Another nail in the coffin for appraisers. Death to consumer protection and mortgage investment security.

In one swoop of the pen, the Federal Deposit Insurance Commission (FDIC) Board of Directors, decided that home mortgages will no longer need to obtain an appraisal for loans under $400,000. With this increased threshold, apx. 72-75% of all home mortgage transactions will be exempt from the Dodd-Frank Act’s rules protecting the integrity of appraisals. The vote raised the existing threshold for mandatory appraisals from $250,000 to $400,000. Think about that. With the average price of a home in the United States at $229,000-$310,000 (depending on who’s numbers you believe), we are talking about the majority of mortgage loans. Who benefits from this change? You guessed it, big banks.

This change will allow banks to use mostly unregulated “evaluations” instead of federally regulated real estate appraisals. All I can think about is “Here’s Your Sign.” Bad things are destined for the American home buyer.

The bottom line is, appraisals protect consumers, mortgage investors, and the economyWithout them, consumers are at the mercy of big banks and people who are most often paid based on the size of the loan. It is an open invitation to fraud and corruption. When all the curtains are lifted, this new change was inspired by greed and profits. Consumers will pay the price and within a few years the results will be devasting. Is the sky falling? Today it may very well be…

 

MiniSplits and GLA

So, you find a large Bonus Room above the garage and it is heated and cooled with a large hotel type system mounted in the wall. You wonder to yourself, is this space the same as if it had a traditional heat pump with vents in the floor or ceiling? The owner tells you “we put this unit in because it was so much cheaper than putting in a heat pump and for the room upstairs it really doesn’t matter if we lose a little wall space.” So, is this a question of whether we count this space as GLA or heated living area, or do we just think of it as a quality difference and make an adjustment for the difference between having a heat pump and vents vs a wall mounted minisplit? Wonder how we could prove that adjustment, cost difference? Does the typical buyer pay less for this house because the minisplit heats and cools the bonus room?

What about these two examples – each upper level has one wall-mounted HVAC unit. The one on top is a Bonus Room. The upper level on the bottom has two bedrooms, a full bathroom, a hallway and a play space. Are both spaces considered GLA? ANSI only says a space has to be “suitable for year round use.” Is the space on the bottom equal to the main level living area with a traditional heat pump or gas system?

Sure, this is a loaded question. Any time I ask this question I get bombarded with strong opinions on both sides of the issue. Of course, a true minisplit system has a similar definition to a heat pump, each was an interior and exterior unit. But, there is a big difference between spaces that have different heating/cooling methods. When I think of a $400,000 house, I don’t see a minisplit as being “typical” in that market, with a lot of “it depends” in between. Where do we draw the line? Ask ten different buyers and you’ll get 10 different answers. These systems are becoming more prevalent in certain markets and appraisers need to find a way to handle these spaces consistently.

If appraisers can’t agree on these spaces, how are consumers going to be protected? What’s fair? It depends on whom you ask… Who do you think should make the “rule?”

Texas Square Footage Case a Huge Loss for Consumers

When it comes to Realtors® and square footage, they have the public totally fooled. The mystery over measuring square footage allows them to price homes based on inaccurate square footage, using their all-powerful price-per-square-foot formula, and no one seems to be talking about the problem or trying to help consumers. It appears that’s just the way they want it.

Many of you have heard by now about the appeal and reversal of the case filed against Ebby Halliday Realtors® in Texas. The case stemmed from a 2015 condo sale where the MLS used a drop-down menu with auto populated information from the appraisal district record, or what I would call their local county assessor records. In this case, the tax records reflected 1,178 square feet, which turned out to be only 885 sqft, or a difference of 293 sqft. Living in our price-per-square-foot world, that is a HUGE different in square footage. The question arises as to if a reasonably prudent real estate agent would recognize a difference in sqft of 293 feet out of a reported 1,178. In my opinion, if they can’t see that difference, they should find another job. Licensed Realtors® are supposed to be the ultimate real estate experts. Consumers rely on their expertise to make their largest, single lifetime investment. We expect every other professional to be competent in their chosen profession. Why are Realtors® different. They are the only industry in the real estate world without “standards” to work from. For all their talk of consumer protection and putting their clients first, when it comes to square footage they hide behind the door and claim “we don’t want to talk about it.” According to many real estate professionals, there are no required measurement standards so we just use the tax department’s information since they use professional appraisers to properly measure homes. WRONG! The vast majority of Realtors® know the square footage details contained in tax records are in error a very large percentage of the time yet they continue to use this inaccurate information on an unsuspecting public.

The county assessor has no need for precise square footage data and they never enter any dwelling. Without entering a dwelling, it is impossible to get an accurate home measurement and square footage total. They are the first to tell you their information is an estimate, for assessment purposes only. Realtors® have promoted the great myth that tax records contain the “Official Record” when it comes to square footage. That is simply not true and this myth has been abused by the real estate industry to try and reduce agent’s liability for square footage errors. From 1908 (when the Realtor® organization was founded, until the mid-nineties, when tax records became available online), every listing agent was responsible for either measuring a home’s square footage or having it measured by a qualified agent or an appraiser.

The vast majority of CMAs (Competitive Market Analysis) are created using a price-per-square-foot formula. If that sqft number is wrong, then the home seller is very likely going to lose money. But, the listing could be easily under priced or over-priced depending on the amount of a sqft error. Using the square footage from tax records almost guarantees (especially in homes with upper or lower levels) a home will be priced inaccurately.

In this example, there’s almost a 25% error (1,178 – 885 = 293 sqft error)! So let’s look at the magic price-per-square-foot difference. Option “A.” Let’s just assume a sales price of $150,000. $150,000 divided by 1,178 sqft equals $127.33 per-square-foot. Option “B.” $150,000 divided by 885 sqft equals $169.49 per-square-foot. If you were the buyer would you be upset? No agent prices their personal home based on the square footage details in tax records. Why are they so quick to do it for their clients? Hm…

How can a professional not see that twenty-five percent of the house is missing? In North Carolina, the Real Estate Commission set their error limit at 5%. Five percent is reasonable, not 25%. Yet the appeals court overturned the lower court’s decision and the agent and company were not held liable, and the consumer (that they claim to protect) lost huge. In what business is that fair?

That is real money to someone. A professional who truly cares about consumer protection understands the power of price-per-square-foot and would never price a listing without first having the home measured. In markets where they have discovered this to be true, homes sell faster and for closer to the list price. The MLS database in more accurate and it is a win-win situation for everyone. The Realtor® organization has spent a great deal of money fighting this issue, when they should have spent that money educating their members. I am hopeful that attorneys will find a way to stop allowing Realtors® to cheat home buyers and sellers, and shirking their responsibility of providing accurate square footage details. No agent has to personally measure a house. However, they must be responsible for providing accurate information in order to protect the seller and the home buying public. Inaccurate square footage, knowingly advertised, is a far cry from a consumer friendly business. This has gone on far too long and its time to put some professionalism back in the Realtor® logo. If not, they just as well close their doors and turn it all over to Zillow®.

Time to Start Suing Realtors® for Inaccurate Square Footage

Yes, it’s time for real estate agents to start accepting responsibility for providing accurate square footage details to all prospective buyers, other agents and to appraisers who all depend on the data they provide. No agent is required by law to measure a house. But, in most places, “if” an agent provides it, it must be accurate and that means it can’t be taken from tax records.

When an agent meets with a seller to provide a CMA, they can’t do their job properly without knowing the true square footage of the home. We live in a price-per-square-foot world and the vast majority of real estate agents use a price-per-square-foot formula to calculate a home’s value.

While they all understand this simple formula, they are not taught the importance of quality information. Far too many agents (and home buyers and sellers) believe the myth that the local tax department provides the “Official Record” of their home’s square footage. They believe even if the information is wrong, it’s probably not enough to impact the value. Wrong! I can’t stress that enough. 100% wrong. It obviously depends on your location housing styles and ages, and other factors such as home with upper levels and basements (which are the worst offenders). After studying this topic for over fifteen years, I have thousands upon thousands of examples that show just how many and how large the square footage errors are in public records. And remember, the tax department does NOT need precise square footage details. A few lazy Realtors® started using the square footage in tax records in the early nineties and it spread like wildfire.

What it causes is over and under priced homes, low appraisals, and cheats consumers out of millions upon millions every year. Yet the National Association of Realtors® continues to ignore this problem and could easily fix it with one new rule. One rule that requires all Realtor® members to provide accurate square footage details, based on a nationally mandated measurement standard, into every MLS listing. Consumers are currently at the risk of the state they live in, their local MLS system, and their individual agent’s knowledge on this subject.

Maybe this lawsuit in California (Horiike vs Coldwell Banker) will help draw more attention to this matter and bring other attorneys into the action. For right now, until the legal community holds real estate agents liable for providing inaccurate square footage, consumers will continue to get cheated every day. It’s time to bring about a change.

MLS systems all across the country are riddled with inaccurate square footage details, and those details hurt buyers and sellers. Also, any automated valuation model can only be as accurate as the square footage details. They all seem to use the same information from the local tax department. If you use a formula that only uses two numbers and one of those numbers is wrong, all your valuations are also going to be wrong. If $5,000, $10,000, $30,000, $50,000 and much more doesn’t matter to you, go ahead and trust computerized valuations.

However, for a six percent fee, you would make sure your agent measures (or has your home measured) BEFORE they ever calculate a price. Otherwise you can be assured you will be leaving money on the table.

Inspectors, Home Appraisals & Hybrids, Virginia Appraisal Board

Inaccurate square footage is already an issue that hurts the home-buying public. The lack of a nationally mandated measurement standard creates confusion and disagreement among all those that provide this information for the public. The inconsistencies among agents and  appraisers is a huge problem. Mandating ANSI® would be a great start, but even ANSI® leaves numerous measurement issues subjective and causes debates among agents and appraisers. I authored a CE course titled ANSI®, Home Measurement and the Power of Price-Per-Square-Foot for agents and appraisers, and even developed a Home Measurement Specialist certification program. I am always amazed to see the comments from 20-year veterans who learn new info and so many comments suggesting this information be a part of mandatory education.

Even with the training an appraiser’s license requires, there continue to be problems with inconsistent data. I can only imagine what a disaster we would have if we allow home inspectors without any training or licensing requirements to create the square footage data that appraisers rely on to calculate values. We live in a price-per-square-foot world and every quality valuation is dependent on the accuracy of the very first number – square footage. Without appraisers calculating these numbers we are inviting inaccurate appraisals.

Virginia and North Carolina are well respected around the country with proactive appraisal boards. Over the last 15 years, I have heard from hundreds of appraisers asking us to set examples so their states can follow suit. This is a dangerous time in the appraisal industry. I authored a book titled “Death of an Industry-Real Estate Appraisal” back in 2010. I have watched what I believe to be a very well orchestrated plan to reduce, and then eliminate, the appraisal influence in the mortgage industry. This is the “Golden Rule” alive and well in the appraisal industry. If we don’t draw a line in the sand to stop the so-called “modernization” of our industry, we will reach the point of no return and consumers and mortgage investors will be the ultimate losers in this battle. At the end of the day, all the changes to this industry are simply about money and control. If no one other than licensed appraisers were allowed to profit from the appraisal process, all the talk of modernization would disappear immediately. This entire debate is about who profits from the appraisal process, pure and simple.

It’s hard to imagine the very people who will not allow a licensed and trained appraisal Trainee to inspect a home, will now allow any undisclosed and untrained person to enter people’s homes and provide the very data they would not accept from a trained expert. Why the change? Follow the money. They can basically hire the person they can pay the least to complete an inspection. The appraisal process requires the appraiser to be involved in the entire process, to see the neighborhood and view the house personally is one of the most important steps in the process. If others perform the inspection, appraisers are at the mercy of their pictures, their comments, and also items they leave out of the report. Things the appraiser would have noticed, and things that would impact the valuation. These inspections will lead to reports filled with errors. Inaccurate square footage alone will cause a dramatic increase in valuation errors. If those numbers are wrong so is every number that follows. Also, these inspectors don’t even have to be named and have no responsibility when the errors are discovered. All in all, it’s an invitation to fraud and abuse and a nightmare waiting to happen.

I urge you to stand up and protect home buyers and not allow the appraisal process to be further dismantled. You have a great power and responsibility in your hands, and I sincerely hope you will side with logic and end this before it goes any further. Since the inception of the AMC model, appraisals are more expensive and take more time than ever. It reduces the number of quality people entering the industry and reduces the most qualified to train the next generation. Any further reductions to our numbers ensures that big banking may ultimately get their wish, and eliminate the only participant in the home buying process without bias. Appraisers protect homebuyers and are the very best chance at sustaining a credible valuation process.

Bifurcated – Another Nail in the Appraisal Industry’s Coffin

Bifurcated appraisals are just one more step in a master plan to eliminate appraisers from the mortgage lending process. At the end of all the discussions, any changes to the appraisal industry are not about improving the process but about who profits from that process. It still comes down to money and profits. Banks want more and they decided the easiest place to bring in massive new revenue is from the appraisal industry. The motivation is simple – it’s the Golden Rule alive and well in 2019.

Let’s think about this logically. If you thought it was a good idea to have someone other than the actual appraiser complete the home inspection part of the appraisal, would you want to make sure that part was done as accurately as possible? If you are worried at all about quality, the answer would have to be yes. And, the people most qualified to complete appraisal inspections have been in the system for a very long time, they are called Trainees. They have taken advanced classes and spent time being properly trained by an appraiser. They would be the logical choice to complete inspections, if not done by the appraiser. But, for several years lenders have almost totally rejected Trainees. Just as a note here – I personally don’t believe there is any way to separate the appraisal process and retain true quality. Part of an appraiser’s knowledge base comes from doing inspections. If you remove that part of their ever changing market education, you lessen their ability to understand the total market. However, back to the Bifurcated process.

Consumer protection appears to be missing from this thought process. Now, Fannie Mae, Freddie Mac, and the VA still don’t want Trainees, but they will allow anyone (without any formal training) to perform these important inspections. This is nothing more than an attempt to weaken the already hammered appraisal industry and sadly, it all comes down to profits. The so-called “quality” big banks talk so much about is a myth. Big Banking Lobbyist have sold Fannie/Freddie/HUD/VA on a new and improved appraisal system, all designed to increase their control and lessen the hard-core truth and honest valuations the appraisal industry delivers. Is the appraisal system perfect? Certainly not and we can always increase appraiser education. But, the appraisal industry is not the only player in the mortgage lending process that could stand some extra education.  If we want true quality and consumer protection, we should ensure every lender has at least a 25% investment (or more) in every loan. It’s just like home buyers. With no skin in the game, they are likely to walk away from a loan and have little incentive to make the best decisions. With nothing to lose, why not roll the dice?  The same is true of lenders. Without any skin in the game, they make their money off the loan and move on to the next loan. Without any investment or risk in the loan, they have little incentive to make sure the collateral is solid and the loan secure. They’ve got nothing to lose and only more profits to gain. The whole lending system has gotten way off base and logic has left the system. From Wall Street to Main Street, they are so far removed, they have lost sight of the true definition of quality and the role of an appraiser in the home buying process. If they were invested in each loan, they would be working harder to increase appraiser training and Realtor® education. After all, Realtors® price homes with minimal education requirements. Then lenders expect appraisers to “prove” every adjustment (in a subjective business) where a Realtor® could flip a coin or just check Zillow® to come up with the price and no one questions their values at all. That’s a problem. And, since the appraisal is paid for by the buyer, lenders should only want to protect their clients by providing them the best product possible.

This Bifurcated process eliminates one of an appraiser’s main jobs and is one of the most important steps in the appraisal process. Then, it steps right past the most logical people to complete the inspection (if not the appraisers). It moves past Trainees to any person off the street they can get to do the job the cheapest. Not because they want to lower costs to consumers, but simply a method that allows them to make more money off of the appraisal fee for themselves. Consumers will pay no less for appraisals, yet get an inferior product and no one seems to care. It’s a sad process and one hard to understand from any perspective of wanting a quality appraisal product and protecting the home-buying public. It’s especially hard to understand how government agencies could be convinced this is all good for consumers.

However, if you follow the money and think about this entire process, it all makes sense, at least from the lender’s perspectives. They have convinced Fannie and Freddie it’s good for the process, helping to bring faster appraisal services. It’s all a smoke screen and a sales job. This new change is just another nail in the appraisal industry’s coffin. Using Bifurcated appraisals lessens the number of necessary appraisers, further reduces the number of appraisal Trainees, and if this trend continues, big banks will argue there are just not enough qualified appraisers. So they will make their case for using all automated valuations in mortgage lending. Consumers will pay more, get useless valuations, and banks will have achieved their final objective – eliminating those pesky appraisers from their lending process. A huge victory for big banks and a huge loss for appraisers, and especially consumers. It’s all happening right before our eyes.

I hope appraisers will just say “NO.” These appraisals have to have an appraiser’s signature to make this new process work. So, appraisers your future is up to you. It’s your choice to participate in the Bifurcated appraisal process. It’s never been more important to voice our opinions and stand up for our industry. Tick tock, tick tock…

Fannie Mae – Here’s Your Waiver – Here’s Your Sign

Swim at your own risk. No life-guard on duty. That’s what Fannie Mae is telling consumers. This runaway train called Big Data looks like it will only be stopped by the next mortgage crisis and big banking bailout. How many billions of taxpayer money will it take, while a few scape goat bankers will pay small fines and then laugh all the way to the bank.

Fannie Mae introduced the Uniform Data Set (UAD) which started the mass collection of appraisal files. This information, which is basically each appraiser’s professional opinion, is taken without their consent and without them having the ability to even see this data, and it is now being used against them to take work right out from under them. Have we really learned nothing from the past?

As someone who has studied the topics of public records, MLS, AVMs, and big data for the last fifteen years, I can confidently state that automated real estate valuations are horrible. Sure, they are fun to look at, but for providing accurate and consistent real estate prices, they are full of errors. Some advertise an eight percent margin of error and I read that and have to laugh. That may be true in a few select markets where there is massive amounts of data, but for the majority of America, a true accuracy rate is much more likely between 25-40% in error. And, in both directions. They are just as likely to be too high as too low. For anyone that understands the valuation process, they know that computers have an impossible task, most often with questionable data.

Big data works in fields that have perfect data, and real estate is NOT a business with perfect data. It takes a subjective, human mind with local knowledge, and no computer can ever understand how a house smells or feels, or the layout or neighbourhood, etc., etc..

Commercial real estate valuations are even more complicated. It’s simply mission impossible for a computer program to analyse data that is subjective in nature. And now, they also want to try Hybrid appraisals where the appraiser never sees the property. It’s like a doctor having a nurse trainee and letting them perform the patient exam. Then the doctor reads their notes and writes the prescriptions. It’s a system designed for failure!  

Fannie Mae says they want to reduce the costs of appraisals. That comes from big banks talking in the background. Yes, this has to do with money, but certainly not saving consumers money. If you take away all the smoke and mirrors, it’s all about big banking profits. If they truly wanted to save home buyers money, they could use the tax assessments that are available for free. And, at least they have seen the house in person. Tax assessments are just as accurate as automated valuations, but they are free (not really, that’s your tax dollars at work). But, big banking will never go for that because they can’t make any money that way and, make no mistake, this is all about the money.

Banks get to select the appraiser and consumers have no say in the process. The only protection home buyers have is the government that mandates appraisals. Take that away and home buyers are left to swim with the sharks. The only reason Fannie Mae wants to do this is because big banking lobbyist have convinced them this is in the best interest of the consumers. I call BS! It’s like putting the wolf in the hen house and saying “be nice now.”

FDIC – loans below $400,000 are not important?

The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve are proposing to eliminate the appraisal requirement on certain home sales of $400,000 and below, increasing the appraisal threshold from $250,000 to $400,000. According to FDIC data, increasing the appraisal threshold would have exempted an additional 214,000 mortgages from the agencies’ appraisal requirement in 2017.

The new proposal is not a big deal, only 214,000 additional mortgages exempt from appraisals, right? Perhaps people that buy homes under $250,000, and now up to $400,000, are not as important as those who can afford higher priced homes. I suppose their investments don’t deserve the FDIC’s protection? Is it because home prices have risen so dramatically in most urban markets (which is what they understand), now they can raise the threshold to $400,000? Who knows the motive or who is pushing to get this implemented.
What they are essentially saying is that, if you buy a home under $400,000, we don’t need to worry about protecting you. A slap in the face to the homebuyers all across the country in medium sized markets where there are A LOT of homes available under $400,000, and just forget rural markets. I live in a growing military market where for $300-$350,000 you can buy a brand new, 3,000 sqft house with all the bells and whistles. Guess these military home buyers are not that important.

In rural America, valuations are even harder than other locations and all the more reason to hire a professional appraiser. No computer can accurately calculate home values where there is limited comparables to choose from. Without large amounts of data, computers cannot provide consistent valuations. And remember, real estate is NOT a perfect information system where it’s easy to figure out the right dots and dashes to select, and to come up with a logical value. AVM errors are consistent. If $20,000, 30,000, 50,000, or even a few hundred thousand dollar errors are acceptable, by all means, let the AVMs have at it. For years I’ve said that local tax records are more accurate than most AVMs. But, there’s no profit in using free tax data. AVMs should be for fun, not for determining the value of people’s largest, lifetime investment, even if it falls below their magic number of $400,000.

The influences on a real estate transaction are host to an extremely wide set of factors. It is a people business where emotions are part of the process. I don’t know of any computer that can factor emotions and timing into the process. With computers and AVMs, they like to talk about BIG Data, like it’s the magic answer to all real estate pricing. In this industry, bigger isn’t better. The real estate industry will never provide the type of data that allows computers to accurately predict home values. Just check Zillow®.

Shame Caution Sign Red and White Triangle Caution sign with word Shame with stormy sky background 3D Illustration


Sure, this would be another slap in the face to the appraisal industry. But, perhaps more important, it’s a bold statement to all those with home values under $400,000 that we don’t care about you and your small purchase. Let the big banks have their way with you. They are always looking out for consumers, right? Big Data is not now, and never will be the answer to providing accurate home values. This is nothing more than the Golden Rule at work, again, with the appraisal industry and now consumers in their sites.

The Measurement Standard Hypocrites

Hypocrites, yes what else should we call them? There’s a great deal of talk about protecting the consumer, but home buyers are being cheated every day by the absence of a nationally mandated measurement standard. No opinion, it’s a fact. The National Association of Realtors® and the Appraisal Foundation both share similar ethic creeds, both vowing to work to enhance consumer protection and do everything in their power to ensure professionalism in their respected industries. What’s interesting, or perhaps more mystifying, is that for the industry leaders that profess their commitments to ethics and professionalism, they find no need to mandate a measurement standard that would protect American home buyers.

Homes can be measured in the same market by totally different methods, creating square footage numbers that can vary in the hundreds. This problem has been well documented over the last decade and it’s no secret that inaccurate square footage is rampart throughout MLS systems across the country. Not one national MLS system, but over 800 individually owned systems that often use different terminology as well as different methods for measuring square footage. Then the sites such as Zillow®, Trulia®, Realtor.com®, Redfin®, Homes.com®, or one of thousands of national real estate companies come in and they all show national statistics and square footage information that was not measured or reported the same way. It’s a system that was never planned out. It’s a happenstance system of information reporting, that in the world of big data and technology is archaic at best.

Real estate agent, Automated Valuation Models, and many other industries rely on the over-used price-per-square-foot formula to price homes. They trust this system and work as though there is some magic fairy that provides quality square footage information that they can use for free. Listing prices are developed based on inaccurate data and consumers are cheated. It happens every day. Even if it’s just in the measurement of stairs. Maybe the difference is only 40 or 50 sqft. If that variation in measurement methods works out to $4,000 to $6,000, does that amount of money just not matter? Get out your check book and repeat the question.

Just a for instance; House 123 ABC St., Anywhere USA was being listed by an agent that was taught to use tax records (what they were taught was the “Official Record” for square footage). Public records showed the house with 2,200 sqft. The agent developed a price-per-square-foot formula in the development and came up with $124.50 per-sqft. Listing price equals 2,200 sqft times $124.50 per-sqft, for a listing price of $273,900. The house hit the market and was placed under contract within three weeks. The appraiser came in and measured the house with 1,914 sqft. In this case they used almost the same price-per-sqft numbers and came up with an appraised value of $238,000. That’s a difference of $35,900.00. Come on – that’s over thirty-five grand on a simple mistake that happens every day. If that’s your $35,000 would it matter to you? Why is this acceptable in our industry?

How hard would it be for there to be one nationally mandated measurement standard for agents and appraisers, and to require every listing placed into the MLS be measured by that standard prior to listing the property for sale? It’s logical and doesn’t seem that hard to achieve. And, many of the so-called low appraisals are caused by agents who never took the time to measure a house before they list it for sale. Many times, there are different square footage totals reported in MLS. Some agents simply take the largest number to get the price as high as possible. They don’t care if it’s accurate or who might get shorted, only to make the commission as large as possible. Please explain to me how this is consumer protection.

And, what about the banks that are pushing Hybrid Appraisals? Not only are they willing to unleash an army of untrained agents on consumers, those agents will be measuring by a host of different methods. Where’s the consistency in that? For people that claim to be wanting to make the system better for their customers, they record does not reflect well against their actions.

I keep screaming about this subject the best I can, yet the powers that be remain silent on this issue. Until consumers start realizing how they are being cheated and start complaining, maybe nothing will happen. I can still keep hoping the NAR and Appraisal Foundation will do the right thing and find a way to create a nationally mandated measurement standard for residential properties. Then the NAR could make one new rule that all homes be measured prior to listing, and presto – problem gets 95% better overnight. What will it take to make this happen?

Business Concept – Male Finger Pointing Consumer Protection Key on Modern Keyboard. Hand Pushing Consumer Protection Orange Modern Keyboard Key. Hand Touching Consumer Protection Button. 3D Render.

Consumer protection is lost in the rush to commissions

We hear all about low appraisals, but we never seem to hear about homes that are flat-out over priced, often by an agent who wants to prove they are smarter than everyone else and will take advantage of any unusual feature or circumstance to push the value beyond any other homes in the local market.

For example:

A buyer finds a house in need of some updating. Medium sized market and things are selling between 90-120 days on average. The neighborhood is good and the house has a three level deck that cost twenty-grand and a $10,000 water garden running beside the deck. These features are way above other things in the neighborhood, but they are still desirable. They buy the house for $220,000 and spend $45,000 on renovations; kitchen and bathrooms, paint and flooring, etc.. The agent tells them they can list the house at $394,900. The most expensive house in this area sold for $450,000. It was 1,418 sqft larger and sat on two lots, and had been totally remodeled. It was probably the best comp available. There were several other comps closer in size and age, but they all needed updating. They sold between $295,000 and $315,000. So, how much does remodeling add to a house? Of course, there are a lot of “it depends” with any real estate deal, but with an investment of $265,000, with a $394,900 list price, that could be a profit of around 50% in four months. We would all like to find a few of those investments! However…

The house appraised at $346,000, which was still a great return for four months work. But, this agent chose to file a complaint against the appraiser for “killing her deal.” Two other appraisals were ordered later in this transaction. One came in at $349,000 and the second at $334,000. The agent still bad mouthed only the first appraiser and told every she knew what a idiot he was. She said he didn’t understand the local market and she was the expert. She didn’t care what other homes had sold for because she is the local expert. She set the price and found a buyer willing to pay it and that should be enough. She knows better than any appraiser and they should listen to her experience. Her Blog post said “All my hard work was wasted by a backwards appraiser.”

They are too many examples of where agents push values just to see what they can get. The deal falls through and everyone involved is convinced the appraiser ruined everything for everyone. There are usually two agents involved in each transaction. One working for the seller and one for the buyer. The buyer’s agent is supposed to be watching out for their clients’ best interest, but far too often they only want to make the deal go through so they can get paid. They say the buyer is okay with the value and that’s all that matters. Consumer protection is lost in the rush to commissions.

Of course, every real estate valuation is partially subjective. But, most values can be logically developed with the experience and skill in the local market. No buyer should want to pay more for a property that it’s worth, but it happens every day, all across the country. And, Realtors® seem to push the pricing wheel higher and higher all the time. It’s like a numbers game about who can get the most. It’s very personal when you price a house. And, once you put that price out there, if someone comes along and says you were wrong about the value, well those are fighting words. “How dare you, I am the expert here.”

The listing agent is part of a much bigger problem no one seems to want to talk about. Realtor® education and responsibility should be a high priority in this day and time. After a decade of real estate problems, there are agents who still have not been properly trained and get into the business only to “make a little extra money.” A part-time agent is dangerous when it comes to most people’s single largest lifetime investment. I would think after all the discussion of appraisers and mortgages, and runaway real estate prices, this topic is something that should be on the radar. Blaming appraisers for every real estate problem is not the answer and it’s time to look at the heart of the problem – Realtors®!

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