Loose lending standards will return soon enough. Our economy can't function without stupid people borrowing too much to buy things that are too expensive.
charlie-- I doubt it. Crazy lending like the past few years is really the exception. I remember Tanta's Equal Credit Opportunity Act well. Until it passed we wouldn't have been able to qualify for our first house. In 2000 I bought for the second time in my life, with my second husband. The idea of not counting a wife's salary was a distant memory, but otherwise the qualification criteria weren't much different.
IMHO the bid by the prostpective buyer establishes what the greatest fool is willing to pay. The appraisal is supposed to be an estimate of what the second greatest fool is willing to pay.
I doubt we ever go back to old time 1995 level lending requirements. I bought a house in 1995 and needed virtually every tax record I ever had. In 2000 it was 2 years of taxes and 3 months of bank statements even with 20% down. I refinanced in 2003 all I needed was a current paystub. Of course in 2003 we had over 50% equity and we were converting to a 15 year note at least that was my thought. Now I realize it was that pulse thingy that got us through.
Down payments? Reasonable FICOs? Corroborated appraisals? Reasonable DTIs?
Such quaint notions.
Time to invest in buggy whips? Hmmm... given gas prices, that might be a two-fer.
Yeah, given the "no way" comment, one wonders if Mz. O'Keefe is another Shoebox-Greeting-Card-vendor/Realtor.
Additionally, I too pale at the prospect of spending several hundreds of thousands of dollars without even the notion of investing several hundreds on a second opinion.
Though I wasn't born yesterday, I had to look up 1975 mortgage underwriting and "mailbox money".
How can someone gain passive income on a declining market is beyond me (even though Dallas gained 1%, it's already starting to decline from a recent Dallas News article).
Here in FL, I looked at an appraisal last week that used something called "fair market value from the 2005-06 time frame". This despite a sales price on the comp. 25% lower from Feb. 2007. How can that be ethical? This fictitious number is from the Pinellas Co. property appraiser's website. I guess they are trying to mitigate hard feelings due to tax increases, I don't know.
With unabashed self-horn-tooting, I believe it was I who actually "did a bit of looking in the county real estate records".
I still don't disagree with the general sentiment against Dr. Lipton, but I think we proved the "BPO" was about useless. And aren't tax assessments notoriously inaccurate - higher than actual values in declining neighborhoods and lower than actual values in 'good' neighborhoods? That has been my experience.
So who hired the first appraiser? The bank said "we hired Bob's Kwik-E Appraisal Services but it came in at a suspiciously round number"?
Were I the bank I wouldn't use any appraiser but one I trusted (certainly not the broker's choice), and were I the buyer I sure wouldn't want to pay twice for an appraisal because the bank didn't like the answer they got from their first choice.
Of course when the deal's about to go South it's all about who blinks first, and maybe I don't understand who picked the initial appraiser...
With unabashed self-horn-tooting, I believe it was I who actually "did a bit of looking in the county real estate records".
I just looked this morning, dear one. It appears that the 2008 assessment is not online yet.
I can't agree that the BPO was useless. It simply was not used for the purpose it should have been--to negotiate a lower price.
What all these stories share is the underlying assumption that a borrower/buyer is somehow "harmed" by any valuation--appraisal, BPO, drive-by--that is less than the sales price.
It's fun to make stuff up and then look for corroborating evidence in a sample size of over 200 million Americans!
(It's not valid, not scientific, and not statistically meaningful, but hey! Who ever let that stand between a storyteller and a ripping good yarn?)
Thanks, Tanta!
No offense to the ladies, but if you want to count someone's income, you should have a model that takes into account the probability of it continuing. If not, then you get into an Alt-A situation.
Old timers should be hit as well. A 60 year old is going to lose that current income stream shortly.
And aren't tax assessments notoriously inaccurate - higher than actual values in declining neighborhoods and lower than actual values in 'good' neighborhoods? That has been my experience.
Assessed values are based on recent nearby comparable sales, and any construction/demolition permits pulled on the property in question. Add to (or subtract from) that for various exemptions. A good property appraiser's office will do a physical check every 1-3 years. In many areas those visual checks are being backstopped by aerial photography.
Assessed property value is typically 'dampened' from the actual activity in the neighborhood. A recent transaction involving the property in question trumps the dampening. Assessed values do not usually reflect bid/ask numbers.
So who hired the first appraiser? The bank said "we hired Bob's Kwik-E Appraisal Services but it came in at a suspiciously round number"?
It doesn't have to be a case of Bob's Kwik-E Appraisal Services.
It could very easily have been the case that there were so few sales in the neighborhood at the time the appraisal was done that all the comps were old. Even a good appraiser can't use sales that didn't happen. So the bank wants an independent second opinion to make sure that these are the best comps available.
The message that the prospective buyers should be getting is that values are hard to determine in the case of this transaction. That is something they should be glad to learn. They can continue with the transaction if they want to, but I still don't see why they feel "ripped off" here. They would rather take the opinion of a salesperson who will be making a commission on the deal?
Last summer we had four appraisals of our home, due to a job transfer. Also one when we bought it less than a year earlier, and then of course our buyers had yet another. It was hard to believe that some of them went to the right house! I cannot imagine a bank NOT requiring a second opinion...
I'm confused. Didn't O'Keefe's second client violate the terms of her first mortgage agreement by using the townhouse as a rental?
Not necessarily. Standard mortgages and deeds of trust require you to occupy the property within 60 days of closing if you declare "principal residence" on the mortgage application. They do not require you to occupy it forever. It would come down to how long she's owned the property, and it sounds like at least a year. That's good enough. Where the lender can get you is the case where you never did move in before you rented out the property.
You can convert your former residence into a rental property and buy a new principal residence; that's common enough. But cashing it out with a HELOC before you do so? Uh, not so much. One assumes that the lady wanted the cash out of the townhouse in order to make the downpayment on the new home. I'm frankly surprised she got a bank interested enough in her application to even bother getting a drive-by. And anyone who thinks that anyone is going to make any loan at any time on any property with a year-old appraisal right now is a fruitcake. But this classy Dallas relitter apparently thought it made sense.
We have, of course, heard plenty of (unconfirmed) stories of people upside down on the loans wanting to buy a now-cheaper house while they still have these pretty credit scores and then "walking away" from the original home. I dunno how much fact is swirling around those stories. I suspect, though, that people who are buying and claiming that they are going to rent out their existing home are being subject to much greater scrutiny now than they would normally. Quelle surpise.
What all these stories share is the underlying assumption that a borrower/buyer is somehow "harmed" by any valuation--appraisal, BPO, drive-by--that is less than the sales price.
Tanta | 05.28.08 - 9:16 am |
It's mostly the broker who is so harmed. When I bought in NJ about 5 years ago, there was considerable pressure from the broker to use one of their "preferred" appraisers and subtle threats to withdraw the offer if I used another. It's the brokers point of view being presented in the article (and many other articles for that matter).
I still dont get why a bank would even use a current drive by.... unless they decided to deduct off the top of the appraisal what the house would be worth in say six months...
I dont kno0w if i could lend on a current appraisal unless the sales price was way under.........
but its that kind of prudence from banks that opened up the whole broker market anyway i guess.....
MD owner writes:
McMansion? Looks a little small to me
Small and ugly, living in a low-price rural area I'm always blown away to see something like that sell for a mil. I'd call it a $250,000 house around here.
I still dont get why a bank would even use a current drive by.... unless they decided to deduct off the top of the appraisal what the house would be worth in say six months...
A "drive-by" is just a appraisal without an interior inspection of the property. The appraiser must actually see the property from the street and take pictures of it. It is less thorough than an interior-inspection appraisal, but much more thorough than an AVM, which is mostly what HELOC lenders used during the boom. So this is indeed "appraisal tightening."
Nobody gets appraisals that predict future prices. Lenders who are concerned about future prices set their LTV limits accordingly by changing the amount they will lend relative to today's appraised values, not by changing today's appraised values to match some prediction of the future.
That is the whole idea behind a "declining market" policy. If your appraisal shows that the value has declined recently, you require more downpayment. You don't "adjust" the appraised value to something less than today's value.
The appraisal that the town or county assessor does for tax purposes is different from the one an appraiser does for mortgage lending purposes.
The lending appraisal aims to establish a conservative fair market value based mainly on recent comps. But in a deteriorating market where fundamental assumptions change, the appraiser can make downward adjustments from comps.
The key line in the article is this:
"Says mortgage expert David Reed, "They're really looking closely at condos."
In a lot of markets, appraisers are making downward adjustments based on fundamental changes in condos.
Condos in these markets today aren't worth today what they were in the past. They might not be worth that much for a very long time.
Rather than shut off condo lending entirely, lenders can hire appraisers willing to make these fundamental downward adjustments, such as vast oversupply relative to demand.
Are we all looking at the same data for the same house? Google map has Selwyn Ave not rural at all; it's in Charlottes city limits in a nice area. But Zillow's Zestimate price chart is bizarre for 3314 Selwyn, and includes a $111,000 price change in 30 days. Did they build a major add-on to the house? I live 110 miles from Charlotte, and am not a NC native. IMO Charlotte is an odd RE market where typical southern over-building of homes, did not let demand get ahead enough of supply to cause much of a metro-wide median price boom. But there have boomlets in certain micro-markets & neighborhoods, while entire sub-divisions became flooded with foreclosures (especially Beazer's developments). Until 08, Metro Charlotte hadnt shown price declines like other C-S cities, now it is declining. If the 2 job powerhouses, BofA and Wachovia, accelerate their stealth lay-offs, Charlotte market will feel the pinch even more.
I see now, the home was remodeled in 2006. It was originally built in 1991 to 2,132 sq.ft, then the remodel took it to 5603 total sq.ft (3507 heated sq.ft) in 2006. Zillow's record reflects the old square footage, but has the remodeled date as the year built. I presume it was expanded backward, so from the front view, it still looks relatively modest.
In any event, I like that B1 is a fine art expert. She lectures about price fluctuation in thinly-traded assets.
The sense of entitlement! If some one is LENDING you the money - they need to be sure that you will pay them back....
Atrios observed the other day that a lot of people with HELOCs seem to have taken the view that they were not really borrowing money, they were selling a part of their home to the bank. In this view of the matter, the bank is supposed to be as honored to overpay for real estate as your average koolaid drinker.
true story--from the mid 70s. A secretary in our office (this was before personal assistants, much less executive assistants) was, with her husband, buying their first house. She was in the family way, as they used to say, and she was showing, and very nervous about going to the closing in her condition. So, she and her buddies were dressing her in loose frumpy clothes so that she would just look like a large woman and not pregnant. It was like something out of a sitcom. Anyway, it's the only time in my life that the right answer to the question "do I look pregnant or do I just look fat?" was "fat."
You know, in a lot of ways those were the bad old days. And the effect on the general economy of the housing cycle was far more drastic back then that it has been so far (though we still have time to catch up with this particular situation unfolds). The mechanisms were totally different, but rising interest rates tended to shut down lending when they ran into state usury law ceilings (remember those?) and that would stop homebuilding in its tracks.
"Google map has Selwyn Ave not rural at all; it's in Charlottes city limits in a nice area. "
Selwyn is in fact in a very nice area called Meyers Park. It probably had a build up in price due to all the northern bankers moving down to work at Wachovia and BofA. It's a 10 minute commute to downtown, has good public schools and a very nice house can be had for much less than anything moderate in the NY suburbs.
Here in FL, I looked at an appraisal last week that used something called "fair market value from the 2005-06 time frame". This despite a sales price on the comp. 25% lower from Feb. 2007. How can that be ethical? This fictitious number is from the Pinellas Co. property appraiser's website. I guess they are trying to mitigate hard feelings due to tax increases, I don't know.
Glenda:
Florida assessments are valued as of January 1st of each year, though the assessment notices are not sent out until 8-9 months later (usually late August depending on the County). This being the case, the latest tax assessment you will see is the one valuing property as of January 1, 2007. As the February 2007 comp falls after this date, it is not factored into the 2007 valuation. In a few months, the (January 1) 2008 notices will be sent out which factor in comps up to December 31, 2007.
Part of the reason for the delay between Jan 1 and mid-August is that agricultural (Greenbelt) exemptions are processed each spring.
For those of you interested in Florida real property parcel data here is a link to most of the appraiser, tax collector & court clerk offices:
If the overall price curve for condos is down in the area, then it is likely all the comps were old and the appraiser adjusted based on the trend. Comp prices from a year ago have little relationship to current prices in most areas of the US today.
A reasonable adjustment to old comps is to look at listing prices. If you have old comps, but current offerings at reduced prices (and no current sales), it's only rational to adjust the market price downward.
I found myself suspecting that the realtor's adamant refusal to have another appraisal was based not on her desire to save her client's money, but her suspicion that a less carefully chosen appraiser might have a different opinion on the price.
"The clearest resulting public analysis (the Wall Street houses presumably have their own internal versions) so far, was published at Calculated Risk, a blog devoted to the nitty gritty details of the housing meltdown."
...rising interest rates tended to shut down lending when they ran into state usury law ceilings (remember those?) and that would stop homebuilding in its tracks.
Still on the books I'd wager. They've just been rendered irrelevant by Marquette vs. First Omaha and the rise of interstate banking after the S&L crisis.
I thought banking was about a bank getting interest plus getting their money back.
As an oldtimer, I would think that banks would get back to the 3 Cs.
Credit, collateral, and capacity to carry the loan, and if they don't want to do that the regulators would require that.
The idea that a borrower doesn't have any skin in the game doesn't make sense to me unless the originator don't care if the loan is repaid as long as they get their fees.
Re: that silly ol' house in Charlotte, I can't find the bludy lake its s'posedly on either. Maybe just a really big mint julep? Lawn's looking a mite dry in the googlemap image too. Are we possibly dealing with addressing issues?
Because of the spike in fuel costs, airlines now lose roughly $60 on every round-trip passenger, a slow bleed that puts the industry on pace to lose $7.2 billion this year, the largest yearly loss ever
--what in the heck IS a fair appraisal these days? Apparently, appraisers must go by "tradition" in their market. If it's customary in their market for the RE sales commission to be included in the sales price-- that's OK. The appraiser appraises a house at 300K, knowing full well that 18K of that "value" is just 6% sales commission.
A critical problem now is how appraisers choose to handle "seller contributions". If it's now become "customary" in a given market for sellers to price say 4% as their expected closing cost assistance into their list price-- the appraisal is now up by 10%-- via 6% commission + 4% CCA.
Appraisers on that forum are ticked that major lenders won't provide hard & fast rules on this & leave the appraisers holding the bag-- to "disclose" CCA or not. (Also, it appears there is no "paper trail" available to appraisers to check if CCA was involved in any given sale-- they must call the particular realtor & ask.)
So-- any prudent buyer would be wise to find out how their local appraisers are handling this. And as Tanta & others have said, to be wary of any RE agent who advises against 2nd appraisals.
zuzu - I don't think you grasp the appraisal concept very well. You are really overcomplecating it. Appraisals have nothing to do with figuring out "how much" of a given purchase price was paid as commission, or subsidized by a third party, or whatever breakouts you seem to be concerned with.
An appraisal is simply an opinion of the current market value of an asset. What's so hard to understand about that?
Morning Edition, May 27, 2008 · Now that millions of people are facing foreclosure because they got into loans that never should have been approved, everybody's looking for someone to blame. Borrowers, or their brokers, lied on loan applications. Others got high interest rates they couldn't afford.
A big unanswered question is whether the Wall Street investment banks that were packaging these mortgages knew they were selling garbage loans to investors. A wave of litigation is starting against these firms. One former worker whose job was to catch bad loans says her supervisors covered them up."
Shnaps, I think the issue zuzu is talking about is the legitimate problem of deciding when seller contributions cross the line from "typical in a marketplace" to "sales inducements" or "creative financing" that have to affect the appraised value.
The issue is not that "sales commissions" are "included" in the price or not.
The issue is this: suppose that in a given market it is typical for sellers to pay up to 5% in closing costs & points for the buyer. That means, if it is truly typical, that every price in that market "includes" closing cost assistance, so they are all comparable prices.
But what if you had a specific deal where the seller had to pay 5% for closing costs plus another 3% for a decorating allowance plus two years' worth of HOA dues plus a flat screen TV? These "inducements to sale" are not typical in this market, and an appraiser may therefore need to adjust the comparable sales accordingly. If everyone else in your market can sell a similar home for $300K by paying $15K in closing costs, but you can sell your home for $300K only if you pay $30K in costs plus incentives, it is reasonable to conclude that your house isn't really worth $300K in that market--it is worth $285K.
If appraisers are "ticked" because lenders won't provide "hard and fast rules" for them on this subject, then they need to get out of the business. One hires a professional licensed RE appraiser so that one doesn't have to tell him or her how to do basic things like adjust for excess seller contributions. Crikey. They are the ones supposed to be giving a professional, informed opinion about what is or is not typical in that marketplace, not demanding that lenders do it for them.
In 1975 we did have cocaine in its pure form and pot.
I don't recall if my wife's future childbearing was questioned but when we bought a house in 1976, we could afford it on one wage-earner's income.
It was a smallish house by today's standards, 3B2B, but plenty big for a small and growing family, quiet neighborhood in walking distance to the elementary school. And safe enough that our first-grader could and did walk to school by himself.
This was downtown Riverside, Calif. for those of you who know how the Inland Empire has changed. If we still lived there, we would probably have bars on the windows and chain link fence around the property.
I've bought 2 homes and both times the appraisal came in for $500 more than the purchase price.
High enough for the loans but low enough to stick
PMI on the loans. I guess appraisers have to eat too.
I've bought 2 homes and both times the appraisal came in for $500 more than the purchase price.
High enough for the loans but low enough to stick
PMI on the loans. I guess appraisers have to eat too.
All lenders--even the go-go ones--calculate LTV for a purchase-money loan on the lesser of the sales price or the appraised value.
So your appraised value could come in at $500,000 or $50 over the sales price, and your LTV would be based on the sales price.
The only time an appraised value would "stick PMI on the loan" would be if it came in lower than the sales price.
Last June I was giving a lecture on the Equal Credit Opportunity Act in a Loan Originator Exam Prep course.
On the board, I wrote ECOA and one of the loan originators thought I was going to be talking about the e-coli virus. He had been originating for 5 years and had never heard of, or been trained on ECOA.
Riverside is a dump. It suffers from the same "name inflation" as many California cities. It's not beside a river, one can only dream of that.
At least you're not promoting Fairfax High. Being forced to attend that school is essentially legalized child abuse.
Oooh, "riverside!" Or, possibly, "Gardena." I bet that's next to a garden! I'm picturing acres and acres of hanging gardens, mist in the air, the hint of lilacs in the morning, tulips always in bloom! Fail. It's a dump.
What happens to the appraisal when all the new homes in a subdivision are being sold with a builder buy down of 2% on the rate ? and how does that affect the appraisal of a 2 year old home being sold by the underwater owner now that the builder has gone away?
The practice of allowing short term "buy down" rates or "seller assistance" seems like the perfect way to get inflated values that eventually blow up and destroy the naive buyer.
(search for "seller contributions"--you have to register, but they do allow general public)
Tanta & others-- thanks for being kind-- am way out of my league here!
But I echo your Crikey-- & that's why I went to the appraiser boards in the first place-- to check if what I'd "heard" here in Norfolk VA was factually true-- that a main reason median home prices here in the VA Beach/Norfolk MSA are still rising is pure "fudge factor"-- many local appraisers are not adjusting down for seller contributions, which of course skews the comps.
So I went to the appraiser forum, expecting a simple either "yes they do/no they don't" answer, thinking it would be a very well-settled point within the profession.
But from the debates there, the gist was that surprisingly, it isn't. Adjusting for seller contributions isn't "compulsory", but rests on that particular appraiser's interpretation of what is "tradition" in that market. So it can vary from individual appraiser to appraiser, within the same market.
Many appraisers complained about vague wording in their own guidelines-- 'if seller contributions occur in virtually all sales...'-- how do you quantify "virtually"??-- 51%?--99%?
There were also many complaints about the expanded crop of bubble-era appraisersRus newbie appraisers who don't know beans on how to treat this new-to-them CCA point.
The "geezer"-appraisers there were trying to tell the younguns they sure as hell should note CCA adjustments, if only on the "CYA" basis alone.
It was interesting reading. So I guess buyers should look carefully at their appraisals to see/ask if CCA's were adjusted for by that appraiser??
(& thank you to all here for this blog-- it's amazing.)
"Let me guess--he thought Reg B was a form of hepatitis?"
LOL. No, but he didn't believe me when I explained what it was like to get a loan from a bank before ECOA was passed. I had to call on older students in the audience to tell their own stories of being denied credit in the 1970s for various reasons.
Vodka's vodka, as has recently been shown by repeated studies at Businessweek magazine.
As we all know, it is "typical in the marketplace" to see lots of manufacturers offering rebates on booze. So, does that mean the "value" of a fifth of Absolut is $18.99 or the "after rebate" price" of $16.99?
I know I represent the minority view here, but I accept that $18.99 is the correct "appraised value" of said hooch, and those who chose to avail themselves of the rebate are in fact getting something of value/a discount.
Same goes for seller contributions. If the Absolut d00dz started proposing: hey - why dontcha pay us $28.99 and we'll give you a $12.00 rebate instead? Then guess what - there wouldn't be any sales. The market price would still be $18.99 since it would be based on sales of other brands (the "comps" would all be over on Grey Goose Lane).
So, does that mean the "value" of a fifth of Absolut is $18.99 or the "after rebate" price" of $16.99?
I know I represent the minority view here, but I accept that $18.99 is the correct "appraised value" of said hooch, and those who chose to avail themselves of the rebate are in fact getting something of value/a discount.
um.
These "inducements to sale" are not typical in this market, and an appraiser may therefore need to adjust the comparable sales accordingly. If everyone else in your market can sell a similar home for $300K by paying $15K in closing costs, but you can sell your home for $300K only if you pay $30K in costs plus incentives, it is reasonable to conclude that your house isn't really worth $300K in that market--it is worth $285K.
if you can sell grey goose in elitist Wisconsin at $18.99 with no rebate, but the only way to sell abolut at $18.99 is with a $2 rebate, the "value" of absolut isn't really $18.99, is it? URAR wrong again, Shnaps.
Late last year investors started to kick loans with excessive realtor fees and seller contributions. If your closer isn't checking the HUD for these items you too could be a bagholder
i don't think we're arguing the same point here; i seem to have misread your earlier comment.
i'll just quote Tanta again, since i'm lazy:
I think the issue zuzu is talking about is the legitimate problem of deciding when seller contributions cross the line from "typical in a marketplace" to "sales inducements" or "creative financing" that have to affect the appraised value.
The issue is not that "sales commissions" are "included" in the price or not.
and freddie:
Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions.
also:
elitist WI? Bacon, I know you've never been here, but please understand that Wendell Middlebrooks is about the closest thing we have to an aristocrat.
I wonder why I'm so fascinated by all the mortgage types arguing about things that are either over my head or way over my head.
My dream is to someday learn enough to tell which is which, i.e., got no idea or really got no clue.
oh, crap...I have to recalibrate my bd humor sensorz again.
I'm not trying to argue w/Freddie's policy. Let me put it another way - if the sales "inducements" are completely out of line (paying $30k in "closing costs"?!!?") or something that no lender would accept (a plazma TV/automobile/tanning bed is included on the agreement to purchase), then of course you can't factor that in for sales price on the PROPERTY.
On the other hand, 2 buck rebates are not worth trying to bake into market prices. You can't reasonably expect appraisers to ferret out every little "wink-nod,-you-keep-the-appliances-but-we-don't-put-that-on-the-contract", and "i'll-pay-for-the-second-appraisal-that-your-prick-lender-is-insisting upon" and whatever other de minimus seller concessions that may have occured on every individual comp they find.
Tanta's right on one thing - Zuzu mostly got me fired up with the notion of deducting for sales commissions.
Unsympathetic writes:
Riverside is a dump. It suffers from the same "name inflation" as many California cities. It's not beside a river, one can only dream of that.
Back in 1870 when the town was founded,, there was water in the Santa Anna river. And up until the 1980s, it was a very nice town, more so in some parts than others.
But the point of my previous comment was that, in spite of mediaeval underwriting practices, it was possible back in the 1970s, for a family to purchase shelter affordably on one income. I contast this to modern times, pre-housing buble, where two or more incomes are required to afford shelter.
It is obvious that the housing market will take a bigger price dip than it would have had better safeguards been in place. The fear and pessimism is as overblown as the greed and optimism was during 2005. Because the Achilles heel in the system turned out to be poorly regulated securitization, all the King's horses and all the King's men can't put the Humpty Dumpty mortgage pools back together again. They are shattered beyond repair... The assets and underlying collateral will now need to be liquidated at fire sale prices which will make some very rich and many, very poor I'm afraid.
No pain, no gain they say. Keep tightening and starve out those borrowers and lock out any working class who can't come up with 20% down. Right Rob Dawg and Tanta? They all deserve to be kicked when they are down, don't they? That is the effect, so it must be the intent right?
What's the use? I couldn't convince people that real estate was over valued back in 2005 either. It's just as futile as trying to convince people that the only thing to fear is fear itself. It didn't work in the 1930's and it doesn't work now.
I'm just gonna go and get some pieces of Humpty Dumpty at pennies on the dollar ....
Apologies for not wording the above clearly. The gist I got from the appraisers' internal debate on "adjusting for seller contributions" was that the apparent absence of a universal, clear "rule" on handling SC's "corrupts" the data & introduces uncertainty & inefficiency into the system for other users.
I muddied up the sales commission example badly--sorry! The point was, if all do X, all of the time, OK fine, & if none do X any of the time, equally fine. But if some do X, some of the time, and nobody following after knows for sure which/whom did what when, its a pain in the ass for all, forever.
How to best "fix" this, or even to resolve that it needs fixing, seems to be still up for grabs within the appraisers community.
When I use my cheap over-the-counter blood pressure meter to check BP, I take seven readings and record the median, knowing it's a fairly crude device.
GSE studies in the 1990's found that "at best" manual appraisals had sample standard errors on the order of 15-20% of the sample average. These were tests in which several appraisers were asked to submit appraisals on the same property independently of each other, and with no "purchase contract" price to go by.
My cheap BP meter is far more accurate than that.
Whether "manual underwrite" or AVM, our models of individual home prices are are quite imprecise in comparison with the finely grained distinctions between loans based on LTV found in underwriting matrices and MI Premium Rate tables (85, 90, 95, 97, 100). The main information content of LTV is its suggestion of the borrower's perceived equity - - their down payment. It really tells you much less about the relative magnitude of loan size to collateral value.
Blue Ridge guy-- wow-- that appraisers study is sure eyeopening.
And I wonder, if the appraisers all had been given a purchase price contract to work with, if the variances in their appraisals would have been by as much?
Am not knocking appraisers-- they have to walk their way through all the same moral/ethical dilemmas as the rest of us & they hafta eat too. I just remain surprised at how "interpretative" appraisals can be.
yes I know the horse is dead but I just read this ad in my paper today (Virginian Pilot 5/31/08 p.7)& had to post it as a real-life example of above.
"Judy Boone Realty, Inc. Norfolk VA
Buy a New Home--- Get a New Car!
Seller offers a new Volkswagon Beetle Convertible and a $10,000 Gas Card when you purchase one of the 4 homes pictured below. *Volkswagon Beetle Convertible & $10,000 gas card convey on full price offer & settlement on properties with car symbol only. Total value $35,000. Offer not redeemable for cash, good through 6/30/08. Some restrictions may apply."
OK, the 1st of these homes listing reads:
"East Ocean View Norfolk-- $899,900--
3107 Pretty Lake Ave. Fabulous new Construction w/view of Pretty Lake!"--followed by description, followed by the last line:
"Already appraised for much higher."
Lauri Brew 757-717-2109
Q#1-- gosh, d'ya suppose you hafta use their lender?
Q#2-- d'ya suppose the 'already appraised higher' mentioned hints at cash back at closing?
Q#3-- d'ya suppose the Norfolk Tax Assessors Office will ever know that $35,000 of the $899,900 sales price was Seller Contribution? and adjust their assessments of that area accordingly?
Q#4-- d'ya suppose if this dog sells, the local MLS will then report a $899,900 "sale", & then use that inflated-by-$35,000-Sales Price to pimp its claim that "Our market is different!!", & 'Sales prices are actually rising in the VA Beach/Norfolk area!!'
This shit makes me sick.
If this isn't fraud, it bloody well should be. Fraud on the lender, the mortgage insurer, the property tax payers of Norfolk, & probably all taxpayers somewhere down the line if this thing defaults.
Loose lending standards will return soon enough. Our economy can't function without stupid people borrowing too much to buy things that are too expensive.
A woman wants a home loan in Saudi Arabia (if she's born Muslim, forget about it.)
charlie-- I doubt it. Crazy lending like the past few years is really the exception. I remember Tanta's Equal Credit Opportunity Act well. Until it passed we wouldn't have been able to qualify for our first house. In 2000 I bought for the second time in my life, with my second husband. The idea of not counting a wife's salary was a distant memory, but otherwise the qualification criteria weren't much different.
1975? That is complete fiction (and seemingly a bit arbitrary).
IMHO the bid by the prostpective buyer establishes what the greatest fool is willing to pay. The appraisal is supposed to be an estimate of what the second greatest fool is willing to pay.
I doubt we ever go back to old time 1995 level lending requirements. I bought a house in 1995 and needed virtually every tax record I ever had. In 2000 it was 2 years of taxes and 3 months of bank statements even with 20% down. I refinanced in 2003 all I needed was a current paystub. Of course in 2003 we had over 50% equity and we were converting to a 15 year note at least that was my thought. Now I realize it was that pulse thingy that got us through.
Well, it isn't.
It is helping them buy... I'm sort of counting on that, myself.
Down payments? Reasonable FICOs? Corroborated appraisals? Reasonable DTIs?
Such quaint notions.
Time to invest in buggy whips? Hmmm... given gas prices, that might be a two-fer.
Yeah, given the "no way" comment, one wonders if Mz. O'Keefe is another Shoebox-Greeting-Card-vendor/Realtor.
Additionally, I too pale at the prospect of spending several hundreds of thousands of dollars without even the notion of investing several hundreds on a second opinion.
What is "mailbox money?"
What Mal asks...
Malaclypse writes:
What is "mailbox money?"
Though I wasn't born yesterday, I had to look up 1975 mortgage underwriting and "mailbox money".
How can someone gain passive income on a declining market is beyond me (even though Dallas gained 1%, it's already starting to decline from a recent Dallas News article).
mailbox money = rent from a renter?
I like that buy/rent calculator.
It shows that break even in my area is... never So much for the turn around being soon.
Got Popcorn?
Neil
Mailbox Money
a.k.a. Passive income.
"Mailbox money" = Git rich kwik scheme in which you do nothing and money just shows up in your mailbox.
Don't Google it unless your anti-virus protection is up to date and running in the background.
It is part of what is so pathetic about this essay that the term "mailbox money" is used without irony.
Here in FL, I looked at an appraisal last week that used something called "fair market value from the 2005-06 time frame". This despite a sales price on the comp. 25% lower from Feb. 2007. How can that be ethical? This fictitious number is from the Pinellas Co. property appraiser's website. I guess they are trying to mitigate hard feelings due to tax increases, I don't know.
Thanks.
With unabashed self-horn-tooting, I believe it was I who actually "did a bit of looking in the county real estate records".
I still don't disagree with the general sentiment against Dr. Lipton, but I think we proved the "BPO" was about useless. And aren't tax assessments notoriously inaccurate - higher than actual values in declining neighborhoods and lower than actual values in 'good' neighborhoods? That has been my experience.
So who hired the first appraiser? The bank said "we hired Bob's Kwik-E Appraisal Services but it came in at a suspiciously round number"?
Were I the bank I wouldn't use any appraiser but one I trusted (certainly not the broker's choice), and were I the buyer I sure wouldn't want to pay twice for an appraisal because the bank didn't like the answer they got from their first choice.
Of course when the deal's about to go South it's all about who blinks first, and maybe I don't understand who picked the initial appraiser...
With unabashed self-horn-tooting, I believe it was I who actually "did a bit of looking in the county real estate records".
I just looked this morning, dear one. It appears that the 2008 assessment is not online yet.
I can't agree that the BPO was useless. It simply was not used for the purpose it should have been--to negotiate a lower price.
What all these stories share is the underlying assumption that a borrower/buyer is somehow "harmed" by any valuation--appraisal, BPO, drive-by--that is less than the sales price.
Man, I loves me an anecdote.
It's fun to make stuff up and then look for corroborating evidence in a sample size of over 200 million Americans!
(It's not valid, not scientific, and not statistically meaningful, but hey! Who ever let that stand between a storyteller and a ripping good yarn?)
Thanks, Tanta!
No offense to the ladies, but if you want to count someone's income, you should have a model that takes into account the probability of it continuing. If not, then you get into an Alt-A situation.
Old timers should be hit as well. A 60 year old is going to lose that current income stream shortly.
Capitalism should be mean.
Tanta writes:
"Mailbox money" = Git rich kwik scheme in which you do nothing and money just shows up in your mailbox.
And here I thought all along she was talking about GWB's stimulus checks? It shows up in your mailbox, right?
And aren't tax assessments notoriously inaccurate - higher than actual values in declining neighborhoods and lower than actual values in 'good' neighborhoods? That has been my experience.
Assessed values are based on recent nearby comparable sales, and any construction/demolition permits pulled on the property in question. Add to (or subtract from) that for various exemptions. A good property appraiser's office will do a physical check every 1-3 years. In many areas those visual checks are being backstopped by aerial photography.
Assessed property value is typically 'dampened' from the actual activity in the neighborhood. A recent transaction involving the property in question trumps the dampening. Assessed values do not usually reflect bid/ask numbers.
I'm confused. Didn't O'Keefe's second client violate the terms of her first mortgage agreement by using the townhouse as a rental?
So who hired the first appraiser? The bank said "we hired Bob's Kwik-E Appraisal Services but it came in at a suspiciously round number"?
It doesn't have to be a case of Bob's Kwik-E Appraisal Services.
It could very easily have been the case that there were so few sales in the neighborhood at the time the appraisal was done that all the comps were old. Even a good appraiser can't use sales that didn't happen. So the bank wants an independent second opinion to make sure that these are the best comps available.
The message that the prospective buyers should be getting is that values are hard to determine in the case of this transaction. That is something they should be glad to learn. They can continue with the transaction if they want to, but I still don't see why they feel "ripped off" here. They would rather take the opinion of a salesperson who will be making a commission on the deal?
Last summer we had four appraisals of our home, due to a job transfer. Also one when we bought it less than a year earlier, and then of course our buyers had yet another. It was hard to believe that some of them went to the right house! I cannot imagine a bank NOT requiring a second opinion...
I'm confused. Didn't O'Keefe's second client violate the terms of her first mortgage agreement by using the townhouse as a rental?
Not necessarily. Standard mortgages and deeds of trust require you to occupy the property within 60 days of closing if you declare "principal residence" on the mortgage application. They do not require you to occupy it forever. It would come down to how long she's owned the property, and it sounds like at least a year. That's good enough. Where the lender can get you is the case where you never did move in before you rented out the property.
You can convert your former residence into a rental property and buy a new principal residence; that's common enough. But cashing it out with a HELOC before you do so? Uh, not so much. One assumes that the lady wanted the cash out of the townhouse in order to make the downpayment on the new home. I'm frankly surprised she got a bank interested enough in her application to even bother getting a drive-by. And anyone who thinks that anyone is going to make any loan at any time on any property with a year-old appraisal right now is a fruitcake. But this classy Dallas relitter apparently thought it made sense.
We have, of course, heard plenty of (unconfirmed) stories of people upside down on the loans wanting to buy a now-cheaper house while they still have these pretty credit scores and then "walking away" from the original home. I dunno how much fact is swirling around those stories. I suspect, though, that people who are buying and claiming that they are going to rent out their existing home are being subject to much greater scrutiny now than they would normally. Quelle surpise.
Self-horn-tooting never really works out, I should have held back.
You and I did discuss this very case in May 2007, and I pointed you the tax assessor website.... HaloScan.com - Comments
Watermelons, iced tea, wrap around porches, guy in a fancy suit in VA somewhere - 'member?
Fair point on the BPO - not completely useless, but useless for the purposes stated in the WSJ article.
Watermelons, iced tea, wrap around porches, guy in a fancy suit in VA somewhere - 'member?
Yeah, except I looked at the picture from the assessor's office and it looks like your basic McMansion to me. Not a veranda or a mint julep in sight.
Link:
PropertyPhoto
What all these stories share is the underlying assumption that a borrower/buyer is somehow "harmed" by any valuation--appraisal, BPO, drive-by--that is less than the sales price.
Tanta | 05.28.08 - 9:16 am |
It's mostly the broker who is so harmed. When I bought in NJ about 5 years ago, there was considerable pressure from the broker to use one of their "preferred" appraisers and subtle threats to withdraw the offer if I used another. It's the brokers point of view being presented in the article (and many other articles for that matter).
McMansion? Looks a little small to me
I still dont get why a bank would even use a current drive by.... unless they decided to deduct off the top of the appraisal what the house would be worth in say six months...
I dont kno0w if i could lend on a current appraisal unless the sales price was way under.........
but its that kind of prudence from banks that opened up the whole broker market anyway i guess.....
A run-of-the-mill viewpoint gets perpetuated, but a really obnoxious one gets perpetrated!
An accurate appraisal helps keep you from ending up as the bagholder. Today's current bagholders are looking for a way around this.
Last year there was a secondary investor that wouldn't buy any loans where a particular LLC was the seller.
What is with this place in Charlotte? I didn't see that mentioned in either article?
Whatever the deal is, it looks like zillow's model took it hook, line & sinker - look at the price chart. Zoinks!
MD owner writes:
McMansion? Looks a little small to me
Small and ugly, living in a low-price rural area I'm always blown away to see something like that sell for a mil. I'd call it a $250,000 house around here.
I still dont get why a bank would even use a current drive by.... unless they decided to deduct off the top of the appraisal what the house would be worth in say six months...
That is the whole idea behind a "declining market" policy. If your appraisal shows that the value has declined recently, you require more downpayment. You don't "adjust" the appraised value to something less than today's value.
What is with this place in Charlotte? I didn't see that mentioned in either article?
That's the property mentioned in the WSJ article from last year.
There's lots of confusion about appraisals.
The appraisal that the town or county assessor does for tax purposes is different from the one an appraiser does for mortgage lending purposes.
The lending appraisal aims to establish a conservative fair market value based mainly on recent comps. But in a deteriorating market where fundamental assumptions change, the appraiser can make downward adjustments from comps.
The key line in the article is this:
"Says mortgage expert David Reed, "They're really looking closely at condos."
In a lot of markets, appraisers are making downward adjustments based on fundamental changes in condos.
Condos in these markets today aren't worth today what they were in the past. They might not be worth that much for a very long time.
Rather than shut off condo lending entirely, lenders can hire appraisers willing to make these fundamental downward adjustments, such as vast oversupply relative to demand.
A price chart like that is pretty worthless for a property that was only built in 2006.
Are we all looking at the same data for the same house? Google map has Selwyn Ave not rural at all; it's in Charlottes city limits in a nice area. But Zillow's Zestimate price chart is bizarre for 3314 Selwyn, and includes a $111,000 price change in 30 days. Did they build a major add-on to the house? I live 110 miles from Charlotte, and am not a NC native. IMO Charlotte is an odd RE market where typical southern over-building of homes, did not let demand get ahead enough of supply to cause much of a metro-wide median price boom. But there have boomlets in certain micro-markets & neighborhoods, while entire sub-divisions became flooded with foreclosures (especially Beazer's developments). Until 08, Metro Charlotte hadnt shown price declines like other C-S cities, now it is declining. If the 2 job powerhouses, BofA and Wachovia, accelerate their stealth lay-offs, Charlotte market will feel the pinch even more.
Getting a Mortgage is not asking your parents for milk money!
The sense of entitlement! If some one is LENDING you the money - they need to be sure that you will pay them back....
Time is here to hold the Realtors accountable just as we do with financial advisors.
I see now, the home was remodeled in 2006. It was originally built in 1991 to 2,132 sq.ft, then the remodel took it to 5603 total sq.ft (3507 heated sq.ft) in 2006. Zillow's record reflects the old square footage, but has the remodeled date as the year built. I presume it was expanded backward, so from the front view, it still looks relatively modest.
In any event, I like that B1 is a fine art expert. She lectures about price fluctuation in thinly-traded assets.
crazy! turning back the clock to 1975! pretty soon everyone will be snorting cocaine and every neighborhood will have their own crack house!
The sense of entitlement! If some one is LENDING you the money - they need to be sure that you will pay them back....
Atrios observed the other day that a lot of people with HELOCs seem to have taken the view that they were not really borrowing money, they were selling a part of their home to the bank. In this view of the matter, the bank is supposed to be as honored to overpay for real estate as your average koolaid drinker.
It's an interesting thought.
true story--from the mid 70s. A secretary in our office (this was before personal assistants, much less executive assistants) was, with her husband, buying their first house. She was in the family way, as they used to say, and she was showing, and very nervous about going to the closing in her condition. So, she and her buddies were dressing her in loose frumpy clothes so that she would just look like a large woman and not pregnant. It was like something out of a sitcom. Anyway, it's the only time in my life that the right answer to the question "do I look pregnant or do I just look fat?" was "fat."
You know, in a lot of ways those were the bad old days. And the effect on the general economy of the housing cycle was far more drastic back then that it has been so far (though we still have time to catch up with this particular situation unfolds). The mechanisms were totally different, but rising interest rates tended to shut down lending when they ran into state usury law ceilings (remember those?) and that would stop homebuilding in its tracks.
what simian said - capitalism should be mean - if it isn't, it ain't (capitalism that is)
energyecon writes:
what simian said - capitalism should be mean - if it isn't, it ain't (capitalism that is)
energyecon | 05.28.08 - 10:43 am | #
Only with my money.
What is "mailbox money?"
So it's not like jukebox money?
Jennson, there was no crack in 1975.
"Google map has Selwyn Ave not rural at all; it's in Charlottes city limits in a nice area. "
Selwyn is in fact in a very nice area called Meyers Park. It probably had a build up in price due to all the northern bankers moving down to work at Wachovia and BofA. It's a 10 minute commute to downtown, has good public schools and a very nice house can be had for much less than anything moderate in the NY suburbs.
Here in FL, I looked at an appraisal last week that used something called "fair market value from the 2005-06 time frame". This despite a sales price on the comp. 25% lower from Feb. 2007. How can that be ethical? This fictitious number is from the Pinellas Co. property appraiser's website. I guess they are trying to mitigate hard feelings due to tax increases, I don't know.
Glenda:
Florida assessments are valued as of January 1st of each year, though the assessment notices are not sent out until 8-9 months later (usually late August depending on the County). This being the case, the latest tax assessment you will see is the one valuing property as of January 1, 2007. As the February 2007 comp falls after this date, it is not factored into the 2007 valuation. In a few months, the (January 1) 2008 notices will be sent out which factor in comps up to December 31, 2007.
Part of the reason for the delay between Jan 1 and mid-August is that agricultural (Greenbelt) exemptions are processed each spring.
For those of you interested in Florida real property parcel data here is a link to most of the appraiser, tax collector & court clerk offices:
404 Not Found
I work for a mining company in Jacksonville and use this link constantly.
What a completely bizarre article.
If the overall price curve for condos is down in the area, then it is likely all the comps were old and the appraiser adjusted based on the trend. Comp prices from a year ago have little relationship to current prices in most areas of the US today.
A reasonable adjustment to old comps is to look at listing prices. If you have old comps, but current offerings at reduced prices (and no current sales), it's only rational to adjust the market price downward.
I found myself suspecting that the realtor's adamant refusal to have another appraisal was based not on her desire to save her client's money, but her suspicion that a less carefully chosen appraiser might have a different opinion on the price.
From down under:
"The clearest resulting public analysis (the Wall Street houses presumably have their own internal versions) so far, was published at Calculated Risk, a blog devoted to the nitty gritty details of the housing meltdown."
House of horrors: inventory figures show US crisis likely to get even worse | The Australian
...rising interest rates tended to shut down lending when they ran into state usury law ceilings (remember those?) and that would stop homebuilding in its tracks.
Still on the books I'd wager. They've just been rendered irrelevant by Marquette vs. First Omaha and the rise of interstate banking after the S&L crisis.
Gotta say, I love the title of the article: Banks Choke Housing Sales. LOL!
..And of course today's brokers seem to think that a return to 7-8% rates for price conforming customers constitutes evidence of Ragnarok.
I thought banking was about a bank getting interest plus getting their money back.
As an oldtimer, I would think that banks would get back to the 3 Cs.
Credit, collateral, and capacity to carry the loan, and if they don't want to do that the regulators would require that.
The idea that a borrower doesn't have any skin in the game doesn't make sense to me unless the originator don't care if the loan is repaid as long as they get their fees.
Re: that silly ol' house in Charlotte, I can't find the bludy lake its s'posedly on either. Maybe just a really big mint julep? Lawn's looking a mite dry in the googlemap image too. Are we possibly dealing with addressing issues?
The GOP is on the case, screwing borrowers and keeping lenders happy.
Because of the spike in fuel costs, airlines now lose roughly $60 on every round-trip passenger, a slow bleed that puts the industry on pace to lose $7.2 billion this year, the largest yearly loss ever
Expired
have spent some time recently on Appraisers Forum - Real Estate Appraisal Forums
--what in the heck IS a fair appraisal these days? Apparently, appraisers must go by "tradition" in their market. If it's customary in their market for the RE sales commission to be included in the sales price-- that's OK. The appraiser appraises a house at 300K, knowing full well that 18K of that "value" is just 6% sales commission.
A critical problem now is how appraisers choose to handle "seller contributions". If it's now become "customary" in a given market for sellers to price say 4% as their expected closing cost assistance into their list price-- the appraisal is now up by 10%-- via 6% commission + 4% CCA.
Appraisers on that forum are ticked that major lenders won't provide hard & fast rules on this & leave the appraisers holding the bag-- to "disclose" CCA or not. (Also, it appears there is no "paper trail" available to appraisers to check if CCA was involved in any given sale-- they must call the particular realtor & ask.)
So-- any prudent buyer would be wise to find out how their local appraisers are handling this. And as Tanta & others have said, to be wary of any RE agent who advises against 2nd appraisals.
zuzu - I don't think you grasp the appraisal concept very well. You are really overcomplecating it. Appraisals have nothing to do with figuring out "how much" of a given purchase price was paid as commission, or subsidized by a third party, or whatever breakouts you seem to be concerned with.
An appraisal is simply an opinion of the current market value of an asset. What's so hard to understand about that?
..And of course today's brokers seem to think that a return to 7-8% rates for price conforming customers constitutes evidence of Ragnarok.
You would too, if Fenris was at your door.
zuzu's petals this is incorrect. Excessive or undisclosed seller contributions should stop your loan from closing.
Shnaps - it darn well affects the comps!
One for Tanta:
Auditor: Supervisors Covered Up Risky Loans : NPR
"Auditor: Supervisors Covered Up Risky Loans
by Chris Arnold
Listen Now [6 min 35 sec] add to playlist
Morning Edition, May 27, 2008 · Now that millions of people are facing foreclosure because they got into loans that never should have been approved, everybody's looking for someone to blame. Borrowers, or their brokers, lied on loan applications. Others got high interest rates they couldn't afford.
A big unanswered question is whether the Wall Street investment banks that were packaging these mortgages knew they were selling garbage loans to investors. A wave of litigation is starting against these firms. One former worker whose job was to catch bad loans says her supervisors covered them up."
Shnaps, I think the issue zuzu is talking about is the legitimate problem of deciding when seller contributions cross the line from "typical in a marketplace" to "sales inducements" or "creative financing" that have to affect the appraised value.
The issue is not that "sales commissions" are "included" in the price or not.
The issue is this: suppose that in a given market it is typical for sellers to pay up to 5% in closing costs & points for the buyer. That means, if it is truly typical, that every price in that market "includes" closing cost assistance, so they are all comparable prices.
But what if you had a specific deal where the seller had to pay 5% for closing costs plus another 3% for a decorating allowance plus two years' worth of HOA dues plus a flat screen TV? These "inducements to sale" are not typical in this market, and an appraiser may therefore need to adjust the comparable sales accordingly. If everyone else in your market can sell a similar home for $300K by paying $15K in closing costs, but you can sell your home for $300K only if you pay $30K in costs plus incentives, it is reasonable to conclude that your house isn't really worth $300K in that market--it is worth $285K.
If appraisers are "ticked" because lenders won't provide "hard and fast rules" for them on this subject, then they need to get out of the business. One hires a professional licensed RE appraiser so that one doesn't have to tell him or her how to do basic things like adjust for excess seller contributions. Crikey. They are the ones supposed to be giving a professional, informed opinion about what is or is not typical in that marketplace, not demanding that lenders do it for them.
shtove, I posted on that yesterday.
In 1975 we did have cocaine in its pure form and pot.
I don't recall if my wife's future childbearing was questioned but when we bought a house in 1976, we could afford it on one wage-earner's income.
It was a smallish house by today's standards, 3B2B, but plenty big for a small and growing family, quiet neighborhood in walking distance to the elementary school. And safe enough that our first-grader could and did walk to school by himself.
This was downtown Riverside, Calif. for those of you who know how the Inland Empire has changed. If we still lived there, we would probably have bars on the windows and chain link fence around the property.
I've bought 2 homes and both times the appraisal came in for $500 more than the purchase price.
High enough for the loans but low enough to stick
PMI on the loans. I guess appraisers have to eat too.
I've bought 2 homes and both times the appraisal came in for $500 more than the purchase price.
High enough for the loans but low enough to stick
PMI on the loans. I guess appraisers have to eat too.
All lenders--even the go-go ones--calculate LTV for a purchase-money loan on the lesser of the sales price or the appraised value.
So your appraised value could come in at $500,000 or $50 over the sales price, and your LTV would be based on the sales price.
The only time an appraised value would "stick PMI on the loan" would be if it came in lower than the sales price.
Last June I was giving a lecture on the Equal Credit Opportunity Act in a Loan Originator Exam Prep course.
On the board, I wrote ECOA and one of the loan originators thought I was going to be talking about the e-coli virus. He had been originating for 5 years and had never heard of, or been trained on ECOA.
Riverside is a dump. It suffers from the same "name inflation" as many California cities. It's not beside a river, one can only dream of that.
At least you're not promoting Fairfax High. Being forced to attend that school is essentially legalized child abuse.
Oooh, "riverside!" Or, possibly, "Gardena." I bet that's next to a garden! I'm picturing acres and acres of hanging gardens, mist in the air, the hint of lilacs in the morning, tulips always in bloom! Fail. It's a dump.
On the board, I wrote ECOA and one of the loan originators thought I was going to be talking about the e-coli virus.
Let me guess--he thought Reg B was a form of hepatitis?
What happens to the appraisal when all the new homes in a subdivision are being sold with a builder buy down of 2% on the rate ? and how does that affect the appraisal of a 2 year old home being sold by the underwater owner now that the builder has gone away?
The practice of allowing short term "buy down" rates or "seller assistance" seems like the perfect way to get inflated values that eventually blow up and destroy the naive buyer.
Appraisers Forum - Real Estate Appraisal Forums
(search for "seller contributions"--you have to register, but they do allow general public)
Tanta & others-- thanks for being kind-- am way out of my league here!
But I echo your Crikey-- & that's why I went to the appraiser boards in the first place-- to check if what I'd "heard" here in Norfolk VA was factually true-- that a main reason median home prices here in the VA Beach/Norfolk MSA are still rising is pure "fudge factor"-- many local appraisers are not adjusting down for seller contributions, which of course skews the comps.
So I went to the appraiser forum, expecting a simple either "yes they do/no they don't" answer, thinking it would be a very well-settled point within the profession.
But from the debates there, the gist was that surprisingly, it isn't. Adjusting for seller contributions isn't "compulsory", but rests on that particular appraiser's interpretation of what is "tradition" in that market. So it can vary from individual appraiser to appraiser, within the same market.
Many appraisers complained about vague wording in their own guidelines-- 'if seller contributions occur in virtually all sales...'-- how do you quantify "virtually"??-- 51%?--99%?
There were also many complaints about the expanded crop of bubble-era appraisersRus newbie appraisers who don't know beans on how to treat this new-to-them CCA point.
The "geezer"-appraisers there were trying to tell the younguns they sure as hell should note CCA adjustments, if only on the "CYA" basis alone.
It was interesting reading. So I guess buyers should look carefully at their appraisals to see/ask if CCA's were adjusted for by that appraiser??
(& thank you to all here for this blog-- it's amazing.)
"Let me guess--he thought Reg B was a form of hepatitis?"
LOL. No, but he didn't believe me when I explained what it was like to get a loan from a bank before ECOA was passed. I had to call on older students in the audience to tell their own stories of being denied credit in the 1970s for various reasons.
Vodka's vodka, as has recently been shown by repeated studies at Businessweek magazine.
As we all know, it is "typical in the marketplace" to see lots of manufacturers offering rebates on booze. So, does that mean the "value" of a fifth of Absolut is $18.99 or the "after rebate" price" of $16.99?
I know I represent the minority view here, but I accept that $18.99 is the correct "appraised value" of said hooch, and those who chose to avail themselves of the rebate are in fact getting something of value/a discount.
Same goes for seller contributions. If the Absolut d00dz started proposing: hey - why dontcha pay us $28.99 and we'll give you a $12.00 rebate instead? Then guess what - there wouldn't be any sales. The market price would still be $18.99 since it would be based on sales of other brands (the "comps" would all be over on Grey Goose Lane).
So, does that mean the "value" of a fifth of Absolut is $18.99 or the "after rebate" price" of $16.99?
I know I represent the minority view here, but I accept that $18.99 is the correct "appraised value" of said hooch, and those who chose to avail themselves of the rebate are in fact getting something of value/a discount.
um.
These "inducements to sale" are not typical in this market, and an appraiser may therefore need to adjust the comparable sales accordingly. If everyone else in your market can sell a similar home for $300K by paying $15K in closing costs, but you can sell your home for $300K only if you pay $30K in costs plus incentives, it is reasonable to conclude that your house isn't really worth $300K in that market--it is worth $285K.
if you can sell grey goose in elitist Wisconsin at $18.99 with no rebate, but the only way to sell abolut at $18.99 is with a $2 rebate, the "value" of absolut isn't really $18.99, is it? URAR wrong again, Shnaps.
Late last year investors started to kick loans with excessive realtor fees and seller contributions. If your closer isn't checking the HUD for these items you too could be a bagholder
the only way to sell abolut at $18.99 is with a $2 rebate, the "value" of absolut isn't really $18.99, is it?
Without a sale, there is no comp.
elitist WI? Bacon, I know you've never been here, but please understand that Wendell Middlebrooks is about the closest thing we have to an aristocrat.
Without a sale, there is no comp.
i don't think we're arguing the same point here; i seem to have misread your earlier comment.
i'll just quote Tanta again, since i'm lazy:
I think the issue zuzu is talking about is the legitimate problem of deciding when seller contributions cross the line from "typical in a marketplace" to "sales inducements" or "creative financing" that have to affect the appraised value.
The issue is not that "sales commissions" are "included" in the price or not.
and freddie:
Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions.
also:
elitist WI? Bacon, I know you've never been here, but please understand that Wendell Middlebrooks is about the closest thing we have to an aristocrat.
sigh.
I wonder why I'm so fascinated by all the mortgage types arguing about things that are either over my head or way over my head.
My dream is to someday learn enough to tell which is which, i.e., got no idea or really got no clue.
oh, crap...I have to recalibrate my bd humor sensorz again.
I'm not trying to argue w/Freddie's policy. Let me put it another way - if the sales "inducements" are completely out of line (paying $30k in "closing costs"?!!?") or something that no lender would accept (a plazma TV/automobile/tanning bed is included on the agreement to purchase), then of course you can't factor that in for sales price on the PROPERTY.
On the other hand, 2 buck rebates are not worth trying to bake into market prices. You can't reasonably expect appraisers to ferret out every little "wink-nod,-you-keep-the-appliances-but-we-don't-put-that-on-the-contract", and "i'll-pay-for-the-second-appraisal-that-your-prick-lender-is-insisting upon" and whatever other de minimus seller concessions that may have occured on every individual comp they find.
Tanta's right on one thing - Zuzu mostly got me fired up with the notion of deducting for sales commissions.
Unsympathetic writes:
Riverside is a dump. It suffers from the same "name inflation" as many California cities. It's not beside a river, one can only dream of that.
Back in 1870 when the town was founded,, there was water in the Santa Anna river. And up until the 1980s, it was a very nice town, more so in some parts than others.
But the point of my previous comment was that, in spite of mediaeval underwriting practices, it was possible back in the 1970s, for a family to purchase shelter affordably on one income. I contast this to modern times, pre-housing buble, where two or more incomes are required to afford shelter.
Lava lamps are from the 60's aren't they?
It is obvious that the housing market will take a bigger price dip than it would have had better safeguards been in place. The fear and pessimism is as overblown as the greed and optimism was during 2005. Because the Achilles heel in the system turned out to be poorly regulated securitization, all the King's horses and all the King's men can't put the Humpty Dumpty mortgage pools back together again. They are shattered beyond repair... The assets and underlying collateral will now need to be liquidated at fire sale prices which will make some very rich and many, very poor I'm afraid.
No pain, no gain they say. Keep tightening and starve out those borrowers and lock out any working class who can't come up with 20% down. Right Rob Dawg and Tanta? They all deserve to be kicked when they are down, don't they? That is the effect, so it must be the intent right?
What's the use? I couldn't convince people that real estate was over valued back in 2005 either. It's just as futile as trying to convince people that the only thing to fear is fear itself. It didn't work in the 1930's and it doesn't work now.
I'm just gonna go and get some pieces of Humpty Dumpty at pennies on the dollar ....
Apologies for not wording the above clearly. The gist I got from the appraisers' internal debate on "adjusting for seller contributions" was that the apparent absence of a universal, clear "rule" on handling SC's "corrupts" the data & introduces uncertainty & inefficiency into the system for other users.
I muddied up the sales commission example badly--sorry! The point was, if all do X, all of the time, OK fine, & if none do X any of the time, equally fine. But if some do X, some of the time, and nobody following after knows for sure which/whom did what when, its a pain in the ass for all, forever.
How to best "fix" this, or even to resolve that it needs fixing, seems to be still up for grabs within the appraisers community.
When I use my cheap over-the-counter blood pressure meter to check BP, I take seven readings and record the median, knowing it's a fairly crude device.
GSE studies in the 1990's found that "at best" manual appraisals had sample standard errors on the order of 15-20% of the sample average. These were tests in which several appraisers were asked to submit appraisals on the same property independently of each other, and with no "purchase contract" price to go by.
My cheap BP meter is far more accurate than that.
Whether "manual underwrite" or AVM, our models of individual home prices are are quite imprecise in comparison with the finely grained distinctions between loans based on LTV found in underwriting matrices and MI Premium Rate tables (85, 90, 95, 97, 100). The main information content of LTV is its suggestion of the borrower's perceived equity - - their down payment. It really tells you much less about the relative magnitude of loan size to collateral value.
Blue Ridge guy-- wow-- that appraisers study is sure eyeopening.
And I wonder, if the appraisers all had been given a purchase price contract to work with, if the variances in their appraisals would have been by as much?
Am not knocking appraisers-- they have to walk their way through all the same moral/ethical dilemmas as the rest of us & they hafta eat too. I just remain surprised at how "interpretative" appraisals can be.
yes I know the horse is dead but I just read this ad in my paper today (Virginian Pilot 5/31/08 p.7)& had to post it as a real-life example of above.
"Judy Boone Realty, Inc. Norfolk VA
Buy a New Home--- Get a New Car!
Seller offers a new Volkswagon Beetle Convertible and a $10,000 Gas Card when you purchase one of the 4 homes pictured below. *Volkswagon Beetle Convertible & $10,000 gas card convey on full price offer & settlement on properties with car symbol only. Total value $35,000. Offer not redeemable for cash, good through 6/30/08. Some restrictions may apply."
OK, the 1st of these homes listing reads:
"East Ocean View Norfolk-- $899,900--
3107 Pretty Lake Ave. Fabulous new Construction w/view of Pretty Lake!"--followed by description, followed by the last line:
"Already appraised for much higher."
Lauri Brew 757-717-2109
Q#1-- gosh, d'ya suppose you hafta use their lender?
Q#2-- d'ya suppose the 'already appraised higher' mentioned hints at cash back at closing?
Q#3-- d'ya suppose the Norfolk Tax Assessors Office will ever know that $35,000 of the $899,900 sales price was Seller Contribution? and adjust their assessments of that area accordingly?
Q#4-- d'ya suppose if this dog sells, the local MLS will then report a $899,900 "sale", & then use that inflated-by-$35,000-Sales Price to pimp its claim that "Our market is different!!", & 'Sales prices are actually rising in the VA Beach/Norfolk area!!'
This shit makes me sick.
If this isn't fraud, it bloody well should be. Fraud on the lender, the mortgage insurer, the property tax payers of Norfolk, & probably all taxpayers somewhere down the line if this thing defaults.