When The Party Is Over

[moh malekpour]

When the party is over, can a drunk in the party who drives drunk and causes accident sue the bartender and win?

This analogy is for current real estate market and if and when the real estate hot market party is over and some homeowners start losing their homes and savings, could sue whoever they can namely lenders, appraisers and real estate agents and win? I am not surprise if some of them do and if they do, some attorneys are Possibly sharpening their swords right now for that day.

I am not talking about the real estate Armageddon, real estate bubble or real estate speculation. These topics have been discussed so many times in this forum and in all papers almost every day. I am talking about our observation of the market as appraisers who deal with this market every day and should have better grasp of the market than any body else. After all we are dealing with real estate value.

There is no doubt that real estate market has been growing faster than typical in last few years, although, this growth has been higher in some area than the other but in general there has been a surge in real estate market.

There are many opinions about the cause of this growth such as higher demands, better economy, lower interest rates, more jobs, more immigrants, more population, less supply, speculation and greed but since there is no consensus opinion about the cause of real estate growth, we just say all of the above.

The fact is that real estate market has been on steroid for last few years and it may continue for few more years but it has to stop at some points. It just cannot go on forever. It is the law of nature that whatever goes up, comes down. I hope so. I hope I won’t see price of one bedroom condo to be one million dollars, although it is possible. The price of one bedroom condo that was $50,000 four years ago is $350,000 today. I couldn't beleive that the market goes up that high and so fast. If I knew, I would had bought 5 of them and would be rich today. If the market keeps going up the way that is going, the price of that condo would be 1M in few years and to me it is insane but is not impossible.

So, if we go by the law of nature and believe that there is going to be an end to this crazy market sooner or later and one of the reason could be very high interest rate due to high inflation, high oil price or lower dollar, which are out my expertise to know about them and is greespan’s job to decide to raise the rates and stop the real estate craze and end the party.

When that day comes, some homeowners who are going to lose everything they got would file law suite against anyone they could for their own negligent and one of them could be an appraiser.

What would be the appraiser’s defense in this situation? As long as appraisers have not pushed the market to go even faster just like pushing a speeding car with 100 MPH on the highway to go even faster than that, I would say they are fine and no body can blame them for their own drunkenness. But those appraisers, who are pushing the speeding cars even faster and cause accident or death, are criminals and should be taken away now before they do more damage.

Appraisers defense should be their objectivity and due diligent activities. If they have done that, I would say they are ok, if not, they are going to be in trouble.

 

[Karl]

WHY?? is every lender so insistant on having an Appraisal. Gotta have a fall guy. A Licensed proffessional Stated under Wriiten Oath (See Statement of Conditions ) That this home was worth the Money. Those that are just Appraising to the contract price with no verifiable data to support along with ALL other Appraisers will be in the Defense position. (Interior photo's are a MUST in this market cause the home will not look as nice after the third fight over money). As soon as these Intrest Only loans become due for adjustment. The REO work will be HOT!!

If U don't have the money today what makes U think you'll have it three years from now. RE Agents are no longer protecting, buyer seller. Lenders are no longer caring if the buyer is in over thier head. Many Appraiser THINK that if I don't get the price they'll be unemployed which for majority is true cause thier are ONLY a VERY FEW good lenders out thier. & so many hard money guys can simply say WE HAD NO IDEA. The Licensed professional Appraiser Reported the Market we ASSUMED that the Appraiser being a Licensed Professional was TELLING the TRUTH.

The Inmates are running the Jail.

 

[wyecoyote]

Lawsuits in this sue happy society and coupled with the blameless society that we have today yep. Appraisers will again be the fall guy. When will the market turn who knows I stoped calling the top end 4 years ago. To see what happens just look to the past. Don't know when the end will be and I will keep working until that day comes and goes. We as appraisers will most likely be hit with suits from several sides, owners, lenders, etc.. Only thing one can do is make sure their reports are rock solid.

 

[Paul Ness MAI]

Moh, I disagree with your comment that in real estate markets "what goes up comes down." Real estate is not at all like the stock market. It's more like reaching a new plateau. Although the hyper-appreciation that you mentioned is taking place in many markets across the country, I think the appreciation levels will simply slow down as sales slow from rising interest rates. Only in local markets where there is a severe shock to the economy, like a major plant closing or industry collapse, might you see actual depreciation. Unless there is a severe nation-wide depression, I don't think we'll see a wide-spread decline in residential real estate values.

Karl, Just be thankful lenders require appraisals or we wouldn't have a job. Lenders require appraisals because Uncle Sam requires appraisals. Interesting tie-in here to my first paragraph above...The modern day appraisal profession was essentially born out of the great depression when many banks failed with loans that went bad and weren't adequately collateralized because in those days the local bank president would drive by the property and say "yeah that house should be worth enough to cover the loan." Then in came Uncle Sam and the rest is history...

 

[Tony in Ohio]

When the party is over, can a drunk in the party who drives drunk and causes accident sue the bartender and win?

Yes. It has happened before and will happen again. It is however in the same class with juries awarding millions for spilling McDonalds coffee in your lap. Rare.

They win, in almost all cases by convincing the jury that the bartender was grossly negligent.

 

[moh malekpour]

Paul,
Depends on how do you look at ups and downs. I used the natural law analogy to clear my discussion. According to natural law, every thing is moving. Nothing is static.

Look at the past history of stock market and real estate. Both of them have gone up but on the way up, they had down too. Why? Because it is the law of nature.

When the economy is growing and all factors of economy are growing together with same speed, it is sustainable but when one of the factor, real estate this time and tech stock in the 90ths, gets on steroid and speed up faster than the rest of the economy, the law of nature puts a break on it and brings it back to other factors of economy because the way that is going up is not sustainable.

You know that 500k condo with one bedroom is not affordable to a typical salary earner with 50K income per year and that person needs to live at least in one bedroom condo. That is a minimum housing you can get.

That is why it has to come down no matter what. You may say why that person doesn’t go to some where in the rural area and buy a larger home with a lot less money. The answer is that because there is no work over there. Then, you can say why the employer doesn’t pay this person who just graduated from college $500,000 per year instead of $50,0000 per year so he can afford to buy a home. The answer is that the employer would not be able to make money and the business has to be closed if he pays that person 500K per year.

 

[Karl]

$20 per hour (not found in AZ but used for easy figures) 40 hours 800 before taxes Commute to work, From CG AZ to Phoenix AVG Fuel for week 50. Now @740 2 kids & wife, Go out on Saturday, $100, now 660 Food & esstentials for a week 150 got $ 410 before taxes, Car Payment & car Insurance weekly 100 (Most exceed that) Now at 310 for the week BEFORE Taxes Anyone care to put in other expenses Water, Sewer, Electric, Phone, ETC PRIOR to the removal of Taxes from check before getting to MORTGAGE Payment.

Looks like not many people left to buy up these increasing priced homes so what MUST happen??

Top of line Restrauant advertises for a Waitress 60 applicants on a 3 day ad, 7 make it to top boss for interview one gets selected means 59 try again for another Service Job .
Average wage here in Pinal County AZ $10 per hour. About only job over that is Jail work 17.65 per hour. Estimate 250 Applications per week for a spot. People COMMUTE 72 miles each way for 16.25 per hour. Wal Mart Distribution 60 Apps per week

PLEASE don't tell me there is no downward trend in Real Estate, look at the 80's

 

[Randy Beigh]

Will some appraisers get sued? Sure. But, this isn't going to be a common problem. People can and do sue anything, note the cereal makes getting sued over sugar content.

This is just another monster in the closet. For the lawsuit to get any traction, someone would have to show some kind of intent to defraud and most appraisers are just doing the best they can with the resources they have available. Besides, most people will want to sue folks with deep pockets and it won't take long to figure out the pockets are empty when it comes to appraisers.

 

[Restrain]

As an appraiser in Texas, where there isn't hyper-inflation of real estate values:

Yes, appraisers can, will and are being sued.

In this market, appraisers are being looked at by secondary lenders much more closely. If you are not documenting the quality of the home(amenities, etc) and taking photographs to support it, you might just get bit big time.

If you're not just pushing, but making values, it will come back to bit you.

Yes, appraisers are getting sued and losing their licenses.

However, if it's just a market change, the E&O provider's attorney should provide cover, so long as the i's were dotted and the t's crossed.

 

[eric cogswell]

i dont think appraisers will be the brunt of all liability if any.... We all act alike... there are too many varibles of fault. We can defend ourselves very well with our proof at the effective date we conclude. No one in thier right mind would want to pin us.