Appraisals Ain't What They Used to Be
Appraisers, for the most part, do their job honestly and well. Online tools like Zillow and other AVMs (automated valuation models) preform the function they were designed to: they measure market value. The problem is that the data used to calculate market value has been sabotaged.
"Sabotaged?" you ask. Yes. Not by hackers or terrorists or some foreign power, but by the banking and lending industry. They didn't set out to do it. There was no vast conspiracy bent on destabilizing the real estate market (although many knew that would be the likely result of their actions). No, this was a conspiracy of greed, short-sightedness, and irresponsibility.
The lending industry abandoned prudent and proven lending guidelines and loan products in favor of those that would bring greater profit and loan volume in the short term. All of the ‘exotic' new products and lenient new guidelines had two things in common:
• They leveraged borrower incomes, enabling larger loan amounts and the purchase of more expensive homes.
• They accomplished this ‘income leveraging' in ways that were inherently unstable and unsustainable.
But how does income leveraging add up to the ‘sabotage' of market value data? Well, market value is determined by the amount people were recently willing and able to pay for nearby, similar homes (comparable sales data). But what people were able to pay was determined, in turn, by how much of a mortgage they could qualify for. So the stability of market values depends on the soundness of the mortgages underlying comparable sales.
If there has been too much income leveraging – too many toxic loans made in an area - then market values will be unstable. You won't be able to trust appraisals to help decide whether a house is a good buy or not. So, what do you do?
One approach would be to find out how many toxic loans have been made in the area you are interested in. The problem is there is no practical, easy way to do that. The terms of a mortgage are not generally part of public records (they don't record the Note).
Another approach would be to use the median income of the neighborhood to estimate the maximum value that could be sustained with non-toxic, sustainable loans. ValuSage.com has a free tool that does just that.
You can check the MSV, or maximum stable value for any neighborhood in the US.
http://ValuSage.com
An innovative home value tool. Find the MSV (Maximum Stable Value) for any neighborhood.
"Sabotaged?" you ask. Yes. Not by hackers or terrorists or some foreign power, but by the banking and lending industry. They didn't set out to do it. There was no vast conspiracy bent on destabilizing the real estate market (although many knew that would be the likely result of their actions). No, this was a conspiracy of greed, short-sightedness, and irresponsibility.
The lending industry abandoned prudent and proven lending guidelines and loan products in favor of those that would bring greater profit and loan volume in the short term. All of the ‘exotic' new products and lenient new guidelines had two things in common:
• They leveraged borrower incomes, enabling larger loan amounts and the purchase of more expensive homes.
• They accomplished this ‘income leveraging' in ways that were inherently unstable and unsustainable.
But how does income leveraging add up to the ‘sabotage' of market value data? Well, market value is determined by the amount people were recently willing and able to pay for nearby, similar homes (comparable sales data). But what people were able to pay was determined, in turn, by how much of a mortgage they could qualify for. So the stability of market values depends on the soundness of the mortgages underlying comparable sales.
If there has been too much income leveraging – too many toxic loans made in an area - then market values will be unstable. You won't be able to trust appraisals to help decide whether a house is a good buy or not. So, what do you do?
One approach would be to find out how many toxic loans have been made in the area you are interested in. The problem is there is no practical, easy way to do that. The terms of a mortgage are not generally part of public records (they don't record the Note).
Another approach would be to use the median income of the neighborhood to estimate the maximum value that could be sustained with non-toxic, sustainable loans. ValuSage.com has a free tool that does just that.
You can check the MSV, or maximum stable value for any neighborhood in the US.
http://ValuSage.com
An innovative home value tool. Find the MSV (Maximum Stable Value) for any neighborhood.
Views: 7
Reviewed Investing Websites and Software
© 2024 Created by Matt Gerchow.
Powered by
