NAHB & NAR Tactic – If They Said It, It Must Be True
New tactic by the NAR and NAHB to get appraisers to “play ball”
CNN Money recently published a piece (located here) titled “Home appraisals no longer derailing sales”, a quote generically attributed to members of the National Association of Realtors (NAR). What struck me as a bit odd was the fact that just about a year ago, the NAR in conjunction with the National Association of Home Builders (NAHB) stated in another article on home sales and appraisals that roughly 1/3 of the deals placed into contract by its realtor members were failing to close due to problems getting appraisers to recognize the market had recovered and values were increasing. The NAHB was quoted as saying essentially the same thing except it was the refusal of appraisers to recognize the true value of a new home which was causing 1/3 of new home sales to suffer the same fate.
So, it seems these behemoths of the real estate industry have had a sudden change of heart and now love appraisers…or do they? Elsewhere in the article you find statements like the one from a realtor who has closed 15 sales this year and said “none of the appraisals have come in below the selling price”. You may ask, what’s wrong with that? Well, I think the odds 15 sales in a still frothy market have a selling price equal to or less than the final appraised value are pretty high – kind of like the odds the Chargers will win the Super Bowl. Instead, what I think is happening is just a new tactic by the NAR and NAHB to get appraisers to “play ball”. Last year they accused appraisers of single-handedly keeping the market from recovering and this year they are patting appraisers on the back and saying how happy they are that appraisers recognize the market has recovered…but has it really recovered? Or is this just a classic case of reverse psychology designed to make appraisers everywhere join hands with realtors and builders to sing songs of joy around the campfire?
Like any economic prognosticator if you repeat your prediction of peace and prosperity long enough, the odds are you will someday be right. I think the NAR and the NAHB have unilaterally declared the real estate crisis to be over and they want this pronouncement to be so convincing that everyone else around will nod yes and say they are right. I don’t believe any such statements are malicious or even intentionally misleading, but neither do I see any hard evidence of a fundamentally sound recovery in the housing market. The market still seems to be dominated by cash buyers hoping to flip homes within a few months at an even higher price. I know you have heard home prices are going up everywhere, but there is a simple reason for prices increasing and it’s a reason even the NAR and NAHB acknowledge…there are more buyers than sellers.
Anyone who took Econ 101 and managed to stay awake for even half of the lecture classes heard all about the laws of supply and demand, but interestingly these laws make no mention of true or fair value. In other words, if there are more buyers than sellers, the buyer who must buy now will be willing to pay more than even the asking price for a home if there are enough other bidders to create the perception (or reality) that it will take an offer above listing price to get the home they want. The problem is this situation is a classic example of how a bubble in prices happens. When ten people want the one house available, an auction develops and the next thing you know is someone bought the house for more than its true or fair value. This happens when people pay more than it would take to build a new house on the lot next door and this, my friends is how a bubble starts. Now, stop and ask yourself what this house will be worth a year from now when the homebuilders who own 30 lots less than a mile away start building spec homes again and there are now three homes for every buyer instead of ten buyers for every home. I don’t gamble much, but if this scenario developed I’d be willing to bet a pretty sizeable sum of money the resale value of this home would be severely impacted by the new homes being built less than a mile away and being sold for $50,000 less than what the buyer paid today in the auction environment which now exists.
Of course if this happens, it will be the appraisers fault for valuing the property for what it sold for and not for what it was truly worth, but at least the NAR and NAHB will be happy because the market recovered just like they said it would…over and over and over.
- Greed Takeover Coming Soon - July 18, 2016
- Why Would You Jeopardize Everything? - June 1, 2016
- Observations of a Review Appraiser - April 21, 2016
If you’ve been following the market at all there is a new threat on the horizon… it’s called the “QM” which is a “qualified mortgage”. My experience has been, of late, that many of the old lending guidelines are sneaking back into practice… 3 to 5% down (in some cases still 100% financing), ability to pay? So on and so forth. But on the horizon (2014), a bill is being considered to go back to 20% down with 20% equity. I didn’t see any stats but I’m guessing this would greatly slow the market, and reduce qualified buyers at least in my area. No buyers, no demand, drop in prices… wonder how it will be the appraiser’s fault for this one?
NAR takes a very short view of markets. They look from month to month, or quarter to quarter.
Frankly the quote by CNN was meaningless and another sign of ignorance being injected into short sound bites.
I disagree that 15 sales with none being killed by low appraisals is the least bit unusual. During the entire time I was an agent from 1971 to 1974 and again from 1984 to 1986 I only had three low appraisals in my entire selling and listing career.
Was that ‘unusual’? Perhaps. Though it may also have been good training by very seasoned brokers who insisted that the listing folder ALSO include no less than six closed comparables to support the asking price. It also included a weekly review by ALL the agents in the office as to whether the price was reasonable.
I don’t know what a “frothy” market is. More importantly the area in which such a market was found by the author has not been defined.
“Anyone who took Econ 101 and managed to stay awake for even half of the lecture classes heard all about the laws of supply and demand, but interestingly these laws make no mention of true or fair value.”
Oddly enough NEITHER DOES most real estate appraisal! USUALLY we deal with “Market Value” as defined in FNMA guidelines (among others).
“True Value” has no legal or accepted definition that I am aware of (and my own website includes many value definitions).
“Fair Value” is a very old, accounting based phrase that is usually referred to as “Fair Market Value” and it has numerous definitions depending on its intended use. IRS alone has over eight (8) separate definitions for it.
I don’t mean to ‘nit pick’ or otherwise pick on the author. His firm is a highly respected E&O insurance firm. (One I have used myself, until I shopped rates.)
That CNN or NAR have yet again jumped on a sound bite to describe a complicated (presumably national) market, is no surprise. That anyone gave it any credence, is.
I hope the author will keep blogging. It gives those in the industry an opportunity to post and exchange views. Even differing views. Thank you.
Read more: If They Said It, It Must Be True | Appraisers Blogs
“