Redlining? Where Do I Begin?

[Joyce Potts]

I

Might also be "second" homes. There are lots of Venezuelans with second homes in Miami. May be more so now that the election is over down there.

I'm more concerned that a TRAINEE is answering or trying to answer the reviewer. That should be the SUPERVISOR's job.

I wish I had a dime for every second home that I found tenants in or was listed for rental/rotation purposes with the onsite rental management company.

 

[Michigander]

Sounds to me that the review got to the crux of the problem (the flipping/churning/equity skimming) and the only part that looks at all odd is simply naming a nationality (why not just say investor?). Why is it that the review identified all these items and contacted active agents while the appraisal under review did not. Seems that the appraisal was obviously deficient and failed to actually look at the market.... It isn't just closed sales....

 

[Joyce Potts]

My Bold

This brings up a new question? I thought our job was to provide a "snapshot" of current value and not make predictions about the future?

(True to some extent, but let's take that one step further. Lets assume for the sake of argument you're using the FNMA 1004. You're asked to mark increasing, stable or declining value trends; shortage, in balance, oversupply; and marketing time under 3 mos, 3-6 mos or over 6 months. Your snapshort should include a thorough analysis of ALL the market data before you go marking those boxes. My local MLS carries an easily accessible statistics page. It shows that this same time in 2005 there was an 'undersupply of listings' or approximately 6,000 as compared to over 26,000 today. If things weren't bad enough up until about three months ago, the listings remained virtually unchanged BUT THE PENDING SALES DROPPED DRAMATICALLY! That speaks to the absorption rate.

Don't you think your client who is funding this loan needs to know that? They should be given the most accurate, truthful information and make their lending decisions accordingly. Too many appraisers are NOT taught HOW to look and UNDERSTAND all the market data, but are trained to author a report with the least amount of FNMA underwriter issues AND WE ALL KNOW IT. I've told countless underwriters that usually the information that's NOT contained in the report is what will create problems down the road--as if they really cared. Underwriters are essentially trained to put the round peg in the round hole and if an appraiser gives them too much information that makes that underwriting process difficult, well we pretty much know what that can do to an appraiser's reputation.

I subscribe to a real estate data provider called Microbase/Microdecisions that affords me the ability to very quickly ascertain how many situs addresses are different than the owners mailing address. Yes, that may include second homes and I clearly caveat that the number of absentee owners I'm citing MAY very well include second homes and let my client make that call. None of us are expected to do a door to door occupancy check, but that data is usually out there if you exercise DUE DILIGENCE. STOP taking the information the developers and/or management companies are giving you as GOSPEL, because often times, it's simply not true. I had one last week that conveniently stated 25% owner occupied vs. my tax roll run of 75% absentee owners.)

I have a local market that is starting to really tube (Los Alamos). The Congress has the nuclear lab in the budget cutting crosshairs and they announced layoffs of 750 people effective January 1, 2008. There are over 20,000 people employed there so 750 is not a huge cut, but it is still a new phenomenon. It used to be that a LANL job was good until you retired. Not so anymore.

(That's excellent information that you should be putting in your reports--again--so the lender can make their lending decisions accordingly.)

My point is that if a house is worth $500,000 today in Los Alamos based on recent comps and active listings, am I responsible when it goes to $350,000 next June? Or do I jut report the current situation as I know it? Declining market, bad local economic news, etc. (You answered your own question.)

I hate it when they cite RealQuest as a data source. It is totally inaccurate here. They plug in the transaction price as the mortgage amount and add 20-25%. Makes for some interesting conversations with LO that pulled RealQuest AVM's.

(Another excellent example as to the quality of AVM's.)

 

[TJSum]

This brings up a new question? I thought our job was to provide a "snapshot" of current value and not make predictions about the future? I have a local market that is starting to really tube (Los Alamos). The Congress has the nuclear lab in the budget cutting crosshairs and they announced layoffs of 750 people effective January 1, 2008. There are over 20,000 people employed there so 750 is not a huge cut, but it is still a new phenomenon. It used to be that a LANL job was good until you retired. Not so anymore.

My point is that if a house is worth $500,000 today in Los Alamos based on recent comps and active listings, am I responsible when it goes to $350,000 next June? Or do I jut report the current situation as I know it? Declining market, bad local economic news, etc.

I hate it when they cite RealQuest as a data source. It is totally inaccurate here. They plug in the transaction price as the mortgage amount and add 20-25%. Makes for some interesting conversations with LO that pulled RealQuest AVM's.

IMHO we are to give the value as of the effective date. But, if we see all the signs of a declining market, we better check that off and explain the current situation (oversupply of listings, etc.). Per your example, then next June when it is worth $350,000 we did nothing wrong because our report quoted the value at the time of appraisal and it also alerted the client values were declining. That is all we can do, we can not predict the future or speculate. On the other hand if we quoted today's value, and have it nailed solid, but ignored the fact that values were declining and did not say so on the report, then we could be in trouble next June when the value is much lower and the client has to foreclose on the house, we might have a lot of explaining to do.

 

[PropertyEconomics]

IMHO we are to give the value as of the effective date. But, if we see all the signs of a declining market, we better check that off and explain the current situation (oversupply of listings, etc.). Per your example, then next June when it is worth $350,000 we did nothing wrong because our report quoted the value at the time of appraisal and it also alerted the client values were declining. That is all we can do, we can not predict the future or speculate. On the other hand if we quoted today's value, and have it nailed solid, but ignored the fact that values were declining and did not say so on the report, then we could be in trouble next June when the value is much lower and the client has to foreclose on the house, we might have a lot of explaining to do.

Additionally, one should make VERY sure the data sources they quote are accurate, the numbers are right, and the timing is accurate. It is just as bad to underappraise a home as it to overappraise a home. I think one should mention these things (only in detail if they are in fact KNOWN) and preface the report that the value stated is as of the effective date of the report. Its crucial to disclose all you know and how it is CURRENTLY effecting the market.
Dont crystal ball it .... one could be in trouble for having done that.

 

[sunnycal]

In my opinion all the points discussed by the underwriter are good except the national origin. National origin has nothing to do with the value and SHOULD not be included in the report for the same reason we do not include people in our pictures. We don't say that the subject is located in Chinatown or Little Tokyo in the reports.

 

[Fred]

In this case, it doesn't sound to me like the mention of Venzeulan buyers was meant to be a racial comment. Rather than be offended,

Or pretending to be offended.

Anyone whose lead issue is the country name is already grasping at straws. The sentence uses bad grammar and I can't tell if it refers to the national origin of people or the origin of capital. If it is the latter, then that souinds an factor worth investigating. Normal triggers of demand for residential property are local demographics: population, job growth within the economic base activity, and household formation.

The one statement in the excerpt that seemed vulnerable to me, was the claim that an adjustment is required between the first and seventh floor. That's a value conclusion looking for market support.

 

[Mike Garrett RAA]

My brother owns two condos on the ground floor in a high rise on Coronado Island. According to him (builder/developer), ground floor units demand a high premium there. Go figure?

 

[Lobo Fan]

Some people don't like waiting for elevators I guess. I know I try and get a lower floor when I stay in a high rise hotel, just so I can use the stairs if I must.

As far as prognosticating goes, I guess all we can do is cite what we can prove and let the chips fall where they may. In my case, I did one where I cited a possibility of layoffs which was all we knew at the time (October). I did hit the declining market box and added an Excel sheet that compared YTD 2006 to YTD 2007 in terms of list price / sales price, DOM, and number of listings. Fortunately I was working with a savvy local LO and not somebody from Pakistan that can't find New Mexico on a map.

Appraising in a declining market is a lot more work than in an appreciating market. Maybe it should be reflected in the fees?

 

[Karl]

My brother owns two condos on the ground floor in a high rise on Coronado Island. According to him (builder/developer), ground floor units demand a high premium there. Go figure?

Probablly cause he knows your old & is hoping you'll buy one.