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Archive for August, 2010

Appraiser News: Paralysis in the Housing Market, “Customary and Reasonable Fees”

August 30th, 2010

Paralysis in the Housing Market

While report after report describes the great distress in the real estate market, Lawrence Yun, the chief economist for the NAR, was quoted in the New York Times on August 27th as having stated in a news release that “Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.”  Mr. Yun is reported to have also stated that prices would not decline much further “…since they were ‘back in line relative to income’.” The Times article, after posing the question “You have to wonder sometimes what they’re smoking over there at the National Association of Realtors” went on to say that:

“In the financial markets, a lack of liquidity immediately leads to falling prices,” said Lou Barnes, the founder of Boulder West Financial Services. (Boulder West was acquired last year by Premier Mortgage Group.) “In the real estate market, something different happens,” he added. “Illiquid real estate markets freeze.” That is what is happening now. For months, the Obama tax credit had been the only grease in the housing market. Now that it is gone, the buying and selling of houses is essentially grinding to a halt…

We are now living through the opposite kind of perfect storm. Essentially, every participant in the housing market has a reason to be afraid. And that fear is paralyzing.

The prospective buyer, for instance, has two good rationales to fear buying a new home. One is the unemployment rate. “A major psychological thing happens with high unemployment,” says Dave Zitting, a veteran mortgage banker and founder of Primary Residential Mortgages. “Those with a job worry about whether they are going to keep that job” — which, in turn, prevents them from taking the plunge on a new home.

The second reason is that, Mr. Yun notwithstanding, most people simply do not believe that housing prices are even close to hitting bottom.”

There is also an immense amount of inventory that has yet to hit the market but will, sooner or later. People in the real estate business have taken to calling this “the shadow inventory.” It consists of homes for which the owners have stopped paying the mortgage but the banks haven’t foreclosed on yet, foreclosed properties that have not yet been put up for sale, homes with modified mortgages that the owners still can’t afford and will soon default on and so on.

Mr. Barnes describes the shadow inventory as akin to “ranks of Napoleonic infantry, rows deep, hidden in the fog.” This inventory, estimated by Rick Sharga of RealtyTrac to be between three million and four million homes, is almost certain to drag down home prices for the foreseeable future. “The disinterest of buyers, in an interest-rate environment that may be the lowest ever, is striking,” Mr. Barnes said. But, he added, it makes perfect sense. Since 2007, housing prices have been in a deflationary spiral, and nobody can say when it will end. “It doesn’t matter if interest rates go down to 2 percent,” Mr. Barnes said — buyers won’t reappear in big numbers until they can see the light at the end of the tunnel.”

The article went on to describe the additional chilling effect of tightened lending standards.  It concluded with these thoughts:

“If the housing market is like an airplane on a runway, it is far more likely to crash at this point than it is to take off. That is why the July numbers are so scary to those in the housing business.

On the ground, they don’t look like a blip. They look like a very painful future.”

Links to this important article and some other recent articles concerning the troubled housing market are found here:

Widespread Fear Freezes Housing Market

Lack of Jobs, Foreclosures May Keep U.S. Housing Depressed

First Look: Brand New Foreclosure Numbers Reverse MBA Survey’s Bright Spots

Hard Times Investing: Real Estate Double Dip Deters Buyers and Investors

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Double Dip or Depression? Is There a Relationship Between Growing Income Inequalities and Financial Crises?

Two economic reports caught our attention recently.  While economists discuss the question of whether we are in a double dip recession or heading into one, on August 24th discussed the possibility that we might in actuality be in a Depression.  On August 21st, the New York Times discussed research by David A. Moss, an economic and policy historian at the Harvard Business School, on the relationship between growing income inequalities and financial crises.  Links to both of these interesting articles are found here:

Economy Caught in Depression, Not Recession: Rosenberg

Income Inequality and Financial Crises

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Commercial Real Estate Market Moving in Tandem with the Residential Market?

On August 19th, reported that the Moody’s/REAL Commercial Property Price Index dropped 4% in June, the largest decline in the past year.  Moody’s index overall is reported to be down 41% from its peak in 2007.  While apartment and office values reportedly increased about 4% during the second quarter of this year, Moody’s index was down overall due to a 2.9% decline in industrial values and a large 11 percent drop in the value of shopping centers and malls.

A link to the report is found here: Retail Spaces Lead Drop in U.S. Commercial Property

Additional information about Moody’s can be found by going to

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Response and Update from Last Newsletter: What’s Next for Appraisers with the Passage of the Financial Reform Bill

In response to our article in the last newsletter (“What’s Next for Appraisers with the Passage of the Financial Reform Bill”) we received he following e-mails from two appraisers concerning the analysis made by Gary Crabtree along with Mr. Crabtree’s additional thoughts.

Bill –
I don’t get the solution that Mr. Crabtree has offered. What it seems like he suggested was to add information to the appraisal report regarding the fee that the appraiser is paid from the AMC. I understood the legislation to exclude AMC fees from the determination of “reasonable and customary” fees, and I for one do not want my fees based on what the AMCs currently pay. I have heard of assignments that have been accepted by some of us who are desperate for work taken at $150 for a full 1004. I am desperate, but $150 for six hours of my time and my knowledge of the appraisal world is just too low. By the time you factor in all of the costs associated with compiling the info for an assignment, I would probably make more hourly flipping burgers. I hope appraisers aren’t suggesting this solution to anyone, to me the “reasonable and customary” fee were what I was making before the HVCC started. — Everett Clark

Hi Bill – In regards to the “customary and reasonable” fees dilema, if they are going to try to figure out what is customary and reasonable by having us fill in a drop down box of what we are receiving as a fee “now”, won’t that become the new customary and reasonable?? This will pigeon hole all of us into the new lower fees as being customary and reasonable. They need to ask appraisers to show invoices from “before” the implementation of HVCC!!
I know truly smart people do not get into politics, but we have uninformed, do-nothings with no experience or knowledge telling us what to do!! They are ruining this industry !! I have always loved this job, but they are making it impossible to earn a living.
Casey Sullivan

Response from Gary Crabtree:

Apparently I did not make myself clear enough.  The bill calls for the establishment of customary and reasonable (C&R) fees EXCLUSIVE of any fees paid by AMC’s.  –  The new Fannie appraisal form will have a new field for the name of the AMC, if ordered by same, thus ONLY the C&R fees paid to appraisers that ARE NOT ordered by AMC’s will be tallied.  This will actually work to our advantage, because we will also be able to obtain the “cram down” fee that the AMC’s pay, further making our point that AMC’s are not paying C&R fees.  So if Fannie establishes a field for the fee, ONLY the fees paid by non-AMC clients will be used to establish C&R.  The beauty of this idea is, that the data will be reported directly to Freddie, Fannie, FHA and VA and then can be “mined” by FHFA, FDIC, Consumer Protection Bureau and the data cannot be “tampered” with to skew the C&R fees in favor of an AMC.

I hope this helps clear things up.  I would encourage all of your subscribers to go the FDIC website I placed in my column and make their voices heard on the issues, especially as it pertains to C&R fees.  Rest assured, the AMC’s will not take this lying down.  They already have started coercing appraisers by making them sign a statement prior to accepting an assignment that the fee that they are being paid is “customary and reasonable”.
Gary Crabtree, SRA

Affiliated Appraisers, Bakersfield, California

Click here to read Mr. Crabtree’s column from our last issue.

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Appraisal Institute to Challenge Sanctions Imposed by The Appraisal Foundation

On August 18th, the Appraisal Institute’s online newsletter The Appraiser News Online reported that the Appraisal Institute’s Board of Directors voted Aug. 12th  “…to appeal the sanctions imposed by The Appraisal Foundation, which has accused the Appraisal Institute of violating the Foundation’s Bylaws for sponsoring organizations.”  The article went on to state that: “The Appraisal Institute has said the allegations are wrong, and that the penalty imposed is onerous, unjust and unwarranted.” The Board of Directors passed a motion to request a hearing, which is scheduled for September 1st, where representatives of the Appraisal Institute will attempt to convince The Appraisal Foundation to rescind its decision to sanction the Appraisal Institute.

The article referred to an August 18th email from the Appraisal Institute’s Board of Directors to members which stated that “…being true to AI’s mission is not in conflict with being a Foundation sponsor. The Board said that in keeping with AI’s mission, the Appraisal Institute will speak out to advance the interests of our members, our profession and the public, and that the Appraisal Institute will remain the independent voice for the appraisal profession.”

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Rates & Dates

Going once, going twice, historically low interest rates are still available.  Freddie Mac reported that rates for 30-year fixed-rate mortgages declined slightly to 4.36% for the week ending August 26th from the 4.42% of the prior week.

The Mortgage Bankers Association (MBA) in its most recent Weekly Mortgage Applications Survey for the week ending August 20th also reported a slight decrease to 4.55% from the previous week’s average of 4.60%.

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

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Ask Angie

We want to congratulate our most recent winner: Robert Salvon, a Certified Residential Appraiser with Robert Salvon Associates in Southwick, Massachusetts. Robert was the first person who responded correctly that Zig Ziglar was the author of the quote: “You can have everything in life that you want if you will just help enough other people get what they want.” In addition, he knew correctly that it was William Blake who said “If the doors of perception were cleansed everything would appear to man as it is, infinite.”

Today’s questions:
Who said:

“I find the great thing in this world is, not so much where we stand, as in what direction we are moving.”

a) Zig Ziglar

b) Will Rogers

c) Henry Ford

d) Goethe

e) None of the above

And who said “Even if you’re on the right track, you’ll get run over if you just sit there.”

a) Will Rogers

b) Goethe

c) Henry Ford

d) Unknown

e) None of the above

The first person to respond with the correct answer wins a choice of either:

One Free Trade Show Pass or $199 off a Full Conference Pass to Valuation 2010 or

One Free Regular Listing on

A Free Copy of the Directory of Appraisal Management Companies for FHA Appraisers

Angie’s Hall of Fame: Those who have been crowned winners more than once during the past two years and who have been retired from competition for the rest of 2010:

Suzanne Fahien

Pat Reass

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at


Bill Collins, Appraiser Help Inc.

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