Sunday, August 23, 2009

My Hometown Paper Discovers the HAVOC of the HVCC


For the past last four days, I've been attending the Florida Association of REALTORS Annual Convention and Trade Show. From the moment I walked into the building, the topic foremost on the minds of the friends and colleagues encountered was the Home Valuation Code of Conduct - HAVOC.

In the past week the story has been picked up by the Wall Street Journal and the New York Times. Today, on the front page of the Business Section of the August 23, 2009 St. Petersburg Times, James Thorner writes about the HAVOC resulting from the Home Valuation Code of Conduct (HVCC).




First, Jim offers up an example of a an experience similar to hundreds of others reported in papers and blogs across the country:

Builder Charlie Hannah thought he was being generous when he agreed to sell a new 5,000-square-foot home for $1.15 million in the Tree Tops neighborhood near Tampa's Westchase. But the appraiser returned an appraised value of $1 million on the lakeside house in June. Two months later, the sale remains in limbo and Hannah remains indignant.

Four other homes Hannah built in the same neighborhood recently sold for much more per square foot than the $1.15 million home. But the appraiser found a comparable home sale miles away in Odessa to justify what Hannah considers to be a low-ball valuation.

Although I live and work in the Tampa Bay Area of Florida, my appraisal practice is limited to Pinellas County. The example cited is from across the bay in Hillsborough County. It's not possible for me to comment with any credibility about the allegations made by Charlie Hannah.

However, Thorner goes on to describe a couple of situations of which I have firsthand knowledge:

Since the new rules took effect, the law of unintended consequences has upended real estate deals. St. Petersburg Realtor Nancy Riley blames sloppy appraisals. She had a buyer for a sixth floor Feather Sound condo overlooking the water and golf course. Both parties agreed to the $200,000 purchase price.

But the lender, using an appraisal management company, got an out-of-county appraiser. The disappointed buyer and seller learned the condo appraised at only $157,000. As two of his comps, the appraiser used a unit in a former assisted living facility and a single story condo without a view.

Riley tried to challenge the appraiser's findings — which included wrong photos attached to the wrong properties — but got a cold shoulder from the bank. She's still trying to salvage the deal."I sent them two pages of things wrong with the appraisal. They refused to listen," Riley said. "I got one or two snippy responses."

Along with this one:

Mortgage refinancing — the centerpiece of the government's antiforeclosure efforts - has also suffered. Gregoire noted a case involving a house in upscale Tierra Verde. The home owner sought a reverse mortgage to pull cash from the home. Taking into account the recent depreciation, the home owner estimated the 2,000-square-foot home at $400,000. The initial quick-hit appraisal, using a $10 computer-generated valuation that isn't as good at distinguishing some of the nuances of real estate valuations like the differences between nearby neighborhoods, delivered a market price of $252,000.

When a real appraiser went to work on the house after driving up from Fort Myers, he, too, concluded the house was worth $252,000. Gregoire assumes the appraiser shoe-horned in comparable sales to make his numbers match the computer-generated price.

"That happens with appraisers who lack geographic confidence,'' Gregoire said. "I've been doing appraisals 30 years, but I don't go outside of Pinellas County. The most important thing is to know neighborhoods and submarkets.''

NOTE: The term I used in the interview was "GEOGRAPHIC COMPETENCE", but you all should get the drift.

Copies of the appraisal reports described in the two examples above are part of ever increasing pile of evidence sitting on the floor within two feet of my desk. The Feather Sound "appraisal" is a jewel. To some readers, it might look fine; the Comparable Sales are all relatively recent, two are less than 1/4 mile from the subject and the third is only 3/4 of a mile away. Unfortunately, for the seller and the buyer, only one of the Comparable Sales is an example of an acceptable substitute property and could could come close to being considered competitive with the subject.

The "appraiser" includes quite a bit of boilerplate claiming an oversupply of listings and declining prices in the development. Although a case could be made there is an imbalance between supply and demand for all housing in the Feather Sound area, the case is less supportable when condominiums only are considered in the analysis. As of the effective date of the appraisal, according to the Suncoast Multiple Listing Service, there were 89 active listings in Feather Sound. Eighteen of these (20%) are either under contract or pending sale. In the twelve months prior to the effective date of the appraisal, there have been 56 sales in Feather Sound reported by the Suncoast Multiple Listing Service. Both the average time and median time on the market for sold listings is close to three months; 96 days and 92 days respectively. Absorption rates have increased from about four units a month over the last half of 2008 and first quarter of 2009 to about 7 units a month in the second quarter of 2009.

If the analysis is limited to condominium parcels only, as of the effective date of the appraisal, the Suncoast Multiple Listing Service reports 56 active listings in Feather Sound. Fourteen of these (25%) are either under contract or pending sale. In the twelve months prior to the effective date of the appraisal there have been 30 sales of Feather Sound condominium units reported by the Suncoast Multiple Listing Service. Both the average time and median time on the market for sold condominium units is close to three months; 100 days and 80 days respectively. Absorption rates have increased from about 2 units per month over the last half of 2008 and first quarter of 2009 to nearly 4 units (3.7) units per month in the second quarter of 2009.

Although the appraisal report indicated prices are in decline, analysis of the sales data did not support such a conclusion, at least for the two quarters prior to the effective date of the appraisal. If all residential Feather Sound sales reported by the Suncoast Multiple Listing Service are considered, the median sales price over the last three months is about $155,000. This compares with a median price of $120,000 for the first quarter of 2009 and about $167,750 for the last half of 2008.

Although the market analysis was contrived and two of the pictures of Comparable Sales were of units that did not match the address or the description of the sales in the Sales Comparison Analysis, the bank loved the appraisal report!

The Tierra Verde Appraisal was just as "good" as the Feather Sound Appraisal Report. It was completed by an appraiser after being assigned by RELS, the AMC often associated with Wells Fargo Bank, N.A. , the same institution accused of rigging the appraisal process in a scheme to boost profits at the expense of homeowners and independent appraisers.

RELS has the audacity to use this on their website:

"Quality appraisals — and rapid turn times"

Right!

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