process would police the fraud issues, which afterall is the core issue.

    That’s sort of what I’m saying. A bad appraisal typically would be somewhat obvious on its face.

    It would probably help if the underwriter had access to the MLS system for the area. But review is probably the key. It would typically take less than an hour time.

  49. 49
    Greg Perry says:

    Regarding my comment 41:

    I forgot to mention a very important detail on my buyer. This is a 75% LTV transaction with the buyers sporting 800+ credit!

  50. 50

    RE: Ross @ 20 – I don’t have issues in general with homes appraising for lower amounts as long as the appraisal was done correctly. Because of HVCC, many appraisals are being done by people who are not familiar with the area (like the experience Ross had). This is just costing borrowers more money in fees (that are just going to banks and title companies who own most of the appraisal management companies).

  51. 51
    Sniglet says:

    This, however, assumes that it was in fact a relatively small percentage of appraisers that gave into lender pressure.

    It is my belief tha the vast majority of appraisers were using overly optimistic assumptions at the height of the boom, even if they weren’t acting as mouth-pieces for the lender. The simple fact is that if your valuations were consistently lower than the agreed sales prices you simply couldn’t have remained gainfully employeed as an appraiser during the boom.

    Further, I would argue that any appraiser who was truly only interested in giving accurate valuations would never have written an appraisal that was equal to or greater than the agreed sale price at the height of the boom. There were so many obvious games being played that drove up “official” prices (e.g. cash-back payments to buyers, etc), that you just couldn’t trust that the comps were accurate. Thus, it is my contention that anyone who was gainfully employed as an appraiser during the boom was actively complicit in the deceptions taking place.

    Any appraiser with integrity would have walked away from the business.

  52. 52
    Greg Perry says:

    RE: Sniglet @ 51

    Fraud problems were in the minority of purchase transactions. The true measure of market value is the agreed to price in an “arm’s length” transaction between the buyer and the seller. In the hot areas during the run up, a huge proportion of transactions were multiple offer transactions, where we saw multiple buyers agreeing to value.

    I’m assuming that when you say an appraiser would have never have written an appraisal that was equal to or greater than the agreed sales price at the height of the boom you mean the “peak” of the market? Even then, if the buyer and seller enter into an “arm’s length” transaction, and comps are available to support the price, how could an appraiser NOT find value?

    And how can an appraiser see the peak anyway? You have to remember, that by and large they drive in their rear view mirror. And remember, prior to the peak, MOM appreciaition was exceeding 10%.

    The appraisers job is not to create a value. Value creation (market value) is a the function of the market (buyer and seller coming to terms in an arm’s length transaction). Most appraisers have a hard time establishing a market price (working agents are much better at establishing market price). The appraiser’s job in the transaction is to verify value. Why, for heaven’s sake would an appraiser walk away from the business of verifying value in an arm’s length transaction with supporting comps? I would submit that any appraiser that would intentionally lower value with rising appreciation, an arm’s length transaction and comps would be the appraiser that would be derelict.

    Yes, the fraud rings were bad and crooked (or lacked integrity) appraisers, along with crooked mortgage initiators, escrow companies and agents cooked some poor people. That doesn’t make all appraisers, loan officers, escrow companies and agents crooked (or lack integrity).

    In rising markets we rarely see an appraisal come in over the agreed to price. We normally see them come in “at value”. I’ve actually seen more appraisals come in higher in declining markets (just had a VA appraisal come in $30+K over the agreed to price.).

    (by the way seller’s are paying almost all of the today’s buyer’s closing costs — appraisers still don’t see this. It’s been that way for decades)

  53. 53
    Sniglet says:

    if the buyer and seller enter into an “arm’s length” transaction, and comps are available to support the price, how could an appraiser NOT find value?

    A huge number of the comps themselves were false, since the sale prices often included kick-backs and so on. Appraisers (and everyone else) knew this was happening, so they were fully cognizant that the normal valuation techniques were inadequate. Further, comps where the buyers had very little money down, or were obtaining option-ARM or interest only loans, were clearly distorting the prices. Just as we suggest appraisers don’t use short or REO sales as comps today, no sale that was financed with no money down, or utilized option ARMs or interest only loans should have been included in the evaluation process.

    I don’t believe that the use of kick-backs or exotic financing (by which I mean no money down, option ARM, or interest only loans) were rare at all from the beginning of 2004 to the end of 2007. I know of many friends who received “free” upgrades, freebies (vacations, TVs, etc), or cash payments when they bought a home. One friend even got 6 months of home owner association fees paid.

    I can’t see how ANY appraiser can, in good conscience, sign off on a home being worth the value of the sale price if the buyer is getting some sort of remuneration.

  54. 54
    Greg Perry says:

    By Sniglet @ 53:

    if the buyer and seller enter into an �arm�s length� transaction, and comps are available to support the price, how could an appraiser NOT find value?

    A huge number of the comps themselves were false, since the sale prices often included kick-backs and so on. Appraisers (and everyone else) knew this was happening, so they were fully cognizant that the normal valuation techniques were inadequate. Further, comps where the buyers had very little money down, or were obtaining option-ARM or interest only loans, were clearly distorting the prices. Just as we suggest appraisers don’t use short or REO sales as comps today, no sale that was financed with no money down, or utilized option ARMs or interest only loans should have been included in the evaluation process.

    I don’t believe that the use of kick-backs or exotic financing (by which I mean no money down, option ARM, or interest only loans) were rare at all from the beginning of 2004 to the end of 2007. I know of many friends who received “free” upgrades, freebies (vacations, TVs, etc), or cash payments when they bought a home. One friend even got 6 months of home owner association fees paid.

    I can’t see how ANY appraiser can, in good conscience, sign off on a home being worth the value of the sale price if the buyer is getting some sort of remuneration.

    I can see somewhat where you are coming from.

    As for the incentives (like vacations, cars, etc), especially for builders, these more more marketing costs, and not considered a cost of the home. They are perfectly fine and often laid out within the text of the listing on the MLS. The public doesn’t always see the incentives as they are published in the agent only comments. Sometimes these incentives are advertised in newspapers, signs and billboards. Many incentives are really marketing costs, and not associated with the house price.

    Homeowners dues are a perfectly fine thing to negotiate, and will be found within the actual purchase and sale, as are the closing costs noted on the purchase and sale. The same with builder upgrades. They are a contract item. Any material item that involves value must be included in the purchase and sale agreement. If these agreement happen outside of escrow, it is considered fraud.

    Could the appraiser see incentives and closing costs on the comps? Not always. And, they don’t see them now, nor did they see them 20 years ago. I’m not arguing for or against here. However, the conditions have always remained relative.

    As for the exotic loan, no downs, sub prime, et al, These really were not the appraiser’s issue. These are a bank issues and policy issues, and of course we are paying the piper, for sure. I don’t think we should confuse appraisers and what they do with the the policy issues coming from the banks. Sometimes, if an appraiser is really stumped they will call past listing agents to inquire about closing costs, etc., The appraiser has no practical way to find this information.

    Also, is a short sale an arm’s length transaction? No. The seller is distressed and has undue pressure, and the buyer faces increased RISK. IMO, this should NOT be factored into an appraisal with a buyer and seller IN an arm’s length transaction. The reason short sales are below market is BECAUSE it is a distressed property because of the increased risk to the buyer.

    Again, remember the appraisers job is to VERIFY value. With an arm’s length transaction in an appreciating market — not hard to do. In a depreciating market, more difficult.

  55. 55
    Sniglet says:

    Homeowners dues are a perfectly fine thing to negotiate, and will be found within the actual purchase and sale, as are the closing costs noted on the purchase and sale. The same with builder upgrades.

    These kick-backs may well be legal. I am merely saying that there is NO way an appraisal should ever be equal to or greater than the agreed sale price if kick-backs are included as a part of that price. Any appraisal that does meet the sale price when kick-backs are involved is fraudulent. It might well be that the appraiser herself doesn’t know about the kick-backs, in which case the fraud lies with other parties who don’t disclose the terms to the appraiser.

    Further, when most of the comps are for a deal that included kick-backs as a part of the sale price (legal or otherwise) then those comps are going to give a completely innacurate idea of the true valuation.

    This brings me back to my earlier contention. Appraisers KNEW that kick-backs were rampant as a part of sales, and thus were in a position to know that the comps they relied on were most likely bogus. It’s all well and good to say that things were out of the appraiser’s hands, but when you know that the information you rely on is a lie, but use it anyway, you have proven yourself to be a person of little integrity.

    Like I said, I don’t think it was possible to have been gainfully employed as an appraiser between 2004 and mid-2007 without being knowingly complicity in creating false valuations (to greater and lesser degrees). Anyone with integrity would have just left the industry.

  56. 56
    Kary L. Krismer says:

    By Sniglet @ 53:

    if the buyer and seller enter into an �arm�s length� transaction, and comps are available to support the price, how could an appraiser NOT find value?

    A huge number of the comps themselves were false, since the sale prices often included kick-backs and so on. Appraisers (and everyone else) knew this was happening, so they were fully cognizant that the normal valuation techniques were inadequate. Further, comps where the buyers had very little money down, or were obtaining option-ARM or interest only loans, were clearly distorting the prices. .

    Appraisers can and do call and ask about seller concessions on transactions.

    The idea that an appraiser should adjust their value because they don’t like certain types of financing is a bit absurd. Their job is to value the property in the current market, and as long as that financing is still available at the time of the appraisal, that is the current market. That gets to my point about the 3/08 refinance appraisal where they were using comps from a period where financing was slightly different. That was improper at that time, but not say in 8/07.

  57. 57
    WestSeattleDave says:

    RE: Greg Perry @ 54 – “As for the incentives (like vacations, cars, etc), especially for builders, these more more marketing costs, and not considered a cost of the home. Many incentives are really marketing costs, and not associated with the house price.”

    The seller paying the buyer, after closing, a vacation, a car, house upgrades, cash, or other items of value are not marketing costs. They are BRIBES! They should correctly be subtracted from the sale price for purposes of calculating the loan and determining comps.

    I wonder if the bank making the loan knows about that $10,000 “marketing” cost?

  58. 58
    Kary L. Krismer says:

    RE: Sniglet @ 55 – What kickbacks to you think were rampent back in 04-07?

    I don’t deal at all in new construction, but I think most of those pertained to the property itself–improvements. And as I mentioned, seller financed closing costs can be determined by an appraiser if they ask.

  59. 59
    anony says:

    Greg, I’ve got to think that all the costs of building and selling the home, including marketing, are worked into the costs. Otherwise there is no way the builders could stay in business. If there are vacations or cars or anything else coming with the house that the lender can’t foreclose on, that should be a problem. You can’t compare the price of a house with a car to a similar house without a car and say it should be the same.

    Perhaps the big issue here is the shot credibility of the NAR and agents in general. It is a pretty open secret that the NAR has fights very hard to keep home prices as high as possible, and their press releases, commercials, lobbying, ect. are largely attempts to get people to buy homes, rather than attempts to be an advocate for the consumer. A lot of “buyers” agents are the same way. Can you really be surprised that when the NAR comes out now against the appraisal rules, due to low appraisals the NAR claims are faulty, that people don’t believe them? I mean if they were full of it and just trying to sell overpriced homes it would fit a well known pattern of behavior, wouldn’t it?

    Maybe the NAR is telling the truth in this case (because it happens to serve their needs at the moment). I don’t know, but I sure don’t believe anything just because the NAR and a bunch of agents on blogs say so.

  60. 60
    Greg Perry says:

    RE: Sniglet @ 55

    I’m not saying you shouldn’t have passions for your position. You have some good points that I agree with. I think much of your angst is pointed at the wrong entity. It was the banks and the government were creating policy and loaning the money. The environment that all professionals worked in the industry, from top to bottom was somewhat shaped by monetary policy and lending standards. There were a few years that the banks were pumping the money as fast and as loose as they could.

    The appraiser has no practical way to know closing costs and other concessions, and the fact is, the banks really didn’t care. UNDERWRITERS would bypass or adjust appraisals. Personally I would no way infer good professionals doing their jobs as taught and as instructed by banks and the policy of the time to be people of little integrity. The fact is, more appraisers cared more about value than the banks that received their appraisal.
    Those blatantly breaking the rules, or doing something illegal, then yes, but many many appraisers did not break any rules!

    No question, there were, and still are housing fraud rings which need to be brought down.

  61. 61
    Kary L. Krismer says:

    RE: anony @ 59 – Actually, NAR has a lot of programs regarding house affordability. In fact, the entire silly idea of comparing median price to median income was their idea.

    I would think it’s fairer to say the NAR wants volume.

  62. 62
    Greg Perry says:

    RE: WestSeattleDave @ 57

    “They are BRIBES!”
    Correct. So is the new toaster for opening an checking account. Free lifetime oil changes. Buy one and get one free. All advertising and marketing, along with every other costs affects the builder’s profitability.

    I’m not arguing for or against. I’m saying it’s not the appraisers job to figure this out. It’s a policy issue.

  63. 63
    anony says:

    RE: Kary L. Krismer @ 61 – Think it’s fair to say that the NAR doesn’t have a ton of credibility left at the moment? High appraisals bring more volume than low ones. Wouldn’t they be fighting against low appraisals even if the appraisals were legitimate, or don’t we have reason to think they would?

  64. 64
    Greg Perry says:

    RE: anony @ 59
    NAR is a real estate agent association. It has some products to promote and they are mostly housing, home ownership, and working with a Realtor.. What’s wrong with that? It’s business. Free enterprise. You are a discriminating, educated consumer that can figure things out for your best outcome.

    Some people like Toyota, some like Ford. Nobody seems to like Chrysler these days……

    BTW, I haven’t noticed NAR promoting high prices either in public or private. Can you share an example?

  65. 65
    WestSeattleDave says:

    RE: Greg Perry @ 62 – “Correct. So is the new toaster for opening an checking account. Free lifetime oil changes. Buy one and get one free. All advertising and marketing, along with every other costs affects the builder’s profitability.”

    Advertising, staging, and showing a home are marketing costs. Paying bribes out of the proceeds of the sale are not. Marketing costs are borne by the agent, who hopes to recoup the expense through the commission paid. Cars, vacations, cash, etc. are paid by the seller, only after the sale is completed. And it is usually an inflated sales price that funds that.

    Do any of these “expenses” show up on any of the documents that the bank sees prior to making the loan? Does escrow record that $10,000 payment from seller to buyer? I imagine most of this stuff occurs with a wink-and-a-nod. Ultimately, these costs are borne by whoever makes the loan.

    The only way you will convince me that these are not bribes is if all of these “marketing costs” are paid out of the agents commission.

  66. 66
    Greg Perry says:

    RE: WestSeattleDave @ 65

    Your assumption is incorrect. Builders (and every day resale sellers in certain situations) pay many many marketing costs that are in no way associated with an agent’s commission.

  67. 67
    anony says:

    By Greg Perry @ 64:

    RE: anony @ 59
    NAR is a real estate agent association. It has some products to promote and they are mostly housing, home ownership, and working with a Realtor.. What’s wrong with that? It’s business. Free enterprise. You are a discriminating, educated consumer that can figure things out for your best outcome.

    That is basically like saying “No, you can’t trust them for reliable info, they are just trying to promote (sell) their products”

    What’s wrong with that, maybe nothing. But it does mean we can’t take their complaints about appraisals at face value.

  68. 68
    Greg Perry says:

    RE: anony @ 67
    “But it does mean we can’t take their complaints about appraisals at face value.”

    Why should you take anything at face value?

  69. 69
    Sniglet says:

    The environment that all professionals worked in the industry, from top to bottom was somewhat shaped by monetary policy and lending standards. There were a few years that the banks were pumping the money as fast and as loose as they could. Personally I would no way infer good professionals doing their jobs as taught and as instructed by banks and the policy of the time to be people of little integrity. The fact is, more appraisers cared more about value than the banks that received their appraisal.

    I agree that appraisers shouldn’t be singled out as the only culprits in the financial bubble, there is blame to go round. This is why I also believe that it was impossible for a person of integrity to have worked at the ratings agencies, lenders, or investment banks in the last decade. The few people who refused to keep piling on the risk lost their jobs, and I applaud them. I just don’t buy the excuse from those who say you had to play along. So what if all the other lenders were offering better deals than you were? If that means you bank has to cease mortgage lending then so be it.

    Appraisers were just just one small aspect of the whirlwind, but they too had moral decisions to make, and the fact that everyone else was letting things pass, and refusing to stand up for principals, doesn’t absolve them (or anyone else).

  70. 70
    Greg Perry says:

    RE: Sniglet @ 69
    Sniglet, I agree that we all need to stand up for principles. I think the first principle for real estate should be owning a home is not a right. It is something one earns. If we can get government policy around this one, we’ll start solving the housing problem and a lot of our economy problems.

  71. 71
    anony says:

    RE: Greg Perry @ 68 – So we have the word of the NAR and some unverifiable stories from yourself and Kary, all of whom are part of the “business, free enterprise” of selling homes, saying that there is a problem with appraisals (other than they are accurate, even when lower than what you would like). Are you seeing the problem here?

    What evidence do I have that there is any real problem with appraisals, except that they are accurate, even when it is inconvenient for the salespeople?

  72. 72
    Greg Perry says:

    By anony @ 71:

    RE: Greg Perry @ 68 – So we have the word of the NAR and some unverifiable stories from yourself and Kary, all of whom are part of the “business, free enterprise” of selling homes, saying that there is a problem with appraisals (other than they are accurate, even when lower than what you would like). Are you seeing the problem here?

    What evidence do I have that there is any real problem with appraisals, except that they are accurate, even when it is inconvenient for the salespeople?

    You are so correct. It’s all a huge conspiracy. NAR, Kary and I are trying to pull the wool over your eyes, but you won’t let us. Ohhhh no, not you! That NAR is the axis of evil, however, nothing compared to the villainy of Kary and Greg! (Despicable characters that they are)

    Bwah ha ha ha ha!

    Here’s a hint…..BIG hint. Just google” HVCC” and read only the first 10 pages. If you don’t find what you want, let me know so I can stay up at night to compose more unverifiable stories to “convince” you.

    Bwah ha ha ha ha!

  73. 73
    Kary L. Krismer says:

    By Sniglet @ 69:

    Appraisers were just just one small aspect of the whirlwind, but they too had moral decisions to make, and the fact that everyone else was letting things pass, and refusing to stand up for principals, doesn’t absolve them (or anyone else).

    I’m not sure people fully understand what the problem was. Mortgage originators can do a lot of business, meaning one client of an appraiser might be responsible for over 50% of their business. The pressure such a client can put on an appraiser, or anyone in that type of situation, is incredible.

    How many people here would make a decision to not cave to the pressure if the alternative would be your own foreclosure and bankruptcy?

    It’s for that reason I think one of the reforms should have been that an appraiser cannot do more than 10% or $XX,XXX.xx of work for one firm. That would go a long way to eliminating those types of pressures.

  74. 74
    Kary L. Krismer says:

    RE: anony @ 71 – The only stories I’ve given have been of appraisals that were too high. But what evidence do you have that the appraisals were accurate?

    What we’re discussing is problems with the system, and a solution that was less than ideal. Reducing the compensation paid to appraisers is not going to somehow magically make things better. It will only make things worse, and that should be fairly obvious.

  75. 75
    Scotsman says:

    I’m glad I’m not a real estate sales person these days. The endless machinations and justifications would be a burden. It’s informative, to say the least, watching the different tacks taken by those on this site who are involved in the industry. Some acknowledge the challenges head on, some fight for change, some split hairs, others just carry on, a few miss or don’t care about the issues and just want to sell a house. It beats watching another Michael Jackson special.

  76. 76
    what goes up must come down says:

    Kary what do you mean by worse – I mean specifically in what way?

  77. 77
    Kary L. Krismer says:

    By what goes up must come down @ 76:

    Kary what do you mean by worse – I mean specifically in what way?

    That’s the problem here. A lot of you seem to think lower is somehow better. The goal isn’t higher or lower. The goal is more accurate. A house shouldn’t appraise over 5% too high or 5% too low, and preferably it would be better than that.

    With appraisers earning less money, appraisals are going to become less accurate. That’s why I say this isn’t going to fix the problem. You’ll still have too high of appraisals, it will just be for a different reason (low compensation instead of originator pressure).

    BTW, an interesting side-effect of this is that if you have two offers, one FHA and one conventional, the seller is going to be more inclined to go with the FHA, if for no other reason, the appraisal is more likely to be done on time.

  78. 78
    emailers2 says:

    What out!

    CNBC is promoting another mark to model reform. http://www.cnbc.com/id/31529887/site/14081545

    “By: Diana Olick
    CNBC Real Estate Reporter

    I want to thank everyone for the emails into the RealtyCheck@cnbc.com regarding the Home Valuation Code of Conduct.

    Hundreds of mortgage industry representatives, from small and large shops, sent in stories of botched appraisals, of allegedly negligent appraisal management companies, and of lost deals that are so necessary to recovery in this fragile housing market.

    Very very few of you argued the opposing side.”

    CNBC also promoted the FASB change in mark to model for “Toxic Assets” So much market manipulation out there. Absent regulation you generally find predation.

    Wall Street against main street. Here we go again.

  79. 79
    Kary L. Krismer says:

    RE: Scotsman @ 75 – Damn you Scotsman! Now you’ve gone too far.

    This was an MJ free zone. Show some restraint. ;-)

    Edit–I like the site censoring. It’s like “This Week in Unnecessary Censorship.” It looks worse than it was.

  80. 80
    Sniglet says:

    With appraisers earning less money, appraisals are going to become less accurate.

    If there is one thing I am convinced of, it is the fact that there is NO direct correlation between price and quality. There are plenty of things that cost more, yet are worse than the inexpensive alternatives. Just look at the money each province in Canada spends per pupil on High School educations. It is glaringly clear that there is NO correlation between test scores and the money spent.

    I think it would be egregious to assume that appraisals will be of a lower quality when the price is lower.

    Still, I don’t want to defend the new system. Some of the complaints I have heard regarding shoddy paperwork and lengthy waits sound quite legitimate. it is just the griping about low valuations that I have an issue with. You almost NEVER heard realtors or lenders get upset about having valuations that were too high during the bubble years, and to now hear industry professionals complain they are too low smacks of bias.

    This makes sense, of course. A valuation that is too high doesn’t prevent a deal from going through (and everyone getting paid), whereas a valuation that is too low pretty much scuppers the whole transaction.

    This all reminds me of my past life as a journalist, doing product reviews for computer magazines. There was a lot of subtle pressure to write positive stories. No editor ever asked for me to give thumbs-up recommendations, but it became clear that the people who wrote positive reviews had smoother careers. The sales team at my magazine just LOVED one of my colleagues since tech companies were always begging to run advertisements in conjunction with his articles.

    In my case, I had the publisher (i.e. the guy responsible for sales), kindly point out that I had the lowest ratio of “buy” recommendations of any other reviewer. I also frequently found myself in conference calls with irate CEOs and their corporate counsels, threatening lawsuits over my negative stories. I came to know the lawyers for my magazine very well (at least they appreciated me, since I brought them so much business).

    By contrast, my friend who never saw a product he didn’t like, was always being fetted at fancy dinners by computer companies. Also, it soon became clear that companies with new products would take them to him first, hoping that he would consent to review them before I managed to get my hands on their offerings. He also never had to sit through hostile meetings with executives and lawyers, who were threatening all manner of legal actions when they could find the time to squeeze in a word that wasn’t profane.

    The whole experience opened my eyes as to how much grey there is in this world, and that there are many small and subtle things that can distort markets that don’t meet the definition of fraud or bribery. To this day I would never say that my friend was on “the take”, or that he didn’t believe what he wrote. But it was clear that his over-all disposition was to give the benefit of the doubt to everything he looked at, and he was always “positive” in his discussions and ideas about the future. Myself, by comparison, was always thinking about how many of these products were a waste of money, and that many aspects of technology likely wouldn’t change much in even a decade.

    I think of the whole issue with appraisers (and other real-estate financial complex participants) in the same light. I think that only a handful of these insiders were committing “fraud” during the boom, but I do strongly believe that most participants were willing to play along.

  81. 81
    Kary L. Krismer says:

    RE: Sniglet @ 79 – I’d agree you can’t determine quality by price. Monster Cable comes to mind. And in the attorney world you cannot tell the quality of the attorney by their hourly rate.

    What I’m talking about is two things.

    First, the lower the compensation for a given field, the more likely it is the most qualified people will look to do something else for a living.

    Second, the less compensation for a given task, the less time will be spent doing it.

    As to agent not complaining about appraisals being too high, again agents wouldn’t typically know what an appraisal comes in at unless it’s lower than the contract price. And I’ve been complaining about refinance appraisals for years. It makes it very tough to convince a client that their property is worth $XXX,XXX when a year earlier they had an appraisal for $XXX,XXX plus $100,000. No matter what the market since, I have to tell them that their property wasn’t worth that a year ago.

  82. 82
    Kary L. Krismer says:

    RE: Sniglet @ 79 – BTW, I didn’t know you were once a tech writer. Interesting. I blame them for being a small part of the reason Word was so popular years ago. But I’ve also seen situations where the negative in a review was simply because the author didn’t spend enough time to learn the product. Car magazines are probably another example where advertising drives the results, but Consumer Reports seems no better than the others in that area, or tech.

  83. 83
    Mikal says:

    RE: Sniglet @ 80 – Price is nearly always affected by quality. To suggest not is somewhat silly.

  84. 84
    Scotsman says:

    RE: Sniglet @ 80

    I couldn’t agree more.

    By the way:

    “a valuation that is too low pretty much scuppers the whole transaction.”

    Very nice- as a sailor/boater I’ve got to give you a thumbs up for that. ;-)

  85. 85
    Scotsman says:

    RE: Mikal @ 83

    “Pet Rock” Next!

    OK, more seriously- much of what I enjoyed most in getting my masters was studying pricing theory. One of my professors summed up years of study very nicely by saying: “in short, charge as much as you can. In modeling, there’s no way to account for all the variables, but the market will tell you if the price is too high.”

Leave a Reply

Use your email address to sign up with Gravatar for a custom avatar.
Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Please read the rules before posting a comment.