Stick-built vs. production builder

[Austin]

The problem as Jo Ann described above, in my mind anyway, is not something that can be solved by regulating appraisers. The problem is fraudulent lending. Blaming the appraisers for fraudulent lending would be like blaming the police for the drug problem. You can’t solve the drug problem with more police regulations to further tie their hands.
There seems to be a two-tier system of appraisal enforcement. Catch some little guy you don’t like and throw the book at him because you don’t like his comp selection while at the same time overlooking fraud on a grand scale as evidenced by manufactured sales because these big money people have money (lawyers and courts) and can fight back. They can stomp out little people ten a day and who would know the difference. Easy picking, makes you look like you are doing something, and we don’t get our hands dirty and have to defend our actions.
Another interesting point about manufactured sales: What is the difference between this manufactured housing scheme and up scale high-end housing. There is a local subdivision with the most expensive houses in the market area. I did a proposed construction appraisal the other day and every house in the new section was custom built with no one single resale in this new section. I appraised a resale for a doctor about a year ago in an adjoining part of the less new section and came up $75,000 short. He was paying $525,000 and I could only support $450,000. The banker was irate and said he need a full appraisal because he had to pay off a credit card of $60,000 out of the loan proceeds to be eligible. This week I had a call on my answering matching from the DR. Message said: “This is DR. zzz. There have been some recent sales in this neighborhood well above $500,000 so I think you need to re-evaluate my appraisal. I don’t see any difference is these ½ million $ homes built on lots owned by the owner with custom financing and these manufactures sales for manufactured homes.
What we need is a national appraisal organization to for action. We tried to start one a few months ago but apparently it fizzled out. Or so it would seem to me. Wouldn’t you agree.

 

[Jo Ann Meyer Stratton]

A land/home package whether it is a low priced (or should be) manufactured home or a multi-million dollar custom built for an owner on their lot is still not a arm's length comparable sale that could be used in an appraisal for a lender that really wants to know what their collateral risk is! A land/home package is a cost approach to value, not a market approach to value. And a typical lender is attempting to find out (even thou the loan officer has never heard the concept) what their risks will be regardless of what type of property they are making a loan on. That lender if they have to foreclose on the property is not going to go out an built or install a new home to replace the foreclosed property. They will be attempting the sell the foreclosed home for enough money to cover the amount of the lien. So when we are doing an appraisal for lending purposes we are actually looking at the home and trying to determine what could the lender sell the home for as of that date if they foreclosed on the property one minute after we saw the property. The home might not even be built or exist at that specific time on that specific date. But the questions remains "What would the the most probable price paid at 1:13PM on August 17, 2002 for the subject property"??? And as wonderful as the cost approach to value is--that does not provide the answer for lending purposes.

 

[Tim Hicks (Texas)]

Right you are, Jo Ann. Land/Home packages are not comparable sales regardless of what type it is (new custom homes included). Custom Homes are not placed on the open market for sale, they are private transactions between the builder and the borrower. It is our job as appraisers to use "open market transactions" for comparable sales. Utilizing private custom home sales does not represent the open market. I know this can be difficult in some areas, but somewhere there has to be homes that were sold on the open market that are comparable. I may include a "created sale" because of lack of home sales in the immediate area, but I will always utilize a minimum of three sales from the open market and explain why. I never get questioned when I quote the reason why I did not use "private" transactions.

 

[Austin]

Just opened my mail and guess what was enclosed? You must read my above post about the developer explaining to me the con game manufactured home business. This guy told me the bottom was out of this market, he had a ton of foreclosures, his company developed over 400 of these lots, one being a $110,000 home purchased 8 months ago for sale on his lot (purchased separately under contract for deed) that his company foreclosed on and can’t get the lender to remove and that can be purchased from the lender for $60,000. Never lived in.
Well the subject lot is in this person’s manufactured home subdivision. Enclosed was a contract for deed on the 1.5-acre lot at $19,900. Average comparable lot price around here-$10,000 in a similar location. Contract from dealer enclosed on a $70,000 mobile home with $7,000 down non refundable. No details, that is all it said. Total price-$999,999. Right down the street is the 8-month-old $110,000 home that can be purchased for $60,000.
I took the engagement letter, walked two blocks to the bank, and told them to not even waste the client’s money or my time. It ain’t going to work! Apparently what has happened is that CONSECO is filing for bankruptcy and is under investigation by the Feds, so the dealers are falling back onto the commercial banks. This should weed out some of he competition. She is comming apart at the seems guys and gals. Stay tuned.

 

[Austin]

PS to my above post: The plot thickens: Less than an hour ago I was standing outside my office smoking a fine quality cigar when out the door from my lawyer neighbor’s office emerged a local appraiser. He had just refinanced his home and another local appraiser charged him $250 for a 2075 drive-by consisting of a picture, a 2075 form, and a copy of the tax data card. He had been charging $100 for same and glad to get it. We got to talking about the appraisal business and the subject of land/home packages came up. I mentioned the situation with land/home packages discussed in my last two above posts and the manufactured home subdivision in question. He replied: “Have you seen the subdivision? It is really nice and the lots have wells and septic tanks.” I replied: “Yes but I talked with a person that worked for the developer of that subdivision and he told me the bottom had fallen out of that market and they had homes on their lots that they could not get the lenders who had foreclosed on the homes to remove them from his company’s lots that they had foreclosed on under the contract for deeds. Further, they were contract for deed sales to people that did not have to meet market credit qualifications and the major company that financed these deals was under Federal investigation and had filed for bankruptcy this week. (CONSECO)” I then stated that even with wells and septic tanks, the land to value ratios on these lots, ignoring the repo price problem, was way above what it was for other lots in the market. He said: “I just remembered I have to pick my wife up; see you later Austin.”

 

[Pamela Crowley (Florida)]

Austin,

Now you know.

 

[Austin]

Act 1 scene 3: The continuing saga. I am keeping an on line log of this saga for my own reference and hopefully others can benefit from it too. Well, this afternoon I visited the subject subdivision and one other subdivision for manufactures homes. First the good then the bad news. I will have to admit this was one of the nicest laid out subdivisions for middle-income homes I have seen in this area. Nice brick gated entrance, landscaped entry way, paved streets, 1.5 acre lots, well and septic tanks, and underground utilities. Excellent topography and lay out. About 8 miles from the city. I counted roughly 35 homes with about 70 vacant lots. Estimate average price of these homes based on comparable sales in other areas of the county average $85,000 based on arms length resales of which there are darn few. Tomorrow I am going to the courthouse and search the sale history of the subdivision looking for any resales. I see these homes advertised on the sale lots in the $45 to $55,000 range. The subject I am appraising to be installed on one lot sold for $70,000 to be installed. I have not seen it yet. I will visit the sale lot tomorrow.
Here is the bad news. I have been keeping records a long time and the average land to value ratio in this area is 15 to 22% on conventional homes withh land to value ratio correlated to home price. Rarely is it much different from this. Take the transaction I am working on for example. Lot sale price $19,900 and you can add $5,000 for landscaping making a total site cost of $25,000. Now add the $70,000 cost of the dwelling installed, which is most likely inflated, and you have a land to value ratio of 25%, which is on the low end. That is about 10% ++ higher than for similar priced conventional houses. That would make an interesting conservation about functional or economic obsolescence.
Then I visited a second manufactured home subdivision on the same road about five miles closer to town. I know the developer of this one. He developed it about ten years ago and lost his kazoo. Lost everything he had and he and his wife were living in his daughter’s basement the last I heard. I am going to search the sale history of this one too. Homes about the same but lot topography not as good are the only difference. The bank I work for financed this deal and wanted to make the loan, so they by-passed the appraisal process on that one by using owners equity. They were well secured too and that is why the developer ended up in his daughter’s basement. His daughter is a Realtor. Probably her idea. Don’t you just love this business?
Stay tuned for Scene 4 of this continuing saga.

 

[Tim Hicks (Texas)]

Austin,

It doesn't seem much different than the swill being done here in north central Texas. It is amazing. These homes are being "sold" for more than traditional brick homes of the same size. More than homes with full attached garages, concrete slabs and concrete drives. Yet, somehow, these manufactured homes should be worth these outlandish prices because the dealer and developer need them to "appraise" for that much to make the deal work. All they need is one "clueless" appraiser and they are in business.

How would you like to have my job of reviewing these appraisals two years later after foreclosure. The appraisers under fire don't like being under fire and they left so much kindling that they are burning fast. It is easy to discredit comparable sales when the tax records two years later shows the developer still owns the lot, or actually they state "contact for deed" on the dwelling. Then the appraiser has the unsupportable statement, "there were no comparable sales available from the immediate market area" when you can print 20-30 MLS sales closer than the ones they used. I point out that their sales are not really 4-5 miles but 12-15 miles away. I point out that their neighborhood boundaries are actually county lines 40 miles apart and only serves to help include the sales they used. I have so much ammunition, that I don't even bother with minor USPAP violations. I just use the word "misleading" a lot, a whole lot.

Lets just say I am drivig a wedge in between me and a large section of my peers right now. Wanna trade?

 

[Jo Ann Meyer Stratton]

Austin:
When you were having your conversation with the local appraiser--did you ask him if he had read Fannie Mae's Announcement 02-02 and their new guidelines that went into effect June 30, 2002? Where Fannie Mae say they will have lenders buying back loans and filing complaints with state appraisal boards if they discover the loan was based on an appraisal with land/home (they call them created sales) packages as comparables. that should start getting some mortgage companies attention!

 

[Austin]

Just got back from inspecting the model home and researching the resale history of the subject subdivision. Will give more details tonight. Found 18 sales in the section I working in consisting of 52 lots all land package deals no resales. From 1998 to this year there were only 10 sales but in 2002 there has been a flury of 8 this year. Checked deeds of trust and most were arount $80,000 until recently. One at $124,000 recently to Greenpoint Credit LLC next door to subject lot. Anybody ever heard of that company? A number of site sales were sold for cash but it is not the lots or the lot prices that concern me, it is the land to value ratio being out of kilter. I can't understand why the developer would undersell himself just for the purpose of accomodating manufactured homes. That is a nice subdivision. It would be ideal for conventional homes in the $120,000 price range.
By the way. Remember that appraiser I talked about in an above posts. I was standing in front of the county courthouse a while ago talking on the cell phone to a loan officer and he went walking by and kept going. I think he was headed into the court house, saw me, and kept getting it on down the street. He worked for a buddy of mine for a couple of years and as soon as he got his license he left and is working for himself. He is not a a bad guy just inexperienced and vulnerable to being taken advantage of. I am sure he never heard of a land package deal until yesterday. I don't blame the appraisers for this mess, I blame the regulatory authorities. I lay this entire mess at their doorstep where it belongs. Going after small time appraisers is like laying the dope problem on the pot smoker and giving the drug cartel a free pass. It is just the cowardly way out. Looks like you are doing something when the truth is you don't have the backbone to go after the real problem makers.