Real Estate Thought Bubbles

I’m not an appraiser.  I don’t even play one on TV.   All I know is, I seem to be stumbling across more and more of these kindred real estate souls slogging through the neck-deep, muddy trenches of the same difficult transactions I’m wandering around in these days.

Ships passing in the day.  Comparing notes.  Commiserating on the sad state of comps. Measuring the level of frustration in each other’s voices.  Scratching heads together below a common thought bubble that reads: “How is this supposed to work?  Are we part of a broken system that’s designed to fail rather than succeed?”

Assuming that most on board define success as closing escrows.  But of course there being no lack of conspiracy theories blogging around out there, claiming just the opposite – that the new paradigm of success for banks is fewer loans approved and more escrows not closing.

The daily grind of real estate has settled into a painfully slow peristalsis.  A weirdly protracted form of trench warfare. Bogged down in a place where familiar landmarks have been blown to bits.  No recognizable mileage markers in the flattened landscape.  Almost impossible to tell on a day-to-day basis whether the escrow everyone is working on just took one step forward or two steps backward. Or both.

Simple Translation?  Nothing is easy anymore in real estate.  Easy isn’t even easy.  Not that it ever was.  But there was a time when hard was at least a lot easier than easy is now.

Are there any key players in the process having a harder time than Appraisers?  Any getting more middle fingers of blame pointed at them?  Any thrust more conspicuously onto the front lines of real estate’s no-win ground zero?

There’s always been a lot of confusion around an appraiser’s role in a standard residential purchase.  First: they are not sitting in for God.  Theirs is not meant to be a pronouncement from on high about the enduring value of a home for all eternity.  Second: they are not there to put the Buyer at ease or quell onslaughts of remorse. Third: they are not there to help a Seller salvage a shred of equity.

They are there to protect the lender’s interest. Pure and simple. Since the bank is usually the Buyers majority partner, it wants to know that reasonable collateral for their risk really does exist.

Fast forward to the mortgage meltdown and subsequent fallout that has flipped just about every aspect of the loan process on its head. Or inside out. Or ass forwards. Or (insert your favorite phrase here).

Real estate has fallen down the rabbit hole and it looks radically different from almost every vantage point.  There’s been a huge overhaul of the appraisal system. And ongoing directives from Appraisal’s Central Command are in flux – still shifting daily, weekly, monthly.

Enter the AMCs or Appraisal Management Companies. A perfect example of consumer protection run amuck.  A middle layer inserted into the process to protect borrowers from loan brokers.  But with no way to protect borrowers or loan brokers from those same AMCs grabbing for their own piece of the money pie. AMCs who are successfully breeding an increasingly dysfunctional appraisal system.

Let’s see…appraisals now take longer,  cost more, are subject to far more doubts and delays and often employ less experienced appraisers venturing further afield to communities they don’t have much of a clue about, because they don’t live there.

At the same time: Appraisers actually make less per appraisal, find themselves bidding for jobs farmed out to the lowest bidder, while many of the most experienced appraisers have retired and those that are left are overworked, underpaid and rushing to meet deadlines that aren’t remotely feasible. All under increased scrutiny and threatening review.

All in a market when there are a lot less comps to work from because of less overall sales. Where the few comps that do exist are often suspect because the task of differentiating between organic sales, short sales and bank-owned sales requires the wisdom of Solomon when almost half the sales (distressed) violate the prime directive known as “willing seller, willing buyer.”

Aren’t we asking Appraisers to go out and determine accurate market values in a market that is no longer functioning much like a free market?

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2 thoughts on “ Real Estate Thought Bubbles

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