Evaluations 1, Appraisals 0

[Joe Flacco]

How well did your income keep up in the 2008 crash?

My income dropped sharply in 2006 when I stopped working in a restaurant and started appraisal training. Then it increased quickly until it dropped again for a year when I went out on my own in 2013. Then it increased quickly again from there.

2008 was a probably exciting year for me. That's probably when I started getting a decent fee split.

 

[Joe Flacco]

The mass migration from homeownership to renter occurred during our last crisis/ bubble /bailout cycle. Everyone saw it coming including the REITs who sat like salacious vultures waiting to pounce when the market collapsed. Who do you think was buying all those foreclosures? Our millenials are a fast moving crowd who won’t be buying with the intent of staying put for 30 years to realize 6%

My best idea is to buy a home and turn it into a rental when you need to buy a bigger house. That's my plan anyways. Rents increasing and mortgage payment staying the same makes it attractive. A mortgage is a great tool. What else can a average person buy with big leverage that holds it's value and pays for itself.

 

[Randolph Kinney]

So your income is protected by your appraisal business going forward. You don't expect a decline in volume or fee per assignment. Good luck.

 

[Evincere]

My best idea is to buy a home and turn it into a rental when you need to buy a bigger house. That's my plan anyways. Rents increasing and mortgage payment staying the same makes it attractive. A mortgage is a great tool. What else can a average person buy with big leverage that holds it's value and pays for itself.

I sincerely hope you have the latest most high tech crystal ball

 

[Joe Flacco]

So your income is protected by your appraisal business going forward. You don't expect a decline in volume of fee per assignment. Good luck.

I stopped accepting assignments before thanksgiving. I may come back some time in the future. Maybe not.

 

[Randolph Kinney]

Core CPI has returned to 2%, oil is near $70 a barrel, and copper is well over $3 per pound. What is easily forgotten, yet not hard to show, is that inflation is the last of the lagging indicators.

 

[Randolph Kinney]

Morgan Stanley's credit team made the following ominous observations:

In terms of timing, we think that enough signals are flashing yellow and cracks are forming to indicate a credit cycle on its last legs: For example, looking at credit markets more broadly than just corporates, we have seen signs of weakness and tighter credit conditions in places like commercial real estate. Additionally, consumer delinquencies have risen in various places (i.e., autos, credit cards and student loans). And in corporate credit, one sector after the next has exhibited ‘idiosyncratic’ problems (e.g., retail, telecom and healthcare to name a few). All this is consistent with other signals we watch, some which have been discussed above (i.e., a flattening yield curve, falling correlations in markets, rising volatility, a trough in financial conditions, narrowing equity breadth, rising stress in front-end IG and much weaker credit flows).

 

[Randolph Kinney]

By holding interest rates artificially low, the Fed has been encouraging the growth of the U.S. debt bubble. This debt bubble is significantly larger than it was in 2008, which means that the next downturn is going to be even more powerful, unfortunately.

 

[George Hatch]

I find it amazing that any appraiser would assume that incomes will increase faster in the next 10 years than in the last 30. But you know what will increase faster in the next 10 years? Food, energy, health care costs.

If the aggregate costs of homeownership (incl. taxes, insurance, maintenance and reserves) is within range of the rents then it makes sense to buy. But that is not always the case. As they say, you make your money in RE when you buy, not when you sell.


I just watched my brother-in-law lose big on his 2004 home purchase. He bought for $640k in 06/2004, paid between $1000-$1500 more in his mortgage costs than he would have paid had he rented such a house, and then resold in 2016 for $610k.

$30k in the resale price of the home
$30k in upgrades he made to the home
$144k in additional mortgage costs compared to rents
$42k in inflation ('cause the 2016 dollars from the resale were worth less than the 2004 dollars in the purchase), and that's at the official CPI rate, not the real rate.
Not to mention the opportunity costs from tying all that cash up over all those years had he put it into almost any other investment vehicle.


So no, now is not always a good time to buy RE.

 

[jay trotta]

I ran into a banker I've known for 20 years, but who I have not seen for over a year. He was promoted to do credit analysis for the loan department and was shifted from his Loan Officer job at a smaller branch bank. This bank uses mostly evaluations. So eventually I got around to the subject and prices.

He said that evaluations "as far as I am concerned, are not worth the paper they are written on..." That was a quote I remember verbatim. But he went on to say, they met the compliance requirement of the bank holding company (powers that be) and they wanted faster reports and wanted to save the borrower money (more on that later).

He also said the loan officer inspects the property and photographs it, describes the surrounding properties, and includes an interior, front, rear, and street view. These evaluators charge $175 but are ordered thru an ordering system (AMC? Portal?) and the ultimate cost to the borrower is between $200 and $300. They offer the borrower the opportunity to pay extra for a bonafide appraisal and the end cost is $400 - $500 for an appraisal. (Most appraisers here are from $350-450, I don't see many charging more except VA.)

He said that he didn't agree with management but it was not his call. He felt the loan officers actually were left with less information upon which to make a lending decision because he didn't see the evaluation as aiding in the decision to lend. Credit history and credit score are more important along with income history.

He said his bosses were anxious about competition and in some parts of their bailiwick, particularly around Bentonville and Walmart people, they felt if the loan process was taking more than a week or so, these folks were likely to bail out and use Quicken on line or something. And he said the evaluation was usually a bit quicker "most of the time." His final remark was the more amusing. He said that at board meetings the head honchos always expressed a big concern about saving the borrower money when it came to title work or appraisals and always liked to emphasis that the evaluation was a good selling point with borrowers about how they kept fees low. Then he chuckled, "But when it comes to our origination fees, $2,000 is just fine..."

Agreed 100% and what is that "payback" on that 30 year Mortgage ??? Yeah, it's only about Fee's to disguise the end result, but lets smack em around a bit upfront ($2,000-$8,000) so by the time the "sting" where's off they won't be thinkin about the end result. I think everybody on the planet should watch "The Big Short" at least twice to get the gist of what the stakeholders are after in the first place and they don't want to be anybody's friend; $450-$800 appraiser fee chump change in the overall scheme of things.