AI Connect

[Stephen J. Vertin MAI]

Since the bulk of appraisers are self employed or very small firms, this model does not work for new entrants when the bulk of appraisals for residential appraisers is for bank lending. It is highly regulated by design. College students want job security and pay commensurate with their level of education from the start. Training is a burden for the one appraiser shop and then taking part of their income to pay someone as a regular employee that is loaded with liability and taxes for the employer.

There is still an excess of residential appraisers for the demand. Many can't say no to low fees or to unreasonable assignment conditions.

Eventually, when demand exceeds supply of appraisers, this model will change. Banks may have to hire full time appraisers as employees with all the salaries and benefit that go with regular employment. Banks will have to hire trainees[/I].

Everything you said was mentioned and the number of BPO's and AVM's are going through the roof. Again a huge segment of our market is being cannibalized. There was only one small part that the panel disagreed because someone brought up the same issue as you did. It was the fact there are to many appraisers in some areas. These are their words not mine "If we still had control of the parts of industries that have been taken by regulation there would be a substantial shortage of appraisers in almost every area of the country"

 

[Terrel L. Shields]

Many appraisers believe they are hiring their competition

The least of my worries

most appraisers no longer want to assume the liability of a trainee

The reason I WON'T ever train another appraiser even with the fact I am in a continual glide path to retirement.

biggest factor was regulations. It is believed they are killing our industry. They have limited (at least in many appraisers minds) the products we can produced

Amen to that

this model does not work for new entrants when the bulk of appraisals for residential appraisers is for bank lending.

Double Amen to that

he believed in a land to home value ratio theory that would weed out boom and bust cycles to stabilize markets and stop these incredible swings.

I've argued (with JGrant in particular) that the appraiser isn't having an impact upon decisions the lenders are making in the market which leads to this last point of yours ...

He said if appraisers do not adapt these theories there is no need for appraisals. They are not protecting the lender from jack sh*t. Market value is meaningless when adapting his approach.

I've concluded that this method of "spot checking" values at some instantaneous time isn't helpful - it is the Positive Economics theory that was a perfectly miserable failure (as N. N. Taleb predicted well before the crash) and normative values, even today, are not acceptable and economists, bankers, and regulators are married to that Positive Economic model. But the Normative Economics better predicts when the market has left the trend line and that trend line is the benchmark to which prices will eventually return. Had that been plain to bankers pre-2008, we would have been jawboning value expectations down, and after the crash would not have touched an REO. Look back and see how many REOs were sold for pennies on the dollar their pre-2009 prices and have since 2011 been sold for near the price they initially sold before being repo'd. Those 30% swings in value per year are NOT market values, yet for most appraisers they dutifully tracked REO prices as values ("It's the market"- no it isn't, it is herd insanity) in the same way a stock market might during the flash crash. Looking back, we were on an upward trajectory which only steepened after 9/11 and then fell like a rock only to recover and now we see an ever increasing rise in prices that once again is much greater than the rise in personal incomes to support the payments needed for housing that is far larger and more expensive homes than people were accustomed to buying and living in, circa pre-1990.

 

[Randolph Kinney]

I believe that fundamentally new methods of valuation need to be adopted into the appraisal orthodoxy. I believe land to total value, type of loan to value and other ratios should be used to adjust value. Cash sales are about 30% of the market. For example, I see in starter neighborhoods, when FHA or VA loans are the predominate loan, that corresponds to the higher price paid. "We" typically do not adjust the value based upon the type of loan.

 

[Eli]

Everything you said was mentioned and the number of BPO's and AVM's are going through the roof. Again a huge segment of our market is being cannibalized. There was only one small part that the panel disagreed because someone brought up the same issue as you did. It was the fact there are to many appraisers in some areas. These are their words not mine "If we still had control of the parts of industries that have been taken by regulation there would be a substantial shortage of appraisers in almost every area of the country"

I believe it. Legal/political market forces have always been huge in our profession since we have been in it anyway. Something tells me they may be shifting back the other way a little though. Liability is the main reason. Whose liability insurance is covering all those BPO's and avm's? I wonder sometimes. Is it our tax dollars?

Many BPO's I have seen are absolutely pitiful. There is no telling how many of the one's performing them actually ask their client "what number do you want?", before they ever start the BPO or avm, and with no possible repercussions for doing so most likely.

That notice from the ASB wanting comments regarding trainee experience tells me they are looking at things a little differently. Of course, I am sure they would still like to get rid of a few appraisers in certain areas. You know the CFPB is looking at things closer all the time too. I wouldn't doubt them hiring some of those finance graduates with MBA's to oversee the bank's affairs regarding valuations. The FDIC and OCC probably will have a few looking over their shoulders too before it is over. I'm sure they do already, but govt control is only going to increase, no doubt about it.

Let's put it this way. AMC's were not the answer and the govt knows it.

 

[Terrel L. Shields]

For example, I see in starter neighborhoods, when FHA or VA loans are the predominate loan, that corresponds to the higher price paid.

Even in old neighborhoods, look at 50 plus year old houses. FHA requires they be "up to snuff" before being sold. Thus, that old house is fixed up to meet those Minimum Standards. Yet the non-FHA homes are not fixed up, typically selling "as is", and are in inferior condition as well as not having any concessions (which here seems to be fixed at $3,500.
The end result is that the assessor values houses in need of TLC at prices dictated by FHA and any appraiser using those FHA sales tends to over-value a home that isn't FHA financed. So both the taxes are too high and the values are too high for housing that is not FHA financed in these very old neighborhoods.

 

[Eli]

These are their words not mine "If we still had control of the parts of industries that have been taken by regulation there would be a substantial shortage of appraisers in almost every area of the country"

Like I said, I believe it, and relative to what they said, I have not ruled out the possibility of states having a major impact here in the future. Suppose a state says a BPO or an avm done on property in our state is an "appraisal" and you have to be licensed to do it, or else there will be consequences. Or what if they say no BPO's or avm's for mortgage purposes for state regulated or chartered lending institutions in our state.

 

[Terrel L. Shields]

AMC's were not the answer and the govt knows it.

Likewise the government is not the answer and we all know that too.

 

[Gobears81]

Likewise the government is not the answer and we all know that too.

That may be true, but as someone who has gone through the more stringent training requirements to obtain a license, I have no desire to see barriers to entry in becoming an appraiser loosened. I know you were talking about it in a little different context, but alas.

 

[factsandtruth]

Its all about supply and demand and fees have increased in Georgia steadily the last 1.5 years. Fees have not decreased in Georgia. They are rising. ...

 

[Meandering]

That was his point before 2009 you had nothing down no doc loans and housing prices were going through the roof. When we went up to 10% down the market collapsed. No one bought. When I say he went through a "meticulous" argument I am telling you this guy went back to the 1940 with big data showing every boom and bust cycle (and a stagger correlation between the two indicators). He is supposedly Fannie and Freddie's go to guy. I also believe they said HUD in the introduction. Further he believed in a land to home value ratio theory that would weed out boom and bust cycles to stabilize markets and stop these incredible swings.

He said if appraisers do not adapt these theories there is no need for appraisals. They are not protecting the lender from jack sh*t. Market value is meaningless when adapting his approach. He actually went back to the 30's and 40's where AI literature outlined this concept and said "it was our job to warn clients of coming "boom and bust cycles". But somehow the concept was lost as the Government tried to put more people in home ownership positions.

I told you this was mind blogging stuff. I believe the political implication and fall out as you point to would make this impossible to inact but the guy said he was starting with AI because of the great respect given in the industry to what is taught. I for one am thoroughly convinced he is right. So when required down payments go down it is time to buy. When they start going up it is time sell. It is that simple. .

Stephen,

Not for nothing but, this had me rolling on the floor laughing.

So, after the crash of '39, which happened because of lenders running lose, The government instituted protectionist laws, one of which was Glass-Steagall, which, prevented the banks from using mortgages and depositors money as casino biddings. To strengthen the public's belief that the government would protect the public from being rapped by the banks, they came up with the FDIC and FDIC insurance for their deposited money. Property equity increased slowly, pretty much commensurate with wages. Good, steady jobs with benefits existed and grew. Heavy industry built the great cities and machines of war, World War II took care of over population and global competition for our steel, our products and everything else.

So the government uses this highly regulated environment as the comparison to today's wild west banking, where lenders purposely commit crimes against credit card holders, mortgage holders, loan applicants, But is only fined when found out. Our overall economy has been sheading good jobs, heavy industry is all but extinct, and what remains is being fined or regulated into folding or leaving. The cost of living has increased in multiples we'll never understand unless you lived during the '40s, as the cost of living calculations keep changing - so that there is no comparison, but it's all our fault because we don't appraise homes with less than 10% down payment, as what? Having favorable financing? And yet, we work within the terms and definitions the government demands.

How can we adapt "these theories" until the government changes the definitions we have to work with? How can we change anything before the government steps up and enforces the laws protecting appraiser independence from AMCs and lenders, that it wrote? The government has no vested interest, political or financial, in seeing stagnant real estate values. Why would it advocate to appraisers in this manner?

The handwriting on the wall, just became a billboard.

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