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To review the results and the problem discussed in Part 1 see last weeks post titled Appraisals an Update Part 1

Lending professionals have always known that appraisals are art work, and that the value can vary about 5% based on property, transaction, and market conditions.  Appraisals are in fact one person’s interpretation of the data gathered and the implications, expressed in their opinion, and demonstrated by the price they arrive at.  If this trend of what could be called regulatory coercion continues, these are some predictable results we could see:

• Quality appraisers will be pushed out of business by decreased work and fees, no longer able to control their income
• A decreased number of appraisers will increase competition, driving prices even lower which could be good for the consumer if the reductions aren’t absorbed by the upper layers.
• Brokers and lenders can no longer communicate or coordinate with their former business partners, the appraisers, even if just to manage transaction logistics.  This will cause additional transaction delays and push closings out even further.
• Inexperienced appraisers are getting work they are not yet competent to do even though licensed, and nobody can challenge or negotiate corrections without the additional cost of another appraisal with only the luck of the draw to get a competent professional.

In a free market economy willing buyers and sellers tend to drive up prices which is exactly what we need, commerce, yet the new appraisal rules must consider only old historical data and not local market conditions.

Finally, if you are purchasing a higher valued home, those above $800,000, you can expect to buy two of these appraisals so that your lender is very sure about the value.  Oh, and guess which one of the two they will use?  Absolutely, the lowest one. . .

The Home Valuation Code of Conduct is the demon rule and there is currently a petition by appraisers to repeal that ruling: www.hvccpetition.com

As we all look for ways to conserve and reduce spending I’ve noticed some pleasant unexpected results on a sporadic basis.  Some business and service providers seem to be improving and even lowering costs in many ways to accommodate their customers.

Just recently, I went to a new dentist due to a benefits mandate and was amazed at how well I was treated.  I referred several family members who had the same experience and even paid less than expected.  Simply amazing, and quite pleasant to be a valuable asset to their business.

A week ago my daughter had the same exact experience with an Optometrist, strange.

Now you might ask, what in the world does this have to do with an update on appraisers?

Well, buyers are back, all across the country and once again competing for property especially at the low end price ranges - What better time to acquire real estate than when prices are low?  Exactly what would improve housing values and the market?  Why?  With multiple offers come increased prices being offered, which is a desirable result that competition produces if you are a property owner.

Houston, we have a problem - it seems the new appraisal regulations passed a few months ago are creating havoc with everyone connected to real estate transactions whether purchase or re-finance.  In this series I’m going to deal with purchases.  If I seem a little cynical, I am. I warned about this months ago in an article titled “The Fire-wall That Doesn’t Work” so let’s take a look at results from the new regulations now that we have some:

• Costs to the buyer have increased 50%
• Time required to close a transaction has increased
• A layer of bureaucracy has been added which is not accountable to or able to be influenced by any participant of the transaction.
• Terminating or stalling transactions with poor quality or inaccurate appraisals

The problems:

• Appraisers who fear being accused by the end lender of inflating values are keeping values at the low end and not responding to the influx of willing buyers and sellers.
• Appraisers are earning 50% less for their appraisals than they once did and getting less work based on how the national assignment firms (bureaucracy) randomly distribute work.
• Unqualified or inexperienced appraisers will be assigned work equally with experienced professionals for the same fee although the results are dramatically different.
• Based solely on a bad review by an end lender or an assignment company, appraisers, in order to maintain their much needed income, are motivated to keep values lower such that purchase contracts are being sacrificed.

There is no real solution to this just yet because countless millions have been spent by a multitude of organizations setting these regulations and their structures in place.  Unwinding it at this point will of course provide relief if done in a way that serves the consumer, American business, and free enterprise.

One firm has proposed a possible solution and we’ll discuss that next week in part 2.

Ok, let’s get all over this. . .

1. Examine you dreams for tell tale sign of income and expense.  Everyone knows that living a vibrant life requires resources, the most intense of all is air.  Although I’m not talking about Maslow’s Hierarchy of Needs here, I could be when it comes to managing personal finances.  People lack the understanding of the mechanics of how to get what you want in life.  Example, what is your income right now and how much of it do you spend?
2. Make or consult your list of the 50 people, places, or things you just have to meet, go or have during you life.  “This is fun” reported one of my clients.  “It’s a chance to give up what holds me back and just make a list of anything, awesome I want”.  If you encounter resistance at about #15, your deserve needs to be turned up.
3. Put the most important ones, for the ambitious put them all, on the calendar of your anticipated life.  First, choose how long you’ll live.  Next, how able you’ll be to pursuer your list over time.  What good would it do to put ice skating in New York’s Central Park at age 80 on your list if you don’t learn to skate before you were 80?
4. Add the resources you’ll need to accomplish each to your existing income and spending plan. What, you don’t have one?  As I talk with professionals and others I continue to be surprised how many people’s plan is deposit check in one account, spread money to others, write checks for bills, buy things you need, and occasionally, if there’s enough, buy somethings you want.  How much are you spending and are you above or below average?  In this chart which is making its rounds on the Internet, you’ll get your ranking. http://www.getrichslowly.org/blog/ .  My advice, build a budget and stay within its boundaries including 5-10% committed to savings from each pay check.
5. Train yourself to find out what you need to know.  Do you have time in your calendar each week for study and learning to keep that gray matter strong and healthy?  Will you be familiar with what’s changing in your world and grow from it.
6. Herd mentality, do what others (the herd) don’t or won’t do, find out what your number is.  What in the world do I mean by your number?  It’s the amount of assets at work that when used for life after work, will deliver the lifestyle you’ve chosen and ensure you don’t run out of money before life. Get your number here www.wealthcontrolpro.com
7. Your story, believe it, and begin telling it to who ever will listen, and some who won’t for practice.  As a culture, we are obsessed with “telling the truth” or “dealing with reality, what’s real”.  Doing that, the only thing produced is more of the same.  Nothing shifts, changes, or improves because you’re only talking about what’s already happened re-living your past.  Invent a new story about how it’s going to be, the money you’ll make, the investments you’ll have & when then talk about all you’ll be doing with your new found wealth - believe this story as you do the one you’re telling now.  Doing that, you’ll attract and live a healthy retirement. . .