NAR on Existing Home Sales and Low Ball Appraisals

The National Association of Realtors is out with their monthly report. Overall sales rose but less than expected. Their take on things was upbeat.

Here are the details:

Single-family home sales rose 1.9 percent to a seasonally adjusted annual rate of 4.25 million in May from a pace of 4.17 million in April, but are 3.0 percent below the 4.38 million-unit level in May 2008. The median existing single-family home price was $172,900 in May, down 16.1 percent from a year ago.

Existing condominium and co-op sales increased 6.1 percent to a seasonally adjusted annual rate of 520,000 units in May from 490,000 in April, but are 8.9 percent below the 571,000-unit level in May 2008. The median existing condo price⁴ was $173,800 in May, down 21.9 percent from a year earlier.

Regionally, existing-home sales in the Northeast rose 3.9 percent to an annual level of 800,000 in May, but are 10.1 percent below a year ago. The median price in the Northeast was $243,600, which is 12.5 percent below May 2008.

Existing-home sales in the Midwest jumped 9.0 percent in May to a pace of 1.09 million but are 4.4 percent below May 2008. The median price in the Midwest was $145,800, which is 10.4 percent lower than a year ago.

In the South, existing-home sales were unchanged at an annual pace of 1.74 million in May but are 8.9 percent below a year ago. The median price in the South was $157,400, down 9.9 percent from May 2008.

Existing-home sales in the West slipped 0.9 percent to an annual rate of 1.14 million in May, but are 11.8 percent higher than May 2008. The median price in the West was $197,700, down 30.6 percent from a year ago.

As usual, I recommend that you go to Calculated Risk for an in-depth analysis of these numbers. That’s who I rely on to tear them apart. I make my own evaluation but it’s usually not much different than CR’s.

I do want to comment on one part of the NAR report. Lawrence Yun, NAR’s chief economist, spent some time whining about appraisals. Here is part of his plaint:

"Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” he said. “First-time buyers also are being drawn off the sidelines by the $8,000 tax credit, which is helping to absorb inventory. However, the increase in sales is less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan."

There has been off and on bitching about low appraisals for the past couple of months but it hasn’t managed to get much traction. It looks like the NAR is trying to gin up the issue again.

I’ve written about this before (link). The real estate community is miffed that appraisers are not ignoring or severely discounting foreclosure sales in arriving at an opinion of value. Traditionally distressed sales were not used to arrive at a value because they were rare, did not represent market realities and there were plenty of good comps from which to derive a value. That’s not the case now. In many markets, foreclosures are the market and there is no valid reason they should be discounted.

Crooked appraisers and over-valued appraisals contributed significantly to the housing bubble. In my opinion, it’s unseemly that the NAR and others are now trying to use the same old pressure tactics on appraisers in order to inflate values. Significant and good reforms have been made to the appraisal process. It’s out of order for the NAR or any other real estate professional to attempt to undermine those improvements.

Comments

[Cold Reality:]

Amen. This is but one way in which the real estate agent's special interest group "cooks the books" on real estate values and sales figures. Given that their primary purpose is to pump up real estate prices and to insinuate themselves into every transaction between a real property seller and a buyer, their data--and motives--manifestly lack credibility.

You are quite right that the unsavory nexus between real estate agents and appraisers (a third axis of which is home sellers, but inordinately due to the undue influence of real estate agents themselves) has played an enormous role in the illicit price inflation of the past decade.

Jun 23 04:05 PM

[prudentinve...:]

Thank you for a truthful and balanced article. It is unethical of NAR to try to force honest appraisers into producing artificially inflated valuations. This is how we got into trouble in the first place, and I hope we can learn from past mistakes.

Jun 23 05:25 PM

[OptimizedPrime:]

nrd.nationalreview.com...=

The NAR is a Washington lobbying organization dedicated to reinflating the bubble and bankrupting the country so their members can enjoy higher and more frequent sales commissions.

Most real estate agents will have absolutely no regret in destroying a family's life savings by placing them in a losing investment with the highest leverage possible which will go underwater in a few short months after the current propaganda and lobbying efforts wear off.

Somebody needs to stop these people. In terms of destroying people's financial lives they are more destructive than the Enron guys and Bernie Madoff combined. Where is our Elliot Spitzer?


OP

Jun 23 06:42 PM

[Mr. Cynical:]

I Disagree. I'm a Realtor, but I call em like I see em. I saw lots of ridiculous appraisals in the past few years, but they're overshooting now and killing good deals.

Here's the thing: IMO, The appraisers job is not to determine value--- that should be the buyers job! The appraisers job is to make sure the bank is not getting ripped off. If 3 comps that the appraiser never saw are within 2% or so of the purchase price, 2 things should be clear: 1. The buyer thinks the home is worth the purchase price (thereby justifying its value) and 2. The bank is not likely to be ripped off here. If the buyer is putting down 20% of the purchase price, the property should appraise because the bank is protected.

Jun 24 01:32 AM

[BxCapricorn:]

The real estate ship is rudderless. The appraiser is afraid to over-value a property, for legal reasons, and yet to appraise a property solely on distressed sales prices in the home's area, does a disservice. Having recently had an appraisal, last month in fact, it was a welcome relief to actually have the appraiser ENTER my home to properly value its worth. The square-footage based, drive-by appraisals of the past, were a large part of the problem. Like all mindless acts, logic imbalances add up. Houses are worth the materials it costs to build them, and the arrived at value takes more than three photos, two similar sales and a two factor calculation.

Jun 24 01:36 AM

[Moon Kil Woong:]

BXcapricorn: usually the material involved to make a house is usually almost meaningless in the appraised and sale value of a home. If it is a big component, that means you are a much better buyer than 90% of the others out there buying location location location.

As for appraisals, NAR and the rest should let appraisers do their job. There is no reason all factors should not be taken into account when making an appraisal. If someone is living in an area infested by forclosures not factoring in the value puts the banks at risk, especially if when some house in the area get forclosed on and the bank can't sell it or must compete with all the other forclosed properties trying to sell at pennies on the dollar. Even a 20% down can't protect the bank from the type of "misvaluation" that occured in this real estate market crash.

Buyer beware may likely be the "banker beware" since they might just as well be the ultimate buyer. That is, unless they can dump it to Fannie Mae and Freddie Mac the ultimate taxpayer funded home loan graveyard and savior of the morally corrupt real estate banker.

Jun 24 03:47 AM

[nobull:]

"Here's the thing: IMO, The appraisers job is not to determine value--- that should be the buyers job! "
Thats ridiculous. We've already seen how stupid and easily misled (by realtors like you) buyers are. Otherwise we wouldnt have buyers paying those ridiculously overvalued prices the last few years of the housing bubble.
And given that these losers conveniently walk away when the investment go bad, its all the more important appraisers get oof their greedy quick buck mentality and do a credible job.

Jun 24 08:59 AM

[Dave T:]

I am a RE agent that believes that RE industry as a whole, which includes appraisers and of course lenders really stuck it to the people these past 6 or 7 years. We are now helping some of our clients who we believe were wronged, through forensic accounting and have been finding multiple violations including appraisers. As this becomes exposed fear will reign through the RE community and these tactics will slow down, unfortunately they won't cease because you can't eradicate greed!

Jun 24 01:21 PM

[Mr. Ed, Jr.:]

"Their [NAR] take on things was upbeat."

This is news ?

If there is one area of the real estate industry that needs serious regulation, it is the appraisals. The NAR may be the most worthless organization in the country (Plenty of competition, though). Now they are whining about lowball appraisals, after their membership ran us all through the wringer during the buying frenzy, with ever-escalating appraisals from what amounted to, in many instances, their own personal appraisers. Many appraisers quickly learned that they would have less work if they didn't help the agent and home seller "make the number".

And the absurd comment that "The appraisers job is not to determine value--- that should be the buyers job!" is one reason why real estate agents are not highly regarded (according to public opinion polls). The buyer is the person who has the LEAST amount of information about the property, and is in no position to be doing appraisals. But I guess the explanation of that comment says it all....

"1. The buyer thinks the home is worth the purchase price (thereby justifying its value)".

As if there isn't enough nonsense in the real estate business already.

When a person is making what will likely be the biggest purchase in their life, it is not unreasonable to have an honest, professional appraiser to maintain some integrity in the process.

Jun 24 04:07 PM

[Cold Reality:]

How true! And how many appraisals of the past few years have been done using only a Parker pen and a street map, with their trusty copy of the real estate agent's primary propaganda tool, the "MLS" by their side?

If an appraiser's job is "not to determine value" then I don't know what it is. If this were true, then the banks could send out an examiner or auditor to look after their interests. Instead, they rely on flaky appraisals that they KNOW are made by those who are in bed with the real estate agents who are pumping up prices!

The real estate agents have essentially been regulating themselves, like a fox guarding a henhouse, for over a hundred years. They have the one of the most pernicious lobbies in Washington and in the state legislatures. (In many states, particularly in the West, it is practically impossible to be elected to the legislature without the endorsement of the state association of "Realtors".)


On Jun 24 04:07 PM Mr. Ed, Jr. wrote:

> "Their [NAR] take on things was upbeat."
>
> This is news ?
>
> If there is one area of the real estate industry that needs serious
> regulation, it is the appraisals. The NAR may be the most worthless
> organization in the country (Plenty of competition, though). Now
> they are whining about lowball appraisals, after their membership
> ran us all through the wringer during the buying frenzy, with ever-escalating
> appraisals from what amounted to, in many instances, their own personal
> appraisers. Many appraisers quickly learned that they would have
> less work if they didn't help the agent and home seller "make the
> number".
>
> And the absurd comment that "The appraisers job is not to determine
> value--- that should be the buyers job!" is one reason why real estate
> agents are not highly regarded (according to public opinion polls).
> The buyer is the person who has the LEAST amount of information about
> the property, and is in no position to be doing appraisals. But I
> guess the explanation of that comment says it all....
>
> "1. The buyer thinks the home is worth the purchase price (thereby
> justifying its value)".
>
> As if there isn't enough nonsense in the real estate business already.
>
>
> When a person is making what will likely be the biggest purchase
> in their life, it is not unreasonable to have an honest, professional
> appraiser to maintain some integrity in the process.

Jun 24 07:17 PM

[Loan Survivor:]

With all due respect to the writer and ALL those posting comments, none of you has bothered to get all the facts about what the Home Valuation Code of Conduct (HVCC) is really about and the issues the real estate community is dealing with concerning appraisals.

As an aside, I agree that NAR always pushes their kool-aide too much to have any real credibility.

FACT - appraisals were over inflated during the hyper-appreciation years and buyers, homeowners doing cashout refi's, Realtors, loan originators, banks, FNMA/FHLMC and the government ALL didn't care until the bubble burst.

HVCC was created when the NY Attorney General got his hands on emails from WAMU directing an Appraisal Management Company (AMC) to bring in appraisals at inflated values or else.

HVCC was originally designed to separate those ordering appraisals from the appraisers. No direct contact was to be made. Appraisals would be ordered through neutral AMC's and randomly assigned to appraisers via computer. Banks and mortgage brokers were to all play by the same rules, none could own any part of an AMC.

Well, something funny happened on the way to the forum. The final version of HVCC issued by FNMA that went into effect May 1st, allowed BANKS to circumvent this system and use their own appraisers. Not only that, banks were allowed to own AMC's!

Hmmm, a bank called WAMU got busted inflating appraisals, but banks get to stick to biz as usual. Something's rotten in Denmark!

Not surprisingly, banks are now calling the shots even more so on appraisals. They are telling, supposedly independent appraisers, what comparables to use, how recent the sales have to be, what adjustments to make, etc. Each bank also has their own special rules about these requirements so there's no consistency in appraised values.

If an appraiser does an honest appraisal and challenges a banks requirements, they're black-balled and put out of business.

Banks have now gone from controlling the inflation of appraisals to controlling the deflation of appraisals. It's WRONG EITHER WAY as neither allow an independent valuation of a property.

But, he who has the gold, and uses it to bribe/lobby the government, get's to make the rules. No surprise there.

What has surprised me is that you all appear to have shot from the hip without any research on the topic.

Tom, I started following you because you always seemed to be right on in your perception of housing. I'm hoping this article is just an aberration on your part due to your disdain of NAR.

I highly recommend everyone Google HVCC and read for yourselves the issues honest real estate professionals are dealing with concerning appraisals.

For even more details on the problems with HVCC, read my blog:
drewsmortgagenews.blog...

Jun 24 11:08 PM

[Tom Lindmark:]

Drew,

Thanks for taking the time to write your well reasoned comments.

Although it's not mentioned in this article my other posts on this subject have been critical of the loophole that allows the banks to own appraisal management companies. It's simply a testament to the power they still wield in Washington.

I am going to defer to you on the issue of whether they are in fact stacking the deck in favor of low ball appraisals. I have my doubts since this runs counter to their best interests but you're closer to the market on this one than I am.

That having been said, I don't want to see the industry revert to the old standard. I was in the business then and the abuses were appalling. This might not be perfect but to my mind it is a step forward -- I'll take conservative appraisals over inflated appraisals any day.

I don't have time now but tomorrow I will visit your blog and leave some further comments if I have anything substantive to add.

Once again thank you for adding a lot to this conversation.

Tom


On Jun 24 11:08 PM Loan Survivor wrote:

> With all due respect to the writer and ALL those posting comments,
> none of you has bothered to get all the facts about what the Home
> Valuation Code of Conduct (seekingalpha.com/symbo...) is
> really about and the issues the real estate community is dealing
> with concerning appraisals.
>
> As an aside, I agree that NAR always pushes their kool-aide too much
> to have any real credibility.
>
> FACT - appraisals were over inflated during the hyper-appreciation
> years and buyers, homeowners doing cashout refi's, Realtors, loan
> originators, banks, FNMA/FHLMC and the government ALL didn't care
> until the bubble burst.
>
> HVCC was created when the NY Attorney General got his hands on emails
> from WAMU directing an Appraisal Management Company (seekingalpha.com/symbo...)
> to bring in appraisals at inflated values or else.
>
> HVCC was originally designed to separate those ordering appraisals
> from the appraisers. No direct contact was to be made. Appraisals
> would be ordered through neutral AMC's and randomly assigned to appraisers
> via computer. Banks and mortgage brokers were to all play by the
> same rules, none could own any part of an AMC.
>
> Well, something funny happened on the way to the forum. The final
> version of HVCC issued by FNMA that went into effect May 1st, allowed
> BANKS to circumvent this system and use their own appraisers. Not
> only that, banks were allowed to own AMC's!
>
> Hmmm, a bank called WAMU got busted inflating appraisals, but banks
> get to stick to biz as usual. Something's rotten in Denmark!
>
> Not surprisingly, banks are now calling the shots even more so on
> appraisals. They are telling, supposedly independent appraisers,
> what comparables to use, how recent the sales have to be, what adjustments
> to make, etc. Each bank also has their own special rules about these
> requirements so there's no consistency in appraised values.
>
> If an appraiser does an honest appraisal and challenges a banks requirements,
> they're black-balled and put out of business.
>
> Banks have now gone from controlling the inflation of appraisals
> to controlling the deflation of appraisals. It's WRONG EITHER WAY
> as neither allow an independent valuation of a property.
>
> But, he who has the gold, and uses it to bribe/lobby the government,
> get's to make the rules. No surprise there.
>
> What has surprised me is that you all appear to have shot from the
> hip without any research on the topic.
>
> Tom, I started following you because you always seemed to be right
> on in your perception of housing. I'm hoping this article is just
> an aberration on your part due to your disdain of NAR.
>
> I highly recommend everyone Google HVCC and read for yourselves the
> issues honest real estate professionals are dealing with concerning
> appraisals.
>
> For even more details on the problems with HVCC, read my blog:<br/>drewsmortgagenews.blog...

Jun 24 11:56 PM

[Mr. Ed, Jr.:]

Loan Survivor,

Yes, there has been a reversal of form, and the banks now have their thumbs on the scale. However, the banks are now the ones controlling most of the properties to sell, not real estate agents, and this situation may change if the housing market gets more stable.

But nobody should have their thumb on the scale. Neither banks nor agents should be able to have any influence on who will be doing the appraisal. My suggestion would be an independent office of certified appraisers, maybe run by the local courthouse or some office that has a shred of integrity remaining. When an appraisal is needed, that office is called and they send the appraiser, selected by impartial methods, such as random computerized selection.(The same process as some courts use to decide which judges get which cases.) I am sure some in the industry may have better ideas, but the goal should be integrity.

As the situation stands at this moment, I agree with the author's reply that conservative is better than inflated, but both are unfair.

Jun 25 02:10 AM

[Loan Survivor:]

Tom, I wish I would have read this earlier before my OTHER responses yesterday. I probably owe you an apology on the other posts. Time to go eat some crow!


On Jun 24 11:56 PM Tom Lindmark wrote:

> Drew,
>
> Thanks for taking the time to write your well reasoned comments.
>
>
> Although it's not mentioned in this article my other posts on this
> subject have been critical of the loophole that allows the banks
> to own appraisal management companies. It's simply a testament to
> the power they still wield in Washington.
>
> I am going to defer to you on the issue of whether they are in fact
> stacking the deck in favor of low ball appraisals. I have my doubts
> since this runs counter to their best interests but you're closer
> to the market on this one than I am.
>
> That having been said, I don't want to see the industry revert to
> the old standard. I was in the business then and the abuses were
> appalling. This might not be perfect but to my mind it is a step
> forward -- I'll take conservative appraisals over inflated appraisals
> any day.
>
> I don't have time now but tomorrow I will visit your blog and leave
> some further comments if I have anything substantive to add.
>
> Once again thank you for adding a lot to this conversation.
>
> Tom

Jun 27 08:52 AM