Where are we now?

[kurt]

There's a very interesting article in today's (Sundays) NYT on page 4 of the Sunday business section, titled "A Time for Bold Thinking on Housing".

The upshot is the current meltdown, and it's similar characteristics to the real estate adjustment of 1925 to 1933.

Interestingly, the real estate appraisal industry, battered by incompetence and one of the causes of the meltdown, pulled itself together in 1932 to create the basis for a truly professional organization, by founding the Appraisal Institute, which established national standards.

Without getting into a spiraling downward discussion of "standards", I can't help but imagine our silly little profession might also be @ such a crossroads.

The traditional roadblock to professional acceptance, the realtors & lenders, are rocked on their heels, and can't mount any significant argument that what has gone before is satisfactory. Rising costs of all things related to building can only make accurate assessment and description of condition, w/related costs & projections for correction, as something to be included in our scope of work.

Any thoughts?

[AHI in AR]

The last thing I want to get saddled with is the responsibility of calculating costs of significant repairs. I give them for fairly cut and dried repairs, but even then there is room for a lot of error. Case in point: this summer I had to have my evap coil replaced. I got 3 bids from long-established, reputable firms. All were bid using the original mfr's replacement coil. As coil replacement goes, this one was simple. Tall attic, light and receptacle right there at the unit. Great working space and walkway to the unit itself. Not some lying-on-your-side low pitch attic. Even with these conditions, the highest bid was almost double the lowest one.

Does anyone want an angry call from a client telling us we blew an estimate and they relied on our figures to finalize the deal?

I'd much prefer to stick to the recommendation I give clients to get bids from reputable repair firms.

[Bain]

Well, but that's an opinion piece, not an article containing the four "W"s. Shiller doesn't say who the appraisers acquiesced to--The banks? The realtors?--or who they were trying to please. He accuses the appraisers of providing valuations that ran counter to economic fundamentals, but is it fair to expect an appraiser to also be an economist?

Something is worth what someone will pay for it. An appraiser is just a person performing her CMAs.

[Chris Bernhardt]

I haven't noticed an increase call by clients for repair cost estimates or any additional service yet in my neck of the woods.

What I imagine is as the realtor stock diminishes so will the number of complicent inspectors performing soft inspections.

The next wave I believe will be driven again from an investor class as they try an deal with this still accumulating repo stock. My experience is that they don't want soft inspections. They want to know everything. Also the investor class is a lot less dependent on realtors.

I am hearing every day from realtors that they are going back to work or looking for some other business to get into.

That sounds like it is also happening to our ranks as well in the harder hit citys.

Were not a factor in this meltdown. So the result on us will be a weeding out and an renewed focus on quality as those of us remaining adjust our businesses. Same old, Same old.

Chris, Oregon

[kurt]

Originally posted by Bain

Well, but that's an opinion piece, not an article containing the four "W"s. Shiller doesn't say who the appraisers acquiesced to--The banks? The realtors?--or who they were trying to please. He accuses the appraisers of providing valuations that ran counter to economic fundamentals, but is it fair to expect an appraiser to also be an economist?

Something is worth what someone will pay for it. An appraiser is just a person performing her CMAs.

Well, of course it was an opinion piece; it wasn't some cub reporter looking to tell folks the (actually, it's) 5 W's. (who, what, where, when, why.)

And yes, Shiller is readily identifiable as an odious individual, but what of it?

The problems, as outlined briefly, weren't because someone was performing their CMA's. I thought the implication was they weren't performing their responsible duties, and were acting in concert w/as part of the farce. And yes, something is worth what someone is willing to pay for it, but is it worth what they are willing to pay when they have been actively misled by bankers, realtors, and their appraiser's in it's value?

I thought the more interesting point was that innovation in any profession often comes @ it's most troubled times, and that the real estate industry is due for new ways of doing things & innovations that clarify or reduce the problems attendant w/our current meltdown.

For some reason, several light bulbs went off in my head about how we, as a profession, can have input into this, but I guess no one else sees any possibilities. For whatever reason, I think we are anywhere but the "same ol', same ol' ".........

Oh well.....

[hausdok]

Hi Kurt,

I've pointed this out before, but I'll say it again; we're populated primarily by a demographic that's not interested in innovation or the future of the profession. They want things to stay the way they are - at least until they've got their nests feathered - and then, once they're gone, will happily encourage us to bring in younger blood and start trying to be innovators. In the meantime, they're happy to leave well enough alone.

Think about it. If the majority in the business were young folks fresh out of college and in their twenties or early thirties, your question probaby would have prompted 20 or 30 responses by now.

OT - OF!!!

M.

[randynavarro]

I don't have access to the NY Times, so. . . .

Kurt, is this crossroads idea tied in perhaps to that other discussion regarding how we report; to include photos; do people just want the bottom line, etc?

If so, I am on the same page. The same ole reports I've been producing for years, although continually improving, just seem to fly over the heads of the typical buyer. They just want the bottom line stuff, and if I understand what the topic here is, they want to know what it's going to cost to get it taken care of.

Are you referring to an entirely new paradigm of what the home inspection process is?

[Bain]

I agree with you, Kurt. It's just when I read that guy--Shiller--I see and hear the pompous economist from the opening scenes of Good Will Hunting when Will meets Minnie Driver.

I think the meltdown is more readily attributable to general incompetency--of both the individuals and the system--than to any organized scheming by the bankers, realtors and appraisers. Then again, all three groups receive fees or points once the buyer is at the closing table, so there's at least a latent understanding of what the ultimate goal is for all of them.

When things are going well, we smile a lot and reap the rewards. But when things get really, really screwy, that's when we step back and ask, "How did this turn out so wrong? How can we prevent this from happening again in the future?" And that's when we learn the most.

The housing industry is beginning to ask questions. Economists are beginning to ask questions. That's a good thing.

I'm not certain how we as a group can influence whatever changes loom in the future, but I agree. We should think about it and try to find a way to become part of the process.

[ozofprev]

Jeez, I hope these times don't represent SOSO.

Today's housing is in crisis and bold steps are necessary. Without bold steps, what happens? The answer is seen in the current epidemic of foreclosures and the correspondingly large numbers of people being thrown out of their homes. And then the rest of the dominoes fell - contractor businesses, building suppliers, equipment sales, and everything connected to housing declines.

I like Elizabeth Warren's idea of a Financial Products Safety Commission. It is appalling that financial people who knew better, went ahead and fed spicy loans to low-income people - knowing that those loans were going to feel like habarnero peppers the next day.

People should recognize that home inspections are more important today since many of the homes on the market have been vacant for a prolonged period.

So far as accurate assessment/description of a structure's condition, yes, home inspectors could provide a great service if they were all competent. I know a handful of inspectors who are good enough to provide the "costs and projections for correction" you are talking about.

But that may be your very point. What's gone before (and today) is not satisfactory. Perhaps a new breed of inspectors could be part of Elizabeth's safety commission. That could be cool.

[Les]

I have not responded before this because the issue is beyond the understanding of most home inspectors. I am not trying to get uppity, but most really do not "understand" what it is they do and why they do it.

As for me, I am very comfortable doing what ever it takes for my client. The days of me telling my client what I should be doing for them have been gone for a couple of years. The real estate agent filled that void by telling the inspector what to do. Some of us paid no attention to the agent and prospered. Some started doing inspections for the agents and became a part of the process; purchase agreement, appraisal to that stated figure, inspection, negotiation?, and close.

I have been doing semi-exact cost to repair/remedy for many years. We do not like to do it for the standard fee, because it cost us time. We can do it. I believe it is the inspection of the future. Inspections will remain mostly crap and our fees will reflect that.

Kurt does a good business working with professionals, and offers a product that is no where near the average real estate inspection. His product and mine are not at all alike, but are pretty much the same. I do not know Gary R's product, but will bet you he produces a product that is not ITA, AHIT or XYZ influenced. It likely is a product that he believes serves his client.

maybe more later. Executive Summary: There is not a defined product for us, so why are we constantly bitching about the agents when they define the product and we give it to them?

[Bain]

"Denny Crane!"

You know we love you, Les. Umm, you're still taking your medicine, aren't you?

Apathy is a lousy reason for not doing something, I just don't see where we fit into the big picture. This is a financial problem. A BIG financial problem that involves many, many businesses and billions of dollars. The banks don't want to be in the business of repossessing and selling houses. I don't think they knowingly loaned money to people they thought would default.

I think this problem is more traceable to the ethos of our culture, in which we demand the independence to make our own decisions, but then don't want to take responsibility when those decisions are wrong.

Denny, I mean Les, nailed it in a different thread earlier this week. The pervasive need for all of us to have cell phones, cable television, ISPs and all else stretches budgets like no other time in history. Banks used to allow you to pay as much as a third of your gross monthly income toward a mortgage. But really, how many people can afford that?

Circuit City doesn't make a dime selling electronics. They lose money selling electronics. But then how are they in business? Because of their credit department. Circuit City is profitable 'cause people are willing to sign up for a credit card and pay 18% a year so they can own a flat-screen, surround sound and all the other goodies. Is Circuit City at fault for someone going into debt, and maybe losing his house for a bunch of totally unnecessary toys?

I don't know. Tough call.

Even McDonald's takes credit cards, now. Imagine that. Someone going into debt because of a Big Mac.

[kurt]

Originally posted by randynavarro

I don't have access to the NY Times, so. . . .

Kurt, is this crossroads idea tied in perhaps to that other discussion regarding how we report; to include photos; do people just want the bottom line, etc?

If so, I am on the same page. The same ole reports I've been producing for years, although continually improving, just seem to fly over the heads of the typical buyer. They just want the bottom line stuff, and if I understand what the topic here is, they want to know what it's going to cost to get it taken care of.

Are you referring to an entirely new paradigm of what the home inspection process is?

Everyone has access to the NYT nowadays; it's free online, including access to OpEd, and the ability to archive your own library of articles, in their storage @ their expense. It's one of the coolest things going.

Entirely new paradigm sounds good to me, although I'm not always entirely sure of what elements I'd like to see. I just see real estate at a crossroads, processes are going to be reviewed by societally powerful institutions and individuals, and damn, I'd like to see some recognition of this thing we do be included as part of an overall assessment the property.

Cost analysis is not all that complicated, and the continued resistance to it prevents another notch of credibility being added to our gig. No one expects anyone to know, or be able to, provide actual final costs, but being able to bracket the possibilities & variables w/a high and low end range is something I've been doing for years. AHI described two contractors, one having costs double the other. Find out what each contractor was specifying, what it cost, and write it down for future reference.

I call contractors all the time to determine their approx. multipliers for costs. It's simply not that complicated.

What if the powers that be thought that home inspectors were competent in these matters? What if comparing appraisals & HI reports was considered appropriate? I've never understood how valuation can be accomplished without some reference to property condition.

While standardized reports are not something I'd like to see, the idea that a series of checks in boxes comprises a report is something that has to go bye-bye. Of course, all the professional societies recognize them as compliant, but I don't know how. As long as that scourge continues, it's near hopeless. And, we have organizations like Kaplan/ITA holding themselves up as educators, all as a schil to keep selling their report systems.

Les is probably right; this is beyond the normal home inspector capability, and figuring out ways to take advantage of conditions is perplexing. Right now, I'd be happy if there were simple bullet pointed lists of possibilities.

[kurt]

Originally posted by Bain

"Denny Crane!"

You know we love you, Les. Umm, you're still taking your medicine, aren't you?

Apathy is a lousy reason for not doing something, I just don't see where we fit into the big picture. This is a financial problem. A BIG financial problem that involves many, many businesses and billions of dollars. The banks don't want to be in the business of repossessing and selling houses. I don't think they knowingly loaned money to people they thought would default.

I think this problem is more traceable to the ethos of our culture, in which we demand the independence to make our own decisions, but then don't want to take responsibility when those decisions are wrong.

Denny, I mean Les, nailed it in a different thread earlier this week. The pervasive need for all of us to have cell phones, cable television, ISPs and all else stretches budgets like no other time in history. Banks used to allow you to pay as much as a third of your gross monthly income toward a mortgage. But really, how many people can afford that?

Circuit City doesn't make a dime selling electronics. They lose money selling electronics. But then how are they in business? Because of their credit department. Circuit City is profitable 'cause people are willing to sign up for a credit card and pay 18% a year so they can own a flat-screen, surround sound and all the other goodies. Is Circuit City at fault for someone going into debt, and maybe losing his house for a bunch of totally unnecessary toys?

I don't know. Tough call.

Even McDonald's takes credit cards, now. Imagine that. Someone going into debt because of a Big Mac.

Ya know, that's all so true, and it ties into perception of what's wrong.

No one wants to provide goods & services anymore; everyone wants to be the bank. It's why Detroit is screwed; no one cared about making cars as much as they cared about GMAC financial services.

[Bain]

What you said, I've never understood. Why do banks want to look at appraisals, but not inspection reports? Should they really loan money on a house that has a failed roof and a shot furnace? Shouldn't those ten grand--on a really small house--in repairs be somehow considered?

Every once in a while, a buyer will ask if I'm going to zap a copy of a report to a bank. What can I say other than, "Nah, they don't care about what I have to say."

Easy to understand, standardized reports would be a necessity if they were going to be quickly processed by some schmuck at a bank. Most of us, sadly, would have to dumb-down.

[Chris Bernhardt]

What do you think what would happen if the banks ever wised up and required an HI along with an apprasial to more accurately value a property?

Boy, what a mess that would be! It would make the NAR death grip seem like a love tap.

Chris, Oregon

[allspec33351]

I was doing an inspection on Monday, the seller was the agent owner. Actually both of the sellers are Realtors.

I introed myself and went about my inspection. Five minutes later the male Realtor says to me"I'm a Realtor and you can tell me everything because I understand" I just said ok.

I came inside to inspect the interior. As I set up my computer in the kitchen the other selling Realtor introduced herself and ask me how long I was doing this I said about 11-12 years. She said "I'm glad because that means you know the difference between cosmetic and functional." My reply ok. "She then said you are going to inspect to the contract?" I said "I'm sorry but I didn't read your contract but I will do the best I can."

No other conversations until I say " I done." The male Realtor says "wait a minute you're not done yet until you tell me and show me what's wrong". I said no I can't and he said 'I've been doing this as long as you and I never had an inspector refuse to tell me the results of the report."

A short discussion took place and I left.

If we as home inspector don't change and rid ourselves of the Realtor coattails we will make the appraiser look like saints. If you are offended I will go back into my cave.

Captain

[kurt]

Actually Mitchell, I'm not offended; I'm amazed. I think that's the most I've ever seen you write.

Chris, thinking the banks are going to own us is possible, but unlikely. They sell paper; they don't want to hold paper. The few bank jobs I've done were the most intense; they were holding the paper for investment purposes, and wanted to know to the tiniest detail every little item.

Mitchell is most correct; getting out from under the realtors is the critical step.

[Brian G]

Originally posted by Bain

What you said, I've never understood. Why do banks want to look at appraisals, but not inspection reports? Should they really loan money on a house that has a failed roof and a shot furnace? Shouldn't those ten grand--on a really small house--in repairs be somehow considered?

It's what Kurt said in his last post, if you followed it. The bank seldom retains the loan once the deal is done. They sell it into the secondary market, take their profit, and do another (etc.). Mortgage companies do the same They usually don't care if the house is really worth the money, or what condition it's in, so long as they can close the deal and sell it on down the line. Like realtors, they make their money from processing deals. No deals, no money.

The lenders have exerted enormous pressure on appraisers for decades, to "make the number work" or "make value", i.e. make the appraised value match or slightly exceed the selling price already agreed on. They've been very successful at it because appraisers, unlike HI's, typically work directly for the bank or mortgage company. It doesn't matter who's buying the house; federal law says the financier IS the client. So if the bank assigns you an appraisal and you don't "make value", you'll never get work from them again. They'll also tell their banker buddies, and you'll never work for them in the first place. Naturally a lot of appraisers leap into the service of these crooks with relish, just as the worst HI's do. All of this is why I left appraisal after one long year.

Brian G.

Get "In Line" Or Get Another Line of Work; No Choice [8]

[SonOfSwamp]

As I read the thread, the following occurred to me:

*Got to be free of the reeltors. I know, I know, they're trained sales professionals, out there selling our services for us. Problem is, they've got their hands up our asses and they work us like puppets.

For virtually all of my 20-year HI run, I was lucky enough to bypass the reeltors, and market straight to customers. Simply put, nobody trusts an HI who has a reeltor hand up his butt. Customers are smart enough to realize that they're getting jobbed, but they figure at $300 a pop for a quick-and-dirty HI, they don't have much to lose. We'll be stuck in the doofus class forever if we don't free ourselves of reeltor influence. I know, I know, lots of reeltors are good people. I'm not saying they're evil. I'm saying they compromise our relationships with customers, the customers know it, so the customers place little value on our work.

*In my little part of the world, I can't imagine doing extensive cost-to-cure evaluations. When somebody in Nashville wants his house fixed, he gets three bids, picks the middle one, and the chaos begins. Change orders, arguments, crews that need to get bailed out of jail on Mondays, workers who speak no English, etc. Maybe somebody here can tell a homeowner how much it'll cost to fix his house, but I can't imagine doing the calculations. It'd be like herding cats, fighting bees, and putting out a fire in my hair all at the same time.

I say market directly to customers, and double your fees. Or, hell, just start up an honest handyman company. (Still $130 an hour in Chicago, brother Kurt?)

If you start the handyman company, you'll at least be able to tell people what the fix-up job will cost if you do it.

WJ