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THINK REALTY 9  News & Events

38  Does Investing in Condos Ever Make Sense? Opportunities and risks when investing in condos. by Andrew Syrios

Updates from around the industry.

NOMINATIONS NOW OPEN! Learn more on pg. 8

BUSINESS FUNDAMENTALS 42  Planning for the Future:

The Impact of Marijuana Legalization Planning for marijuana legalization and how it impacts your property. by Lukas Krause

10  Citrix-Podio Provides a Secure File-Sharing Solution An industry-leading file-sharing tool for the on-the-go investor. by Editorial Staff

46  Benefits of a Certified Residential Management Company (CRMC®) Designation by Lisa G. Noon, CAE RCE

INVESTOR STORIES 12  From Serving America to Owning a Piece of It

Steve LeBlanc becomes master and commander of his destiny. by Jeff Edwards

MINDSET 50  Lessons from Failure Jasmine Roth shares takeaways from missteps. by Bobby Burch 52  Asking the Right Question With empowering, insightful questions, you get a better result for your business. by Deborah Razo

STRATEGY 26  Gathering Risks Make 2019 a Challenging Year for Mortgage Lenders Uncertainty in the housing market requires dexterity and foresight by lenders. by Tendayi Kapfidze 30  Rental Markets with the Most Upside Renting is now more affordable than buying in more than 50% of housing markets. by ATTOM Data Solutions



Will AVMs Create aWorld WithoutAppraisers?

54  Managing Property and Liability Risks When Renters Move Cultivating a loss-prevention mindset. by BreAnn Stephenson

32  To Rent or To Buy [ Infographic ] How opportunity zones can provide prime real estate investing prospects. by ATTOM Data Solutions

MARKET & TRENDS 56  Maryland: An Attractive Place to Invest Real estate investing opportunities around Baltimore, MD. by Joel Cone



34  Instead of Flipping Houses, Become a House Flipper's Buyer Rental-property investing to build your portfolio. by Abhi Golhar





36  What Makes a Good Real Estate Note? Critical factors to consider when investing in a real estate note. by W.J. Mencarow

62  Going Back to School 15 college towns with investment opportunities. by Ingo Winzer

Utilizing social media as a brand-promotion strategy.

Three potential issues that are both risks and opportunities.

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PUBLISHER & CEO Eddie Wilson



SALES MANAGER Rodney Halford 816-398-4111 x86122 NATIONAL SALES MANAGER Teresa Stanton 816-398-4111 x86224

Our Industry Evolution


hange is in the air.

And with these changes, comes another internal change at Think Realty that I’d like to share with you. I am hap- py to welcome our new Edi- tor-in-Chief, Kelli White, to the team. Her experience in magazine publishing is sure to bring more positive changes to our publication. This is just another reason to look forward to Think Realty Magazine and Think Realty’s Housing News Report each month! Amidst this change and growth, one thing will remain constant, Think Realty’s pas- sionate commitment to be a trusted re- source for you. Our core focus is to provide products and services focused on serving the Real Estate Investor and we aim to con- tinue to do just that. I hope you enjoy and benefit from all Think Realty’s trusted resources as you continue your journey. We are excited to grow along with you and anticipate more transforming possibilities to come. •


As a new season is upon us, a season of growth and renewal, we welcome you to the second issue of Think Realty’s Housing News Report . Filled with more quality content, more data-driven intel, and more material



CONTRIBUTING WRITERS Jeremy Brutus Bobby Burch Joel Cone Jeff Edwards Abhi Golhar Tendayi Kapfidze

to support you on your road to investment success, this publication is evolving as is our industry, and as are we. Change is good! In addition to offering an ever-evolving in- formational approach to better understand- ing real estate markets and trends, Think Realty is also transforming benefits for its members and affiliates. As CEO of Think Re- alty, I am pleased to announce that now our Resident Expert videos are available online at no charge to you. Formerly called Think Realty Coaches, our Resident Experts share their experience and knowledge to help you gain invaluable insight into your real estate businesses and investments. Log on and check them out!


Lukas Krause W.J. Mencarow Peter G. Miller Lisa G. Noon Deborah Razo BreAnn Stephenson Andrew Syrios Ingo Winzer

Like, Follow & Share for the Latest Real Estate News, Trends and Insights from Think Realty

Are you following Think Realty on social media? Things move pretty fast in real estate. Don’t miss out on the latest trends, tips, insights and news from your trusted resource for all things real estate investing! Follow. Like. Love. Share. Comment. You can do it all with Think Realty’s social media channels. Join the conversations in Think Realty social communities and connect with like-minded members who range from first-time to seasoned investors. Check out all of our social media channels and connect with us - and other investors - today!

Think Realty 7509 NW Tiffany Springs Parkway, Suite 200 Kansas City, Missouri 64153 816-398-4130 Copyright ©2019 Think Realty ABOUT THIS MAGAZINE :: ThinkRealtyMagazine isapublicationof AffinityRealEstateMediaLLC.Reproductionoruseofanyeditorial orgraphic,withoutpermission, isprohibited.Wearenotresponsible for thecontentofanypaidadvertisements.Forreprintrights; toob- tainadetailedstatementofourprivacypolicy;and forallsingle-copy requests,addresschangesandothersubscription inquiries: FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $36/month in the U.S. Order online at or call 816-398-4085. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating.



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Think Realty is a part of the Affinity Worldwide family of companies. Here, find exciting news about Think Realty and its sister companies, as well as other noteworthy industry news.

Think Realty's Core Focus is to be the trusted source in the Real Estate Investment Industry by providing products and services focused on serving the Real Estate Investor.


Come See Think Realty at These Upcoming Industry Events!



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Think Realty is hitting the ground running in 2019 with these industry events. Don’t miss booths, speakers, and resources from us at:

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EDUCATION An investor, company, or association excelling in providing real estate-related education. This includes, but is not limited to: mentoring, consulting, teaching, reporting, educational & instructional content, data analysis and broadcast media. PROPERTY MANAGEMENT An investor or company excelling in property management of single and/or multifamily real estate investments. HUMANITARIANISM/COMMUNITY DRIVER Formally titled the R. Michael Wrenn Humanitarian of the Year award. Granted to an individual actively in the real estate community improving that community or benefit- ing another community by way of real estate investing. MASTER INVESTOR Think Realty’s Master Investor of the Year is an individ- ual with a proven track record of success, integrity and service in the real estate industry. LINDA'S LEGACY: INDUSTRY IMPACT Linda’s Legacy: Industry Impact Award is named in hon- or of Linda Liberatore, a champion of the REI industry who pioneered industry innovations and paved the way to success for the many investors she mentored along the way. In tribute to Linda, this award goes to a real estate investor who exemplifies creativity, integrity and financial success, and is changing or shaping the con- versation about real estate and real estate investing.


change-makers of real estate today. Anyone can nominate a colleague or business associate in the following categories:


SINGLE-FAMILY INVESTING An investor excelling in the single-family sector, using any strategy related to single-family residential real estate. MULTIFAMILY INVESTING An investor excelling in the multifamily sector, using any strategy related to multifamily real estate. This includes, but is not limited to: apartments, condominiums, cohous- ing, duplexes and larger multiunit investments, townhous- es, and other intentional, multifamily communities. COMMERCIAL INVESTING An investor excelling in the commercial real estate sector, using any strategy related to commercial real estate. This includes, but is not limited to: retail space, office space, industrial space, restaurant space, corporate leasing, mixed-use development, new construction and develop- ment and community master-planning & development. PRIVATE LENDING An investor excelling in the private lending sector, using any strategy related to private and hard money. REAL ESTATE INVESTING SERVICES A company or association excelling in providing real estate-related services. This includes, but is not limited to: property management, remodeling, contracting, investment management, software development, data management, web-based investing platforms, social media and crowdfunding platforms and communities.

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by Editorial Staff


uilding a robust, unified portfolio that is also flexible

tors are constantly working on deals, property management or other work. Citrix Podio’s ShareFile Workspaces provide a safe way to send real-time, secure, confidential documents.This includes document sharing but also apps, browsers, and operating sys- tems like Linux and Windows. Managing properties and follow- ing up on leads may monopolize your efforts. With Podio’s ShareFile Content Collaboration, investors can request and execute tasks that require signatures with the devic- es in their hands. The Citrix Podio advantage is, signatures can be requested and returned securely, in real time, cutting down on phone tag, general lag, and some of the other time-sensitive casualties of bureaucratic red tape. NO. 2 Request & execute electronic signatures

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and easy to access “on-the-go” can be an obstacle for the biggest firms on the market as well as the DIY real estate investor hoping to work smarter to maximize his or her portfolio. With the growing need for organizations to mobilize their busi- nesses, the ability to sync and share files with employees both inside and outside of the organization is a criti- cal part of daily work. Citrix Content Collaboration is an industry-leading file sync and sharing solution that answers the problems posed by the mobilization of investment realty. Here are three important aspects of content collaboration every investor should be aware of: NO. 1 Secure document sharing This aspect of Citrix is the most used by real estate investors. Inves-

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in mind, Steve opted to follow the family tradition and enlisted in the United States Air Force in 1998. Stepping into the world of aircraft maintenance, he took well to the Air Force and promotions followed him quickly. At the urging and encouragement of his then wife, he then entered night school and began to pursue a commission. By 2002 he obtained his degree and was commissioned as an officer in 2003. In less than six years, Steve had gone from turning wrench- es to being the Officer in Charge of an aircraft maintenance unit. Despite now earning an officer’s salary, Steve and his wife still experienced finan- cial struggles as many military fami- lies do. They amicably dissolved their marriage some time later. It was here in 2007 that Steve found himself single and burdened with debt at a crossroads between pursuing a life of paycheck-to- paycheck living while servicing debt or a path to financial independence. Remembering his upbringing, Steve chose the latter. heavily in the stock market when possible, Steve continued to forgo many of the modern luxuries he was slowly beginning to afford. For him, every dollar saved was a dollar ready to be invested. A deployment to the Middle East gave him the ability to invest more given the hazardous duty pay and tax advantages. Understand- ing that he still had much to learn, Steve recounted his financial affairs on an early retirement forum. Little did he know that this too would turn into a long-term investment. Learn- ing what he could and experiencing the ups and downs of the stock DISCOVERING THE PATH TO REAL ESTATE In the years after his divorce, Steve could only sum up his experiences as one of self discipline and a thirst for financial knowledge. Still investing

Andy & Ashley Williams

This content is brought to you by Recon Realty and AndyWilliams


market, Steve discovered the unprec- edented opportunities of real estate. In 2008, Steve bought his first house with no intention to ever live there. Instead, he rented it to his brother who would go on to live there for four years. Continuing his research, Steve found a mentor who walked him deeper into the waters of real estate. By 2011, he had closed on three more properties in Phoe- nix. All of his property purchases were made while he was overseas between a deployment to the Middle East and an assignment to Okina- wa, Japan. Soon, Steve had $1,000 dollars of extra cash flow that quickly turned into thousands of dollars in cash flow each month. The kid who left Arizona in 1998 with nothing but the shirt on his back had a net worth of $560,000 by 2013 all through mak- ing the decision to buy America. For reasons he can’t fully explain, Steve continued to document his journey on the early retirement forum almost as a way to leave a trail of breadcrumbs or a map for the next person to follow. He would

reinforce to all who spoke with him that the only reason he had the capital to invest was due to his dis- ciplined and modest lifestyle. Steve had zero investors and every dime he was able to raise was courtesy of his Air Force paycheck and Uncle Sam. Then, as his investment prop- erties kept up the cash flow, he was on track to buy a new property ev- ery six-to-twelve months. As he sits just months from the retirement that many dread, Steve owns 16 rental doors, one primary residence and holds a net worth of more than $1.2 million.

by Jeff Edwards


hen real estate entrepre- neur Andy Williams set out

for Steve, he equally couldn’t have anticipated that his enlistment in the Air Force would set him on a path to financial freedom. Specifically, Steve left Arizona for the Air Force with nothing but the shirt on his back to serve America in 1998. When he returned in 2019 some 21 years later, he found himself owning a piece of the land he served to protect. Steve not only served America, but he bought America. With a net worth in excess of $1.2 million as he heads to retirement, he is now the master and commander of his own destiny. A HUMBLE FAMILY OF SERVICE For Steve, service in the military and the United States Air Force was

somewhat of a family affair. His fa- ther, uncle and cousins had travelled this path, so it was no great leap for Steve to do the same. However, he initially had another plan for himself. Accepted at the University of Arizona, Steve was set to take an academic path to financial freedom. His moth- er, beaming with pride, congratulat- ed her son and then asked him this one powerful question, “how are you going to pay for college?” Having seen the struggles and financial hardships his own family had faced, the notion of taking out a mountain of student loan debt didn’t seem too appealing. Already recognizing the benefits of financial freedom, Steve began investing in the stock market before he gradu- ated high school. With his finances

to pursue his vision to see veterans buy America, he knew he would need to connect with his fellow veterans to achieve it. Veterans Buy America is the brainchild of Marine veteran Andy Williams and with veterans like Steve LeBlanc joining him in the breach, they would blaze a path in real estate to guide veterans to rally up and follow behind them. Like many men and women who joined the military in the late 1990s and early 2000s, Steve LeBlanc couldn’t have anticipated what was to come. The devastating attacks on 9/11 for- ever changed what would have been a standard tour of military service into one of sacrifice and resilience in the face of a new enemy. However,

MASTER AND COMMANDER Needless to say, Steve LeBlanc indeed found himself master and commander of his own destiny facing

> Continued on :: PG 64

Jeff Edwards is a Marine veteran and contributing writer for Veterans Buy America. Find out more about the initiative and stories of transition at

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appraisals, the real goal in many transactions is simply to finish the deal and get people paid. If the appraised value is less than a property’s sale price then contract terms will need to be “modified,” a polite term that means maybe the price goes down or the buyer finds more cash. Or both. If the parties cannot make adjustments then the deal can end, suddenly and unhappily, forcing everyone to start all over again. There will be no sale dollars for sellers who may have a contract to purchase a replacement property. There will be no dream house for buyers, no commission for brokers, and no fees for lenders. A whole bunch of people are likely to be very unhappy with a low appraisal, even one which is unquestionably on target. “A real estate appraiser who submits an appraisal that is un- der the contract price knows the

potential consequences,” explains Isaac Peck, writing for Working RE. “In addition to pressure and harassment from homeowners, agents, and Appraisal Management Companies (AMCs), appraisers also run the risk of being branded ‘deal killers’ and losing both lender and AMC clients; a high price for simply doing one’s job – performing accu- rate, unbiased appraisals.” COMPARATIVE MARKET ANALYSIS (CMA) Like other professions, apprais- ers have marked off their terri- tory. You need a license to be an appraiser. You can’t get a license without training and experience. You cannot sell an “appraisal” un- less you’re a licensed appraiser. Real estate brokers can offer a Competitive Market Analysis or a Comparative Market Analysis (known generally as CMAs in either

THEORYVS. REALITY Appraisers are at the center of the lending process. Lenders and borrowers hire them to prevent two forms of financial tragedy: over-lending by mortgage lend- ers and overpaying by real estate buyers. Lenders don’t want to put up more cash than they should and thus increase their risk if a proper- ty must be foreclosed. At the same time, we don’t want buyers to pay inflated home prices as a result of innocence or exuberance. Proper valuations surely benefit the lending system in general but when it comes to individual trans- actions the view is often different. First, appraisals cost money at the very moment when borrow- er funds are likely to be tight. No doubt many residential borrowers would be perfectly happy to avoid $500 or so in appraisal expenses. Second, while there’s a lot of talk about the need for accurate

Will AVMs Create aWorld Without Appraisers?

by Peter G. Miller


he real estate market has had a good run during the past

cannibalizing fees, and HUD has questioned the accuracy appraisals provide. To make matters worse, federal regulators have proposed new rules to make residential appraisals unnecessary for huge numbers of transactions. The oddity is that no one doubts

or denies the importance of in- dependent valuations. Instead, appraisers are losing out to new technologies, lower costs, and faster prep times. The need for valuations is there but that need is increasingly filled by big data and artificial intelligence (AI).

few years, but for one group the story has been different. Appraisers are facing tough times. Their job numbers are in decline, business is being lost to high-tech compet- itors, management companies are

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case) estimating the listing or pur- chase price of a property but they can never call it an “appraisal.” Real estate regulators routinely require plainly-written CMA dis- closure statements so that no one misses the point. Maryland, for example, says real estate licensees “may prepare a competitive market analysis of a specific property for a client, prospective client, or cus- tomer. The analysis shall include the following statement printed conspicuously and without change on the first page:”

No matter how well done, lenders will not substitute a CMA prepared by a real estate licensee for an ap- praisal. That’s because the CMA is produced with the intent of help- ing someone buy or sell property, actions from which the broker hopes to gain a fee. Appraisers, in con- trast, are paid for the act of apprais- ing, regardless of the final number. BROKER PRICE OPINION (BPO) Another potential appraisal sub- stitute is the broker price opinion (BPO), a form of home value report provided by local real estate bro- kers. A drive-by BPO, one where the interior of the home is not checked, is frequently used to es- tablish that a property in a foreclo- sure or short sale simply exists. Drive-by valuations have their pros and cons. They’re certainly quick and cheap when compared with a full-blown appraisal. Proper- ty owners do not need to fix interior


A real estate appraiser who submits an appraisal that is under the contract price knows the potential consequences. In addition to pressure and harassment from homeowners, agents and Appraisal Management Companies (AMCs), appraisers also run the risk of being branded ‘deal killers’ and losing both lender and AMC clients; a high price for simply doing one’s job - performing accurate, unbiased appraisals." ISAAC PECK











This analysis is not an appraisal. It is intended only for the purpose of assisting buyers or sellers or prospective buyers or sellers in deciding the listing, offering, or sale price of the real property.



spaces. There’s no need for an ap- pointment. Alternatively, the extra value created by a new kitchen or bath can’t be seen, hurting owners. The rules for BPOs vary by state. In some jurisdictions real estate licensees are allowed to provide a BPO but cannot charge for it. In still others, brokers may both do BPOs and get a fee for the service. DODD-FRANK At the federal level, the use of appraisal alternatives is restricted – but hardly banned. Dodd-Frank says, “In conjunction with the purchase of a consumer’s principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property.”

evaluation because, among other things, it does not provide a proper- ty's market value.”

The Dodd-Frank language in- cludes an impressive number of BPO loopholes. The wording applies to the “purchase of a consumer’s principal dwelling.” Does this mean a BPO can be used for refinancing a principal residence or the purchase of a second home? What about commercial properties? If BPOs seem poised to compete with appraisals in some areas under Dodd-Frank, that’s not the whole story. In 2010, federal regulators issued their Interagency Appraisal and Evaluation Guidelines which built on the Dodd-Frank standards. The guidelines state, “A valuation method that does not provide a property's market value or sufficient information and analysis to support the value conclusion is not accept- able as an evaluation. For example, a valuation method that provides a sales or list price, such as a broker price opinion, cannot be used as an




AUTOMATED VALUATION MODELS (AVMS) Dodd-Frank defines the term “automated valuation model” (AVM) to mean, “any computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling.” This language doesn’t prevent or limit the use of AVMs for principal residences while being silent on sec- ond homes and commercial property. In case the point is missed, Dodd-Frank also creates a huge AVM loophole in its definition of a “broker price opinion.” A BPO, says Dodd-Frank, is “an estimate prepared by a real estate



















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broker, agent, or salesperson that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property’s condition, market, and neighbor- hood, and information on compara- ble sales, but does not include an automated valuation model.” Zillow reports that in the third quarter, “more than 186 million average monthly unique users ac- cessed Zillow Group brands' mobile apps and websites, an increase of 7 percent year-over-year.” What makes these huge and growing numbers remarkable is that in 2018, existing home sales declined, single-family housing starts were down, and mortgage rates were up. No less amazing, how do you get 186 million unique users to visit your sites when home ONLINE HOME VALUE ESTIMATES

sales for 2018 only totaled about 6.2 million new and used units? The Zillow sites — which include both and — are just one part of the online real estate marketplace. There are other substantial sites, including Yahoo! Homes,, Redfin. com, and Leading online property sites hold vast amounts of information. A visitor can find such things as a sale price, square footage, photos, price per square foot, past sale prices, past listing prices, the number of bedrooms, and tax costs. This ma- terial — market intelligence, really — is presented in a way that’s easy for site visitors to understand, the public side of complex automated valuation models (AVMs). The catch is that online valuations — no matter how beautifully pre- sented — can differ from each other. Go to several property sites and check the value for your home. Each estimate will likely be dif-

ferent, and the gap between the highest and lowest valuations can be significant.

“AVMs are the new fraud fron- tier,” said Joan Trice, Founder and CEO of Allterra Group. Allterra Group is the parent company of such well-known industry brands as the Appraisal Buzz website, Appraisal Buzz Magazine, Valuation Expo, and the Collateral Risk Net- work. “It is just assumed the AVM is superior. Everyone is infatuated with technology. We have lost all respect for experts. How would an AVM know about the 35 cats you have in your basement?” Property sites are careful to explain that an AVM is not a sub- stitute for an appraisal. Zillow, for example, states that its Zestimate “is not an appraisal. It is a starting point in determining a home's val- ue.” It advises site visitors to also obtain a comparative market anal- ysis (CMA) as well as an appraisal and to physically visit the property when possible. If it is true that an AVM is not an appraisal, it’s also true that home value estimates are typically free, instantly available, and constantly being updated. Online AVMs are being checked and rechecked by the public, not because people are necessarily in the market to buy or sell but because home values im- pact our ego and sense of financial success. Who doesn’t like to see the estimated price of their home, especially when prices are rising? Barriers such as price (there are none) and time (online valuations are available day and night) simply don’t exist with online systems. And – not that anyone would ever do this – you can easily and anon- ymously check the pricing of your manager’s house or how much Uncle Wally paid for his home. Conflict arises when homeowners see online AVMs as a benchmark which shows a higher value than an appraisal or CMA. It must then be ex- plained by appraisers, brokers, and lenders that no, the property is not

AVMs are the new fraud frontier. It is just assumed the AVM is superior. Everyone is infatuated with technology. We have lost all respect for experts. How would an AVM know about the 35 cats you have in your basement?”

Why does this happen?

• The variables and weights used in one model may differ from another. • The availability of recent prop- erty information can vary by jurisdiction. • A new subdivision with three models and lots of sales is easier to price than a neighborhood built 100 years ago where every home is different and sales are infrequent.


really worth as much as some sites might suggest, a conversation which is likely to be discomforting. “Consumers,” says the National Association of Realtors (NAR), “who are seriously in the home-buying and home-selling market should be mindful of a variety of compet- ing home price estimators. Solely relying on just one price estimate is likely to skew the views of what a particular property will actu- ally transact for. When it comes to online home value estimates, however, the number one caveat for consumers is that these estimates are not a substitute for formal ap- praisals, comparative market anal- yses, and the in-depth expertise of real estate professionals.” “AVMs are a misnomer,” explains Joan Trice, who is also the Founder and CEO of Clearbox, an appraiser credentials database used by lend- ers, regulators and AMCs. “They are not valuation models. They are sales price models. Who cares what the prices are? Fannie and Freddie should care about value, yet they have dismantled the appraisal pro- cess to a single approach to value, the Greater Fool Theory.”

claiming that appraisals for reverse mortgages – what HUD calls home equity conversion mortgages or HECMs – often do not offer suffi- cient accuracy. “During FY 2018,” said HUD, in its latest annual report to Congress, “FHA became aware of concerns with the accuracy of appraisals used to originate HECMs. A com- parison of over 80,000 HECMs endorsed between 2016 and 2018 strongly suggested that certain appraisals used in FHA’s HECM program were overvaluing the collateral and generating inflated property appraised values. Over this period, 21 percent of the population had an appraisal that was 10 percent or more above the automated valuation model (AVM) estimate. Over the same period, 9 percent of appraisals were inflated by 20 percent or more, and 4 per- cent of appraisals were inflated by more than 30 percent.” HUD has now begun to require two appraisals for selected HECM applications as a result of its find- ings, but the government’s claims are not without question. “It is worth noting that any losses the FHA is recording today are actu- ally the result of transactions made years earlier, and in some cases many years earlier,” explains Larry M. Elkin, president of the Palisades Hudson Financial Group, an asset manager.

• One system may allow owner inputs while another does not.

• Online valuations can differ sig- nificantly from appraised values and marketing advice provided by real estate brokers.




2010-2020 2000-2010 1990-2000 1980-1990 1970-1980 1960-1970 1950-1960 1940-1950 1930-1940 1920-1930 1910-1920 1900-1910 1890-1900

WHAT ABOUT ACCURACY? How accurate are valuations, whether human or electronic? HUD, for one, has caused a stir by









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FEWER APPRAISERS Between 2009 and 2017, existing home sales rose from 4.34 million units to 5.51 million units, a gain of 1,170,000 transactions, and yet the number of appraisers has declined. In 2009 there were 92,750 active real estate appraisers, according to the Appraisal Institute. By the end of 2017, the Institute estimates that the number of practitioners had

Elkin adds, "Blaming appraisers for losses on reverse mortgages is just another exercise in scapegoat- ing. The appraisal industry’s collec- tive role in any losses connected to these transactions is minimal compared to all the other risks involved. The FHA’s proclivity to blame the appraisers is an exercise in self-deception, or misdirection, or both.”

fallen to 82,208, a loss of more than 10,000 professionals. “The average annual rate of decrease for the past five years has been approximately negative two percent,” said the Appraisal Insti- tute. “Broader analysis suggests that declines may continue for the next five-to-ten years due to retirements, fewer new people entering the ap- praisal profession, economic factors, government regulation, and greater use of data analysis technologies.” With less to sell, finance, and close, there’s no doubt that the housing crash caused people in many shelter-related fields to leave. But, in turn, with less activity are so many appraisers actually needed? Joan Trice explains, “We had a housing finance crisis that re- sulted in a dramatic decrease in transactions. It flushed out a lot of part-timers in all aspects of the housing economy. If you look at the number of appraisers who sub- mit to UCDP (Uniform Collateral

Data Portal) the number is around 45,000. If you look at the number of transactions, it comes to an aver- age of two appraisals per week. That is an oversupply of appraisers. “What makes the headlines,” she continued, “is the shortage in ‘bubblicious’ markets. Can we ever fulfill supply in bubbles? No, the supply isn’t that elastic. And the bigger question is should we?” FEES & AMCS Appraisals cost money at a time when the Internet is driving the price of information toward zero. The cost of a big bank residential appraisal is $500 or so according to ValuePenguin. That’s a big number for a lot of borrowers and a glaring contrast with electronic valuations, but in looking at appraisal costs, several points are often lost. First – and of huge importance – appraisers actually spend time at the property, go inside, and are local valuation experts. Borrowers are getting something for their money. Second, the appraiser’s job is to establish a property value, a value which may prevent buyers from paying too much and lenders from accepting too much risk. “In the typical real property trans- action, the appraiser is the only party with nothing to gain by closing the transaction,” says Francois (Frank) K. Gregoire, an appraiser based in St. Petersburg, FL and a four-time chairman of the Florida Real Estate Appraisal Board. “Their role is to be competent, independent, impartial, and objective. Also, in a typical real property transaction, the appraiser provides the report of his opinions and conclusions to the lender to as- sist in the loan underwriting decision. “If the lender opts to make that decision without an appraisal,” Gregoire continued, “the borrow- er is still on the hook to repay the

If the lender opts to make that decision without an appraisal...the borrower is still on the hook to repay the loan, regardless of the market value of the property. In some circumstances, wouldn’t a prudent buyer seek the unbiased opinion of a well-credentialed, experienced professional before committing to 30 years of payments? It might be money well spent.”


Blaming appraisers for losses on reverse mortgages is just another exercise in scapegoating. The appraisal industry’s collective role in any losses connected to these transactions is minimal compared to all the other risks involved. The FHA’s proclivity to blame the appraisers is an exercise in self- deception, or misdirection, or both.”

loan, regardless of the market value of the property. In some circumstances, wouldn’t a prudent buyer seek the unbiased opinion of a well-credentialed, experienced professional before committing to 30 years of payments? It might be money well spent.” Third, there can be a major dif- ference between what borrowers pay for appraisal services and what appraisers actually collect, a point that doesn’t get much attention. After the mortgage meltdown, federal and state governments wanted to make sure that apprais- ers could not be pressured by lend- ers to hit a certain number or curry favor with favorable valuations. One result was the Mortgage Disclosure Improvement Act (MDIA). The MDIA led to the establish- ment of appraisal management companies (AMCs). Instead of hiring appraisers directly, lenders can hire AMCs and have the AMCs hire appraisers, thus separating appraisers from loan officers and other mortgage officials. And, of course, for this service there’s a fee to the AMCs. Borrowers, for their part, often see an appraisal fee but not how the fee is divided. Without disclo- sure, consumers may believe the

entire fee is going to the appraiser. “AMCs often get more than 50 percent of the borrower’s applica- tion fee designated for the apprais- al,” says Jonathan J. Miller, Pres- ident and CEO of Miller Samuel, Inc., New York-based real estate appraisers and consultants. “I’ve seen as much as 70 percent go to the AMC,” said Miller (no relation to the author). “I’ve had appraisers tell me their AMC clients don’t allow the appraiser to place the breakdown of the fee on the report. Their lobby has pushed hard to keep that issue unclear to the consumer. Imagine if the consumer was aware that a large portion of the ‘appraisal fee’ was designated for clerical work. This one issue has decimated appraisers and caused many to leave the profession. “Think about that 50 percent to 70 percent share of the appraiser’s fee for a second,” Miller continued. “AMC’s must be the most inefficient financial institution ever invented since all they actually do is order re- ports via software, verify our certifi- cations, and claim they are a barrier between the appraiser and the bank. Trained appraisers are forced to work with 19-year-olds chewing gum who don’t really understand what we do. In my experience the AMC



















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process adds at least a week onto the turnaround time. AMCs shop for the cheapest fee and that may take three to four days. Yet the industry is so concerned about turnaround time that they expect us to complete a credible report in 24 to 48 hours. “There has never been a shortage of appraisers,” added Miller. “There is only a shortage of appraisers willing and able to work for 50 per- cent of the market rate.” “There is anecdotal evidence of some AMCs taking 50 percent or more of the fee charged to the borrower,” says Gregoire, who has also been a past chairman of the National Association of Realtors Appraisal Committee. “Rarely is the borrower aware of the arrange- ment between the lender and the AMC. Even more rare are situations where the borrower is informed of the percentage of the ‘appraisal fee’ retained by the Appraisal Man- agement Company.”

praisers have done a good job protecting their territory. To quote the Cowardly Lion, “not nobody!” can provide an appraisal except an appraiser. “Not nohow!” The rules protecting apprais- ers have helped defend their turf against encroachments by other professions. The emerging problem is not that another profession will offer “appraisals” but that the mar- ket will accept substitutes. Last spring, federal regulators adopted a new appraisal threshold for commercial mortgages. “The final rule,” said the Federal Regis- ter notice, “increases the threshold level at or below which appraisals are not required for commercial real estate transactions from $250,000 to $500,000. “For commercial real estate trans- actions exempted from the apprais- al requirement as a result of the revised threshold,” said the notice, “regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices.” Under the higher threshold, gov-

AMC’s must be the most inefficient financial institution ever invented since all they actually do is order reports via software, verify our certifications, and claim they are a barrier between the appraiser and the bank. Trained appraisers are forced to work with 19-year-olds chewing gum who don’t really understand what we do."



ernment regulators estimated that almost 32 percent of all commer- cial transactions will be impacted by the new rule. However, seen


THE COMMERCIAL MODEL So far it would seem that ap-








Over $400K



Under $400K

another way, less than two percent of all commercial transactions by dollar value will be exempted by the new appraisal requirement. Of course, while the need for

appraisals declines under the new commercial standard, the demand for “evaluations” can be expected to increase. This is the opportunity for AVMs.

THE PUSH TO $400,000 In late 2018, government regula- tors proposed raising the residen- tial appraisal threshold to $400,000, up from $250,000, a figure estab-









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This policy will protect upper-brack- et borrowers with deeper pockets against overpaying while pushing entry-level and median-income bor- rowers away from such valuations. Fewer burdens for banks sounds attractive, but how much relief do banks need? FDIC-insured insti- tutions reported $62 billion in net income in third quarter, up 29.3 percent from a year earlier. While it’s great that federal reg- ulators are looking out for banks, who is looking out for borrowers? If a bank over-lends for one prop- erty out of a hundred it’s not a big deal, but for residential borrowers the situation is different. They’re only buying one property. If buyers overpay they can face a major loss. There are no other properties in the picture to offset their risk. “Appraisers should be protected by the prudential regulators,” said Trice. “Instead they are under as- sault. It cannot end well when you remove the only independent third party who is unbiased.” There’s an oddity with progress. The results we get are sometimes not the results we expect. We live in the computer era and yet we still use a lot of paper, about 10,000 pages per year for the typical office worker. In a similar sense, AVMs are here to stay. Their use will increase. This is a natural progres- sion to expect in the Internet age. But AVM growth does not mean appraisals will disappear. There’s a need for physical, on-site, indepen- dent valuations by trained apprais- ers. There’s a place today for both AVMs and appraisals. And there will be tomorrow. •

lished in 1994. If adopted, “an addi- tional 214,000 residential real estate loans originated by FDIC-insured institutions or affiliated institutions” would no longer require appraisals. Of course, many residential mort- gages are originated by organiza- tions not insured by the FDIC. Also, these 214,000 properties are above the 750,000 already exempted from an appraisal requirement under the $250,000 minimum. “The regulators have lost their collective minds,” Trice told the Housing News Report. “And they propose this under the guise of ‘safety and soundness.’ It feels so 2005-ish. I hope Michael Lewis has already started his next book. This next crisis is going to be a collat- eral crisis, not a credit crunch. Collateral matters.” In the context of residential property, the proposed threshold would be significantly above the

typical prices paid by consumers. For instance, in Q4 2018, the me- dian existing home sale price was $245,000 according to ATTOM Data Solutions. For new homes, the gov- ernment reported that the median price was $309,700 in October. As with the new commercial threshold, fewer required residential appraisals would open the doors for alternatives. As the proposal states, “Evaluations would continue to be required for transactions exempt under the increased threshold.” “This increase in the number of loans that would no longer require appraisals would provide meaningful burden reduction for regulated in- stitutions,” explains the Office of the Comptroller of the Currency (OCC). And yet, curiously, if there’s a $400,000 minimum threshold for residential appraisals it means that independent evaluations will be required for more expensive homes.

Peter G. Miller is a nationally syndicated newspaper columnist, the author of seven books published orig- inally by Harper & Row (one with a co-author), and for many years a Washington-based journalist.

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