by Paul Slaybaugh | Feb 14, 2012 | Home Buying
In theory, an appraisal is an independent evaluation of a property by a neutral third party to determine its likely worth in the open market.
In practice, it has become the de facto final word on a property’s worth, overriding the agreement between a willing buyer and seller.
How is it that the guestimation of value has supplanted the actual sale as the ultimate arbiter of worth? That the tail has come to wag the dog? Thank your friendly financial institution.
You see, appraisals are rarely ordered for cash transactions. Why? Because the buyer has already reviewed the recent sales comparables and negotiated the best terms he/she could with the seller before arriving at the final sales price. Appraisals are requirements of (most) financed transactions because they are really not for the benefit of the buyer. They are an added layer of protection for the lender that is putting up the bulk of the purchase money.
Certainly an understandable requirement from an institution that is taking on the risk of lending money against a property that may or may not represent suitable collateral, depending on the drooling-idiocy factor of the buyer. The bank demands an appraisal to validate the purchase price before ponying up the cash; makes perfect sense.
Where things have gotten a bit off-kilter as of late is in the bank’s internal review process of the appraisal. Times were, the appraisal came back at value, and you were good to go. Your shrewd purchase was confirmed by a non-biased review by a licensed professional. After the housing meltdown, however, banks have taken to assigning the bulk of the blame for the whole fiasco to unscrupulous loan originators and appraisers for falsifying loan applications and willfully inflating values, respectively; ignoring their own ridiculous loan products that were offered to people who never should have been candidates for stated income, interest-only financing vehicles, they are determined to stamp out any potential for fraudulent dealings that exposes them to similar risk in the future.
Tightened appraisal standards came to pass, including restrictions placed upon direct selection of appraisers (most orders go to faceless appraisal management companies now, who in turn select the appraiser). Loan originators and Realtors have limited access to appraisers these days, lest we corrupt their sensibilities and bend them to our devious aims.
The appraiser is now free to perform his evaluation in an ivory tower, unencumbered by the incentive-laden hands that would pull at him to bring in a value reflective of the sales price.
Or is he?
While charges of fraud and artificial inflation of value have been heaped upon the working stiffs from up high, I posit that the exact opposite is now occurring.
With the current barriers in place, the banks themselves are the only ones with unfettered access to the appraiser during the course of a transaction. Beholden only to those banks, appraisers have been put in the impossible position of providing fair evaluations of properties for institutions that have a vested interest in suppressing value/risk.
Bluntly, banks are actively pressuring appraisers to devalue properties.
By using the veto power of the underwriter review, they may demand that an appraisal which came in at value be reworked to use different comps or adjustments made to the physical attributes of the house that they dispute (square footage adjustments, etc). They may demand that adjustments (downgrades) be made for market trends, etc.
In short, some bean counter in an office in South Dakota is using his position to dictate the final version of the appraisal to the licensed professional who has actually physically viewed, measured, photographed and evaluated the property.
This is how appraisals initially come in at $400,000, only to get knocked down to $350,000 upon underwriter review. And when that happens? You get to appeal the appraisal … to the very institution responsible for the final disparity in value.
Akin to taking one’s death sentence appeal to the hangman himself.
Appraisers have little choice but to comply if they want to keep their accounts with the big banks in good standing. Further, until the underwriter signs off on the appraisal, it really doesn’t matter what value is reflected in it. He decides the house isn’t worth what you are paying for it, your loan is scuttled. Unless the seller agrees to sell the property to you at the reduced price (unlikely in a market that is now generating bidding wars) or you have additional cash to plunk down to make up the difference, you are out the cost of the appraisal, inspections and emotional investment in the property.
The big banks are artificially suppressing our values, and they are charging you $350-400 a pop to do it.
What’s the best way to ensure that you are working with an institution that is actually interested in helping you purchase the home of your dreams? Think local. Many small, local banks not only work with select appraisers who actually know the areas they cover (as opposed to trucking them in from Tuba City on the luck of the draw), but are more likely to keep your loan in their portfolio. One of the primary drivers of a big bank’s decision to take on your loan is how sellable it is on the secondary market. Any quirks with the property, such as it being recently “flipped” by an investor, and the loan becomes less attractive to them. Out come the knives.
Add the suppression of value and subsequent hindrance to the market’s recovery to the list of charges I wouldn’t mind seeing in a financial perp-walk. Such manipulation of the market and coercive impact on property values does not merely effect buyers, but it robs sellers at large of what little equity they may have left. Of course, I suppose it is only fitting that the very institutions that spawned the ponzi schemes that led to housing’s demise are the same that would stand in the way of its nascent resurrection.
Such practices are an affront to us all, and must be stopped.
by Paul Slaybaugh | Feb 12, 2012 | Home Selling
Surely, they won’t blow the deal up over THAT?
A refrain familiar to any working Realtor. Be it a frozen shut-off valve under the kitchen sink, a double-tapped breaker in the main electrical panel, a wobbly ceiling fan or a stubborn sliding glass door, there is a minor nit or five in most every list of buyer repair requests that follows a home inspection. A seller’s response to a list comprised of such nuisance items typically goes one of two ways.
1. The seller exhales deeply, thanking his lucky stars that the inspection gauntlet has been navigated with minimal carnage. The roof passed without mention and the balky A/C somehow managed to attain the proper temperature split, so he doesn’t look the gift report in the mouth. He signs off on the couple hundred dollars worth of repairs before the buyer changes his mind, thus closing the window for withdrawal from the transaction based upon physical defects with the property.
2. The seller goes ballistic. Enraged by the unmitigated gall of the buyer to bust his stones with inconsequential repairs on a multi-hundred thousand dollar transaction, he agrees to correct every item on the repair list EXCEPT the loose toilet tank.
This isn’t a brand &$%#ing new house, he rages. Besides, is the buyer really going to walk over something his worthless a$$ can fix with thirty seconds and a wrench?
The pragmatic seller opts for door number one. He signs off on the repair agreement, thus slamming shut the buyer’s dual-pane inspection window. At this point, unless the buyer’s loan falls apart, the appraisal goes awry or the buyer breaches the agreement (thus forfeiting his earnest money), the sale is going through.
The saucy seller kicks in door number two. Of the ten requested repairs, he agrees to nine, omitting only the most trivial bit of ridiculousness that pisses him off on general principle. He knows the buyer isn’t going to walk over a creaky door hinge, and his written response indicates as much.
What the seller may not be aware of, however, is that by denying any of the buyer’s repair requests, he has essentially prolonged the buyer’s “free look” period by another five days.
What? How did that happen?
Yep, it’s true. Stated right in the original contract (assuming the boiler plate language of the standard AAR purchase agreement was unaltered during the course of the negotiation), the buyer has ten days from the date that the contract is fully executed by all parties to perform any/all inspections. Before the 10th day elapses, notice of any defects that the buyer wishes the seller to correct must be provided. The seller then has five days to respond (no response indicates seller’s refusal to make repairs). If the seller agrees to repairs, the inspection period is over and a major walk-away contingency for the buyer is removed. If the seller does not agree to ALL repairs, the buyer has five more days from the receipt of the seller’s written response to decide whether or not to proceed with the transaction.
That’s right, ANY repair. No matter how trivial.
And while the buyer is unlikely to torpedo the transaction over a leaky sprinkler head per se, it does provide additional time and impetus to rethink the entire endeavor, for buyer’s remorse to take up occupancy in a fickle mind … for a superior property to enter the market and attract the attention of the buyer, YOUR BUYER, while he still has a transactional out.
Time kills deals. You don’t want to cede any more of it than absolutely necessary. What starts as a dispute over a teeny, tiny physical property deficiency can morph into a referendum on the purchase itself.
Is this really where I want to live?
Can I really afford home ownership?
Maybe a townhouse would provide less ongoing maintenance?
Big ticket items always need to be reviewed carefully, but don’t sweat the small stuff. I urge you, as a seller, to think twice before rejecting repairs that cost you little more than aggravation.
It might end up costing you a whole lot more.
by Paul Slaybaugh | Jan 25, 2012 | Home Buying
It wasn’t your first choice. It wasn’t your second either. In fact, the short sale you wrote the offer on was likely more a product of attrition than anything else.
Short sales take time. Like most astute 2012 home buyers, you are all too aware that the offer you submit on an upside-down property will likely take a minimum of 60 days for a response from the seller’s lender. You are also aware that the list price of the home is not necessarily reflective of the price that the lender will ultimately be willing to accept. If you are like many buyers I encounter, the cumulative uncertainty of a short sale transaction is likely what ultimately convinced you to first trawl the regular resale and/or foreclosure market for a home before turning your attention to short sale candidates. Fact is, unless you are an investor or in no hurry to move out of your month-to-month lease, you likely don’t have the luxury of waiting on an uncertain outcome.
With the pace that the good homes are selling in early 2012 due to a heightened demand and greatly reduced inventory (approximately 18,250 active property listings in the Arizona Regional MLS at the time of this post), it is also likely that you have either lost out on a property or five to competing buyers or become disenfranchised with the lack of choices.
Enter the Placeholder House.
Or not.
You see, in recent years it has become en vogue for buyers and their agents to tie up a short sale while continuing to look for a more expedient and/or desirable option. Utilizing a standard AAR (Arizona Association of Realtors) short sale addendum, you don’t have to deposit earnest funds, complete inspections, pay for an appraisal or otherwise commit yourself to the transaction until you get the yea or nay from the seller’s lender.
In essence, you get to tie the property up for free. If something better pops up while the bank is going through its laborious machinations, you can bounce at a moment’s notice. Sounds like the perfect backstop, right?
Not so fast, my friend.
Wising up to the ploy, short sale sellers and their capable agents have taken to adding penalties to such indiscriminate escrow hopping. The shrinking inventory means that there is more competition from your fellow buyers on short sale properties, too. No longer do the better opportunities lie all over the market, waiting for an indifferent buyer to pick them. They are sought after commodities. As such, you can expect to encounter terms such as non-refundable earnest money placed in escrow upon seller acceptance of your offer (before it is submitted to the bank for approval) for the first 60 days (or until bank response, whichever comes first). Some short sale list agents have taken to demanding that the inspection period begin upon seller acceptance as well.
These are measures undertaken to tie you into the deal; they provide you with a vested interest in sticking around for an approval rather than discarding them for the first best alternative that comes down the pike.
If you enter a short sale transaction in 2012, it’s best you leave the placeholder mentality where it belongs: 2010.
Time to abandon the contractual hedging of bets and get back to entering a purchase agreement with the intention of buying a house, lest you get stuck in a purchase you only sort of want to make.
Short sales: they aren’t just for Real Estate philanderers anymore.
by Paul Slaybaugh | Jan 22, 2012 | Featured Properties
*UPDATE: NOW BANK APPROVED*
This, you tell yourself.
This is why I moved to Arizona.
Pulling into the stately neighborhood, your eyes take in not the exquisite custom homes, but the Sonoran Desert panorama into which they disappear. Rising out of the valley floor to the East are the majestic McDowell Mountains. The Northern skyline is dominated by the specter of Pinnacle Peak itself. The Western horizon is reserved for the dying sun and the shocking array of magentas and oranges that accompany its languid descent. Removed from the hustle-bustle to the South, you are as unconcerned with the problems of the human condition as the mighty Saguaros that dot the vistas that will yield to twinkling city lights come nightfall.
You are home.
And, oh, what a home it is.
Featuring over 5500 painstakingly designed square feet, this 1999-constructed Spanish marvel is the pride of Pinnacle Peak Vistas 3. The ground-level master suite is its own sanctuary within a sanctuary, highlighted by a luxurious master bathroom with a wrap-around shower and a walk-in closet larger than your first apartment.
The living room greets you at the front door with faraway views through the butted glass windows. A stacked-stone fireplace would steal the show in any other home, but is just another jaw-dropping feature here.
A wet bar joins the living and family rooms, offering an ideal layout for entertaining that would suit the Great Gatsby himself.
And the kitchen … oh, the kitchen.
The bards of old would have written sonnets about this kitchen. Alas, none would have adequately captured its full character. Designed for the gourmet’s gourmet, its story cannot be told simply. Yes, it has alderwood cabinets. Yes, it has the expected granite counter tops in a home of this caliber. Yes, it has high-end appliances such as a Viking range, Sub-Zero refrigerator and multiple ovens to go with a stone fan hood.
The island? It would be more appropriate to call it a continent.
Alas, one must experience this kitchen in the flesh to truly appreciate it.
A den and bonus/game room/sportsman’s paradise round out the ground floor.
Up the sweeping stairway you go to find a loft with a walkout balcony, and three additional bedrooms with some of the best views the Valley has to offer out of virtually every window.
Stepping outside, the rear patio is a room unto itself. With seating / entertaining areas to take advantage of the various views from every nook and cranny of the acre plus property, there is no wrong place to sit.
Cool off on those warm summer days with a dip in the pebble-tec pool, or warm up from that faint nip we call winter here in Scottsdale with a soak in the adjoining spa. Either way, you can rinse it all away with the outdoor shower when you’re done.
A home of this size demands commensurately generous parking, and there are no disappointments here with the four car garage (standard two and a tandem two).
You will know the owners scrutinized every last detail in the construction of this house when you see the thought put into storage. Find a dead space in this home that was not utilized for extra pantry space, under-stairs storage, etc and I’ll take you to lunch.
Yes, this is why you moved to Arizona.
Whether new to the Valley, or a long-tenured resident, it makes no difference.
This is your Sonoran Desert experience.
You can live it for $1,000,000.
View Full Property Details
Home offered for sale by Ray and Paul Slaybaugh, Realty Executives (480) 948-9450
*This is a short sale offering. All purchase contracts are subject to lien-holder approval.
UPDATE: NOW BANK APPROVED AT $1,000,000!
Contact us today for more information.
by Paul Slaybaugh | Dec 29, 2011 | Home Buying
Classic risk aversion for the liability-phobic mandates that an agent make no actual referral to an auxiliary service provider in the course of a Real Estate transaction. Need a lender? Here are the names of three professionals. Need a home inspector? Sift through this stack of business cards and let me know who you choose to hire. The very thought of shimmying out on a limb to recommend a capable practitioner sends shivers up the clenched backside of some in our ranks. Cold anticipation of the potential commissionectomy that attends a referral gone bad trumps the tug of responsibility.
No businessman walks around looking for a financial colonic, but the very real potential for having his inner sanctum legally hollowed out exists in each and every transaction he undertakes. As such, it has become customary for many to simply ward off as much exposure as possible by abstaining from any form of guidance that can later be labeled malfeasance or conflict of interest. Heaven knows, if the contractor you recommend for repairs screws the electrical pooch, any rabid attorney worth his salt will gleefully encourage the client to pursue the deep pocketed brokerage (and agent by proxy) as well as the contractor for damages. Why put yourself on the line by recommending a home inspector when the potential for blow-back on a balky A/C unit can put you directly in the cross hairs? For that matter, why even bother to attend the inspection if the due diligence can be misconstrued for interference? Why attend closings if your review of the documents places increased responsibility upon your shoulders for their accuracy?
Because risk deflection is not my job.
My job is to fulfill my fiduciary obligations to my clients to the very best of my ability. That means recommending pros who have proven their worth to me countless times in the past, rather than crossing my fingers and hoping my clients receive competent service. That means attending inspections to physically see any defects, so as to better advise my clients and argue their cases. That means attending the closing to ensure that the settlement statement jives with the negotiated terms of the contract.
Doing the eeny-meeny-miney-mo thing with a referral does not serve the client, and neither does calling in “neutral” to the appointments that demand an ally. Such laissez faire Real Estating is designed only to mitigate the agent‘s risk. While it is understandable, given the litigious nature of our culture, it’s just not how I roll. You need a lender, I give you the name of the best lender I know. You need a home inspector, I give you the name of the most thorough one in the rolodex.
I would argue that recusing oneself from the crucial junctures and decisions of a transaction is not only negligent, but self-defeating. As the surest invitation for catastrophe is to stand aside and watch the transaction happen, the best defense is, and always will be, a good offense. Fixing potential problems, rather than hiding from them, has kept my clients happy, and me out of legal hot water to date. Active involvement serves the interests of all parties.
I wear my big boy pants to work every day. I put them on with the knowledge that certain forces will always be beyond my control. Secure in that understanding, I’d much rather stand behind the repercussions of my actions than my inactions. Standing on the sideline, not attending inspections & closings, carefully avoiding opinions … seems to me that ascribing to the Caspar Milquetoast model of risk avoidance is, ironically, the surest route to the ruin that one would desparately scramble to avoid. Decreasing the standard of care for the client is akin to an RSVP for trouble.
And trouble never sends its regrets.
Need a Referral to a Local Professional? Give me a ring. I’m not afraid of my own recommendations.
