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Shooting the Messenger, Uncertain Times

August 15th, 2011 by Bill Collins Leave a reply »

Judgment Call: Appraisals Weigh Down Housing Sales

Friday’s Wall Street Journal featured a page one article by S. Mitra Kalita and Carrick Mollenkamp with the above indicated title which cited numerous individuals as protesting that low appraisals were driving down the real estate market.  The article highlighted the assertion that “Lenders are pressuring appraisers to come in with lower estimates, some real estate professionals say.”
The Journal article noted the high percentage of contract cancellations reported recently by the National Association of Realtors (NAR) and noted that the NAR’s chief economist, Lawrence Yun, “…blamed the unusually large number on low appraisals.”  Also mentioned in the article was a research paper by Leonard Nakamura, economist at the Philadelphia Federal Reserve, which “…cited a downward bias in appraisals.” 

The Wall Street Journal reporters attempted to provide a brief history of recent changes in the appraisal profession beginning with then New York State Attorney General Andrew Cuomo’s actions which led to the growth of appraisal management companies (AMCs).  After discussing the pressure previously placed on appraisers “…to provide estimates which would match the contract price, which would increase chances that the mortgage loan would get approved” the article went on to discuss the current situation where appraisers are now “…under pressure to work faster and cheaper.”  The authors stated that:

“The result has been that appraisers with less experience or who are unfamiliar with a community-but who work cheap-are getting more assignments while more experienced appraisers are going out of business. That, say critics, is producing appraisals that are less accurate.”

The issue of the impact of distressed sales on the marketplace and their appropriate use as comparable sales was briefly addressed but the typical reader of the Journal article would likely conclude that appraisers were a major problem in any housing recovery.  It quoted Larry Sellers, the immediate past president of the Appraisal Institute as saying that:

“We’ve lost the best quality appraisers.  The people doing it are the ones who have cut overhead to bone, are working out of basements and many of them are not properly educated.”  No mention of the attempts by the Appraisal Institute and other appraisal organizations to eliminate the real problems caused by the use of broker price opinions (BPOs) was made and readers may have come away with the notion that Mr. Sellers and the Appraisal Institute were fully on board with the article’s position that “appraisals weigh down sales”.  The authors briefly acknowledged the fact that “…home values have depreciated sharply in recent years for the most basic of economic reasons: excess supply of homes on the market and weak demand” but then quickly went back to the assertion that “…some realtors, home-sellers and economists believe low-ball appraisals also are undermining a housing recovery.”    

We look forward to reading a Letter to the Editor of the Journal by Mr. Sellers or another Appraisal Institute representative clarifying any misconceptions that readers of the Journal article might have come away with regarding one of the world’s leading appraiser organizations.  Possibly the authors of the Journal article might also consider a lengthy interview with Mr. Sellers or a representative of any of the other fine appraiser organizations regarding the problems caused by BPOs, misuse of automated valuation models (AVMs), etc.?

We also look forward to reading page one articles in the Wall Street Journal that recognize that the basic problems in the housing market relate to the excess supply of homes on the market (and the shadow inventory which will be coming  to the market) relative to the weak demand; at the same time they might consider what positive actions could be taken immediately to solve this imbalance to prevent a continuance of the depressed state of the housing market and economy. 

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Uncertainty and Nervousness Drive The Markets

The gyrations in the financial markets this past week along with looming proposals which might further tighten credit and possibly eliminate mortgage interest deductions can only lead to more prospective home purchasers staying on the sidelines and a continued slow decline if not an outright “crash” in the housing market.  Along with the problems facing many European nations in this globally-connected economic mess, many commentators have remarked on the similarities to the late summer and fall of 2008.

Writing for CNNMoney on August 9th, Les Christie stated that “Any glimmer of hope that the housing market will stage a recovery in the upcoming months has vanished, thanks to the recent spate of bad economic news that has been making headlines over the past several weeks.”  He cited various sources and studies in coming to this conclusion and a link to this article is found here: Housing Recovery Slips Out of Sight

One day earlier, Newsweek’s The Daily Beast, posted the thoughts on six economists as to the stock market plunge and a link to this is found here: U.S. Stocks Plummet: Economists Say It’s All Politics – The Daily Beast

Robert Reich, who has served in three national administrations and is the author of numerous books, posted his thoughts on August 9th (the day after the 634 point drop in the Dow) as to his ideas to jumpstart the economy. A link to this along with his previous day’s posting (“Slouching Toward a Double Dip, For No Good Reason”) is found here: Robert Reich

Prior to the financial market fallouts from the S & P downgrades of the U.S., Fannie Mae and Freddie Mac, Paul D. Ballew (Chief Economist & Sr. VP of Nationwide Mutual Insurance Co.) writing for CNBC on August 4th reminded all that housing is at the top of the list of the economic problems and a link to his report is found here: Ballew: Housing Bubble Burst: More Than Just Foreclosures

On that same day, CNBC’s Diana Olick echoed Mr. Ballew’s thoughts when she said that “I am constantly amazed, and have been for years, at how little the President speaks of our housing disaster, it’s what got us into this mess in the first place, and without its strong recovery the economy cannot walk out of this recession.”

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For Those Not Suffering From Data Overload, Here are Links to Other Reports

CoreLogic’s Home Price Index for June can be viewed by going to: CoreLogic

Braden Goyette, writing for ProPublica, provided a lengthy list of negative statistics on our “Sputtering Economy” and a link to this is found here: The Latest on Our Sputtering Economy, by the Numbers

The NAR’s existing home sales report for the second quarter was released on August 10th and a link to this is found here: Second Quarter Metro Area Prices Mixed with Little Change, State Sales Down

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Appraiser "To Do" List Prior to September 1st

Residential appraisers: Prepare for the UAD! September 1st is the date this will take effect and we have heard some reports that appraisers may be asked to supply UAD compliant reports prior to the 1st. Check out McKissock’s online class by clicking on the following link: Discounted McKissock Continuing Education

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Residential and commercial appraisers: All of this uncertainty that we have seen in the financial markets are further reasons for appraisers to diversify their appraisal practices and work to increase their private appraisal business.  Make sure that your company’s name appears when attorneys, accountants, property owners, etc. search for appraisers online.  It is worth repeating the comments by Jessie Hempel from our last newsletter.  Mr. Hempel, who writes about the Internet for Fortune magazine, recently dismissed the idea of an internet “bubble” by noting on Twitter that “Last time there was a bubble, the internet was 120 million dial-up. Today it is two billion connected devices.”

Is your appraisal company easily found by users of these “two billion connected devices”?

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Rates & Dates

Freddie Mac and the Mortgage Bankers Association (MBA) both reported decreases in mortgage interest rates in their most recent weekly reports.

Freddie Mac reported that rates for 30-year fixed-rate mortgages declined to 4.32% for the week ending August 11th in comparison with the 4.39% rate reported on August 4th after an even steeper decline from 4.55% during the prior week.   

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending August 5th reported a drop in its average to 4.37% from the previous week’s rate of 4.45%.   

In their press release of August 10th, the MBA reported a 21.7% increase in mortgage applications during this most recent week with refinance activity increasing to 75.6% of applications.

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

Here are the answers to the questions from the last newsletter: Russell Baker was the author of the quote “Usually terrible things that are done with the excuse that progress requires them are not really progress at all, but just terrible things”, Lucius Annaeus Seneca warned that “Be wary of the man who urges an action in which he himself incurs no risk” and that Evel Knievel said “I did everything by the seat of my pants. That’s why I got hurt so much."

Today’s questions:

1. Who Said: "Things fall apart; the center cannot hold; Mere anarchy is loosed upon the world."

a) George Orwell
b) Woodrow Wilson
c) Noam Chomsky
d) William Butler Yeats
e) None of the above

2. Who said: “Better never than late."

a) Rand Paul
b) Nancy Pelosi
c) George Bernard Shaw
d) Alan Greenspan
e) None of the above

3. Who said: “The poor stay poor. The rich get rich. That’s how it goes. Everybody knows."

a) Donald Trump
b) Leonard Cohen
c) Charles Dickens
d) Adam Smith
e) None of the above

The first person to respond with the correct answers wins a choice of one of the following:

One Free Regular Listing on

A Free Copy of the 12/10 UPDATED Directory of Appraisal Management Companies (Available Now to Members of and FREE!)

One Free Trade Show Pass to Valuation Expo 2011 in Las Vegas

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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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