How much bad valuations really cost?

[Elliott]

My desk is clean and I was reading posts about low AMC
fees and BPOs eating our lunch. My last 3 lender appraisals
have come back with stips from Provident which can never
be met in a small county.

So I thought I'd try to figure out what bad appraisals really
cost us all. There seems to be support that the sub-prime
loss is about $1 Trillion....maybe more, lots of financial companies
have had to swallow the gun. There are about 100 million
houses in the US. So that works out to a loss in capital of
about $10,000 per house. So while the lenders are running around
trying to lend on the cheap and wondering why its very
difficult to finance anything....maybe someone will recognize
that the cost of those bad appraisals were huge. We are
all paying for it with a devalued dollar and its capital that
isn't available for us to do other things, like investing in
plant, equipment, and research.

I think in the future, you might be able to attach that BPO
with your loan package, but I don't think anybody will
touch it.

 

[TJSum]

There are many, many issues. Just to focus on the two you mentioned, sub-prime loans and bad appraisals, just because you have one does not mean the other was present. Many of those toxic loan products were tied to honest appraisals.

 

[PropertyEconomics]

My desk is clean and I was reading posts about low AMC
fees and BPOs eating our lunch. My last 3 lender appraisals
have come back with stips from Provident which can never
be met in a small county.

So I thought I'd try to figure out what bad appraisals really
cost us all. There seems to be support that the sub-prime
loss is about $1 Trillion....maybe more, lots of financial companies
have had to swallow the gun. There are about 100 million
houses in the US. So that works out to a loss in capital of
about $10,000 per house. So while the lenders are running around
trying to lend on the cheap and wondering why its very
difficult to finance anything....maybe someone will recognize
that the cost of those bad appraisals were huge. We are
all paying for it with a devalued dollar and its capital that
isn't available for us to do other things, like investing in
plant, equipment, and research.

I think in the future, you might be able to attach that BPO
with your loan package, but I don't think anybody will
touch it.

Elliott .. you forgot to offset the cost by the profit they earned on each of those deals.

 

[Elliott]

TJ said, sub-prime loans and bad appraisals, just because you have one does not mean the other was present

No disagreement. The subprime thing was mostly a loss based on poor lending,
no doc, highly leveraged derivative mortgage products. First the real estate
merry-go-round stopped and then we got all the other problems. Now we are
where we are. The market has to correct and stablize, and hopefully we'll
learn from the mistakes.

 

[John Hassler]

Elliot, whether a valuation is "bad" depends on which side of the fence you are on. Think of all the loans which could not have been done were is not for bad loans including those from bad valuations. Think of all the commissions and bonuses. "Bad" valuations for whom?

 

[Tudor]

"Bad Valuations" Are costing me a career, "Bad Valuations" are in demand and I don't supply them. Very expensive they are.

 

[The Warrior Monk]

I've talked about this before.

In my area, when we are contacted to clean up a mess, we are talking a least a few hundred grand in losses. That's a whole lot of money to lose trying to nickel and dime appraisers to guarantee that the locals won't do it.

 

[Mztk1]

I was thinking about this the other day, I don't know why. I sold my old house in 2006 for $270,000 when the euro was worth $1.18, so then the house was worth E228,813. Today that same house is $230,000 but the euro is at $1.57 so the house is now worth E146,496. While my house lost 15% in value when measured by the dollar, its actual loss was 36%

Obviously we don't have to worry about that type of stuff when appraising, since we work only in dollars, but the real loss in value is tremendous. I say it is the real loss because you can do the same with gold. When I sold the house gold was at $650/ounce so my house was worth about 26 lbs of gold, today gold trades at $865/ounce so the house is worth 16.6 lbs of gold, or a loss of about 36% - just like the euro.

I don't know what this has to do with bad valuations, but certainly when you are talking about a $1,000,000,000,000 loss, I think because of how the dollar has been devalued, that is already an artificially low number.