Once again, the fine state of North Dakota has requested regulatory relief from mandatory federal appraisal requirements. Current law requires lenders to obtain independent appraisals when loan limits are above certain levels for federally related transactions. This law, passed in the aftermath of the savings and loan crisis in the 1980s, supports prudent risk management for a lending industry that has shown time and again an inability to manage itself.
This time, Governor Doug Burgum has requested a five year exemption on the argument that appraisers are hard to find in North Dakota. His argument for the waiver is that there is a shortage of appraisers in North Dakota. But is that really true?
I decided to test this. I downloaded a list of all active appraisers in the US from the Appraisal Subcommittee website and compared the number of active appraisers in each state to that state’s population. If North Dakota has a shortage of active appraisers, the population to appraiser ratio would be higher than in California, my state, where there is an oversupply in Southern California, right? I prepared the two graphs below to answer this for 1) residential clients (residential appraisals can be completed by any licensed appraiser); and 2) commercial lending clients (certified general appraisers only). So where does North Dakota fit in?
As of yesterday, North Dakota had 2545 people per appraiser. California, in contrast, has 4,194 people per appraiser. The US overall has 3,490 people per appraiser. North Dakota is in the top 15 for coverage for all appraisers.
North Dakota has even better coverage for commercial with 4,069 people per active certified general appraiser (US Coverage: 8,371 people per appraiser). It is top 5 for coverage in the US.
Do 35 states have a shortage of residential appraisers? Not that I’ve heard. Do 45 states have a shortage of commercial appraisers? No other state is asking for relief.
So why does North Dakota want undermine prudent financial safeguards?
I hope everyone who reads this will comment on the Federal Registry. Use this link. Comments close on 7/1/19.
The residential lending industry is moving away from appraisals after seven years of rapid appreciation when many markets in Northern California are showing signs of slowdown and stability. I joined FindMyAppraiser.com because of their strong advocacy for appraisers and consumer protection.
From the FindMyAppraiser.com website:
“FINDMYAPPRAISER.COM IS A NATIONAL REAL ESTATE APPRAISER DIRECTORY AND JOINT MARKETING CAMPAIGN
FindMyAppraiser.com serves as the link between local property appraisers and the public that needs these services.
Let the buyer beware! Now more than ever American consumers must protect themselves when purchasing a home, buying rental property or investing in a business. These decisions are “life changing” and can effect consumers for many years to come. Buying a home is the biggest financial investment one will make and getting an accurate property value from a qualified local appraiser is best way to make sure you are making a wise decision.
Many banks don’t order appraisals! That’s right. Many home buyers believe banks will order an appraisal when they apply for a mortgage but more and more banks are using AVMs (Automated Valuation Modules) or out-of-the-area “valuers” in the mortgage process. These valuations are not performed for your benefit, they are only used by the bank. You don’t own them and you should not rely on them to make your purchase decision. You need a properly trained market expert. You need an Appraiser.
FindMyAppraiser.com is dedicated to supporting professional appraisers and promoting consumer protection.”
Thanks to Phil Crawford and Lori Noble for putting this together.
I’ve posted the full version of my article Why You Should Join An Appraisal Organization with links to the organizations mentioned in the article. Now is an important time for the residential appraisal industry to join together because of threats to our place in the US real estate market. We need to spread the word of the role of appraisers, especially to federal regulators who want to diminish our standing.
If you haven’t heard, federal financial oversight groups such as the FDIC, Federal Reserve, and others have proposed changing the de minimus for residential lending in the US from $250,000 to $400,000. This is exactly the wrong time to reduce oversight in residential real estate given widespread signs nationally of markets slowing and potentially nearing a peak. Did we learn nothing in the last market crash?
Ryan Lundquist has an excellent summary on his blog (link). I strongly encourage you to sign the petition started by Ryan and Jonathan Miller at change.org (link) and to comment in the federal register about why this is a bad idea.
I want to add to the praise for the first AppraiserFest held last week in San Antonio. Kudos to Phil Crawford, Lori Noble, and Mark Skapinetz for a great first event! I’m very glad I made the decision to attend.
I was struck by how positive everyone was at the event. Even though the residential appraisal business is under threat from changing client needs and reduced loan volumes, AppraiserFest speakers gave us many ideas for how to grow our business.
I greatly appreciate that this was an appraiser-centered event with a distinct lack of client presence.
Attendees were younger than typical for industry events, a refreshing change. Also, a larger percentage of attendees were women.
I spent much of my time at AppraiserFest with George Dell and Steve Smith at the Valuemetrics booth discussing data analysis with attendees. Hanging out with George and Steve for several days was like a master’s seminar in appraisal. I’m so fortunate to have mentors so willing to share their experience like these two.
Tom, Ryan, Jamie, and Bill with yours truly at AppraiserFest
Meeting online friends in real life was the best part of AppraiserFest. I was fortunate to break bread with some of the best appraisal bloggers in the country including Tom Horn, Jamie Owen, and Bill Cobb. And Ryan Lundquist, a long-time friend in real life (!), was kind enough to put up with my snoring. Thanks for sharing the room Ryan.
This was my first trip to San Antonio so I had to visit the Alamo and the Riverwalk.
It was great catching up with Diane, John, and Teresa from the Excel class I gave in Portland two years ago. Can’t wait to see you again.
Positive vibe throughout
Great networking with people I actually wanted to meet
Very professional event with great speakers and topics relevant to my day-to-day business
Sacramento area appraisers stand large in the appraisal industry. We have much more influence than you would expect from a sleepy state capitol halfway between San Francisco and Lake Tahoe. Here are four locals you might know.
Ryan Lundquist might be better known by his website http://sacramentoappraisalblog.com/. He is one of the leading real estate appraiser bloggers in the US and is widely quoted in national media. Here’s a link from quoting Ryan in Ken Harney’s national real estate column from yesterday. Locally, Ryan is famed for his monthly regional market summaries and for being named the 2014 Affiliate of the Year by the Sacramento Association of Realtors. Realtors voting an award for an appraiser? Really? See Ryan speak at the Appraiserfest this November in San Antonio about his expertise in leveraging social media to increase his business.
I’ll be at Appraiserfest too if you want to grab a beer.
Next up is John Brenan. John is the Director of Appraisal Issues for The Appraisal Foundation (TAF). He’s the appraisal point person for the Appraisal Practices Board (APB), Appraisal Standards Board (ASB), and Appraiser Qualifications Board (AQB). Or, in English, he’s the guy helping to set the standards, qualifications, and practices for our industry. John was the author of TAF’s letter urging that the Appraisal Subcommittee reject TriStar Bank’s request for a temporary waiver of appraisal certification and licensing requirements. Every appraiser with lender clients should be grateful for the support. Here’s more about how our industry dodged a bullet.
Don Machholz is another local appraisal industry star. When Fannie Mae required the 1004MC form added to residential appraisals in 2009, Don stepped up and created the 1004MC Calculator and released it free of charge. Don created almost 50 different versions for use with different MLS systems around the country. I went from an hour before Don’s spreadsheet to 5 minutes with it. Don went on to create a host of tools for appraisers to use and now that he’s retired, you can download them all on Don’s website for free. Photos from Don’s retirement party below….
Vicki Keeler may not be known as well outside of the region as Ryan, John, and Don but she deserves to be recognized. She’s one of the founders of the Real Estate Appraisers Association (REAA). REAA started in Sacramento as a local appraiser association and has grown to five chapters across California with approximately 300 members. REAA hosts monthly or bimonthly meetings for practicing professionals and is a model for other state appraiser organizations. Vicki has devoted countless hours to providing education to her fellow appraisers and is one of the unsung heroes of our industry.
Not too bad for a sleepy little town in the middle of the Central Valley….
Today I was asked to comment on the issue of reporting private sales to my local multiple listing service (MLS) by a friend who works for Metrolist, the MLS for the Sacramento region. Today, Metrolist and most other local MLS systems do not allow for sales not sold through the listing service to be included in the sale databases maintained by these organizations. There’s a push within the residential real estate community to include this data. Here’s my response for why, from an appraiser’s point of view, I think it’s a bad idea:
As appraisers, data is our lives. We want available as much data as possible to help us value properties. By rule, we’re required to consider all competitive sales when valuing a property. The vast majority of assignments are for some version of market value. Here’s FNMA’s definition of market value:
“Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
buyer and seller are typically motivated;
both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;
a reasonable time is allowed for exposure in the open market;
payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.” (FNMA Selling Guide, Section B4-1.1-01)
This definition requires us appraisers to confirm some information regarding every sale used as a comparable in our reports. We must analyze each comparable we use in the sales comparison approach, the primary method for determining the market value of single family residential homes in the US. We must understand that both buyers and sellers do not have unusual motivations and that the comparable sale was properly exposed to the market so that all interested parties could bid on the comparable sale. The most widely used marketplaces in most of California are the various multiple listing services. Exposure on the local multiple listing service gives the widest viewing to potential buyers and allows for market mechanisms to arrive at the market value for any given home. Without this exposure, there is significant uncertainty whether the agreed-to price is market value or something else.
In addition to the value of having a central marketplace with mechanisms to arrive at a market value, the multiple listing services serve as a central repository of data. Most of the time, we can look at one central database and see all relevant property characteristics and data. Additionally, we have record of listing agents and buyer representatives who we are required to contact as part of due diligence. Some of the markets we cover have a significant percentage of sales not reported to the local multiple listing service. In general, we do not use these transactions in our appraisals because of the uncertainty of whether they sold at market value or not. For example, the for sale by owner that puts a sign up on his lawn may attract offers from people driving by but most likely he missed all potential buyers and may have sold his home too low. The “pocket listing” of one agent only marketed to agents in his office misses a huge pool of potential buyers. As appraisers, we can’t rely on these sales as primary data-we just don’t know if the sale price was market-derived.
I have worked extensively in Solano County over the past 15+ years. BAREIS, the multiple listing service for this area, has accepted sales data not sold through the MLS and reported it as “Sold Off MLS.” In the handful of years since this data has been offered, I have used it once in approximately 300 appraisals in Solano County. The sale used was included as secondary evidence for a very difficult assignment because this sale was not clearly a market value transaction. In more than 95% of assignments, I do not bother to check the “Sold Off MLS” sales. Even when similar sales are very difficult to find, the “Sold Off MLS” sales are not very helpful.
Does your local MLS system allow for agents to enter non-MLS sales into the database? Is this good or bad in your opinion? Why or why not?