The title of this blog pretty much sums up my feelings on the Home Valuation Code of Conduct.
I have been hearing about appraisal problems from my agents and in every state I have visited this past year. Now, I can relate to the appraisal debacle first hand.
I recently sold a builder’s spec home in a beautiful subdivision comprised of two distinct areas: One area of “production” type homes on small lots and the other area comprised of custom homes on “estate-sized” lots.
After two weeks, my clients and I found just the right home for them. In the right setting. At the right price. The buyers were thrilled when we negotiated a final price of $678,000.
The buyers processed a loan through an out-of-state bank, even though the offer to purchase was written not subject to mortgage financing. The bank ordered an appraisal through an appraisal management company in yet another state. The appraiser selected was from another city, not the city in which the house was located.
The appraiser then appraised the home for $420,000.
Let me repeat that: The house appraised for $420,000. That is $258,000 less than the contract price.
In all fairness, comparable sales were relatively few. But the disparity was not because of the lack of comps but because the wrong comps were cited in the appraisal report. There were comps that justified the price paid, not to mention that the buyers themselves felt the price they paid was in line with what they had seen after two weeks in the market.
But after 34 years in the business, for the first time ever, an appraiser was suggesting that I had just oversold a property to two “suckers” by $258,000.
WRONG!
The appraiser was out of his area. He never should have agreed to take on the appraisal of a property not in his area of geographic expertise. He was unable to properly discern the information he pulled from the MLS.
Of course, we immediately submitted other, more relevant comps. We were promptly told they would not be considered. But we were sent the Certificate of Compliance with HVCC and Non-Influence that said these ” ….written policies and procedures comply with the requirements related to Appraisal Management Companies as set out in the Home Valuation Code of Conduct.”
The appraisal system created to help the consumer is clearly broken. We need a moratorium on the implementation of the HVCC. NAR is working on this right now as well as other means of resolving the issue. You can write to your state leaders in Congress and ask them to support a moratorium.
My story, fortunately, had a happy ending. My buyers were able to make up the cash differential as a result of this shoddy appraisal and were able to close. But most buyers can’t come up with this kind of money all the time.
Let’s hope good sense kicks in before this flawed code further harms the market it was meant to protect. – Steve Brown, 2009 NAR Vice President and Liaison to Committees
In the classic movie, Mr. Smith goes to Washington, Jimmy Stewart’s character is appointed to fill a U.S. Senate seat and when faced with the reality of politics, he doesn’t back down.
Well, I may not be serving in Congress, but as your NAR President, my job is to represent you on critical issues. No matter how tough the challenge, you can count on me not to back down.
I just returned home to Texas after a full week in Washington, D.C., where I continued to press regulators on a few vital issues.
Last Wednesday, I met with FHA Commissioner Dave Stevens (a former REALTOR®) to discuss implementation of components of the Home Valuation Code of Conduct. We asked that FHA, Fannie Mae and Freddie Mac, adopt a consistent frequently asked questions document to address implementation concerns and codify that document with existing appraisal policy.
Commissioner Stevens agreed that requiring two appraisals in declining markets adds little benefit to underwriting and likely increases the cost of the transaction to the consumer. He also directed staff to work with the GSEs and New York Attorney General on our FAQ idea.
On Friday morning, I had a chance to meet with Freddie Mac’s new CEO Ed Haldeman, and HVCC was also on our agenda. Mr. Haldman agreed to work with FHA, Fannie Mae and the Federal Housing Finance Agency on a common set of FAQ’s. In fact, he promised that he would get back to me within two weeks with a status report.
The meeting with Freddie Mac was a great opportunity to talk about a few other hot issues.
Specifically, I thanked Freddie for coming out with guidelines that do not allow servicers to reduce commissions on short sales deals.
Mr. Haldeman also said that Freddie is willing to give waivers on their condo guidelines and he said they will be more vigilant in communicating with lenders on this issue.
We also learned that the Treasury Department and GSEs are working on guidelines related to short sales and the making Home Affordable program. We expect to see them in the next 30 days. Mr. Haldeman also agreed to emphasize the importance of short sales over foreclosures in discussions with the Treasury.
In Washington, D.C., progress can often be slow, but I am confident that the REALTOR® voice is the leading voice on policies that will define the future of our industry and our business. I urge you to get involved. Together, we can end 2009 on a high note, United Toward Tomorrow. – Charles McMillan, 2009 NAR President
There’s been a lot of talk lately about a study showing FHA coming very close to dropping below the federally mandated capital reserve ratio of two percent. People are worried that without the two percent financial cushion, FHA won’t be able to cover its potential losses.
But FHA has been very clear that it still holds more than $30 billion dollars in its reserves, which is enough to cover any future losses. FHA’s credit insurance also means that homeowners and bond holders are at zero risk, even if the reserves do fall below two percent.
Dave Stevens, FHA’s commissioner, has acted quickly and is appointing a Chief Risk Officer and is implementing a set of policy changes focused on ensuring responsible lending and risk management for FHA-approved lenders. You can read FHA’s statement here for yourself.
In 2007, FHA serviced three percent of home loans. Today, they service 28 percent. FHA is VITAL to our industry.
The good news is that Stevens has said he does not foresee a need for a federal bailout, unlike private banks and Fannie and Freddie.
NAR continues to support FHA’s mission. NAR President Charles McMillan and Stevens have met several times in the past few weeks to discuss the Home Valuation Code of Conduct.
NAR and FHA continue to work together to make the housing market as safe and functional as possible. Charles will be blogging about his meetings in the next few days so keep checking back to hear his update. — Gary Thomas, 2009 NAR Vice President and Liaison to Government Affairs
We have spent the past week here in Greece attending the CEREAN (Central European Real Estate Association Network) annual conference, held is Thessaloniki. It has been a most educational and productive trip.
First, people are people. Regardless of language, race, color, heritage, baseball teaming branding, people are people. We were warmly received by our Eastern European hosts. It seems that a smile needs no translation. It was surprising to hear many of the attendees tell us that they were impressed that we were so human, open, and engaged. (We are REALTORS®…that is what we are.) Dale Stinton and I both did formal presentations. As we talked translators simultaneously spoke in Greek and Russian. At first it was distracting, as you wondered how precisely your words were communicated. After listening to English translations of other presenters’ Greek and Russian presentations, it becomes ‘normal.’
Secondly, the importance of engaging international partners became so obvious. The earth may not be getting smaller, but the globe is. The Ukrainians were expressing frustration about buyer’s agents being able to collect a fee. The Romanians were complaining about government interference in real estate transactions. The Bulgarians were frustrated about the lack of mortgage money and credit. Does it sound familiar? One of the best parts of the conversation is it reminds one of how great our ‘system’ of real estate works.
In many parts of the world, there is no MLS system. There is no system of ‘cooperation and compensation.’ The lack of licensing, training, code of ethics, are challenging in the ‘emerging profession.’ It is to our advantage to share our systems and experience to benefit our members. It would be great to know that a referral to Greece would result in a referral fee. It would great to know that the investment our buyers are making in other markets would be with reliable professional advice. The international market is a huge market with exceptional opportunities for our members.
Finally, the international interchange of our organization leads to trust and understanding beyond real estate. It leads to understanding among different people. Its advantage goes way beyond real estate. – Ron Phipps, 2009 NAR First Vice President
A few weeks ago, I had the opportunity to address NAR’s 2010 state and local presidents-elect and association executives the Leadership Summit. It was a chance for me to explain our organization’s theme and goals for 2010 and to meet the other officers who would help me lead our members and industry in the year ahead.
By all accounts, the mood at the Summit matched the theme, “On the Rise.” Everybody was energetic and upbeat. I could feel the positive energy in the room. And, several people came up to me during the program and said they wanted to use the theme in their state and local associations.
In my remarks, I laid out two key goals: to increase participation in the Broker Involvement Program and to get every association to create their own version of NAR’s Right Tools, Right Now.
Let me tell you, the response to the Broker Involvement Program was off the charts. I immediately heard from many associations who are motivated to add participation in this important program to their goals. In fact, I went up to Pinetop last week and handed out 50 forms myself. Since the Summit, we have had more than 80 new brokers sign up. And, that’s not all…
During the Game Changers panel, hosted by CEO Dale Stinton, we issued another challenge. We asked each state and local association to submit a truly unique and innovative idea that would change the way associations serve our members. The association that submits the best idea will work with the panel of experts to make it happen, and NAR will completely fund the endeavor. We have already received ideas from three associations.
Clearly, the audience at the Leadership Summit was hungry for good information from NAR, and I feel that we delivered it in a fun and educational way. We have posted all of the materials, along with some great videos of sessions, on the AE page at Realtor.org. I encourage all members to check it out.
Perhaps the most memorable speakers were our two special guests, Chris Gardner and Alison Levine, who reminded us all that success isn’t always in the end result – sometimes it really is the journey that makes the difference. Tough times are part of the deal, but if you keep pushing, you will rise to the challenge. I couldn’t have said it better myself. – Vicki Cox Golder, 2009 President-Elect
“And the walls that won’t come down…we can decorate or find some way to get around…”
Jimmy Buffett…From – “Off the Coast of Carolina”
Well – another summer and now Labor Day has come and gone. I spent September 3rd (when I should have been writing this blog) at …yes… another Jimmy Buffet concert in the Washington, DC area. If you’ve read any my blogs you know I have an affinity for JB (all his good friends call him JB) but this time I found this one song to hit Realtors® in the today of reality.
The last 18 months have been difficult for our residential members and now the second shoe has dropped squarely on our commercial practitioners. Over the next 18 months or so we have approximately $1.3 trillion of re-financing to be completed but we have commercial mortgage backed security issues that aren’t being “fixed” and we have lots of us trying to place new financing on commercial property that we’ve been asked to market. Decorate these issues any way you’d like and it’s not a pretty package.
To be sure, NAR is working on these issues. President McMillan and the Leadership Team continually meet with the Fannie Mae, Freddie Mac , the Treasury Department, FDIC, the Federal Reserve Chairman and anyone else that will listen. We are being heard but the fact is that the “fix” isn’t an easy one. Most agree that until unemployment begins to fall that commercial tenants and businesses won’t see a major turn around. Prognosticators predict it will be the end of the first quarter or more likely the second quarter of 2010 until there is any significant uptick in activity. Ten days ago at the Leadership Summit 1800 Local and State Association Leaders came together. There was optimism about the market – it felt good and it was good.
So, why would I quote Jimmy Buffet you ask!! What I’ve found as I travel on NAR’s behalf is that REALTORS® willing to work – willing to look and find a way to get around the walls that preclude us from doing business do exactly that. There is still money to be made. I have completed two transactions in the last month that I just wasn’t willing to give up on. I finally found a bank willing to listen and they helped with financing for a purchaser and tenant improvement money for the tenant that made the investment property a worthwhile investment. The second transaction was completed with the help of a credit union that saw the value of re-financing a building that had a long track record of being successful. Neither transactions were easy but I found a way to make them work with persistence, some new strategies and by working with a vengeance. I actually made money doing it too.
Our Association is doing more now for the commercial member than we ever have. With blogs, monthly commercial podcasts, commercialsource.com, e-property data, Congressional testimony, a four point plan presented to the Administration in Washington, DC as well as the GSEs and the Treasury we have pushed and pressed as much as anyone – actually more!!
The problems before we commercial practitioners are huge. Giving in is giving up – that just isn’t an option for you or for NAR. You can’t do that either. Find a way to “get around the wall” that is making our lives a little tougher than it was three or four years ago but don’t give in. JB’s song is about finding a way to make a love work that has had problems. Let’s face it – if we didn’t love this profession we wouldn’t be here working, struggling and finding ways to survive….and we will.
Summer is nearly gone but I am optimistic – eternally so. Ninety-five percent of our success is attitude. Don’t give in… the REALTORS® Conference & Expo is in San Diego just over two months from now. Come to the meetings –learn, network, re-energize and take a break for a few days from the rigors of what we do for a living and learn what others have done to “decorate the wall or get around it”. I’ll be there and I sure hope you’ll be there too! — Jim Helsel, CCIM, SIOR, CRE, CPM, 2009 NAR Treasurer
As a student of real estate markets and trends, one cannot help but see a growing delta between buyers and sellers in their perspectives on the market. The average buyer has become a critical shopper. He, she, or they spend much time looking at sold comparables, websites like Zillow and Trulia, BEFORE they actually start to look at specific properties. It maybe simply a characteristic of the latest generation of homebuyers… Yet as a group they are extremely analytical. Furthermore, they are surgical in their approach to home acquisition. They learn, and know value. They purchase based on value. The best measure of value is price, or more precisely initially ‘list price,’ but ultimately ‘sale price.’ The current home buyer is looking for great value. The list price must be compelling not competing. Many of the buyers I am working with now spread sheet their search. It is empirical. It is not emotional. It is also based on closed sales, not based on the list prices of competing properties. Buyers know and understand absorption rates… (The number of months, it will take to sell all of the listings on the market, at the current rate of sales.) Also, the ‘average buyer’ is in his. her, or their mid thirties. (The average seller is significantly older). The National Association of REALTORS® released a new statistic that 94% of buyers between 25 and 40 use the web as their first and primary source in the home finding/acquiring process. This is amazing. ‘Pretty pictures’ in magazines or newspapers are not as effective as online photos, floor plans, videos, etc. The typical buyer speaks a different language and engages the process in a totally different way than the typical seller. The generation difference is amplifying the void between sellers and buyers. For buyers, this is a ‘strategy’ to find a great value. Sellers are trying to sell their ‘home.’ Most buyers are simply more objective.
The sellers are as a group, well intentioned but somewhat misinformed. The sellers are in most cases genuinely committed to selling. They firmly believe that their house or their neighborhood is better than the recent comparables and competing properties. In many instances they never view any of the competing properties. How do you make an informed decision without ever looking at the competition, (at least online)? Often sellers have only one or two REALTORS® give them a marketing presentation. The single largest mistake that they make is that they hire the REALTOR®with the highest recommended list price. What about record of sales, experience, and understanding of the market. I recommend that my potential sellers look at their home’s assessment, Zestimate, and Trulia value before we meet and discuss price. Many sellers are unwilling to discuss the absorption rate. As an example: In East Greenwich, there are 14 houses on the market over 1,000,000. One is pending above a million and two have sold in the first half of the year. 3 total in six months is an absorption rate of one house every two months. With 14 listed it will take 28 months to sell the existing inventory. North Kingstown is more challenged. 1 sale, nothing pending and 20 properties above $1,000,000. A normal market would be 6 to 7 months of supply. The buyers know this: many sellers simply ignore this. The pattern and trend is the same in the lower price points, but fortunately not as severe. One of the contributing factors is that competition among listing agents to get the properties listed overwhelms the need for realistic price setting.
I have been speaking of buyers and sellers as universally the same. In fairness, they are not. The effective buyers are buying value and quality, not necessarily luxury. The effective sellers are learning the language of the buyer: it’s called value. With a significant oversupply price will come down. In Rhode Island, there is a herd mentality among sellers. One bases price on the other competing listings that are NOT selling. The price needs to be based on closed sales. This is a very difficult market. Prices continue to adjust downward. If you do not need to sell and want premium value, take your house off the market, and try again in a few years. If you need to sell, price it to be competitive. You should be one of the best two or three ‘values’ in the price point. Do not follow the sellers’ herd blindly over the cliff.
If you do this well as a seller, you will be able to be a BUYER. — Ron Phipps, 2009 NAR First Vice President
Orginally Posted on Phipps Realty Rhode Island blog
