Buyer’s Market or Appraiser’s Market?

Anyone selling a property right now in the USA is dealing with such a dysfunctional real estate market that it’s almost impossible to see how it’s going to break free.  The government has got the real estate industry so messed up it’s sad.

In any marketplace, buyers set the price.  You can ask whatever you want for a product or service but in the end it is always buyers that determine the price.  No buyers, no sale.  But currently in the USA, buyers by and large are not setting the pricing of real estate, appraisers are – and this is not working.

Because of the fiasco of Fannie Mae and Freddie Mac, TARP, and financial institutions lending money to people who had no ability to repay it, the US real estate market took a severe blow over the past few years wiping out enormous amounts of wealth and equity.

Since then the government has put in place a mind-boggling array of new rules and regulations for lenders that almost nobody can understand and which are doing nothing to help break loose the stagnant values of homes.  The people who established the first round of rules that got the market into this mess have put in place even more rules that are keeping the market in shambles.

What do I mean?

A family wants to sell their home for $525,000.  A buyer comes to the home, likes it, puts in an offer for $500,000 and Buyer and Seller agree.  Buyer goes to lender for a a mortgage.  Lender sends in the appraiser who comes in at $375,000.  The lender tells the Buyer that they’ll do a mortgage but not for more than $375,000, and more likely not for more that $300,000 (80% appraised value), so if the Buyer wants to purchase the home he has to come up with $200,000 cash.  Not going to happen.

So what does happen?  The deal dies, the seller doesn’t sell, the buyer doesn’t buy, the agent makes no commission, the bank lends no money and makes no interest, the family is stuck, and everything just stagnates.

Where’s the problem.  Due to the bailout deals in the past few years, one of the new rules is that lenders now must send out the appraisers when buyers want to purchase property.  Almost nobody is allowed to deal direct with the appraisers, least of which the real estate agent trying to close a deal.

Very often the appraisers are coming from 50, 60, or 100 miles away to evaluate some property in a part of town they barely know.  On top of that, the appraisers income has been cut in half because while he used to be able to earn maybe $400 for an appraisal, now he only earns about $200 because some clearing house that ordered the appraisal for the lender takes a big cut.  All new government rules.

Now the appraiser comes to the property, takes some photos, looks around, measures things and looks at comps.  The comps stink.  What’s the appaiser do?  He mostly goes with the comps.  Why?

1. It’s safe

2. He can’t be blamed for coming in to high or too low.

3. He doesn’t really care, he’s not making the kind of money he used to anyway.

4. He truly has no idea right now how to properly justify the value of a property anymore outside of the comps….so appraisers just continue to mostly go with the comps.

Well if we now have a country full of homes that used to be worth something (and intrinsically still are) but are near other properties that had owner issues, we are never going to break out of the real estate funk unless buyers, and not appraisers, start making the market.

If a Buyer wants to buy your home at the price you want to sell it, you’d think there’d be a deal.  No way, not in 2011.  The bank sends in the appraiser and kills the deal.

Of course there is a place for appraisers, but ultimately Buyers have to determine the price of property otherwise there simply is no free marketplace.  With appraisers only or mostly going with comps, everything simply remains stuck when it doesn’t have to be that way.


The Government Employee Experience

In the past 24 hours I had the joy of experiencing the incredible customer service and attitude that only government employees can deliver.  I’m sorry but everything is upside-down currently.  Either government employees are just upset at life and bitter or they truly think that taxpayers are here to serve them and look out for their needs above all else.

The Post Office:

I have a PO Box.  The payment for the PO box is due every six months.  Mine was due at the end of February.  If you don’t pay the $22 on time they lock the box until you pay it then they open it up for you.  Fair enough.  After waiting in a line of about 15 people I got to the lone clerk working the open counter (the other 4 windows were closed).  I told the clerk that I wanted to pay for the PO box for 6 months.  I always do it in 6 month spans.  The clerk told me that since I was late the box was locked and now she had to get up from her station to actually go unlock the inside of the PO Box… and that next time I shouldn’t be late so she won’t have to “walk over there to open it”  Then she told me I should do it for 12 months not 6.  I explained 6 is what I prefer and she told me that she would prefer it if I did 12 month so she wouldn’t have to do this again in 6 months.  Are we kidding?  Is this my government at work?

The Traffic Court

Last December I got a ticket for getting off the highway and then getting back on the highway in a place where it was not possible to see the street markings on which direction you could turn from where.  I decided I wanted to contest the “transgression” and was issued a court date.   Recently I asked the court if we could reschedule the court date as I will not be in the country on the assigned date.  The person on the phone told me that she couldn’t reschedule because the officer has to be notified and that my two choices were to either pay the fine or cancel an overseas business trip.  I said to the person on the phone that she could not be serious… that she expected me to cancel an international business trip to deal with a traffic violation?

Begrudgingly (and with a lecture to me) she agreed to move the date by 1 month and then warned me that this would be the last time she’s do this for me (it was also the first time).   I was also told by the court’s office that if were to pay the fine up front then there would be no points on my license but if I chose to push the issue and actually show up and fight the charge that if I lose there would be points to deal with on my license.  Are we kidding again?  Is that a threat? Pay up or face the consequences?  Is this my government at work?

The County Property Value Appraiser

I bought a house in 2007 worth X.  In that year the County where I live valued the property for tax purposes at 88% of the purchase price… and taxes were then based on that.  The next year it was the same 88% FMV to actual market sales.  In 2009 the value of the properties in my neighborhood declined – but the county maintained the same dollar value for what they believe is the FMV/Fair Market Value.  This effectively pushed this baseline ratio from 88% to 95%.

Now in 2010 with an appraisal in my hand to back me up, the County wants to maintain the same FMV dollar value for my home even though the value is down again this time making the ratio 99% or almost 1 to 1.

When I called the head appraiser for the county I was told by this government employee that I should be happy actually because effectively I should have been charged more taxes than in years past and what was I complaining about?

When I explained that there is a baseline in place and a solid multi-year history of the country assessing the home for less than real market comps or actual sales, the government employee told me that she would be more than happy to meet me at the Kafkaesque “Board of Equalization” where I could present my case and she would defend her case and we could let the BOE determine how much in taxes I should pay.   Why do I feel that the County has a stacked deck?

When I said to her that when the value of property goes up I would expect to pay more taxes and likewise when the value of property goes down I would expect to pay less in taxes, she simply told me the value of the home has nothing to do with the taxes and that I would have to speak with the Tax Assessors office for that….

Are we kidding?  This is what its come to?  The value of my home has everything to do with the amount of property taxes paid.  I said to her why is it that when it comes to refinancing the home the real numbers in the market tell me the property is worth less yet somehow magically for the government when it comes to paying taxes she tells me my neighborhood is solid and has be very stable without any decrease in value.

All in All

I’m just about speechless when it comes to the arrogance and audacity of so many government employees who somehow seem to think that I and other taxpaying citizens are there to take care of them instead of the other way around.

Is this my government at work?

Why would we/do we even consider putting any more operational things in the hands of government?  By and large, it seems to me that government employees simply think they are entitled to the role they fill and that I and other taxpayers simply need to get with the program.

Who in their right mind would want government involved any more than they are in Healthcare?  This has got to change.  There are too many government employees, too much waste, and not enough service.

There is absolutely no incentive for government employees to compete.  It doesn’t matter if they work fast, smart, or productively – you’re there to serve them.  You got it!?