More NAR Nonsense
Remember back during the housing boom, when all of the corrupt real estate appraisers were busy pumping up local comparables, and helping to drive prices higher?
Of course!
Do you recall how the National Association of Realtors swung into action, and being in the vanguard of responsible behavior: 1) Were the first to spot these problems; 2) Demanded their membership identify these corrupt appraisers and mortgage brokers; 3) Proposed fixes for this widespread corruption and presented them to Congress
Me neither.
My thoughts came back to that this week, when I was catching up with some missed research and economic reports. I was traveling to and from Vancouver, so I missed the June Existing Home Sales data. In finally reading June’s EHS, I couldn’t help but notice this doozy in the 4th paragraph of the National Association of Realtors release:
“A June survey of NAR members shows 37 percent experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality.”
What contemptible bilge.
Where TF were these concerned citizens at the NAR when appraisers were engaging in all sorts of funny business, driving prices skyward? They were AWOL. You do not recall any commentary during the boom about the artificial number of sales, or the increased prices that appraisers were causing, because somehow, the greatest bout of Appraisal fraud, predatory lending, and irresponsible mortgage underwriting standards the world has ever known managed to escape these ethicsless weasels’ notice.
NEVER FORGET THIS: The NAR is a trade group, not a legitimate source of independent data. They are biased, not credible, and to be blunt, essentiually behave as PR flacks who will say ANYTHING if they think it will help their members make a quick buck. They are not a credible economic organization, they are not legitimate researchers, they are nothing more than hired guns pushing their members’ agenda — even when it is destructive to America.
I am the son of a Real Estate Agent, and growing up, the worst behavior of the people working in the RE industry were dinner table fodder. The stuff my mom used to talk about — Outrageous! she would say — seems downright quaint compared to the un-f&^%-believable garbage that goes on now.
Not only does the worst of the Real Estate industry have proper representation in their trade group . . . they seem to be running it.
>
Previously:
Existing Home Sales, Non Seasonally Adjusted, Explained (March 25th, 2008)
http://www.ritholtz.com/blog/2008/03/existing-home-sales-non-seasonally-adjusted-explained/
Source:
Existing-Home Sales Up Again
NAR, July 23, 2009
http://www.realtor.org/press_room/news_releases/2009/07/sales_up
See also:
Realtors cry foul over low-ball appraisals
Carla Fried
CNN/Money, July 21, 2009 5:07 pm
http://moneyfeatures.blogs.money.cnn.com/2009/07/21/realtors-cry-foul-over-low-ball-appraisals/
July 27th, 2009 at 7:36 am
Any agents out there ever deal directly with the NAR?
Any thoughts on them?
July 27th, 2009 at 7:55 am
[...] Joe Manausa on July 27, 2009 More NAR Nonsense – ritholtz.com 07/27/2009 Remember back during the housing boom, when all of the corrupt real [...]
July 27th, 2009 at 8:01 am
While the NAR is clearly a worthless organization…
And while the appraisal practices during the housing bubble were questionable….
They still have a point on this one. I’ve got two examples of people who have gotten ridiculously whacked out appraisals in recent months, after this new Home Valuation Code of Conduct went into effect. Appraisers from 100 miles away are doing appraisals on neighborhoods they’ve never heard of, using comps from massively different school districts, etc. [BR: Sounds like the issue is in the Comps -- the simple solution is to use local comp sales, assuming they exist.]
The other problem with this new code is that appraisals are not portable – a prospective buyer/refinancer must pay for a separate one for each potential financing option. Together with the unreliability of the appraisals being ordered, this leads to lots of legitimate deals being scuttled. [BR: And why would you need multiple appraisals from multiple vendors? ]
The Home Valuation Code of Conduct may have been noble in purpose, but like everything else that comes out of Congress, it was a giveaway to a certain industry group – Appraisers. Unintended consequences abound when government gets involved.
~~~
BR: Perhaps you missed the past 2 years, but how well do things work out when we let Corporate interests run things unimpeded on their own?
Even Adam Smith did not believe in allowing the Robber Barrons to run things for their own benefit.
July 27th, 2009 at 8:41 am
Great quote from our favorite economist:
NAR’s chief economist Lawrence Yun blamed “faulty valuations that keep buyers from getting a loan” as the reason May home sales data weren’t stronger.
http://moneyfeatures.blogs.money.cnn.com/2009/07/21/realtors-cry-foul-over-low-ball-appraisals/
I’m speechless
July 27th, 2009 at 8:42 am
there have always been deals that were lost over appraisals- and as before appraisers are going to try to get as much value as possible or they are not going to get additional requests for appraisals- an appraisal is fee service- and if there are no requests for appraisals- an appraiser will make ZERO money- so they have to give it their best effort- secondly- a new appraisal can be ordered from a different appraiser if the first appraisal is deemed insufficient- it will be up to the underwriter to make a determination as to which appraisal is more indicative if area values-
that an appraisal was ordered by a company out of the area is the fault of the mortgage company- not the appraiser doing the appraisal- because it is the mortgage company requesting the appraisal-
the new law was put into effect to keep undue pressure on appraisers from loan officers and agents to increase values- and loan officers can no longer directly deal with the appraiser-
makes sense to me- since the loan officer’s goal is o only close the deal with an “at sale price” or better appraised value-
lastly is an appraisal comes in low it does not kill a deal- the seller will need to lower their asking price to the new value- and presto- the deal is back on-
so maybe it is not the appraiser but the seller and their agent causing the problem
July 27th, 2009 at 9:05 am
It’s not just the NAR … there seems to be a resurgence of the “green shoots” mania this morning:
(Bloomberg)
Surging Earnings Estimates Signal 26% Advance for Shareholders of S&P 500
June Sales of U.S. New Houses Probably Rose to Four-Month High
Recession Probably Abated Last Quarter: U.S. Economy Preview
This in the face of a lot of “not as bad as expected” earnings last week, with more of the same ahead of us, the only common theme being a continuing slide in revenues.
July 27th, 2009 at 9:17 am
I love the NAR’s ads! They come so close to fraud its breathtaking!! They take puffery to new heights!
This is a great one from Nov 2006:
http://www.realtor.org/home_buyers_and_sellers/buy_now_ad
July 27th, 2009 at 9:42 am
Appraisal standards were thrown out during the bubble and there is no doubt that bad appraisals were part of the problem. There is also no doubt that loan officers pressured appraisers for higher values. But there were checks and balances available to catch this already built into the approval process. The real issue is that the green light came from the lenders themselves. Part of an underwriter’s job has always been to underwrite the appraisal and verify that it was valid. This means checking the comps and verifying the details so that oranges are compared to oranges, not pineapples. This was the standard pre-bubble, and since home prices started coming down, underwriters are going over appraisals with the extra fine comb and requesting extra comps or explanations in almost every case. This didn’t happen during the bubble because the goal then was to get as much product into the pipeline as possible, and the appraisal standards were lowered or ignored (just like they were for credit, income, assets and down payment).
Just as there was an upward bias in the go-go years, the appraisers are now trending down to cover their butts. HVCC just ads another layer of bureaucracy into the process. It costs the consumers more ( if they change lenders they may need to get a new appraisal) takes more time, and it removes accountability. I’ve seen wild swings in value from different appraisers, and because the appraisals are placed in a blind matching system, it is common for an appraisal to be done by some one outside the market area. There was a problem here, but HVCC is the wrong solution.
July 27th, 2009 at 10:14 am
@ nobetanofun:
Heeheeeheeehee! Seriously, you just made my day. Goes to show that the NAR is merely a propaganda machine…
HCF
July 27th, 2009 at 11:15 am
Come on Barry. Don’t let your feelings about NAR cloud your common sense on the HVCC. We now have a situation where there are absolutely no market forces involved in improving the quality of appraisals. Appraisers register with a AMC and, in many cases, are offered jobs through an online job scheduling system. The available (read: least busy) appraisers sign up to do the appraisal and off they go. They are paid 1/2 of what used to be market rate. Their appraisals are subject to random audit and the only way they can realisitically get in troube is by OVERappraising properties.
So to review:
- Random or near-random matching of appraiser to job
- Substantially reduced pay
- No “marketing” required to get appraisal work – just register with an AMC and pick up work as you need it.
- The only way to get in trouble is by overvaluation.
What do you think will happen? How about a steady reduction in the quality of appraisers (and appraisals) and systematic undervaluation.
The old system wasn’t great – but this new one needs work. In the meantime its killing legitimate arms-length deals (what better way of determining the “value” than what a willing buyer will pay a willing seller?).
July 27th, 2009 at 11:52 am
Never dealt with the NAR, but I know plenty of realtors. They give used car salesmen a good name.
Worked with the NAHB many moons ago, on the brokerage side of things trying to find ways to do forecasts on their Home Owners Warranty Program that underwriters would buy. Succeeded for a while. But I believe the program went into receivership.
IMHO. Corruption. Complete and total. From the fraudulent local builders (particularly in NJ) the the national headquarters’ executives raking in their juice.
July 27th, 2009 at 3:25 pm
Lots of NAR-bashing on this blog, but keep a couple things in mind. NAR is a trade organization for Realtors. Realtors, for the most part, are agents of home SELLERS. Their job is to present the seller’s property in its most favorable light to secure a buyer. Presenting negative market information or suggesting that this is a bad time to buy are in tension with this agency duty. When was the last time you heard a store clerk telling you to wait a week until an item goes on sale (at least with management’s permission)?
If Realtors historically represented BUYERS you can imagine an entirely new spin – perhaps even overplaying negative market information. This is not the case as buyers are not the ones paying the real estate commission (at least not directly). I’m obviously oversimplifying and leaving out the growing number of buyers agents but I think the generalities apply.
Realtors and NAR are performing an important service to the market by promoting real estate liquidity which is what is expected of them by their customers – home sellers and buyers. Read the NAR spin in that light. I think their factual data is exceptionally valuable and would be difficult to reproduce without Realtor cooperation and is spin-free.
July 27th, 2009 at 3:53 pm
Although I agree with the majority of your real estate posts, you keep bashing appraisers as a fundamental problem of the last bubble. Sure there were some renegade cheats, but the majority merely appraised according to the most recent comps, which were ridiculous at the peak, but were completely legitimate. The houses sold for ridiculous prices and it was not the job of the appraiser to judge that. They have to use the comps verbatim because that is actual “market value”.
The primary blame lies with the NAR, the local real estate boards and agents and brokers. They were at fault for misrepresentation especially when they trumped up year over year figures when the sequential data showed that the market was slowing drastically. These monthly press releases found their way into local newspapers (who didn’t have a clue) and of course taken as gospel by millions of homebuyers. Add to that the legions of agents that told their clients to buy before it’s too late and you have an aggregate scam much larger than Madoff.
I’ve been in the real estate business for 30 years, and it always gets bad towards the end of the cycle, but never as bad as the last time.
~~~
BR: That some appraisers were corrupt is a given. But they were only one aspect of a highly corrupted system.
See these for more info:
Appraisal fraud: your home at risk
Appraisers say they’re being pressured by lenders to inflate their estimates of home values.
Sarah Max
CNN/Money June 2, 2005: 9:56 AM EDT
http://money.cnn.com/2005/05/23/real_estate/financing/appraisalfraud/index.htm
Weak rules cripple appraiser oversight
Mitch Weiss
Associated Press August 17, 2:12 pm ET
http://biz.yahoo.com/ap/080817/mortgage_mess_appraisers.html
http://news.yahoo.com/s/ap/20080817/ap_on_bi_ge/mortgage_mess_appraisers
Also, Washington Post
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/17/AR2008081701229.html
July 27th, 2009 at 6:15 pm
Robk, are you a shill? Yes, the NAR is a trade organization, but if they disseminate influential and oft quoted information to the public, they should be held to account. Most trade orgs distribute research data to their constituency and lighten the spin because they are dealing with people that know what the hell is going on.
Your 2nd paragraph buyer agents argument falls flat. Most agents represent buyers often and put their sales goals way ahead of the buyers interests. Does this differ from other sales people? Other than the fact they are dealing with the single most important investment in most people’s lives and has the capacity to ruin them? No. BTW, the commission is part of the seller’s contract but both parties really pay for it. Don’t let them fool you.
“Realtors and NAR are performing an important service to the market…” Honestly, if the entire real estate industry went online with clean and current data, eliminated 90% of agents and required people to hire an independent fee paid home inspector (they could care less if you buy or not) to help them feel at ease, things would improve vastly. 90%, OK maybe 80%, of agents glom on when the going gets good and are pure human waste product as far as providing value-add.
If I sound like I’ve got a bone to pick with the NAR, you are absolutely right. They are huge and certainly must be paying off the right people in Congress.
July 27th, 2009 at 6:34 pm
Oh, and I forgot. The more agents, the more dues the NAR collects. Do you think they are motivated to mitigate the status quo by embracing technology and/or creating more stringent licensing requirements? Ha.
July 27th, 2009 at 8:02 pm
[...] thought Barry Ritholtz at The Big Picture did a good job today putting their complaints into perspective. Remember back during the housing [...]
July 27th, 2009 at 8:38 pm
The appraisal process is a nightmare and banks are scared to death of any lawsuits claiming puffery to value. It’s just more bureaucracy, not additional protections for the buyer. Here’s a perfect example: FHA loans above $417k require two full appraisals. On a $600k sales price one appraisal was $150k less than another AND THEY USED THE SAME COMPARABLES!
Barry, you are the man but you didn’t do your research on this one. Not all real estate agents and loan officers are crooks either. I wish lawmakers would also do their research before over-regulating the market.
July 27th, 2009 at 9:15 pm
robk writes:
“Realtors and NAR are performing an important service to the market by promoting real estate liquidity which is what is expected of them by their customers – home sellers and buyers. Read the NAR spin in that light. I think their factual data is exceptionally valuable and would be difficult to reproduce without Realtor cooperation and is spin-free.”
Substitute “doctors, lawyers, accountants, engineers, and all others professionals,” instead of Realtors, and you have the greatest sell-out of all time, the sell-out of the American professional class. Shame, shame, shame.
July 27th, 2009 at 11:49 pm
[...] thought Barry Ritholtz at The Big Picture did a good job today putting their complaints into perspective. Remember back during the housing [...]
July 28th, 2009 at 6:54 am
[...] post, plus yesterday’s rant on the NAR (More NAR Nonsense), led to a friend at Columbia University asking the following question: “Which of these [...]
July 28th, 2009 at 1:22 pm
Would you expect the National Cattlemen’s Beef Association to educate you on the risks of mad cow disease? Would you expect that they would even admit such risks exists?
Why would anyone think any differently of the NAR? I agree with impermanence above, it’s not just real estate agents.
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MOST HIGH SCHOOL STUDENTS ADMIT TO CHEATING
http://www.schoollibraryjournal.com/article/CA6539855.html
A whopping 95 percent of high school students say they’ve cheated during the course of their education, ranging from letting somebody copy their homework to test-cheating, a Rutgers University professor reports.
“There’s a fair amount of cheating going on, and students aren’t all that concerned about it,” says Donald McCabe, a professor of management and global business at New Jersey-based Rutgers.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STUDENT CHEATING HABITS: A PREDICTOR OF WORKPLACE DEVIANCE
http://www.cluteinstitute-onlinejournals.com/PDFs/571.pdf (PDF 8 PAGES)
From well-known documented research it is evident that cheating has increased at least three fold over the last 65 years. As alarming as this is, the numbers have more or less stabilized over the past 25 years at 70 to 75%.
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July 28th, 2009 at 4:55 pm
Oh come on, mknowles. If mad cow disease was an ongoing national issue, the NCBA would probably say something. It’s part of their job. Other than that, nobody cares about them. On the other hand, every homeowner in America has interest in what the NAR says. What they don’t know is the NAR is a scam perpetuated by millions of useless real estate agents.
July 29th, 2009 at 8:31 am
My wife and I recently tried to buy a house in Fort Myers, Florida. The house was an inheritance by a nephew (lawyer no less) who put it on the market for $300,000 this past january. He lowered it to $215,000 by June when it wouldn’t sell while the snow birds were in the area. We offered $180,000 on it because the house was in extremely rough shape, just to make it livable we would have to immediately drop $30,000 into it. The counter offer was $205,000 and because of my wife’s need to own our own nest, I conceded at that price. We had it inspected, which found even more problems (the pool was pushed out of the ground about 8 inches, termites in the attic, severe cracks in the foundation and several of the concrete, reinforced walls, entire house needed to be cleaned and painted, everything was outdated, appliances and air conditioner made during the stone age) and were good to go until it was appraised. The appraisal came in at $178,000!!! The reason for the lower appraisal was because of what I had factored into my thinking with the original price we offered; the future decline in prices due to over supply of houses. There are still 25,000 houses moving through the foreclosure process, most in the process range of this house, and that does not include houses that will go into foreclosure as the option ARMs recast and people with conventional mortgages lose their homes. I might note that we have a combined income of $160,000, total current debt of $13,000, and about $200,000 in the bank or retirement funds. My average rating of the 3 credit agencies is 810. We told our real estate agent that we would not buy the house at $205,000, the original agreed upon price, because we would have to sink more money upfront than I would want to. The seller is obstinate because he thinks the price is way too low. He plans to bulldoze the house and sell the property for his original asking price!! In his defense, the house has a great view of the Caloosahatchee river. His real estate agent agreed with his assessment, but our real estate agent couldn’t find fault with the appraisal. In my discussion with several real estate agents in the area, they don’t believe prices have further to fall. It’s clear the appraisers and at least this buyer disagree.
July 29th, 2009 at 9:23 am
It is true that NAR is really a special interest group. But is that really the problem or is it just a symptom of the problem. The real problem being the way the government operates. How much money did NAR and NAR members get from the TARP? Now how much money did the banks that lend money to anyone with a pulse get. While the real estate agents did make commissions on the transactions, that again was a byproduct of the banks easy lending standards. And with the banks easy lending standards come the banks control of appraisers. And now when they don’t want to lend money, the banks have lobbied and got the appraisal rules changed to the detriment of everyone else. NAR doesn’t do a whole lot of good but at least they didn’t take all your taxpayer dollars in the form of bailouts.