Home Appraisers: A Market Failure?

There’s an interesting sign of homebuyer champing at the bit to lever up again with all the “housing has bottomed” talk in a New York Times article last week, “Scrutiny for Home Appraisers as the Market Struggles.” The headline signals the new complaint about appraisers: they aren’t rubber stamping deals entered into by willing buyers and sellers! They are therefore holding back the housing market!

While this frustration among housing enthusiasts is a squeaky wheel in the housing market that probably does warrant comment by the Grey Lady, there are more serious market failures in appraisal land that also deserve attention.

In fairness, the Times tries to play this story straight, patiently pointing out that appraisers work for banks,and their job is not to act as a dealmaker but to protect lenders. What is shocking is perspective of homeowners and brokers, that a mortgage is a right and the appraiser is an obstacle. When I was a kid, I bought apartments twice in the 1980s, and it was clear that whether the appraiser would give a valuation high enough for me to get the sort of mortgage I wanted was an open question (duh, that’s why anyone who is not making an all cash purchase has, or should have, a financing out in the down payment). But appraisers are now getting so much heat that you see at the end of the article that appraisers are defending their role in saying that they protect buyers. That’s true only as an accidental by-product.

But there is a legitimate question about how appraisers do their work, as in how they look at comparables. The problem is that any form of collateralized lending has a strong propensity to generate boom-bust cycles. If the price of a widely held asset rises, everyone looks richer and banks are willing to lend more against it. And as more people look richer and banks are willing to hand out more dough in the form of secured loans, they can bid up all sorts of asset prices. An appraisal can be a brake by being backwards looking, but in general, if a market is rising or falling, it will in general apply only a slight deceleration on the trend. And as we’ve seen, in frothy markets, the conservative, careful operators will tend to lose out to the more cooperative ones.

And the problem of appropriate selection of comparables is particularly acute, ironically, in allowing for the value of an important shift in homebuilding and renovations, that of greater energy efficiency. Now some appraisers do incorporate this type of construction in their valuation process, but from what I can tell, it’s a small minority. I got this report from a regular reader:

I recently was at an ‘energy summit’ in Appalachia, the sole purpose of which was to figure out ways for appraisers (and state housing finance agencies) to more explicitly give appraisal value to energy efficiency steps built into a house…. a very eloquent leader from one state’s appraiser association emphasized that appraisers do have flexibility to do this but most of the time most of them just focus on ‘comparables’. The point is that we’ve now figured out tons of ways to have much more energy efficient housing — and that has real cost advantages — yet our ‘system of housing’ is ‘behind the times’ because thousands of appraisers have no clue, no motivation, no impetus for doing the work to recognize this value in a way that is accurate.

The picture presented there was that the vast majority of appraisers the vast majority of the time base their work on comparable sales with, at best/most, small adjustments for ‘other things’. But, even then, the picture painted was comparables, comparables, comparables — only comparables.

This aspect bedevils nonprofit housing groups in places like Appalachia. These groups, by the way, really focus on delivering quality housing (e.g. better roofs etc). Of course, they do this within certain budget constraints — but, again, the whole point of making housing affordable is understood by the best nonprofits to mean ‘affordable over the life of the house’: hence, good construction, efficient energy steps, etc.

However, what happens when appraisers fail to take quality construction and especially energy efficiency into the valuations – and only look at ‘comparables’ — is the fostering of what the nonprofits call ‘an appraisal gap’. A home that costs, say, $110,000 to build is appraised at, say, $80,000 .. meaning less financing available … meaning that unless the nonprofits can come up with creative subsidies, the family doesn’t/can’t get into the home.

Several of the speakers — including the impressive head of one of the state appraisal boards — illustrated the fallacy of all this when it comes to energy efficiency. His example (and others had almost identical examples) was a newly constructed energy efficient house that cost $108,000 versus $100,000 for a “normal” house — and, as a result, over the first seven years of homeownership saved the family $13,000 in direct savings off utility bills. (And, of course, over the useful life of the house, much more…and that might not allow for other, smaller but nevertheless meaningful ongoing maintenance savings due to better construction).

But, the way most appraisers work, he said, would be to give zero value to this… and if comparables were, say, $95,000 .. the gap exists…..

To me, this was the perfect picture of a market failure. As I pointed out to the conference, ignore that this is about housing.. just look at it in terms of cash flows. Essentially, the ‘market’ is failing to finance — entirely failing .. at any price – a seven year $13,000 cash flow with that has up front $8,000 ….. (and, as said, it’s really even more return cash if one looks out over 10, 15 or 20 years).

I pulled out my trusty HP 12C. I get an IRR of 13.8%, assuming the $13,000 savings are equally divided over the first 7 years. So the reader is right, the investment in energy efficiency is clearly attractive, yet appraisers for the most part either can’t be bothered to do the extra work or are unwilling to go outside their comfort zones.
And for my money, this sort of market failure among appraisers is more significant than buyers who need to borrow to finance their purchases being upset that appraisers aren’t as enthusiastic about the housing market as they are.

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  1. Bert_S

    Well, I sympasize with the appraisers. I can’t tell if I’m looking at an “energy efficient” house or not. And I have tried to find out any way you can tell one from the other (ok – double pane windows are pretty easy).

    One exception here is our local power comapny had a program were they partnered with builders in new construction and would inspect and certify that the house was built energy efficient. The power company then extended some sort of electricity discount to buyers.

    But the real thing to do is pass building codes for the “big bang for the buck” items – which even in our high tech world is still lots of cheap insulation. Next comes building it without big leaks.

    1. gronk

      It’s even worse: you have ‘construction value’ (the amount of cash you have to pay to construct a energy-friendly home) and resell value. Those two typically aren’t equal. You see the same thing with those granite tabletops in kitchens, and design bathrooms; on reselling you have to depreciate them for x%, even if you resell the home a month later.

    2. Nathanael

      It’s not so hard to tell whether a house is energy efficient; blower door test and infrared scanner will do nicely.

      Yeah, those are *slightly* involved (particularly the blower door test).

  2. Ross Grannan

    I am an appraiser and have for a few years given “extra” value to energy effiecincy on the subject of the appraisal, the problem was until recently was the consumer never recognized the inherent value in energy efficiency and resulting cost savings. In the northeast with the rise of oil and electricity prices in the past 5 years has been a rude awakening to homes owners and in a competitive sellers market energy efficient homes now are starting to reflect their superiority to other non efficient homes. It may seem obvious that these homes should always have had a higher value, but the real estate market is always based on perception of the buyer who generally operates on emotion more often than not.

  3. Conscience of a Conservative

    About that Appraiser piece put out by the times….
    The appraiser works for the banks, not for the home buyer and certainly not the for the real estate agent.
    The N.A.R. is a trade group and lobby and it’s disgusting how they constantly attempt to jawbone the appraisal groups to loosen lending standards for no other reason than to increase their commission flow. The suggestion that the real estate brokers have put out, that they are altruisticly concerned about the health of the housing market is laughable.
    In a normal market competition would solve the problem of
    appraisals and ltv’s with banks rushing to make and retain more loans if they thought the risk was over-estimated, but the mortgage market is not a normal market. Mortgages, once originated, are sourced to Fannie & Freddie who have LTV and balanace guidelines/restrictions. Getting an appraisal done higher makes the ltv appear smaller and it’s the tax-payer not the bank and certaintly not the real estate agent who bears the credit risk.

  4. Clive

    I too have to have a bit of sympathy for the appraisers. It’s wrong, but they have a job to do at the end of the day…

    For example, let’s say I pay out an extra $1000 to have a 20+ SEER central air / heating system installed. Or, even better, I make some design changes to allow a configuration of 24 SEER mini splits to give true zoning control and this requires $3000.

    What the appraiser has to do is work out what the house / apartment’s value is should the borrower default and the property has to be realised in a foreclosure / other type of fire sale.

    The “market value” of my energy saving measures ? Precisely $0. Most buyers just want to know if the property has central air or not. A few might be interested in taking advantage of my investment in energy efficient heating and cooling — but it wouldn’t be a deal-breaker.

    So, it *is* a feature of the market. It’s just that, again, the market cannot be relied upon to do what is “right”.

    1. Jim Haygood

      Quite right. Interesting that you use mini-splits as an example. Though these efficient ductless units with the compressor outside and the evaporator/blower inside are ubiquitous elsewhere in the world, ducted whole-house central air remains the customary standard in the U.S.

      I’ve seen americanos actually balk at mini-splits — ‘What’s that ugly box on the wall over the door?’

      So the reality of the U.S. market, where usually the whole house is heated and cooled even when only one room is occupied, is that energy efficiency is not highly valued except by a subset of educated buyers.

      1. beene

        The real cost of heating and cooling is the initial cost of heating or cooling the structure; savings comes from the time it takes for the structure to loose heat or cooling. If the building code require minimum outside studding and insulation, plus all pipes extending threw floors sealed with foam is a better system than split system in my opinion as if trying to save by having cold spot in a house cost more as the heated area is always drawing the heat, causing the h/c system to constantan cycle.

        1. Clive

          Yes, you’re absolutely right beene — it is best to fix the quick, easy and inexpensive things first. Insulation, weather striping, caulking up holes in the walls etc. etc. should always be the first line in energy saving for residences.

          My original comment was to illustrate a point where the capital cost of something that saved the person who lived in the house in the long term didn’t get allocated the correct “market value” for the wrong reasons (because the “market” didn’t recognise the “value”).

          The solutions to making better use of both good insulation practices and more efficient heating and cooling systems are the same regardless:

          1) Mandate minimum standards in the building code
          2) Subsidise first cost
          3) Make the energy efficiency standards requirements for FHA loans
          (or some combination of the above)

          Oh, silly me, of course we can’t possibly do that because “it distorts the market”…

    2. alex

      Wow, never even heard of mini-splits, the absence of which was one of my big reasons for not installing central A/C.

      It might be helpful if a system for making an honest objective of the energy costs of a home could be put in place, like they have EER’s for major appliances and EPA mpg ratings for cars. Of course it would be more complicated for houses since they’re typically built one at a time or in small batches instead of in a large volume factory. But it could still be done, and the cost estimates would of course have to take into account local climate and local energy prices (I get a laugh out of EER’s on appliances where EER’s usually say $X/yr for $.xx/kw-hr, because my electric rates are higher than the max they list!).

      Not everyone is going to take those estimates into account, just as they don’t for EER’s and mpg’s, but it would allow people too. It would also give an objective number to plug into cost/value computations.

  5. ArkansasAngie

    Can we talk value?
    As an investor I think in terms of income (notice I’m not a speculator). So … How much will it rent for is my question.
    We have lost sight of economic value and instead focus on … what? The greater fool theory?
    Wanting to own a house and being able to afford it are not the same thing.
    I’ll take my disinflation on the front end please
    You go ahead and hold your breath for inflation to bail you out if you want

  6. seabos84

    this actually makes “sense” … IF you have mechanisms for capturing the costs and the savings of GOOD decisions – ex. better roofing materials, better construction of roof – then you are going to capture the costs of BAD decisions.

    Since senior American management’s first concern is their mansions, mistresses, jets and yachts, WHO wants to be held accountable or responsible for the unpaid for traffic messes and crap drainage and roads that will fall apart in 6 years instead of 40 years – nevermind the particulars of the house people are actually living in!

    Quality costs money, and even if I put 50 grand into a 1988 Ford Festiva, it is still a Festiva – somewhere in the middle is a broad sweet spot of extra cost up front which saves a bundle over time. I do not think the math of determining that broad sweet spot is as complicated as the math of trying to travel to Mars in a ’64 Chevy with a case of beer and a 50 pound bag of carrots.

    think about it – measuring good decisions making means you’ll end up measuring stupid decision making, too …


  7. DP

    Another issue with appraisals is that they don’t take into account home improvements that the new owner is going to pay for with cash. I’m closing on a house this Friday which fortunately for me appraised for about 5% and 15% higher than my purchase price using comparables and replacement cost. I’m putting 20% down in cash and am going to invest an amount about equal to the down payment in cash to improve the property in the first 6-8 weeks after closing before I move in: complete gut and replacement of two dingy bathrooms, hardwood floors to replace dingy carpet in several rooms, new gutters, new kitchen appliances, new paint inside and outside.

    So from the perspective of the lender being protected, even with a conservative haircut to the cost of the improvements I’m making, the loan to value after the improvements will only be about 65%. And I’m financing with a 15 year fixed rate mortgage (2 7/8%, if Uncle Ben is giving away money might as well take some), so the LTV will shrink over time even with no appreciation or slight depreciation in the house because principal will be paid down so quickly.

    My lender said the appraiser would only consider the property as is. I would have been willing to sign a contract to the lender on the improvements I was going to make and to put a good chunk of cash into an escrow account to be used for the improvements, but there is no mechanism to allow for that.

  8. Tom Stone

    Although I know do RE sales I have held an Appraiser’s license and my father was an Appriser and expert witness in the SF Bay Area for decades. I see several problems in my little corner of W Sonoma County with Appraisals. One is that Appraisers are not paid enough to do a decent job, one is the way the business is structured “Appraisal Management Companies” skim fees and if the Appraiser doesn’t toe the line, no business. And the third problem is a lack of familiarity with the area, exacerbated by the low fees. I saw a beautiful 3.5 acre horse property fall out of escrow because the appraiser gave no value to the barn,stables,cross fencing and arena. The seller is a nationally recognized horse trainer who spent hundreds of thousands of dollars turning this into the finest small horse property I have seen in years. No value. Rumor has it that “Appraisal mills” with one supervising appriser and many trainee’s have proliferated, from what I have seen many Appraisals seem to have been done entirely on line with no visit to the property. They do not mention significant issues affecting value that no one who had physically visited the property would miss.

  9. Jeff

    “My lender said the appraiser would only consider the property as is.”

    That is based strictly on instructions from the lender. The appraiser can prepare and “as-improved” appraisal, but the lender dictates those assignment conditions, not the other way around.

    1. DP

      I said lender but actually it is a small bank that will originate and immediately sell the loan. I’d guess it is a lot more work to do an “as improved” appraisal (what kind of materials are you going to use, how to ensure the work is done properly, etc.) and make sure it meets the requirements of a 3rd party, so perhaps the person I’ve been dealing with didn’t tell me about that option if it even exists at her bank. The appraisal came in OK as is so it wasn’t an issue, but in a lot of cases improvements would turn a loan that was rejected because of the appraisal into a well secured loan.

  10. anon y'mouse

    if the point of energy efficiency is to save money (debateable i guess, since the point is ostensibly to save energy) then charging more upfront means that there will be no savings to be had. this is rather like why it’s difficult to sell most people on solar panels, because essentially you’re saying “pay 30k up front now, or pay $200+ a month for electricity for the next 12 years or so.”

    it might be a nice selling point (increases comfort), but if price is what’s important to a purchaser it will be rather like considering whether to buy a home or not because it has an extra bathroom. it’s a cost that they can choose later to take on or not, as it will mostly benefit just themselves while living there.

    this would only make saving-money sense if utilities give a discount when energy use drops under the level that a typically built house that size would normally use, or even a property tax rebate. we need to incentivize towards choosing the energy-efficient path. if people see it merely as another 10-15-20k on their house price, that’s a difficult sell. especially if they have to pay interest on that extra ‘value’.

  11. TedWa

    The appraisal profession is full of less than suitable appraisers because of the banks. WAMU had a “do not use” blacklist of appraisers that would not make the value they needed to do the loans. WAMU and Eappraiseit (an AMC) conspired together to raise home values across the country. Cuomo found over 240k fraudulent valuations done by these 2 all across the country in an 18 month period from 2006-07. That alone could raise values exponentially as fraudulent valuations that become market sales had to be used by ethical appraisers that would not inflate values. B of A just paid a billion $ fine for fraudulently inflating values – of course with no deep investigation into their manipulation of appraisers or any admission of guilt. All the banks were hiring only those appraisers that could not find work on their own so had to work for AMC’s and get whatever value was needed to stay busy. Thanks to Cuomo and his HVCC, that handed all retail appraisal work over to the banks that caused the problems, most smart and ethical appraisers have left the field – leaving the appraisers that were never supposed to be appraisers steadily employed and working for the bank owned AMC’s at reduced fees. And you expect quality and independent valuations??

    But I digress. I try to tell appraisers that energy efficient homes are a different kind of quality than your typical home – and that they need to be valued on a level cost for cost basis with homes that don’t look the same, but cost the same to build. Hard to get through to these numbnuts that never should have had a career as an appraiser but only do because the banks like appraisers they can control and Cuomo and the government has given them that power over in appraisers in spades. Bank owned AMC take/skim up to 50% of the appraisal fees. Most appraisers today are not independent and really can’t think independently.
    Disclaimer : over 20 years experience as an independent RE appraiser. Pre-meltdown, if I didn’t “make” the value of the home for the sale, the banks I did work with understood, trusted my abilities and it didn’t lose me any work. I consider my job as a protection of the public trust. We are not supposed to be advocates for anyone in the transaction – but when you have bank owned AMC’s controlling appraiser and hence values, that independence is gone.

  12. TedWa

    One more thing. I’ve heard of many instances of bank owned AMC’s insisting values be lowered from the value in the appraisal report, even inserting their own low comparables into the reports – and this has been going on for years. That is happening for only 1 reason that I can think of – the AMC’s need to prove their value in the process to onlookers so they need to look like they’re doing something (when they’re not). These AMC’s do not care about the borrower/customer. Their bottom line is that they need to stay in business and continue to skim appraisers fees. It’s not always the appraiser coming in low – but you, the borrower, will never hear about the hand the AMC’s had in the low valuation that blew your deal.

    Personally, I’ve always thought that we appraisers are there to help the bank in their loan decision by giving a reasonable range of value – not hitting a “number”. We tell them the range of value and they make their decision with all the information they have. The banks have again avoided responsibility for their loan decisions by basing the loan on the appraisal hitting the number needed. It’s expensive to be an appraiser because of this. Besides, if the banks base the loan amount solely on the appraised value, only the appraiser is to blame. Solution – take banks totally out of the valuation process. Do not let them own AMC’s and allow anyone to order any appraisal – even the consumer. That was normal pre-HVCC. If you have a problem with the appraisal, pay for an independent appraisal and find someone experienced that knows what the complexities of your valuation are, ie.. energy efficient homes. You can throw that valuation in the banks face and they will have to pay attention.

  13. Siggy

    It’s a pretty simple proposition, the home may well be very energy efficient: but, the issue is will the market pay for that efficiency?

    The comparables are the key point of challenge. Are they truely comparable?

    Who does the appraiser work for? Typically and AMC that has been engaged by a Federally Insured lender. Then it gets to be 20% equity and an 80% LTV or the deal collapses. Who’s to blame? Why the appraiser of course.

    I see this article as propaganda put out by NAR, the folks whose mission in life is to collect a commission. Why not consider that the house is over priced?

    Now, how does an energy efficient house deserve a premium in price over a non efficient house. What’s the R rating of the insulation? What’s the quality of the windows, the HVAC Unit and the Water Heater? Is the house all electric or Gas or Coal or Oil heated? How old is the house? Who built the House? At $400 a pop, how much time can the appraiser devote to appraising the propety? And where might the comparable data come from? MLS or County records? Possibly the buyer and/or the seller?

    Let’s suppose that the energy efficient house has an operating energy efficiency of $100 per month. That’s $1,200 per year. The NPV of that savings, assuming a discount rate of 2% (10 YR Treasury) is $10,944 (HP12C). If interest rates go up, the NPV will be less. Let’s further suppose that the house has a current market price of $250,000, the 6% commission amounts to $15,000. Were I a buyer, I’d be more concerned about the commission amount because that’s pretty much built into the price because the seller is paying it and he will push for a price the covers the commission.

    Blather all you want about the sleazy appraiser, he’s not the culprit today. Look to the unprosecuted securitization fraud that created house prices that exceeded even an energy efficient consideration.

  14. Susan the other

    The trend is against housing, and mortgages are long term agreements. But real estate is all over the board. There’s a curious volatility going on. Location still plays the biggest role in valuation. All comps are local. Even so, some of them are ridiculous. We’ve had 3 excellent appraisers over the years, all of them totally professional, informed, intelligent and meticulous. They were expensive, independent, established appraisers who were highly recommended. Most recently we have experienced another kind of appraiser. Two in the last 3 years. These two are virtually incompetent. In fact we could clearly see they were idiots and we told them if they did not perform as we expected them to, i.e. professionally, we would not pay them. And we didn’t, instead we picked apart their appraisals and pointed out not only lazy sloppy errors, but what has to be an underlying bank bias to devalue housing because the trend, the demographics, loom large. But regardless of the banks’ equations, these last two appraisers were dumb as stumps.

  15. dirtbagger

    For the size of the paycheck, asking the appraiser to be an energy efficiency guru seems to be a bit of a reach. One of the major roadblocks to incorporating cost effective energy efficiency into housing is the home building industry. On-site construction of stick framed homes belongs in the dark ages. As any homeowner knows or soon learns, construction quality and energy efficiency of on-site constructed homes can vary substantially. This holds true even in pre-planned developments which offer only a handful of model home choices.

    If it was politically feasable to regionally harmonize building codes that crossed state lines, it would allow the modular home industry to flourish. Currently, building code restrictions vary from county to county. These code differentials are essentially subsidies to protect local/national home builders from modular home competition. With modular homes, energy efficiency would be certified at the factory level, housing would have a more consistent quality, and would be more affordable. This would allow Appraisers to be primarily concerned with the basic comps such as home size/layout, location, school district, etc.

    1. Nathanael

      On-site houses are great if you’re a customer commissioning your dream house.

      Did they ever make sense for speculative developments? I doubt it.

  16. Voltron

    Appraisers should look at what the place would rent for and nothing else, even if it is supposed to be owner occupied. That would help prevent bubbles from forming.

    1. Voltron

      In California, when house prices were bubbling up, rents were flat or going down as supply went up. All bubbles involve leverage (credit). Rents are paid out of income, not credit. Also, if anything unexpected happens to the owner or the owner’s job, the owner or bank can probably rent the place out., but may not be able to re-sell it at the inflated price

  17. bluntobj

    Ya know, back in the day we had another meaning for the professional designation “MAI.”

    “Made as Instructed”

    Bank wants to make lots of loans to sell to Fannie? Appraise that sucker up!

    Bank wants to make low LTV loans so they can make serious profits should anything not go their way? Appraise that sucker down!

    Scum commerical property brokers / financiers want to sell office/industrial at low cap rates to yield hungry REITS or desperate 1301 exchangers? Put in the silly “value adds” like utility savings and bump up that projected cash flow baby!

    Non-profit housing programs are needed, but to add in “utility savings” as an increase in the “value” of the home is not a wise choice. No factor for future utility rate increases or consumption patterns is included, and grossing up the value of the property based on intangibles is the same kind of thing that got subprime in trouble in the first place.

    In the end, no one wants to buy junk; neither banks or investors want to be left holding the bag on a fat capital loss. They would much rather pass the risk to others, wether that is the taxpayer or the homeowner.

    From personal experience, real estate investing has always been about sorting out the BS from value, and trying not to get shafted from “optimistic assumptions” or a shark broker. This is no different. MAI has always worked in the banks favor, and this situation of lowball values is no different. The irony is that no one had a problem grossing up property values for people who would struggle to make a payment, but now when the shoe pinches the other foot there’s an outcry…

  18. Kurt

    You want to discuss appraisal market failure then read TedWa’s comments. Pre-meltdown 2008 the vast majority of appraisers were independent professionals that turned out quality appraisals. Then after the WAMU/Eappraiseit fraud, Cuomo hastily pushed the current AMC(appraisal management company)appraisal system through a clueless Congress. Now mortgage loan officers must blindly order appraisals from some faceless AMC and are forbidden to have any communication with the actual appraiser. The AMCs, of course, are all large-bank owned and take 40-50% of the appraisers’ fees for “managing” the appraisal (i.e they make a phone call). The quality appraisers, having lost their independence and half their revenue, have, consequently, left the business. So our government einsteins have now enabled the large banks to control the appraisals via their AMCs and the borrowing public is paying higher appraisal fees for an inferior appraisal product. Just one more outrage from Wall Street controlled beltway.

    1. TedWa

      “Appraisers work for banks.” –The End

      I don’t, I work for myself and if I feel that my ethical integrity is being compromised by anyone – I don’t deal with them. When brokers were going hog-wild demanding higher values in the run-up to the bust – I just hung up on them. And so did most ethical appraisers. The TBTF banks didn’t like honesty or integrity – there was no profit in it. So they focused on hiring only those appraisers that would make any value they needed.

  19. Smokey

    “Appraisers work for banks.” –The End.

    In other words, they were and most likely are still the root of the systemic fraud that has captured the entire industry since. When the first question is “so, how much was your offer?” you know it’s a sham. Banks kick back “appraisal” business in volume thus completing the racket and inflating pricing bubbles that can only go up. Who loses? Everyone not paid a commission or fee.

    Show me an “honest” appraiser not running prices through the roof and I will show you Jesus fucking Christ.

    The entire RE market is still mark-to-fantasy, and no amount of central bank levitation and Congress suspending the rule of law can keep prices up forever. There is a guaranteed housing crash two generations deep when reality is not measured through fraud-fiat currency bullshit.

  20. JimSeattle

    There are several issues going on with this discussion. back to the orginal question – recognizing green values, the orginal author noted an IRR of 13.8%, however he fails to consider that this is Investment Value and not Market Value. While a buyer might be willing to pay as much as $8,000 more, he only has to pay $1 more than the next highest buyer to “buy” the property. the IRR improves to 185,714% with a $1 above the next higest offer, if he foolishly paid $6000 more than the next highest offer, his IRR would have improved to only 24%. Market value is what would the typical buyer pays, not what the least well informed buyer is willing to pay. When the market on average recognizes green values, appraisers will too.

    2nd, one reason that the banks don’t want to hire (and pay for) quality appraisals is that their research found that the reason that most loans went bad was due such things as medical problems, unemployment, etc. rather than a problem with the value of the real estate itself. They took the why pay for quality when it does not significantly reduce risk approach. Fees for appraisals of the typical residinece for residiential mortage lending range from $250 to $650 – but for litigation (where the parties care alot about the values) fees for appraising the same house would be from $3000 to $4000.

    1. TedWa

      “one reason that the banks don’t want to hire (and pay for) quality appraisals is that their research found that the reason that most loans went bad was due such things as medical problems, unemployment, etc. rather than a problem with the value of the real estate itself.”

      That logic is totally indefensible. The reason the banks don’t want to pay for quality appraisals is because with experienced and ethical appraisers they wouldn’t be able to control them or home values. They are making tons of money skimming appraisers fees and they don’t want to give that income stream up. See, it took massive fraud/crime for the banks to get as big as they did and it’s going to take more fraud and crime to keep them as big as they are and growing. In the meltdown loans went bad because the ponzi was falling apart. They controlled the ratings agencies, mortgage brokers and the appraisers through control fraud. There is no correlation between the banks paying $250-$650 per appraisal and parties in the transaction (buyer and seller) taking court action against each other.

  21. Amy Malloy

    What about having a Home Energy Rating Score (HERS Rating) audit performed on the house to calculate a rating? Ratings based on the HERS Index are gaining momentum as a reliable meaure of a home’s level of energy efficiency. The U.S. Department of Energy recently made several upgrades to their building technologies program, called Challenge Home, including the requirement of a HERS rating certificate to qualify for the program. (see http://www.everblue.edu/blog/resnet-ratings-qualify-doe-challenge-homes). The EPA also uses this rating system to qualify homes for the ENERGY STAR program. Certain federally sponsored mortgage products also require HERS Ratings to qualify applicants.

  22. Anonymous

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    property valuation

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