3.6 Crunch Time

[George Hatch]

Human history consists of aspirations on the positive side of change from something bad ( what is ) to a better future (what should be or could be )

On the negative side, things degrade from what is , when things are good or stable, to bad (what shouldn't be)

The Bible describes what should be - the Ten Commandments.

As a professional appraiser I should think you would hold a higher degree of respect for what you can see of how people actually act.

 

[George Hatch]

What, specifically, do you foresee happening in the next 5 years that will make it so?

Overall, unfortunately, I tend to agree, which is why I warn newbies not to go into the field, which I dislike doing, as appraising used to be a terrific field, even if hard, and the upcoming years will need good appraisers more than ever.

That "I tend to agree" implies to me that you can envision occurring the same things I can see occurring.

My own book of work is about as disconnected from the residential markets as can be, but whatever happens on your side will soon also happen on my side. I might have a little more breathing room but at the pace of these developments it won't last long.

 

[chad hampton]

Not responsive to the question I asked. You have the means to perform your own analyses and come to your own conclusions.

Do you think a significant percentage of the foreclosures can be attributed to those properties being grossly overvalued at the time of purchase or refi?

If you have an opinion about the prevalence of grossly overencumbered properties in the data then that's great. Respect for an opinion fairly developed.

But if you don't have an opinion of its prevalence then how can you commit to that talking point?

And before anyone asks, I don't have an opinion of the prevalence of grossly overvalued properties at the time of purchase. I don't know what the answer is. Our regional trends are still showing stable or close to stable. That will eventually change but I wouldn't guess at to the timing.

How the hell would I know?

I have a very small sample size of deals that I know we’re done with waivers. But I will tell you every single one of them the agent or buyer was relieved because they thought for certain they would have to bring money to the table. My neighbors an agent, he always laughs and tells me when a deal has gotten a waiver. He can’t believe it.

Appraisers are supposed to balance out agents and loan officers and all the other biased parties in a real estate deal. They’ve removed that for most of the last five years on a significant percentage of deals. Nothing’s a problem until it is a problem.

I don’t think you need a full appraisal on every deal. I don’t know what LTV number that is, but let’s say 70%? But I think it’s insane That waivers would be used at 80 to 90% plus. I’m sure the loan production staff loves it. That generally hasn’t been ideal for risk management though. It’s not bad policy to have one unbiased opinion in the file.

 

[George Hatch]

I don't know, either. I doubt anyone but perhaps the GSEs have enough data to develop an informed opinion on how much additional risk these waiver and hybrid and low-cost 1004s have added to the mix. When compared to the existing levels of risk from the higher cost 1004s.

I think it's okay to acknowledge that we don't know enough to have an informed opinion on that particular question. What we do know from past experience is that it doesn't take many additional failures to offset the "savings" that these various companies are claiming. But again, it's a mistake to indulge in the idea that the highly paid 1004 crowds never return overvalued appraisals. "No failures" from those appraisals is not a thing.

 

[J Grant]

As a professional appraiser I should think you would hold a higher degree of respect for what you can see of how people actually act.

IDK why you think I do not understand how people actually act. I respect how they, or we, actually act when the behavior is good or neutral

When the behavior and choices are harmful, why should I respect it ?

I write about decisions deliberately made that are harmful to appraisers or the profession of appraising, or in some cases harmful to RE markets in general. Not all appraisers' conduct is beyond reproach either, of course.

 

[J Grant]

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

FWIW_ our appraisal is based on a huge whopping SHOULD---

 

[George Hatch]

...

I write about decisions deliberately made that are harmful to appraisers or the profession of appraising, or in some cases harmful to RE markets in general. Not all appraisers' conduct is beyond reproach either, of course.

I think "deliberately made to harm appraisers" attributes to them a motivation that literally might not exist. Just because appraisers got hurt doesn't mean those actions were motivated by a desire to hurt them.

 

[chad hampton]

It’s not too difficult to pick out outliers in the MLS. Used to be Cash sales were the higher ones. When I see something way out of place and it says conventional I wonder if it was a waiver. That’s why many of us have felt waivers should be indicated in the MLS.

But I’m just someone who does residential appraisal/GSE work every day, so I’m not nearly an expert at it like some of the people on our board are.

 

[glenn walker]

Why does any appraiser worry about the lenders risk ? It's not his money and the real reason is about his own loss of appraisal fees and his own income.

It's always about their own personal losses not some greater good for anyone but themselves.

Finally when all else fails they invoke morals, Ten Commandments and ethics or wanting to protect the taxpayers from bad loans.

 

[George Hatch]

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

FWIW_ our appraisal is based on a huge whopping SHOULD---

OMG. I can't believe you are citing that as a parallel.

The use of MV (for the subject's value) is literally based on an if/then hypothetical, the assumptions for which are laid out. Our use of that comparable data (aka, the comps) is analyzing actual sales for what those buyers did/didn't do. Those data points don't involve any hypotheticals - they actually occurred as a matter of fact.

We analyze what they actually did, not what we think they should have done. We analyze the market for what actually happens, not what we think should happen.