Newz: Shadowy AMC Fees, State Board Complaints, Borrower Questions
January 24, 2025
What’s in This Newsletter (In Order, Scroll Down)
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LIA AD: Borrower Wants Answers Appraiser Can’t Give
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The Sales Comparison Approach: A Cornerstone of Real Estate Appraisal
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Waterfront Home in Boca Raton, FL $25,000,000
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Metrics – What Poetry and Data Analysis Have in Common
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The Shadowy AMC Fees Draining Billions from Homebuyers
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Why Report a State Board Investigation or Complaint?
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Trump signs executive order to reduce housing costs, but will it work?
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Mortgage applications increased 0.1 percent from one week earlier
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The Sales Comparison Approach: A Cornerstone of Real Estate Appraisal
By Kevin Hecht
Excerpts: For experienced real estate appraisers, the sales comparison approach is more than just a method — it is a reflection of their expertise and competency in the marketplace. By mastering this approach and staying informed about industry standards and technological advancements, appraisers can ensure that their work meets the highest standards of professionalism and accuracy.
Challenges and Best Practices
While the sales comparison approach is a powerful tool, it is not without challenges. Appraisers may encounter situations where there is a lack of recent sales data or where the subject property is unique. In such cases, appraisers must exercise judgment and creativity to develop credible results.
Some common challenges include:
Inadequate Market Data: In markets with limited sales activity, finding comparable properties can be difficult. Appraisers may need to expand their search geographically or consider older sales, making appropriate adjustments for time.
Dissimilar Comparables: When the subject property has unique features, it may be challenging to find truly comparable sales. Appraisers must carefully analyze and adjust for these differences.
Unsupported Adjustments: Adjustments must be based on market evidence. Unsupported or arbitrary adjustments can undermine the credibility of the appraisal.
To overcome these challenges, appraisers should:
- Conduct thorough market research to identify the best available comparables.
- Use both quantitative and qualitative analysis to support adjustments.
- Document their reasoning and methodology clearly in the appraisal report.
To read more, Click Here
My comments: Good reminders of the Sales Comparison Approach.
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Waterfront Home in Boca Raton, FL $25,000,000
Excerpts: 12 bedrooms, 11 baths, 12,709 sq.ft., 0.53 Acres, Built in 2016
Direct Intracoastal Point Lot with 256 ft of Waterfrontage and .53 Acres. Built of John Ross/ ROSSCO Const, the beauty of the lot is that it is sited on an expansive Nautical turn of the Intracoastal so it captures the gorgeous long North views.
There are 2 staircases, one with Marble & tile work by a Canadian Artist and banister designed by a metal artist and the owner, the other is a tree staircase The best part is you do not have to climb down the stairs as there is a hand crafted wooden Dragon Slide from the second floor to the foyer. The central slide seen from the front door is artizanally made from oak by local artist. The observation deck (covered) offers stunning views of the Intracoastal, and it includes another outside shower, and solar panels.
In the middle there is a 20 sitting Norse carved table with Helga and Magnus dragons protecting it. There are tile murals, stained glass windows and ceiling paintings all over the house, also thematic. The kitchen is dedicated to the Elements of Air and a story of its power is depicted on its ceiling.
To see the listing and 209 Photos, Click Here
My comments: Thanks to Joe Lynch for this listing with very colorful exterior and interiors!
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Metrics – What Poetry and Data Analysis Have in Common
By Brent Bowen
Excerpts:
We will call this place our home.
The dirt in which our roots may grow
Though the storms will push and pull
We will call this place our home.
We’ll tell our stories on these walls.
Every year, measure how tall
And just like a work of art
We’ll tell our stories on these walls.
–Verses 1 and 2 of “North”, by Sleeping At Last
They may seem worlds apart, but poetry and market analysis have something in common. Often poetry has a meter, which can be described as the pattern and emphasis which give the lines a structure. If you read aloud the song lyrics above, you’ll hear the meter in your own voice. Add music, and it becomes even clearer.
Meter endows stanzas with lyrical patterns and meaningful emphasis, turning words into poetry. Metric derives from the same word as “meter,” and for good reason. By applying appropriate metrics an analyst can find patterns and draw conclusions about meaning in a set of data.
For our purposes you can think of metrics as comparative units of measurement used to quantify and evaluate economic activities.
For example, if an observes that larger homes sell for higher prices than smaller homes, considering price change relative to change in gross living area (GLA) is an appropriate metric to consider. The resulting marginal rate for each additional square foot of GLA is one of the most common uses of metrics found in residential appraisal. Applying this metric to marginal changes in GLA between two properties enables the appraiser to predict the corresponding change in price.
To read more, Click Here
My comments: I had never thought about appraising using these ideas. My brother has been writing songs since high school. He is 78 years old and now has several very active rock groups he plays in and manages. I recently told him that his song lyrics are poems.
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When there’s no other homes in the neighborhood
By Ryan Lundquist
In the August, 2024 issue of Appraisal Today
What do you do if you’re trying to value a manufactured home and there aren’t any comps in the market? I’ve been asked this a few times.
Puzzle Approach: There isn’t one easy way to approach this, so when
appraising something challenging I tend to look at a property like a puzzle where my goal is to find clues into value by considering a number of factors.
Things to Consider
1) Older sales: There might not be any recent sales over the past 3-6 months, but what about older sales? There’s nothing wrong with looking at sales over the past few years and then figuring out how much the market has changed since those properties sold. This is exactly what I did when appraising a manufactured home in Carmichael, CA recently. There were no recent sales and the most relevant one I could find was from 2016. I used that sale and simply adjusted for the market increasing in value over time.
2) Competitive markets: If sales are sparse in the neighborhood or city, why not look to competitive markets? When appraising in Carmichael I looked to Fair Oaks, Orangevale, and Citrus Heights. Of course I didn’t blindly choose sales. No, I had to be thoughtful about comp selection by making sure the other areas really were selling at a similar level. After all, there are portions of the other locations that could easily sell for more or less than portions of Carmichael.
Beyond one mile? Remember, it’s okay to use “comps” outside of a one-mile
radius, but it’s suspect to cherry-pick higher sales further away when there are better (and lower) ones nearby. Here’s a good saying. It’s not how far you can go for comps, but where you should go.
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The Shadowy AMC Fees Draining Billions from Homebuyers
Excerpts: The hidden costs of appraisal management companies (AMCs) in the real estate industry have faced growing scrutiny, as highlighted by a recent Business Insider article titled “The Hidden Middleman who cost homebuyers $12 billion dollars and counting.” The article examines the opaque practices of AMCs, which frequently charge exorbitant fees that can exceed the amount paid to the appraiser.
As highlighted by former Appraisal Institute CEO Cindy Chance, this issue has faced significant resistance from entrenched interests, mirroring the challenges faced in other industries such as the pharmacy benefit manager (PBM) sector, which ultimately led to an FTC investigation.
The Appraisal Regulation Compliance Council (ARCC), co-founded by Josh Tucker, has meticulously collected evidence of this fee disparity, revealing instances where AMCs like Class Valuation, Clear Capital, Solidifi, and Nations Valuation Services have charged fees that match or exceed the appraiser’s compensation. In one striking example, an appraisal managed by Solidifi for a single-family home in California listed the appraiser’s fee as $375, while the AMC’s fee was a staggering $725. Estimates suggest that AMCs could have charged consumers approximately $12.3 billion over a five-year period, with Solidifi reporting margins of up to 28% after subtracting appraiser payments and other transaction costs.
To read the post plus 120+ appraiser comments, Click Here
My comments: The article from Business Insider above is behind a paywall. Checkout the many appraiser comments and maybe add your own. I interviewed two people from ARCC. They are are definitely a legitimate organization.
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Why Report a State Board Investigation or Complaint?
by Isaac Peck
Excerpts: To say there is a high volume of state board complaints filed against appraisers is an understatement. Fannie Mae has admitted to filing more than 1,000 complaints (they call them “tips”) with state boards and licensing commissions in a single calendar year. Even if we consider that Freddie Mac is filing slightly fewer complaints, the government-sponsored enterprises (GSEs) are easily filing over 2,000 complaints against appraisers per year.
If you take into account complaints filed by the general public, real estate agents, appraisal management companies (AMCs), lenders, and other appraisers, the true number of complaints filed against appraisers may be closer to 4,000 per year. Though not every complaint filed is investigated or even taken seriously by the state appraiser board or real estate commission, that’s still a lot of heat facing appraisers.
All of this raises an important question. What exactly should you do if you do receive notice from your state regulator that a complaint has been filed against you or that they are investigating you?
Here is some straightforward advice:
Don’t try to go it alone. Seek an experienced appraiser, Uniform Standards of Professional Appraisal Practice (USPAP) expert, or attorney who can view your appraisal and the complaint against you independently….
You must immediately report the complaint or investigation to your insurance carrier. This is absolutely key…
Many appraisers do not report board complaints or investigations because they are concerned that their insurance carrier will increase their premiums… It depends on the insurance carrier…
To read more, Click Here
My comments: Worth reading. Save the article, or the link, so it is available if you are contacted by your state board.
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Trump signs executive order to reduce housing costs, but will it work?
Excerpts: In the flurry of executive orders signed by President Donald Trump on his first day in office was one that called for all executive departments and agencies to deliver “emergency price relief” that would lower the cost of housing and expand the housing supply.
The order also requires agencies to eliminate unnecessary administrative expenses and “rent-seeking practices,” and cut counterproductive requirements that raise the costs of home appliances. The order maintains that regulatory requirements alone account for 25% of the cost of constructing a new home.
While the order has attracted attention, it lacks details on how it would accomplish this mission. However, housing and budget experts say the order may have an impact by just getting the executives of these agencies to focus on the issue.
To read more, Click Here
My comments: Worth reading. The author also includes what others say. The executive orders have just started, so no one knows for sure what will happen.
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HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, Click Here.
Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample go to www.appraisaltoday.com/order Or call 510-865-8041, MTW, 7 AM to noon, Pacific time.
My comments: Rates are going up and down. We are all waiting for rates to drop in 2025.
Mortgage applications increased 0.1 percent from one week earlier
WASHINGTON, D.C. (January 22, 2025) — Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 17, 2025.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week. The Refinance Index decreased 3 percent from the previous week and was 42 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 2 percent higher than the same week one year ago.
“Mortgage application volume was little changed last week, but there was a small increase in conventional purchase volume, which brought the level of total purchase volume up almost 2 percent above last year at this time,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Mortgage rates remained near 7 percent, a key psychological level, which likely continues to slow the pace of activity for both refinances and purchases. Incoming economic data are likely to keep the Federal Reserve on hold for now, while uncertainties about economic policy are likely to keep longer-term rates, including mortgage rates, steady at these levels.”
The refinance share of mortgage activity decreased to 40.4 percent of total applications from 42.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.5 percent of total applications.
The FHA share of total applications decreased to 16.5 percent from 16.9 percent the week prior. The VA share of total applications decreased to 14.6 percent from 15.7 percent the week prior. The USDA share of total applications decreased to 0.4 percent from 0.5 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 7.02 percent from 7.09 percent, with points decreasing to 0.62 from 0.65 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $766,550) decreased to 6.98 percent from 7.05 percent, with points decreasing to 0.50 from 0.59 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.74 percent from 6.76 percent, with points unchanged at 0.90 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages increased to 6.45 percent from 6.43 percent, with points decreasing to 0.64 from 0.71 (including the origination fee) for 80 percent LTV loans. The effective rate remained unchanged from last week.
The average contract interest rate for 5/1 ARMs increased to 6.41 percent from 6.18 percent, with points increasing to 0.59 from 0.54 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The survey covers U.S. closed-end residential mortgage applications originated through retail and consumer direct channels. The survey has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, thrifts, and credit unions. Base period and value for all indexes is March 16, 1990=100.
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