House appraisal in insane market

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

Golf maniac wrote: Tue May 04, 2021 4:24 pm The appraiser protects the bank.
I think this is the party line. But I have never understood it. And I think it's nuts.

Why does a bank need protection? No one is forcing them to make a loan.

My guess is that this is the result of government backstopping banks.
Banks, by definition. are always lending out other people's money. They have very little skin in the game.
And the government has to pick up the pieces when they fail.
So, the government probably got tired of trusting them to do their jobs and insisted on third-party review.
A "sensible" bureaucratic solution.
Which, like many bureaucratic solutions, just kicks the can and solves very little.
User avatar
hand
Posts: 2201
Joined: Sun May 17, 2009 8:42 pm

Re: House appraisal in insane market

Post by hand »

chw wrote: Wed Apr 21, 2021 4:50 am Appraisers are trained professionals, and generally will provide a value that is accurate to within 5% to a properties true value. On a purchase transaction, if the appraiser feels the sale price of the home falls within that 5%, he will usually support the sale price on the appraisal. The fact that there is a nearly 20% gap would be setting off warning bells to me.
This is not at all my experience - most appraisers I've worked with appear to be in the business of collecting a small fee to provide lenders the appearance of due diligence for when the loans are bundled and resold.

Specifically, I am still in awe at how during a single month two appraisers managed to come up with a $250k difference in valuation - on my $600k house!

If banks or appraisers really believed that they could properly value a house within 5%, they would be doing massive business and generating massive wealth buying and flipping undervalued houses. Because nobody really believes the valuations, their value add is limited to a couple hundred dollars per house to snap a couple pictures, pick a couple comps, and pick a number reasonably close to what is required to move the deal forward.
Golf maniac
Posts: 1359
Joined: Wed Dec 27, 2017 1:02 pm
Location: Florida

Re: House appraisal in insane market

Post by Golf maniac »

vanbogle59 wrote: Tue May 11, 2021 6:04 am
Golf maniac wrote: Tue May 04, 2021 4:24 pm The appraiser protects the bank.
I think this is the party line. But I have never understood it. And I think it's nuts.

Why does a bank need protection? No one is forcing them to make a loan.

My guess is that this is the result of government backstopping banks.
Banks, by definition. are always lending out other people's money. They have very little skin in the game.
And the government has to pick up the pieces when they fail.
So, the government probably got tired of trusting them to do their jobs and insisted on third-party review.
A "sensible" bureaucratic solution.
Which, like many bureaucratic solutions, just kicks the can and solves very little.
The US mortgage market is a very evolved market that provides a tremendous amount of liquidity to the market to allow homebuyers the opportunity to have leverage and purchase an asset most could not afford. This is a public/private partnership utilizing securitization to bundle loans and keep the liquidity available.

To do this in the conforming, conventional mortgage market you have FNMA and FHLMC providing the liquidity to the banks by buying the loans and securitizing bundles of loans. To get this liquidity the banks must follow very detailed guidance when they originate and service these loans. If they do not follow the guidelines and the loan has problems, these agencies can require the bank to buy back the loan. One of the requirements is around appraisals, Fannie and Freddie provide very detailed guidance on what is required. So, as I stated the appraisal provides a level of protection to the bank to ensure the agency (Fannie or Freddie) does not require the bank to buy back the loan.

When there is a disruption in this market as there was during 2006 to 2010, there are long lasting impacts to the housing market. This is shown by the shortage of first time homebuyer homes and a continuing shortage of supply compared to demand. This occurred when many builders shut down or did limited volume. And the volume went to higher end homes which had more profit for the builders. This is a national viewpoint and of course all real estate is local and varies across states.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

Golf maniac wrote: Tue May 11, 2021 5:06 pm To get this liquidity the banks must follow very detailed guidance when they originate and service these loans. ....

When there is a disruption in this market as there was during 2006 to 2010,
If the first sentence were true, the second sentence would never have happened.
BTW, nice choice of words: "disruption". OMG, that's funny.
Golf maniac
Posts: 1359
Joined: Wed Dec 27, 2017 1:02 pm
Location: Florida

Re: House appraisal in insane market

Post by Golf maniac »

vanbogle59 wrote: Tue May 11, 2021 8:03 pm
Golf maniac wrote: Tue May 11, 2021 5:06 pm To get this liquidity the banks must follow very detailed guidance when they originate and service these loans. ....

When there is a disruption in this market as there was during 2006 to 2010,
If the first sentence were true, the second sentence would never have happened.
BTW, nice choice of words: "disruption". OMG, that's funny.
Do you have any clue what happened between 2006 and 2010? Obviously not. Both the first and second sentences are true. Between 2001 and 2006 new purchasers / securitizers of mortgages started making large gains in market share. They did this by loosening underwriting standards. FNMA and FHLMC began to lose market share so they loosened their underwriting standards. At the same time subprime mortgages began to really take off. You also had the administration and Congress basically saying everyone should be able to own a home. Poorly structured loans that were negative amortization or interest only were being sold heavily. The banks were following the detailed guidelines but the guidelines were not sound. Subprime blew up first then all the speculative bubbles across the US. It was a disruption in that 90% of mortgages continued to pay on time. It was the 10% speculation that blew up. Many banks did very well after 2010 because they were willing to lend to home buyers at very good margins. Of course underwriting standards and documentation was beefed up after 2008.
andypanda
Posts: 2009
Joined: Sun Nov 12, 2017 8:11 pm
Location: Richmond, Virginia

Re: House appraisal in insane market

Post by andypanda »

I fondly recall the appraiser who produced a report that had my old historic townhouse 2 feet wider than my inner city lot and somewhere he found 2 bedrooms and a full bath that I never knew I had.
User avatar
unclescrooge
Posts: 6265
Joined: Thu Jun 07, 2012 7:00 pm

Re: House appraisal in insane market

Post by unclescrooge »

andypanda wrote: Wed May 12, 2021 5:24 pm I fondly recall the appraiser who produced a report that had my old historic townhouse 2 feet wider than my inner city lot and somewhere he found 2 bedrooms and a full bath that I never knew I had.
Maybe he was a Dr Who fan and thought he was in the Tardis? 😁
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

"the appraisal provides a level of protection to the bank"
"The banks were following the detailed guidelines but the guidelines were not sound"
Poor little bankie wankies. Somebody needs to protect them. It's obviously someone else's fault when their loans go south.

"Many banks did very well after 2010 because they were willing to lend to home buyers at very good margins."
Yeah, well, OK. I'd like a business model that says I can lose more money in a year than my entire industry earned in the previous 2 decades. Then, give that little loss to the taxpayers and start over. And they have the nerve to call it capitalism.

"Of course underwriting standards and documentation was beefed up after 2008"
THIS TIME WE WILL DO IT RIGHT! WE PROMISE!
But we are still selling your mortgage the minute we finish the paperwork. We have no idea if that was actually a good investment. We are taking our commission and moving on.
regularguy455
Posts: 487
Joined: Tue Jul 18, 2017 2:08 pm

Re: House appraisal in insane market

Post by regularguy455 »

Let’s be honest with ourselves. We have the technology to shoot a missile out of the sky. Do you really think we can’t build an algorithm to predict a home value better than a person?

Of course not. Appraisers are just friction in the real estate process. The fact that they’re required to provide a specific value instead of a range tells you a lot about the process.
User avatar
hand
Posts: 2201
Joined: Sun May 17, 2009 8:42 pm

Re: House appraisal in insane market

Post by hand »

andypanda wrote: Wed May 12, 2021 5:24 pm I fondly recall the appraiser who produced a report that had my old historic townhouse 2 feet wider than my inner city lot and somewhere he found 2 bedrooms and a full bath that I never knew I had.
Presumably not an issue as long as the 2 feet is less than 5% !!!
andypanda
Posts: 2009
Joined: Sun Nov 12, 2017 8:11 pm
Location: Richmond, Virginia

Re: House appraisal in insane market

Post by andypanda »

I'm sitting here looking at USAToday on line and there is an appraisal story.

www.usatoday.com/story/money/2021/05/13 ... 071223001/#

"Black homeowner had a white friend stand in for third appraisal. Her home value doubled."

First one was $110k
Second one was $125k

Then she arranged for an appraisal using only email. And she removed every furnishing that would identify the occupant as Black.
Then she had the White husband of a friend walk the third appraiser through the house.

Third one was $259,000.
Paradise
Posts: 264
Joined: Mon Dec 18, 2017 5:15 am

Re: House appraisal in insane market

Post by Paradise »

I think appraisals in this market are useless. I just sold my house and after multiple offers picked the highest one with enough cash to agree to waive the appraisal. It wasn’t even the highest offer... just the highest to waive the appraisal.

If you decide to buy now just realize that you are massively overpaying and deal with it tbh otherwise someone else will get it.
50% VTI | 20% VXUS | 20% BND | 10% QQQ
sureshoe
Posts: 2165
Joined: Tue Jan 15, 2019 3:26 pm

Re: House appraisal in insane market

Post by sureshoe »

60B4E24B wrote: Wed Apr 21, 2021 6:42 am
chw wrote: Wed Apr 21, 2021 4:50 am
runner3081 wrote: Wed Apr 14, 2021 12:35 pm You are going to be hard pressed to challenge that. This is what happens in markets like this. What is your realtor doing RE: this?

A few solutions:
1) Seller drops price
2) You pony up a higher down payment to cover the gap
3) You and seller meet in the middle

In our current house, bought 8-years ago, we went with option 3 on a 18k difference.
+1, or the buyer walks away- which might not ne a bad thing. Sometimes as a real estate market begins to cool, appraisals may be the leading indicator to reveal what is truly going on in the market. A soft market will take several quarters to show up, but will sometimes start with wide gaps in appraisals such as this.

Appraisers are trained professionals, and generally will provide a value that is accurate to within 5% to a properties true value. On a purchase transaction, if the appraiser feels the sale price of the home falls within that 5%, he will usually support the sale price on the appraisal. The fact that there is a nearly 20% gap would be setting off warning bells to me.
What is a properties "true value"?
What someone else will pay for it :)
sureshoe
Posts: 2165
Joined: Tue Jan 15, 2019 3:26 pm

Re: House appraisal in insane market

Post by sureshoe »

regularguy455 wrote: Wed May 12, 2021 9:44 pm Let’s be honest with ourselves. We have the technology to shoot a missile out of the sky. Do you really think we can’t build an algorithm to predict a home value better than a person?

Of course not. Appraisers are just friction in the real estate process. The fact that they’re required to provide a specific value instead of a range tells you a lot about the process.
In many cases, they do "remote only" appraisals anyway, which I assume they're just plugging comps into a spreadsheet. My refi had a person come out and take pictures, but the purchase a year earlier didn't I don't believe. My other 2 refis over the last couple years were remote.

If you're in a reasonably stable market and doing 20%, the bank is really not taking much risk going off comps and your credit history. Like you mention, they eliminate that friction in the process, which actually doesn't add value.
sureshoe
Posts: 2165
Joined: Tue Jan 15, 2019 3:26 pm

Re: House appraisal in insane market

Post by sureshoe »

Golf maniac wrote: Tue May 11, 2021 5:06 pm When there is a disruption in this market as there was during 2006 to 2010, there are long lasting impacts to the housing market. This is shown by the shortage of first time homebuyer homes and a continuing shortage of supply compared to demand. This occurred when many builders shut down or did limited volume. And the volume went to higher end homes which had more profit for the builders. This is a national viewpoint and of course all real estate is local and varies across states.
Not going to argue about the appraisal. Doing a little due diligence doesn't kill anyone.

There is a shortage of first time home buyers because there is a shortage of affordable homes, not because there is a shortage of liquidity in the market. I am of the opinion (like college), the ultra-high prices has been driven up by the wildly available credit.

In 1998, I made $45/year and bought a $73k condo (ug yes, condo). But, I was paying $650/month for HOA+Mortgage. That's basically what any decent rent would have cost. It was a 2 bedroom, 1 bath, living room kitchenette, 1 car garage.

For giggles I checked - that same condo just sold for $119k in 2020. That's a 60% increase in price over 20 years. Yeah, 20 years... but it's a condo.

When I married, bought a 4 bedroom house for $245k in 2009. Sold it for $300k 5 years later. And I don't really consider $245k a "starter home". Zillow has it listed as ~425k now in value. In a neighborhood down the road, houses built there in 2000 were listed in the $120-$150k range. None sell for under $300k now.

And this is Ohio.

Anyway... my point is, people just can't afford this type of housing. When I skim up and see people talking about buying a home for $1.4M... I'm about to crap my pants... and I can afford it.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

sureshoe wrote: Fri May 14, 2021 7:38 am
Golf maniac wrote: Tue May 11, 2021 5:06 pm When there is a disruption in this market as there was during 2006 to 2010, there are long lasting impacts to the housing market. This is shown by the shortage of first time homebuyer homes and a continuing shortage of supply compared to demand. This occurred when many builders shut down or did limited volume. And the volume went to higher end homes which had more profit for the builders. This is a national viewpoint and of course all real estate is local and varies across states.
Not going to argue about the appraisal. Doing a little due diligence doesn't kill anyone.

There is a shortage of first time home buyers because there is a shortage of affordable homes, not because there is a shortage of liquidity in the market. I am of the opinion (like college), the ultra-high prices has been driven up by the wildly available credit.

In 1998, I made $45/year and bought a $73k condo (ug yes, condo). But, I was paying $650/month for HOA+Mortgage. That's basically what any decent rent would have cost. It was a 2 bedroom, 1 bath, living room kitchenette, 1 car garage.

For giggles I checked - that same condo just sold for $119k in 2020. That's a 60% increase in price over 20 years. Yeah, 20 years... but it's a condo.

When I married, bought a 4 bedroom house for $245k in 2009. Sold it for $300k 5 years later. And I don't really consider $245k a "starter home". Zillow has it listed as ~425k now in value. In a neighborhood down the road, houses built there in 2000 were listed in the $120-$150k range. None sell for under $300k now.

And this is Ohio.

Anyway... my point is, people just can't afford this type of housing. When I skim up and see people talking about buying a home for $1.4M... I'm about to crap my pants... and I can afford it.
In 1998 30 yr mortage rates were about 8%. So, for 650/month, you could get about a 90K mortgage.
Today, let's call it 3%. That same 650 gets you about 150K.
Toss in a rough assumption (just for illustration) that inflation has double prices over the last 23 years, and the equivalent of your 73K condo is a 300K mortgage today.

So, if you ignore the price of the house, and make the judgement based on monthly payments, then a first-time buyer like you were in 1998, would be buying a 300K+ house today (and making 90K). That actually describes my son, 2 years out of college.

So, yeah, I agree with you (plus inflation).
The obvious worry is what happens if rates rise.
ras4250
Posts: 197
Joined: Tue Mar 04, 2014 12:25 pm

Re: House appraisal in insane market

Post by ras4250 »

59Gibson wrote: Wed Apr 14, 2021 12:43 pm Wow. I didn't know NYC was experiencing the pandemonium this time like some areas. I heard prices and rents were going down with the Covid flee.?? Many areas of the country buyers are eating the diff between appraised and purchase price.
Rents are down but sales are up. March 2021 had the most deals go into contract in a month in the past 7 years.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: House appraisal in insane market

Post by EddyB »

8foot7 wrote: Mon May 03, 2021 7:54 am
Golf maniac wrote: Sun May 02, 2021 7:15 pm
8foot7 wrote: Sun May 02, 2021 3:55 pm
Golf maniac wrote: Sun May 02, 2021 3:12 pm
8foot7 wrote: Wed Apr 14, 2021 3:39 pm

It's sort of stupid, isn't it? You get a bunch of people literally agreeing to buy nearly identical somethings, mostly right beside each other, for a certain price -- the very definition of market value, as money (deposits at least) changed hands for a good -- and these numbskull appraisers come in and low-ball you because a comp three miles away didn't have a porch and you do...or similar.

We purchased our home in October 2017. We opened an equity line in November 2019 which required an appraisal, which came in $20,000 below what we paid even though new homes in the neighborhood were closing above our purchase price. We refinanced this past January, same appraisal firm came, and we finally received a value for $3,000 less than we paid. Meanwhile our neighbor just sold a very comparable home five doors down for $50,000 over asking price, which was $100,000 more than their purchase price (our purchase prices per sq ft were similar). That purchase closed, money changed hands, the deal was done at that price. But somehow our similar home in a cul-de-sac a few houses away has lost $3,000 from purchase instead of gained $100-150k.

There is general downward bias to appraisals, I am firmly convinced. Sure, they play a role in making sure your $500,000 mortgage isn't secured by a $50,000 shack. But a corpus of unrelated people agreeing to pay generally the same amount for similar goods in essentially the same spot is by any reasonable definition the market value of that good at that time.
The appraisal is for the lender, not the buyer. It protects them from large sharp upticks in prices that may not be sustainable. If the lender needs to foreclose they need a cushion on the value when they foreclose which could be significantly less than these wild temporary increases in value. We have seen this same craziness before and it turned out really bad for the lenders.
That's what LTV restrictions are for, not appraisals.
The LTV is based on the appraisal…😂😂😂
And as I already said, 😂😂😂, the V is supposed to be the (wait for it) value.
The bank does not order an appraisal and ask the appraiser to please cushion the value in case the market turns.
The bank does not order an appraisal and ask the appraiser to please make sure in the event of a foreclosure they would still have enough meat on the bones.
A cash buyer ordering an appraisal as part of due diligence does not ask for the "#3 conservative bank special, with fries" -- the buyer asks for an appraisal, which is the...value.
Protection the bank feels it needs are captured in their setting of thresholds of LTV based on the L number against the V, NOT the V.
IT's not an LT85ofV figure.
Yep. The pressure is to cushion the value, when the lenders could just be honest with their customers at the start by reducing the ratio.
rage_phish
Posts: 772
Joined: Thu Jan 31, 2019 3:27 pm

Re: House appraisal in insane market

Post by rage_phish »

Our recent home sale made me lose faith in appraisers

Appraiser one toured our single family home and would not budge in his determination that it should be compared to mobile home comps. It almost yanked our deal

Buys switched to a new lender who’s appraiser did a drive by (never stepped foot on our property). Never even heard what it appraised at but the deal closed just fine

Laughable industry. Seems like a sweet gig though
LINY
Posts: 39
Joined: Tue Oct 13, 2020 4:31 pm

Re: House appraisal in insane market

Post by LINY »

So this is an industry I’m very familiar with. I blame HGTV and Zestimates for all the newly minted “arm chair” Appraiser’s in this thread. I’m generally I work with commercial real estate appraisals. But do residential from time to time.

So appraisers are pressured to hit high values by lenders, borrowers, etc. Lenders tend reduce work volume to appraisers who don’t. Then when the market falls to pieces like in 2008. Appraisers had a plethora of new rules and regulations to follow. As, of course, appraisers were the ones who destroyed that housing market with their high values. It’s a thankless profession. And who ever said they are paid well for their efforts..the appraisal field is losing more and more appraisers every year due to declining fees and increasing costs (continuing Ed, licensing, data sources subscriptions) it makes more sense and dollars to pursue a ton of other professions where your work isn’t constantly questioned by non-professionals.

But what I really don’t understand in this thread is... If the appraisal comes in low, the appraiser is an idiot. If the appraisal comes in high, he’s an idiot and finally if it comes it at contract (which is generally the best representation of market value) he’s lazy or an idiot.

I review appraisals for a living and part of my job is to contest values if I feel they are not accurate. Or provide support to the appraiser if the borrower is providing comps that aren’t actually comparable. There are appraisals they are inaccurate, sometimes. An appraiser may be using old sales (common in this market), incorrect bedroom count, etc.

So if anyone is trying to contest an appraisal.

1. Make sure the comparable sales you are providing are CLOSED sales and that they closed prior to the date of value/inspection. Not pending on Zillow, or an offer my neighbor got, etc.

2. Make sure the sales are actually comparable. Providing a sale down the block of a new construction McMansion with an in-ground swimming pool vs. your 1950 built ranch that’s 1/2 the size (this actually just happens way to often ), isn’t going to garner a value change nor even a second look by the appraiser. Make sure the house is similar, less differences, less adjustments, less room for errors. Similar styles, size, yard size, bathroom/bedroom counts, condition, amenities, School District, etc.

3. Realize that it might not be the appraiser who isn’t willing to take a second look. A lot of times banks will use the appraiser as a scapegoat for a reason not to do a deal. To whom ever wrote before that the bank could just adjust their LTV to compensate for the risk. Their is limits to LTV based on internal credit policies. Which banks get scrutinized by regulators for violating. It’s much easier to keep the LTV, blame the appraiser as opposed to adjusting the LTV limits. Also, most banks lend of the lower of the two values (contract price or appraised value). Again part of their internal credit polices.

4. Appraisals do have a “lag bias”, we’re using closed sales, which obviously can’t always capturer the vast moves in the market. This is going to be a common theme. Look at Zillow if you what and their market value history. See how it’s looks prior to the list/sale price. I had a friend recently list her house. He said the realtor is going to list if for $549k. He asked what I thought. I pulled comparable sales (recent past 6 months). Nothing in the area sold for over $525k over the past six months. I said good luck, but it might sit for a bit. They got over 20 offers ranging from $549k to $630k, eventually selling for $630k -all cash waive the appraisal. Now put yourself in the appraisers shoes. How could you possibly support that value. Nothing in a 10 mile area has sold for over $525K. His house was average for the area, no extra bedrooms, not larger in size, similar lot sizes. Literally a large development of all similar homes built Circa 1980s.

In conclusion, as with any profession the appraisal field isn’t impervious to lazy/burnout appraisers, who frankly are terrible at their jobs. But their is a solid group out there looking to help borrowers from overpaying and lenders from over lending.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: House appraisal in insane market

Post by EddyB »

LINY wrote: Fri May 14, 2021 11:34 am
4. Appraisals do have a “lag bias”, we’re using closed sales, which obviously can’t always capturer the vast moves in the market. This is going to be a common theme. Look at Zillow if you what and their market value history. See how it’s looks prior to the list/sale price. I had a friend recently list her house. He said the realtor is going to list if for $549k. He asked what I thought. I pulled comparable sales (recent past 6 months). Nothing in the area sold for over $525k over the past six months. I said good luck, but it might sit for a bit. They got over 20 offers ranging from $549k to $630k, eventually selling for $630k -all cash waive the appraisal. Now put yourself in the appraisers shoes. How could you possibly support that value. Nothing in a 10 mile area has sold for over $525K. His house was average for the area, no extra bedrooms, not larger in size, similar lot sizes. Literally a large development of all similar homes built Circa 1980s.
That multiple people are willing to buy that specific house at or above some price would seem a far better indicator of its current value than anything else. The presumption to look to past sales of “comps” and ignore clear and direct evidence just shows it’s a bad system in exactly the way people have complained.
LINY
Posts: 39
Joined: Tue Oct 13, 2020 4:31 pm

Re: House appraisal in insane market

Post by LINY »

EddyB wrote: Fri May 14, 2021 11:46 am
LINY wrote: Fri May 14, 2021 11:34 am
4. Appraisals do have a “lag bias”, we’re using closed sales, which obviously can’t always capturer the vast moves in the market. This is going to be a common theme. Look at Zillow if you what and their market value history. See how it’s looks prior to the list/sale price. I had a friend recently list her house. He said the realtor is going to list if for $549k. He asked what I thought. I pulled comparable sales (recent past 6 months). Nothing in the area sold for over $525k over the past six months. I said good luck, but it might sit for a bit. They got over 20 offers ranging from $549k to $630k, eventually selling for $630k -all cash waive the appraisal. Now put yourself in the appraisers shoes. How could you possibly support that value. Nothing in a 10 mile area has sold for over $525K. His house was average for the area, no extra bedrooms, not larger in size, similar lot sizes. Literally a large development of all similar homes built Circa 1980s.
That multiple people are willing to buy that specific house at or above some price would seem a far better indicator of its current value than anything else. The presumption to look to past sales of “comps” and ignore clear and direct evidence just shows it’s a bad system in exactly the way people have complained.
The major issue here would be taking into consideration “offers” instead of actual recorded sales would welcome a ton of fraud. Banks had a ton of issues with mortgage fraud and straw buyers in the 2006-2008 era. If a few parties were looking to defraud a bank, seller and a straw buyer, they can easily submit “offers” on that house ranging from $549k to $625k to support their purchase price of $630k. Now if those offers later turn out to be fake and the buyer walks away from a $600k loan and the next actual transaction occurred at $525K. Then the bank is on the hook for the deficit.

If you’re going to say no one would commit mortgage fraud or submit false documents. Please sit in my seat for a day. I’ve seen falsified rent rolls, leases and income statements on commercial properties, underwriting has caught borrowers “enhancing” personal financial statements, borrowers purchasing property from people they know and claiming it to be a non-arms length transaction.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: House appraisal in insane market

Post by EddyB »

LINY wrote: Fri May 14, 2021 12:44 pm
EddyB wrote: Fri May 14, 2021 11:46 am
LINY wrote: Fri May 14, 2021 11:34 am
4. Appraisals do have a “lag bias”, we’re using closed sales, which obviously can’t always capturer the vast moves in the market. This is going to be a common theme. Look at Zillow if you what and their market value history. See how it’s looks prior to the list/sale price. I had a friend recently list her house. He said the realtor is going to list if for $549k. He asked what I thought. I pulled comparable sales (recent past 6 months). Nothing in the area sold for over $525k over the past six months. I said good luck, but it might sit for a bit. They got over 20 offers ranging from $549k to $630k, eventually selling for $630k -all cash waive the appraisal. Now put yourself in the appraisers shoes. How could you possibly support that value. Nothing in a 10 mile area has sold for over $525K. His house was average for the area, no extra bedrooms, not larger in size, similar lot sizes. Literally a large development of all similar homes built Circa 1980s.
That multiple people are willing to buy that specific house at or above some price would seem a far better indicator of its current value than anything else. The presumption to look to past sales of “comps” and ignore clear and direct evidence just shows it’s a bad system in exactly the way people have complained.
The major issue here would be taking into consideration “offers” instead of actual recorded sales would welcome a ton of fraud. Banks had a ton of issues with mortgage fraud and straw buyers in the 2006-2008 era. If a few parties were looking to defraud a bank, seller and a straw buyer, they can easily submit “offers” on that house ranging from $549k to $625k to support their purchase price of $630k. Now if those offers later turn out to be fake and the buyer walks away from a $600k loan and the next actual transaction occurred at $525K. Then the bank is on the hook for the deficit.

If you’re going to say no one would commit mortgage fraud or submit false documents. Please sit in my seat for a day. I’ve seen falsified rent rolls, leases and income statements on commercial properties, underwriting has caught borrowers “enhancing” personal financial statements, borrowers purchasing property from people they know and claiming it to be a non-arms length transaction.
I don’t doubt there’s fraud, but you’re essentially saying that even if there’s a category of potentially better valuation information, it requires more diligence and so it will be ignored. Still doesn’t address the fundamental complaints about appraisals acting as drag in rising markets.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

LINY wrote: Fri May 14, 2021 11:34 am In conclusion, as with any profession the appraisal field isn’t impervious to lazy/burnout appraisers, who frankly are terrible at their jobs. But their is a solid group out there looking to help borrowers from overpaying and lenders from over lending.
It's not personal. The entire industry model is humbug. Appraisers have to be fortune tellers to fulfill the role you (and the industry) are describing.

If this were capitalism (market-based solution) rather than socialism (regulatory solution backstopped by taxpayer bailout), then lenders would have their own, private appraisers.

They would keep that info to themselves as a proprietary edge, and adjust the rate they charge the borrower depending on the risk/return they expect. Then borrowers could shop lenders for the best possible MARKET rate. If the bank's appraisers do a great job, the bank makes lots of money. If they stink, the bank goes under and the investors (not the taxpayers) lose their investment.

Maybe some borrower wouldn't get a loan? Maybe they would get it at an even better rate? Who can say? That's what markets are for.
LINY
Posts: 39
Joined: Tue Oct 13, 2020 4:31 pm

Re: House appraisal in insane market

Post by LINY »

EddyB wrote: Fri May 14, 2021 12:57 pm
LINY wrote: Fri May 14, 2021 12:44 pm
EddyB wrote: Fri May 14, 2021 11:46 am
LINY wrote: Fri May 14, 2021 11:34 am
4. Appraisals do have a “lag bias”, we’re using closed sales, which obviously can’t always capturer the vast moves in the market. This is going to be a common theme. Look at Zillow if you what and their market value history. See how it’s looks prior to the list/sale price. I had a friend recently list her house. He said the realtor is going to list if for $549k. He asked what I thought. I pulled comparable sales (recent past 6 months). Nothing in the area sold for over $525k over the past six months. I said good luck, but it might sit for a bit. They got over 20 offers ranging from $549k to $630k, eventually selling for $630k -all cash waive the appraisal. Now put yourself in the appraisers shoes. How could you possibly support that value. Nothing in a 10 mile area has sold for over $525K. His house was average for the area, no extra bedrooms, not larger in size, similar lot sizes. Literally a large development of all similar homes built Circa 1980s.
That multiple people are willing to buy that specific house at or above some price would seem a far better indicator of its current value than anything else. The presumption to look to past sales of “comps” and ignore clear and direct evidence just shows it’s a bad system in exactly the way people have complained.
The major issue here would be taking into consideration “offers” instead of actual recorded sales would welcome a ton of fraud. Banks had a ton of issues with mortgage fraud and straw buyers in the 2006-2008 era. If a few parties were looking to defraud a bank, seller and a straw buyer, they can easily submit “offers” on that house ranging from $549k to $625k to support their purchase price of $630k. Now if those offers later turn out to be fake and the buyer walks away from a $600k loan and the next actual transaction occurred at $525K. Then the bank is on the hook for the deficit.

If you’re going to say no one would commit mortgage fraud or submit false documents. Please sit in my seat for a day. I’ve seen falsified rent rolls, leases and income statements on commercial properties, underwriting has caught borrowers “enhancing” personal financial statements, borrowers purchasing property from people they know and claiming it to be a non-arms length transaction.
I don’t doubt there’s fraud, but you’re essentially saying that even if there’s a category of potentially better valuation information, it requires more diligence and so it will be ignored. Still doesn’t address the fundamental complaints about appraisals acting as drag in rising markets.
It’s not a question of due diligence. It’s a question of how reliable that data really is. I can make an offer on any house I want and pull that offer back. How are you planing on verifying the offers? Are they all in writing with earnest money deposits already collected? Are they just verbal offers? Are the people making the offers all pre-qualified or actual able to close on the sale? Did they reduce the offer after a home inspector found structural issue with the home? Are they all non-arms length offers or did someone have their brother-in-law show up to the open house and offer above asking so the whole room could hear? If you were were leading your own cash on this house would you rather rely on verifiable deeds and contracts of sale or offers?

Estimating a market value in this market is like trying to hit a moving target. On the case above even the realtor got the value/listing price incorrect. They set the listing price at $549K and it sold for $630k. If a realtor sets the price point too low and the house is snapped up for below market value they’re doing a huge disservice to their client/seller. If my friend didn’t wait two weeks to get adequate exposure time for his house he may have lost out. The higher offers came later on after the second open house.

Good appraisers will try their best to address the lag bias in the appraisal. They can include sales currently under contract and currently listed in addition to their selected minimum three closed sales. That will give a more accurate picture of the current (under contract) and prospective (listed) market.

Lastly, this is also an issue with a declining market also. From 2009-2012 appraisers were being blamed for not reflecting the declining market within their analysis. Although credit markets froze and their was truly a lack of recent sales in conjunction with the amount of distressed sales that were skewing the data.
LINY
Posts: 39
Joined: Tue Oct 13, 2020 4:31 pm

Re: House appraisal in insane market

Post by LINY »

vanbogle59 wrote: Fri May 14, 2021 1:22 pm
LINY wrote: Fri May 14, 2021 11:34 am In conclusion, as with any profession the appraisal field isn’t impervious to lazy/burnout appraisers, who frankly are terrible at their jobs. But their is a solid group out there looking to help borrowers from overpaying and lenders from over lending.
It's not personal. The entire industry model is humbug. Appraisers have to be fortune tellers to fulfill the role you (and the industry) are describing.

If this were capitalism (market-based solution) rather than socialism (regulatory solution backstopped by taxpayer bailout), then lenders would have their own, private appraisers.

They would keep that info to themselves as a proprietary edge, and adjust the rate they charge the borrower depending on the risk/return they expect. Then borrowers could shop lenders for the best possible MARKET rate. If the bank's appraisers do a great job, the bank makes lots of money. If they stink, the bank goes under and the investors (not the taxpayers) lose their investment.

Maybe some borrower wouldn't get a loan? Maybe they would get it at an even better rate? Who can say? That's what markets are for.
Just for the record appraisals are also used for none FDIC insured loans. Hard money lenders, private equity (debt), private market purchases, all cash purchases...

The appraisal should be an independent 3rd party market value regardless of the transaction. I’ve done a ton of valuation work also for non-bank client. Estate and trust planing, divorce proceeding, contesting property tax assessments/tax certiorari, eminent domain cases, and just plain hey what’s my house/building worth.

Moreover, the appraiser is hired by the lender and that’s exactly what they do. Most also have their own staff of internal/staff appraisers. They will base their rate off the borrowers strength (credit score, debt-to-income) and the property (loan-to-value). While still trying to remain competitive with other lenders, which is not an easy task nowadays. They can sell them after they originate but the now have pretty strict guidelines on what the agency’s will buy. Excluding the bailouts in 2008, which I agree aren’t at all a good look for banking/bankers. If a bank writes a bad loan, they have to deal with the write down, sell the note or foreclose, and address the loss. So the investors would be getting hit in the form of reduced earnings. Only if their is a deficit between the distressed sale price plus accrued interest and the market value. Coming full circle to the loan-to-value requirements and need for an accurate/credible appraisal.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: House appraisal in insane market

Post by EddyB »

LINY wrote: Fri May 14, 2021 3:41 pm It’s not a question of due diligence. It’s a question of how reliable that data really is. I can make an offer on any house I want and pull that offer back. How are you planing on verifying the offers? Are they all in writing with earnest money deposits already collected? Are they just verbal offers? Are the people making the offers all pre-qualified or actual able to close on the sale? Did they reduce the offer after a home inspector found structural issue with the home? Are they all non-arms length offers or did someone have their brother-in-law show up to the open house and offer above asking so the whole room could hear? If you were were leading your own cash on this house would you rather rely on verifiable deeds and contracts of sale or offers?

Estimating a market value in this market is like trying to hit a moving target. On the case above even the realtor got the value/listing price incorrect. They set the listing price at $549K and it sold for $630k. If a realtor sets the price point too low and the house is snapped up for below market value they’re doing a huge disservice to their client/seller. If my friend didn’t wait two weeks to get adequate exposure time for his house he may have lost out. The higher offers came later on after the second open house.

Good appraisers will try their best to address the lag bias in the appraisal. They can include sales currently under contract and currently listed in addition to their selected minimum three closed sales. That will give a more accurate picture of the current (under contract) and prospective (listed) market.

Lastly, this is also an issue with a declining market also. From 2009-2012 appraisers were being blamed for not reflecting the declining market within their analysis. Although credit markets froze and their was truly a lack of recent sales in conjunction with the amount of distressed sales that were skewing the data.
The system serves a purpose, but that purpose isn’t identifying the current value of a home. I don’t expect to see a change in the system, but these “explanations” aren’t remotely as convincing as you seem to think.

Real estate agents don’t suggest list prices to reflect “value,” they suggest list prices meant to tease out the highest price someone is willing to pay on appropriate terms. Listing under likely sales price is a strategy in hot markets, but you’re suggesting including those (likely low) numbers to address lag bias? Sorry, but that just shows how fundamentally flawed your thinking is.

Similarly, due diligence doesn’t just mean uncritically accepting superficial information—it means exactly the opposite.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

EddyB wrote: Fri May 14, 2021 5:44 pm Real estate agents don’t suggest list prices to reflect “value,”
Agree
EddyB wrote: Fri May 14, 2021 5:44 pm they suggest list prices meant to tease out the highest price someone is willing to pay
Disagree.
They get paid on commission. They try to maximize their commissions. Waiting a week to earn another percent is frequently not in their interest. Turnover is more important. IOW, rather that max 1 commission, get OK on multiple commissions.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

LINY wrote: Fri May 14, 2021 4:24 pm Excluding the bailouts in 2008, which I agree aren’t at all a good look for banking/bankers.
My candidate for understatement of the ....
EVER.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

LINY wrote: Fri May 14, 2021 4:24 pm If a bank writes a bad loan, they have to deal with the write down, sell the note or foreclose, and address the loss.
That's if they hold the loan.
Some banks do that. I imagine those have thoughtful appraisers.
Most don't. And I imagine other things.

Not all socialists are scoundrels. But you don't get "creative destruction" without capitalism.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: House appraisal in insane market

Post by EddyB »

vanbogle59 wrote: Fri May 14, 2021 5:55 pm
EddyB wrote: Fri May 14, 2021 5:44 pm Real estate agents don’t suggest list prices to reflect “value,”
Agree
EddyB wrote: Fri May 14, 2021 5:44 pm they suggest list prices meant to tease out the highest price someone is willing to pay
Disagree.
They get paid on commission. They try to maximize their commissions. Waiting a week to earn another percent is frequently not in their interest. Turnover is more important. IOW, rather that max 1 commission, get OK on multiple commissions.
Fine. Even less reason to think they are suitable references for “value.”
LINY
Posts: 39
Joined: Tue Oct 13, 2020 4:31 pm

Re: House appraisal in insane market

Post by LINY »

EddyB wrote: Fri May 14, 2021 5:44 pm
LINY wrote: Fri May 14, 2021 3:41 pm It’s not a question of due diligence. It’s a question of how reliable that data really is. I can make an offer on any house I want and pull that offer back. How are you planing on verifying the offers? Are they all in writing with earnest money deposits already collected? Are they just verbal offers? Are the people making the offers all pre-qualified or actual able to close on the sale? Did they reduce the offer after a home inspector found structural issue with the home? Are they all non-arms length offers or did someone have their brother-in-law show up to the open house and offer above asking so the whole room could hear? If you were were leading your own cash on this house would you rather rely on verifiable deeds and contracts of sale or offers?

Estimating a market value in this market is like trying to hit a moving target. On the case above even the realtor got the value/listing price incorrect. They set the listing price at $549K and it sold for $630k. If a realtor sets the price point too low and the house is snapped up for below market value they’re doing a huge disservice to their client/seller. If my friend didn’t wait two weeks to get adequate exposure time for his house he may have lost out. The higher offers came later on after the second open house.

Good appraisers will try their best to address the lag bias in the appraisal. They can include sales currently under contract and currently listed in addition to their selected minimum three closed sales. That will give a more accurate picture of the current (under contract) and prospective (listed) market.

Lastly, this is also an issue with a declining market also. From 2009-2012 appraisers were being blamed for not reflecting the declining market within their analysis. Although credit markets froze and their was truly a lack of recent sales in conjunction with the amount of distressed sales that were skewing the data.
The system serves a purpose, but that purpose isn’t identifying the current value of a home. I don’t expect to see a change in the system, but these “explanations” aren’t remotely as convincing as you seem to think.

Real estate agents don’t suggest list prices to reflect “value,” they suggest list prices meant to tease out the highest price someone is willing to pay on appropriate terms. Listing under likely sales price is a strategy in hot markets, but you’re suggesting including those (likely low) numbers to address lag bias? Sorry, but that just shows how fundamentally flawed your thinking is.

Similarly, due diligence doesn’t just mean uncritically accepting superficial information—it means exactly the opposite.
So your solution to lag bias, which I have already stated is an issue, and is also an issue in any statistical analysis is to base the market value from offers as opposed to closed sales, listings or sales under contract. So how will you approach the need for a value of a home that is not currently for sale or under contract? Say to determine a loan to value for a home equity line of credit or estate and trust planning? Put the home up for sale, have a few open houses, obtain offers and base the value from the offers? That seems viable and not cumbersome at all and total realistic. We can barely get borrowers to allow appraisers inside their homes. But they will allow a faux sale for the banks Analysis.

You offer criticism of an issue that the whole industry is aware of with out a viable solution. I provided a ways appraisers try to mitigate the inaccuracy of using past data or dated sales. Making market condition adjustments within their sales bracket, using current listings or sales under contract to see where the market is heading. Speaking with realtors about current market conditions or off market sales.

My example regarding the RE agent is that lag bias exists for all professionals and pretty much all statistics. The realtors job is to obtain the highest price for the seller. The appraisers job is to determine the most probable price. That example clearly shows the RE agent had the same issue, which again is common in this crazy market. If the were aware of the market value of the home being $630k, shouldn’t they have priced it at $650k and “teased out” the highest price. As opposed to listing it at $549k and not waiting for the best offers to come in?

Again regarding the due diligence. You provide a great Definition of what it is but not how to accomplish it. You offer more critique without a solution. Offers are superficial, how can you verify the serious of an offer? Can you verity an offer as well as a closed sale with a recorded deed? Would you lend your own money using your improved “system” ? Would this system lead to more speculation in the market?

And please if you had a viable solution or “system” that offers a more accurate opinion of value vs. the Sales Comparison Approach (Which is widely accepted by not only our government to determine assessed values / lending values for federally insured loans and our legal system to determine market values in various scenarios - divorce, estate disputes, condemnation, etc). You’d be selling it to Zillow or some tech firm or private equity firm right now for millions and not arguing with a stranger over its accuracy on an Internet forum.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: House appraisal in insane market

Post by EddyB »

LINY wrote: Sat May 15, 2021 4:04 pm
EddyB wrote: Fri May 14, 2021 5:44 pm
LINY wrote: Fri May 14, 2021 3:41 pm It’s not a question of due diligence. It’s a question of how reliable that data really is. I can make an offer on any house I want and pull that offer back. How are you planing on verifying the offers? Are they all in writing with earnest money deposits already collected? Are they just verbal offers? Are the people making the offers all pre-qualified or actual able to close on the sale? Did they reduce the offer after a home inspector found structural issue with the home? Are they all non-arms length offers or did someone have their brother-in-law show up to the open house and offer above asking so the whole room could hear? If you were were leading your own cash on this house would you rather rely on verifiable deeds and contracts of sale or offers?

Estimating a market value in this market is like trying to hit a moving target. On the case above even the realtor got the value/listing price incorrect. They set the listing price at $549K and it sold for $630k. If a realtor sets the price point too low and the house is snapped up for below market value they’re doing a huge disservice to their client/seller. If my friend didn’t wait two weeks to get adequate exposure time for his house he may have lost out. The higher offers came later on after the second open house.

Good appraisers will try their best to address the lag bias in the appraisal. They can include sales currently under contract and currently listed in addition to their selected minimum three closed sales. That will give a more accurate picture of the current (under contract) and prospective (listed) market.

Lastly, this is also an issue with a declining market also. From 2009-2012 appraisers were being blamed for not reflecting the declining market within their analysis. Although credit markets froze and their was truly a lack of recent sales in conjunction with the amount of distressed sales that were skewing the data.
The system serves a purpose, but that purpose isn’t identifying the current value of a home. I don’t expect to see a change in the system, but these “explanations” aren’t remotely as convincing as you seem to think.

Real estate agents don’t suggest list prices to reflect “value,” they suggest list prices meant to tease out the highest price someone is willing to pay on appropriate terms. Listing under likely sales price is a strategy in hot markets, but you’re suggesting including those (likely low) numbers to address lag bias? Sorry, but that just shows how fundamentally flawed your thinking is.

Similarly, due diligence doesn’t just mean uncritically accepting superficial information—it means exactly the opposite.
So your solution to lag bias, which I have already stated is an issue, and is also an issue in any statistical analysis is to base the market value from offers as opposed to closed sales, listings or sales under contract. So how will you approach the need for a value of a home that is not currently for sale or under contract? Say to determine a loan to value for a home equity line of credit or estate and trust planning? Put the home up for sale, have a few open houses, obtain offers and base the value from the offers? That seems viable and not cumbersome at all and total realistic. We can barely get borrowers to allow appraisers inside their homes. But they will allow a faux sale for the banks Analysis.

You offer criticism of an issue that the whole industry is aware of with out a viable solution. I provided a ways appraisers try to mitigate the inaccuracy of using past data or dated sales. Making market condition adjustments within their sales bracket, using current listings or sales under contract to see where the market is heading. Speaking with realtors about current market conditions or off market sales.

My example regarding the RE agent is that lag bias exists for all professionals and pretty much all statistics. The realtors job is to obtain the highest price for the seller. The appraisers job is to determine the most probable price. That example clearly shows the RE agent had the same issue, which again is common in this crazy market. If the were aware of the market value of the home being $630k, shouldn’t they have priced it at $650k and “teased out” the highest price. As opposed to listing it at $549k and not waiting for the best offers to come in?

Again regarding the due diligence. You provide a great Definition of what it is but not how to accomplish it. You offer more critique without a solution. Offers are superficial, how can you verify the serious of an offer? Can you verity an offer as well as a closed sale with a recorded deed? Would you lend your own money using your improved “system” ? Would this system lead to more speculation in the market?

And please if you had a viable solution or “system” that offers a more accurate opinion of value vs. the Sales Comparison Approach (Which is widely accepted by not only our government to determine assessed values / lending values for federally insured loans and our legal system to determine market values in various scenarios - divorce, estate disputes, condemnation, etc). You’d be selling it to Zillow or some tech firm or private equity firm right now for millions and not arguing with a stranger over its accuracy on an Internet forum.
Somebody else already said it’s not personal; sorry you didn’t see that.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: House appraisal in insane market

Post by vanbogle59 »

LINY wrote: Sat May 15, 2021 4:04 pm if you had a viable solution or “system” that offers a more accurate opinion of value vs. the Sales Comparison Approach
How about capitalism? That's kind of popular in other industries. But not so much in US banking for the last 100 years.

Rather than visiting the Oracle of Delphi, let the market decide. Let banks compete.
There will be winners and losers.

If a bank wants to lend someone their money, let 'em. If they screw it up, they lose (them, not the taxpayer). If they get it right, they win.
Post Reply