Commentary on the the U.S. Appraisal Market – Change is Coming

June 14, 2018June 17, 2018NanaGSmith Leave a comment

John Mathis June 13, 2018

This article was first published in the Harbor View Advisors.

About John Martins

John is a Partner and Co-Founder of Harbor View Advisors. He brings over 20 years of experience as an investment banker, investor, equity research analyst and management consultant. John leads Harbor View’s Catalyst for Corporate Development practice where he helps clients fuel growth through acquired innovation. Prior to founding Harbor View, John was a Vice President in the Technology Research Group at Goldman, Sachs & Co. in New York. As a publishing analyst, John’s research spanned companies with a total market capitalization of $100 billion across five industries including payment processing, financial services, travel services, business process outsourcing and business intelligence. Companies under coverage included Accenture, Amdocs, Automatic Data Processing, ChoicePoint, EDS, First Data Corp, Fiserv, Hewitt Associates and Sabre. John’s experience also extends to the “buy-side” as a Partner at Camelot Capital, a hedge fund with targeted investments in public and private software and services companies. John led the investment decisions involving 80 companies in ten industries including business and financial services, payment processing, telecom services and security. Prior to joining Goldman, John worked as Principal for A.T. Kearney in Chicago where he managed global consulting engagements in the U.S., Australia, Brazil, Denmark, Sweden and the United Kingdom. John’s practice expertise included international supply chain, global sourcing, process reengineering and strategic planning. John was active in helping A.T. Kearney establish new offices in Australia and Brazil and facilitated the integration of a consulting firm acquisition in Denmark. A sample of his client engagements includes Visa, Sears, Rolls Royce and General Motors. John received a Bachelor of Arts degree from DePauw University and a Master of Business Administration (MBA) from The University of Chicago. Outside of Harbor View, John is an Ironman, part-time triathlete and a father of three.

————————————————————————————————

The Appraisal world is under intensifying pressure that will likely accelerate the pace of M&A consolidation. We see the new “registry” component of the Dodd Frank rollback as another potential catalyst for consolidation in the fragmented appraiser and Appraisal Management Company (“AMC”) arenas. In this note we highlight where the market is pricing transactions given recent notable deals, including CoreLogic’s high water mark of 13.5X EBITDA. While the larger captive AMCs appear to have satiated their acquisition appetite for now, we see newcomers gaining ground, particularly those with private equity backing, including LenderLive and Class Appraisals or public companies like Altisource (NASDAQ: ASPS) and Real Matters (TSE: REAL). Further, the savvy independents are sure to make a play at accelerating growth through acquisition including Clear Capital, Dart Appraisal, LRES, Pro Teck and The William Fall Group.

Appraisals Rising

Beware of “small” rule changes

An executive at a leading MortageTech company once told me, “Beware of a seemingly small rule change in a highly regulated market like mortgages. The impact can be deadly.” The Appraisal world is facing one of these changes. We see the new “registry” component of the Dodd Frank rollback as a potentially massive catalyst for consolidation in the fragmented appraiser and Appraisal Management Company (“AMC”) worlds. The forces bashing this industry have been relentless:

Appraiser population demographics leading to supply “shocks”
Low margins and limited pricing power has advantaged only the largest providers
Domineering government sponsored enterprise rule changes (GSEs – Fannie, Freddie)
A fundamental change from a form-driven industry to more data-driven value proposition
Looming disruptive technology innovations from drones to mobility

As every AMC tries to navigate these headwinds, along comes the “registry” change whereby an incremental fee is about to hit every AMC’s panel of appraisers. The larger providers are better positioned to absorb these new requirements and fees, however, basic math for the smaller AMCs suggests a new expense burden with no direct beneficial offset. Further, each state is likely to implement differently, potentially creating a complex, expensive and risky compliance environment for the AMC industry.

Merger activity is heating up

Expect continued consolidation within the AMC world, and given the permanent economic impact of “registry”, there may be further pressure on sellers to realize the valuation multiples of recent transactions. A review of recent AMC acquisitions suggests the market is pricing these assets between 6X – 8X EBITDA, with the exception of CoreLogic’s transactions as they were considerably above this range, continuing to set the market high water mark. In our client work, the key valuation drivers have been scale, diversity of services and technology leverage. See the table below for recent transactions:

Forces are driving greater scale and technology innovations

U.S. real estate assets are marked to market through a unique mechanism – the appraisal. While much has been written about the aging population and brain drain among the 40,000+ U.S. residential and commercial property appraisers, little attention has focused on the key node in the system, the AMC. The AMCs include large captives of loan, title or data service providers and more independent, often regional, companies.

Scale and technology forces will continue to define the landscape of players. We expect the strong AMCs to strengthen further while the middle market is more likely to consolidate the smaller players. We also expect technology advancement in key areas like mobility and analytics. The GSE’s are likely to drive accelerated adoption of these technologies and more efficient approaches – further accelerating industry consolidation.

Expect consolidation to pick up in the middle market

The larger captive AMCs appear to have satiated their acquisition appetite for now and we don’t expect to see much from CoreLogic, ServiceLink or First American in the near term. However, we see newcomers gaining ground, particularly those with private equity backing, including LenderLive and Class Appraisals or public companies like Altisource (NASDAQ: ASPS) and Real Matters (TSE: REAL). Further, the savvy independents are sure to make a play at accelerating growth through acquisition including Dart Appraisal, LRES, The William Fall Group and Pro Teck. We have summarized the AMC market segments below:

A Typical Work Day For An Appraiser

May 8, 2018May 16, 2018NanaGSmith Leave a comment

Appraisers are normally experts at analyzing real estate markets and property value, but appraisers who work from a home-based office or run their own small business may not be familiar with what it takes to manage an office.

It can often be time consuming and confusing, requiring a large chunk of time taken out of a work day (assuming one is working a normal 10-hour day), just trying to handle the small tedious tasks, such as organizing orders, calendar management, and keeping track of submitted orders to AMC companies, and making sure you are being compensated in time, if at all!

Even dealing with some of the AMC companies, is such a tedious task. Between keeping tabs on payment, receiving new orders, updating current orders, and submitting completed orders, often has me scrambling everywhere. Heaven forbid I should have to make an actual phone call to these AMC’s, will have me in a rage between being placed on hold from anywhere between 10-15 minutes, or even trying to communicate the purpose of my phone call (many of these AMC places outsource their staff to foreign countries, and the cultural gap in communication is significant!).

Ah, and I would be remised not to point out the ever so eloquent, Engagement Letters! Reading through one of these letters, often reminds me of those Snickers commercial they played during the Super Bowl a few years back…”Not going anywhere for a while?”.

If I have spent 1-2 hours trying to get through one of these letters would be a generous summation, but often times, that is not the case. Not only must you be careful to comply with USPAP requirements (this is always a given), but you must also be very careful to comply, understand and follow all the various AMC requirements/guidelines as well, and when you are dealing with multiple AMC’s, this can often times get very tortuous.

Every morning I wake up and ponder on how I can make my job/career more attractive, while maintaining a higher quality level, but spend less time on the menial tasks and ultimately make my life more rewarding and less stress full.

My colleague appraisers! Do you have any resolutions for me?

Thus far, what I have come up with is this:

Preparation – be ready to handle the work load for the day. Ensuring that all technical infrastructures are in place and adequate (computers, software, phone, internet connections, etc..), which I have come to learn in my years in this business that you have to spend a good portion of your earnings on the technological portion in order to make the business work for you! I have to now think about office space that will allow me the ability to handle the increase in volume that I have been experiencing in just the past few months. Working from home has become a bit of a challenge, due to lack of space and infrastructure needs.

Organization – Staying on top of time management; a) make sure to do your due diligence before going out on the field for inspections (navigate what your day is going to look like when driving between properties, keeping in mind time of day and any traffic concerns), b) Organize your orders mindfully, which often times will require a call to the MC explaining the situation, and you will be quite surprised to hear that they are often times willing to accommodate you.

Administrative Support – A good assistant can make your life so much easier. They help you get more of the important work done, such as, help with calendar management, communicating with the various AMC’s, helping to maintain your high work standards, and also helping to alleviate some of the stress involved in this business.

So to recap; Preparation, Organization, Administrative Support and Marketing, are all crucial elements for a small business to thrive.

I have not yet delved into the marketing aspects on my blog site…..stay tuned for more to come…

Call or email Nana Smith with any questions:

NanaGsmith@gmail.com

203-858-6727

…

C.R.E.A. – comment and/or share your own experiance using this form;

Will the home appraisal industry be replaced by technology?

March 14, 2018June 14, 2018NanaGSmith Leave a comment

Automation haunts many discussions about the future of work, employment, and the economy. But technological advances may soon hit homes in an unexpected way: could real estate appraisers be replaced by robots?

That’s the conclusion of a recent article in Bloomberg, which discusses how advances in big data and computing are helping automate this knowledge-based job, perhaps a harbinger of how advances in machine learning mean an ever-widening circle of professions are at risk.

The future of the profession has become a topic due to a recent decision by Fannie Mae and Freddie Mac, two institutions that facilitate the flow of funding for home loans nationwide. In the past, both of these entities have occasionally allowed appraisal waivers when evaluating low-cost loans. But recently, they’ve changed their stance, starting up a program earlier this year that would waive the new appraisal requirement for homes where the loan-to-value ratio is low. Instead, they’ll accept any appraisals on file from the last five years. In June, Freddie Mac said it would start accepting automated valuations for some refinancing loans.

This decision will reduce the number of appraisals being requested, says Appraisal Institute President Jim Amorin, and implicitly suggests that a model with less human participation is just as good.

“There’s no replacement for an appraisal in most cases,” Amorin tells Curbed. “Many of the computer models use public information that hasn’t been verified. Even Zillow will tell you it’s an estimate, not an appraisal.”

A profession already feeling pressure

These policy shifts come during an unfortunate time for a profession watching its workforce slowly shrink. Today, there are currently 78,000 licensed appraisers in the U.S., says Amorin, whose organization represents roughly 20,000 of them. That is a steep drop from the 120,000 that performed the job five years ago.

Part of the decline is due to appraisers requiring extensive training and apprenticeships to become licensed, and part is due to diminishing fees, a result of the growth of appraisal management companies that work with lenders and take a portion of the final fee. The median age of an appraiser is roughly 52-55, says Amorin, suggesting the workforce is aging, retiring, and not being replenished.

“If numbers continue the way they are, there may not be enough appraisers to meet the needs of the marketplace,” says Amorin. “We worry about how the automated models will serve the needs of consumers.”

Computer estimates are closing the gap

At the same time, the technology now being cast as competition for appraisers is getting better and better. According to a Zillow engineer, the company’s Zestimate tool uses algorothms, machine learning, public records, MLS data, and information from brokers and users to create increasingly accurate value estimates. The models are continuously being trained on a daily basis to become more sophisticated; some are examining external imagesto better determine the “curb appeal” of a home Zillow even launched a $1 million Zillow Prize in May, similar to the Netflix Prize, to entice data scientists and researchers to improve the company’s algorithm and devise a more accurate method of estimating home values.

Zillow representatives noted multiple times they believe appraisals are valuable and in no way seek to replace the need for an appraisal.

Amorin believes that automated appraisals still focus too heavily on public data and often miss the little details and true picture of a property that creates an accurate value estimate. He believes you get what you pay for with automated models, and the work of an impartial appraiser is key to a functioning, transparent market.

But that doesn’t make him anti-technology. Amorin believes the future is in a marriage of man and machine, where humans and computer models combine for more accurate estimates. Appraisers get data that saves them time, while their estimates can be fed back into the algorithms and machine learning systems to make the estimates more accurate.

“If appraisers believe they can move forward doing what they’ve always done, they’ll go the way of the one-hour photo shop,” he says. “We have to adapt.”

By Patrick Sisson

Published 11:02 AM ET Tue, 1 Aug 2017

Original article is here

Malcolm Gladwell: the Snapchat problem, the Facebook problem, the Airbnb problem

July 25, 2015June 14, 2018NanaGSmith Leave a comment

John Koetsier July 24, 2015 10:25 AM

Last night futurist, journalist, prognosticator, and author Malcolm Gladwell told pretty much the most data-driven marketing technologist crowd imaginable that data is not their salvation.

In fact, it could be their curse.

“More data increases our confidence, not our accuracy,” he said at mobile marketing analytics provider Tune’s Postback 2015 event in Seattle. “I want to puncture marketers’ confidence and show you where data can’t help us.”

The Snapchat problem

The average person under 25 is texting more each day than the average person over 55 texts each year, Gladwell says. That’s what the data can tell us.

What it can’t tell us is why.

“The data can’t tell us the nature of the behavior,” Gladwell said. “Maybe it’s developmental … or maybe it’s generational.”

Developmental change, in Gladwell’s story, is behavior that occurs as people age. For instance, “murder is a young man’s game,” he said, with almost all murders being committed by men under the age of 25. Likewise, dying in a car accident is something that just “statistically doesn’t happen” over the age of 40. In other words, people age out of developmental changes — they are not true long-term lasting shifts in behavior.

Generational change, on the other hand, is different. That’s behavior that belongs to a generation, a cohort that grows up and continues the behavior. For example, Gladwell said, baby boomers transformed “every job in America” in the ’70s as they demanded more freedom, greater rewards, and changes in the boss-employee relationship.

The question is whether Snapchat-style behavior is developmental or behavioral.

“In the answer to that question is the answer to whether Snapchat will be around in 10 years,” Gladwell said.

The Facebook problem

Facebook is massive, amazing, and almost literally incredible: a social network connecting over a billion people. That’s what the data can tell us.

What it can’t tell us is what it will become — what its full upside potential could be.

Facebook is at the stage that the telephone was at when they thought the phone was not for gossiping — it’s in its infancy,” Gladwell said, referencing that the early telephone marketers thought the phone was only for business. “We need to be cautious when making conclusions … we can see some things now, but we have no idea where it’s going.”

Why?

The diffusion of new technologies always takes longer than we would assume, Gladwell said. The first telephone exchange was launched in 1878, but only took off in the 1920s. The VCR was created in the 1960s in England, but didn’t reach its tipping point until the 1980s — over and above the vociferous opposition of the TV and movie industry, which was convinced it would destroy their business.

And that’s for technologies that are just innovative.

Technologies that are both innovative and and complicated, like Facebook, take even longer to really emerge.

“Any kind of new and dramatic innovation takes a long time to spread and be understood,” Gladwell said. “If we look at history, it tells us that the Facebook of today looks almost nothing like what it will tomorrow.”

The Airbnb problem

The sharing economy, featuring companies like AirBnB, Uber/Lyft, even eBay, rely on trust. And they’re growing and expanding like wildfire.

And yet, if you look at recent polls of trust and trustworthiness, people’s — and especially millennials — trust is at an all-time low. Out of ten American “institutions,” including church, Congress, the presidency, and others, millennials only trust two: the military and science.

That’s conflicting data. And what the data can’t tell us is how both can be true, Gladwell said.

“Data can tell us about the immediate environment of people’s attitudes, but not much about the environment in which they were formed,” he said. “So which is right? Do people not trust others, as the polls say … or are they lying to the surveys?”

The context helps, Gladwell said.

That context is an massive shift in American society over the past few decades: a huge reduction in violent crime. For example, New York City had over 2,000 murders in 1990. Last year it was 300. In the same time frame, the overall violent crime index has gone down from 2,500 per 100,000 people to 500.

“That means that there is an entire generation of people growing up today not just with Internet and mobile phones … but also growing up who have never known on a personal, visceral level what crime is,” Gladwell said.

Baby boomers, who had very personal experiences of crime, were given powerful evidence that they should not trust. The following generations are reverting to what psychologists call “default truth.” In other words, they assume that when someone says something, it’s true … until they see evidence to the contrary.

Whether that’s true or not, however, is extremely important to the future of the sharing economy.

Why marketers have a job

The deficiencies not only in data but of data are the reason marketers have a job, Gladwell said. In fact, it goes deeper than that:

“The reason your profession is a profession and not a job is that your role is to find the truth in the data.”

And that’s a significant challenge.

Housing Market is Healthiest in Years!

April 8, 2015June 14, 2018NanaGSmith

According to Nationwide’s recently unveiled, Health of Housing Market (HoHM) Report, the US housing market is at it’s healthiest levels since the index’s creation in 2001.

The index analyzes the health of the housing market across the country and in 373 metro areas every quarter. Using the data that they have collected over the past 15 years, Nationwide will look to give a “data-driven view of the near-term performance of housing markets based upon current health indicators.”

The fourth quarter of 2014 ended with the highest indicator score in over 15 years of data analyzed by the study at 109.8. The report explains:

“An index value over 100 suggests that the national housing market is healthy, with lower chances of a housing downturn over the next year as the index moves increasingly above the 100 breakeven value.”

Employment, demographics, the mortgage market, and housing prices are all used to evaluate the health of each market. The top 10 healthiest housing markets according to the index are:

Pittsburgh, PA
Cleveland-Elyria, OH
Philadelphia, PA
Rockford, Ill.
Burlington, NC
Scranton-Wilkes-Barre, PA
Fayetteville-Springdale, AR
Idaho Falls, ID
Tulsa, OK
Kennewick-Richland, WA

The two ‘least healthy’ markets were Bismark, ND and Atlantic City, NJ who received“just slightly negative performance rankings”.

David Berson, Nationwide’s Chief Economist and Senior Vice President, says “the quarterly report should serve as a resource to gauge how healthy housing markets are today but, perhaps more important, what to expect in the future and why.”

Bottom Line:

The housing market continues to recover and surpass recent history. Meet with an agent in your local market to determine if you are able to take advantage of the opportunities available in real estate today.

Path to Success

April 6, 2015NanaGSmith Leave a comment

Yes, the real estate industry is changing dramatically. It’s no longer about information; it’s about your ability to analyze that information so well that you can teach it to others. That’s your job now. That’s what the real estate industry is about now. The agents that embrace this New Market Reality are going to be the dominant agents moving forward. They are ones who will win the race! As you move forward into your real estate career, remember to plot out these three steps along the way:

• Step 1 – Continually educate yourself. Whether you use the KCM membership or some other educational means, know what’s going on and why it’s happening. As Albert Einstein said, “Wisdom is not a product of schooling but of the life-long attempt to acquire it.”

• Step 2 – Be able to communicate what you learn. Think of it as the ability to sing versus being on iTunes. If you can sing, but deliver your message on the equivalent of 8-track tapes, no one will listen to you. If, however, you can sing and you publish your music digitally (the modern format), you’ll have a much higher likelihood of reaching your audience. In real estate, this means making sure your client presentations are filled with impactful, relevant information that will help them gain clarity from the confusion in the market. Make your presentations overly visual and so simple that anyone—even a child—can understand what is happening in the current market. Graphs, charts, and infographics are great formats to use.

• Step 3 – Keeping current matters! You can have a tremendous understanding of key factors and wonderful visual materials to help make it easy for your clients, but if you’re not updating these things on a constant basis, you’re lost. How valuable would a physician be if she didn’t update her advice and recommendations based on the newest medical research? Don’t be caught with outdated information in your presentations and conversations. Do your homework and be on top of all the major news that will impact the current real estate market. For most families, buying or selling a home is the most important personal decision and possibly the largest financial decision they’ll ever make. They are looking for a true professional to help them through this process. Make sure they get one when you walk into their lives.

Housing Market to “Spring Forward”

March 4, 2015March 4, 2015NanaGSmith Leave a comment

Just like our clocks this weekend in the majority of the country, the housing market will soon “spring forward”! Similar to tension in a spring, the lack of inventory available for sale in the market right now is what is holding back the market.

Many potential sellers believe that waiting until Spring is in their best interest, and traditionally they would have been right.

Buyer demand has seasonality to it, which usually falls off in the winter months, especially in areas of the country impacted by arctic temperatures and conditions.

That hasn’t happened this year.

Demand for housing has remained strong and is currently three times stronger than last year at this time.

The National Association of REALTORS (NAR) recently reported that the top 10 dates sellers listed their homes in 2014 all fell in April, May or June.

Those who act quickly and list now could benefit greatly from additional exposure to buyers prior to a flood of more competition coming to market in the next few months.

Bottom Line

If you are planning on selling your home in 2015, meet with a local real estate professional to evaluate the opportunities in your market.

Selling Your Home? The Importance of Using an Agent

March 3, 2015March 2, 2015NanaGSmith Leave a comment

When a homeowner decides to sell their house, they obviously want the best possible price with the least amount of hassles. However, for the vast majority of sellers, the most important result is to actually get the home sold.

In order to accomplish all three goals, a seller should realize the importance of using a real estate professional. We realize that technology has changed the purchaser’s behavior during the home buying process. For the past two years, 92% of all buyers have used the internet in their home search according to the National Association of Realtors’ most recent Profile of Home Buyers & Sellers.

However, the report also revealed that for the second year in a row 96% percent of buyers that used the internet when searching for a home purchased their home through either a real estate agent/broker or from a builder or builder’s agent. Only 2% purchased their home directly from a seller whom the buyer didn’t know.

Buyers search for a home online but then depend on an agent to find the actual home they will buy (53%) or negotiate the terms of the sale & price (31%) or understand the process (63%).

Stephen Phillips, the Chief Operating Officer for HSF Affiliates LLC, put it best:

“Home buyers are more informed than ever with their Internet searches and ongoing research; however, there’s a critical need to transform that information into analysis and advice that helps consumers make the best home-buying and selling decisions.”

The plethora of information now available has resulted in an increase in the percentage of buyers that reach out to real estate professionals to “connect the dots”. This is obvious as the percentage of overall buyers who used an agent to buy their home has steadily increased from 69% in 2001.

Bottom Line

If you are thinking of selling your home, don’t underestimate the role a real estate professional can play in the process.

If you need your house sold…CALL ME!
203-858-6727 cell

Confused about Collateral Underwriter?

March 2, 2015March 2, 2015NanaGSmith Leave a comment

What is really happening with CU? How does it affect you?

My Appraisal Today FREE email newsletter can help.
I report the facts, plus my opinions on what it means for you.

CU Facts:
– Not all loans go to Fannie Mae – Freddie, VA, FHA, jumbo, etc. do not.
– Lenders are not required to use CU.
– Fannie guidelines, including CU, are the minimum. Lenders can add their own.
– Gradual implementation of CU’s web based interface, which has the list of the “20 comps” suggested by CU. This information is not available to AMCs or appraisers.
– Some appraisers get few or no appraisal warning message and some get on a lot of them, depending on their clients.
– A new Fannie Letter (dated 2-2-15) specifically tells lenders to manually review the appraisal warnings before sending any to appraisers.
– CU sends out warning messages for adjustments on only 6 factors: GLA, lot size, view, condition, quality, and location. For example: GLA adjustment for (comp x) is smaller than peer and model adjustment.
– CU warning messages for “data consistency”: the 6 factors above. Plus, CU also looks at consistency, not adjustments, for 6 additional characteristics: quality rating, condition rating, total below grade areas, finished basement areas, above grade bedroom count, and above grade bathroom count. For example: “The condition rating for (comp x) is materially different than what has been reported by other appraisers.”
– Per Fannie, there is no direct relationship between AQM and CU. However, Fannie uses data analytics like those seen in CU to find patterns of behavior. AQM decisions are not based on automated results. Humans are required.

Original Article Here

Invest your Money: The Smart Way

February 25, 2015February 25, 2015NanaGSmith Leave a comment

So you have decided to invest your hard earned money into real estate – smart move! Thousands of people are doing it and it is working! Buying a property and renting it out can take work but it can also have many benefits. Before you start investing your money there are a few things that you should know.

What are you looking for?

Every single house is not a good investment. In fact, many properties could actually lose you money. Find out approximate mortgage payment amounts and comparable rents in the same area before you make your final decision on any property.

Is it a Good Deal?

Unfortunately, the perfect property to invest in will not fall into your lap. Find out what type of property you are looking for and start doing your research. Once you know what type of property you are looking for as well as the price, you are now able to start your search!

Can A Realtor Help?

Being in touch with a realtor that knows what you are looking for can also help! The realtor will know exactly what you are looking for and can forward you over any properties in these criteria.

Are they a Good Tenant?

What is the point in renting out the home if the tenants increase your amount of grey hair? Your goal is to make money, so make sure that your tenants are trustworthy. Call their references and make sure that everything is in writing. A little bit of extra work here can save you a lot of time in the future!

Can it Save Me Money in Other Ways?

Did you know that your cash flow should be tax-free? That’s right! Rarely will an investor pay taxes on this! On top of that, owning property is a tax deduction. This can help you when filing taxes once a year against your other income.

Great article on The Cash Flow Statement

Complete Real Estate Answers

Creative & Complete, Solutions & Services, For Your Real Estate.

nana smith

Commentary on the the U.S. Appraisal Market – Change is Coming

A Typical Work Day For An Appraiser