Appraisal Risk Exceeds Reward

The National Appraisal Congress recently announced the formation of the Society of Young Appraisal Professionals, described by DS News as an NAC subcommittee focused on addressing the declining workforce in the residential valuation space.

It is hard to imagine this story was not printed on April Fools Day.

They need a subcommittee to investigate the increasing shortage of residential appraisers?

Are the reasons not obvious?

Much, if not all, of the fault for the destruction of this industry, of which I am a professional in, stems from the passage of the Home Valuation Code of Conduct, a piece of punitive legislation spearheaded by the former Attorney General and now New York Governor Andrew Cuomo (D).  This is a big government piece of legislation, heavy on regulation, most notably forcing those who order appraisals for lending institutions to utilize Appraisal Management Companies.  These AMC's, most of which are partially owned or have fiduciary relationships with the banks, dictate the appraisal process, and sometimes the content, while "confiscating" half the fee.

As Ronald Reagan so eloquently stated, "I hope we have once again reminded people that man is not free unless government is limited. There's a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts."

With the implementation of extensive government regulation of appraisers through the HVCC, the reduction of fees through mandatory use of AMC's and restrictions placed on the subjectivity of the appraiser, the risk of appraising in many cases has grown to exceed the reward.

It appears the free market has just officially informed us of just that.

Tide Rolls on Agenda 21

Every two years, in keeping with governmental regulation, mandatory continuing education for many professional licensees is required. Last week, in order to keep my Certified Residential Appraiser license in good standing, 40 hours were taken in at the Peabody Hotel in on tourism row in Orlando.

Among the courses presented in the snore fest was The Introduction to Residential Green Buildings.  As you may suspect, the course provided the opportunity for advocacy of the green movement by the instructor, and the moment was seized.

The instructor surmised that homeowners were embracing energy restriction by downsizing the gross living area of homes being purchased.  To the contrary, the lowering of the average GLA is largely due to the economic status of America, which due to governmental interaction in markets has severely hampered job creation and created elevated levels of uncertainty.

Public and private sector organizations, the US Green Building Council and the Shelton Group, advocates for green energy initiatives, were referenced as leaders in assessing all things green, from measuring consumer acceptance to rating and regulating building energy efficiency.

On the course evaluation, I wrote "portions of the class unfortunately bordered on advocating the propaganda surrounding the pursuit of sustainable development, having the feeling of being "nudged" minus Cass Sunstein" closing with "Sustainable development infringes upon property rights".

It should be noted that all responsible citizens should engage in efforts to refrain from polluting and wasting energy.  In addition, in our free market society there are many opportunities as a property owners to maximize cost efficiency with regard to energy usage, and these are prudent investments.

Unfortunately, common sense initiatives have been expanded upon by governmental regulators influenced by left wing environmentalists, global warming alarmists and a very nefarious group who are supporters of Agenda 21, or sustainable development; a global effort to implement social justice.

As reported in Investors Business Daily, Agenda 21 is a frontal assault on formative principles of our founding fathers.  One of those is property rights. "Land ... cannot be treated as an ordinary asset, controlled by individuals and subject to the pressures and inefficiencies of the market," Agenda 21 says.

"Private land ownership is also a principal instrument of accumulation and concentration of wealth and therefore contributes to social injustice; if unchecked, it may become a major obstacle in the planning and implementation of development schemes."

Property rights are central to our sovereignty, and on these central principles there can be no compromise.

Agenda 21 is intended to foster what environmentalists call "sustainable development" in the belief that man since the Industrial Revolution has been a plague on the planet, plundering its resources while destroying nature and putting the world at risk of disastrous climate change, poverty and disease.

If you were thinking those attempting to implement strategies in this arena were those on the left wing extreme, you would be correct, and they are currently running our government. This group has done a masterful job in promotion of the greatest hoax of all time, global climate change, to the mainstream citizenry and business leaders. 

Many, perhaps fearful of being on the wrong side against a government who takes few prisoners, are eagerly on board.  Some are financially tied to government, and have no choice but to gleefully participate.  In fact, just yesterday, TARP recipient Bank of America (BAS:NYSE) pledged 50 million to combat global warming.  Have not seen a sell signal like that in a while.

Unfortunately, governmental regulators, which include the EPA, unelected regulatory Czars and Obama and his executive orders are shoving Agenda 21 down our throats, which increase costs in arenas inclusive of energy, building maintenance and regulatory compliance.  In fact, just this week President Obama said he would make climate change his top priority in his second term, although odds are increasing he won't get that chance.

Even so, as industries have bought into the climate change premise, policies in this regard are emerging to overwhelm business owners, limiting economic freedom and free market prosperity.

Agenda 21, an arm of the United Nations, is on the verge of gaining binding influence in our court system.  The Law of the Sea Treaty, up for vote soon in Congress, is a current example. As alarming as this is, America appears to be waking up as Alabama voters handed Agenda 21 such a lopsided loss, you would think Crimson Tide.

Our rights are being trampled under foot, and many remain unaware.  Under global climate change, arms of the movement are working like termites to gain control of the structure, pun intended, of our governance.  Time is of the essence, and with the Obama presidency seeming on the ropes, danger lurks behind every two by four.  Inform your friends about Agenda 21, and hit the voting booth in opposition at your earliest opportunity.

Information Misrepresentation: Appraisals

Information presented to the Public by various outlets is being crafted to misrepresent reality in an effort to skew political thinking, gain economic advantage and nudge social justice further down the American psyche. This is the first in a series of blog posts detailing instances in this regard, as it is imperative the Public recognize the significant level of misrepresentation and how vast the manipulation is.

Information Misrepresentation: Appraisals

The National Association of Home Builders (NAHB) reported this week one out of every three of its builder members has lost a sale during the last six months because of home values reported by appraisers.

NAHB Chairman Bob Nielson said, "The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices, killing home sales, causing more workers to lose their jobs and delaying a housing and economic recovery."

The NAHB did not stop there, further hammering appraisers with the following:

* According the Association, appraisers are using "faulty" practices by utilizing distressed homes as potential comparable sales against new homes. Mr Nielson said in a statement that "This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, harms local economic activity and acts as an obstacle to the recovery of the housing market."

* Mr Nielson notes that in many cases, new home appraisals are coming in below the cost of construction, because of flawed appraisals for utilizing existing and potentially distressed homes.

* Per the NAHB, These appraisal practices are a major contributing factor to the current acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders and threatens to prolong the current housing downturn. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.

* The NAHB has been having summits, with leaders throughout the housing industry in an effort to find solutions that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

Mr Nielson and the NAHB concludes that, you guessed it, “Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility or harm aspiring home owners and move-up buyers.”

One thing I know from the real estate world: It is always the appraisers fault. NOT! What we do have from the NAHB is information misrepresentation.

This must have been some series of summits. A bunch of bureaucrats gathered together to central plan the housing recovery, culminating in the one thing we need less, not more, of; additional regulations.

If additional regulations were the answer, the sweeping regulatory action spearheaded by former HUD Secretary and Architect of Ruin Andrew Cuomo, The Home Valuation Code of Conduct (HVCC), would have done the trick. Instead, it has wrecked the appraisal industry, leaving unregulated Appraisal Management Companies to coordinate, and in many cases dictate, appraisal performance.

Since distressed properties make up approximately 65% of the market here in Florida, it would be highly inappropriate to fail to consider these as potential comparable sales, provided the gross living area, age, amenities, and, of course, condition, were reasonably similar.

By applying political pressure to "develop realistic valuations," made as instructed will become a reality and as a result, valuations will be lacking in adequate support and accurate value.

Appraisal practices, as governed by the Uniform Standards of Appraisal Practice (USPAP), provide a framework for appraisers nationwide to adhere to in an effort to provide consistent and accurate valuation through the three approaches to value. These voluminous guidelines are a contributing factor to providing the industry with appraisal reports arriving at well supported value indications , not further deteriorating the housing crisis as the NAHB says.

Conspicuously absent from the many factors cited by the NAHB for the continued downward pressure on the housing market are the actions of the Obama administration. It is well documented that the origins of the collapse centered around the governments efforts to provide housing to buyers the marketplace weeded out. These potential buyers were not weeded out due to race, as ACORN would have you believe, but due to the higher risk associated with their ability to repay the loan. Before political correctness ran amok, his used to be referred to as sound business practice.

Among those applying pressure to the banks in the form of threatening race related boycotts was a young attorney for ACORN, Barack Obama.

While George Bush made failed attempts at forcing Congress to rein in the Government Sponsored Entities known as Fannie Mae and Freddie Mac, under House Finance Chairman Barney Frank, the Congress looked the other way.

Meanwhile, instead of letting the market cleanse itself, the administration has invented program after program to reward bad behavior and prop up the values of housing, which has only prolonged the pain and the problem. Government, who cannot be trusted, should leave the housing marketplace and let the free market establish a base for prices. In fact, we now learn the housing numbers have astonishingly been inflated.

Housing is not the only place numbers are inflated. Government spending, regulation and taxation is what is crushing the job market, with unemployment actually around 12% rather than the reported 8.6%, and for buyers to feel comfortable making large purchases in the form of housing, the job market needs to be at worst steady. Under this administration, there is no job creation, debt is expanding exponentially and Americans are in fear for the future.

Until jobs can be created in large numbers and the government diminishes involvement in what should be private sector activity, continued negative pressure on the housing market and America will remain.

As Ronald Reagan accurately said, "Government is not the solution to the problem, government is the problem."

Always Blame The Appraiser

Neil Cavuto of FOX Business Network interviews Connie DeGroot of Coldwell Banker and Jonathan Miller of Miller Samuel on the ever changing role appraisals are playing in the home buying process. Take a listen:



Underwriter stipulations for declining markets, of which Florida is one, usually require 3 sales within the previous 90 days within a maximum of one mile radius. In the current environment, the pool of comparables rarely have more than one sale which fits this criteria.

Therefore, either the radius need to be expanded or the time frame must be exceeded. I have submitted reports in which it was necessary to exceed standard guidelines for comparable ranges with respect to time and distance, with extensive commentary explaining why this was necessary. Underwriters have kicked back many of these, asking for those sales within 90 days. They do not exist. Certainly, if there had been comparable sales which fit this criteria, they would have been utilized in the first place.

So, we can see how we hit a fork in the road. It comes down to banks and their willingness to lend. I believe sometimes the appraisal is the labeled the culprit on deals that go south, which is unfortunate.

And, just when you thought it was safe to go in the water, or your local strip club, comes this CNBC story which throws a jab at us appraisers.


I have not even been to a club in over year, including the DR, due to financial constraints, of course.

IN THE INTEREST OF FULL DISCLOSURE I AM AN AGENT WITH COLDWELL BANKER