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perfectlyGoodInk[/b];26290367]The quote, "all parties in the transaction, including the lender and third-party service providers, such as appraisers" sounds a whole lot broader than "to the lender." I fail to see the rationale behind disclosure to the appraiser, who just needs to assess the property value, a task completely independent of the people buying or selling it.
It is more broad, and to learn the rationale behind it, one could contact the ADRE. But when a buyer receives credit from the seller or the buyers or sellers agent, then he is effectively paying less money for the home, and if the appraiser is going to be given the purchase contract, which in many cases they are, then they need to know all the concessions so they can better compare the home.
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perfectlyGoodInk.....One of the reasons I went with the agent I did is that they had the most sophisticated interpretation of the housing bubble, pointing to conflicts of interest where appraisers were under pressure from lenders to appraise houses at certain levels so that the transaction would go through.
That's part of the reason that an appraisal management company was established to have a pool of appraisers. Lenders can no longer choose an appraiser. They must go through that appraisal company, and that has not improved the situation. The appraisal selection company now takes a large chunk of the appraisal fee leaving the appraisers with less pay for appraisals (I'm told they make less than before-I have no first hand knowledge)
An appraiser from the far west side of town can be called to appraise a home on the far east side of town where the appraiser has no local knowledge. In addition, they are now afraid to appraise on the upside in an appreciating market, consequently, there are a lot of low appraisals; and a lot of appraisal appeals.
if the appraiser is going to be given the purchase contract, which in many cases they are, then they need to know all the concessions so they can better compare the home.
And what is the purpose of giving the appraiser the purchase contract? Isn't it the lender that needs to compare the purchase contract with the appraised value, not the appraiser?
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Originally Posted by Captain Bill
That's part of the reason that an appraisal management company was established to have a pool of appraisers. Lenders can no longer choose an appraiser. They must go through that appraisal company, and that has not improved the situation.
Seems like they didn't understand the nature of the problem. I think a better answer is to shield irrelevant information from the appraiser: let the lender still choose the appraiser, but don't let the appraiser know who the lender is or any other information about the transaction at all except the property address.
Still, the appraiser was merely delivering what the lender wanted. The bigger problem actually was that the lender no longer cared if the appraisal was accurate when they would be reselling the loan rebundled as a CDO or MBS. When the lender doesn't care about default risk, they don't care about accurately determining collateral value either. Incentives matter.
Also, if buyer agents do work for buyers, shouldn't they be paid by them? Imagine how things would be if the lender paid the buyer who paid the seller who paid the listing agent who paid the appraiser? Would appraisals be more or less accurate under this system?
Last edited by perfectlyGoodInk; 09-28-2012 at 03:07 PM..
Agents don't give them the purchase contract, but the lenders will give them information.
Silverfall discussed buyers paying buyer agents earlier in the thread.
It is up to the lender, but if lenders want appraisers to do an objective job to create an accurate appraisal, they wouldn't want to provide information that might distract or bias them. If they want appraisers to let contracts go through so that banks have more mortgages to resell, well then, I'd say the root problem is still there.
Yes, Silverfall pointed out the indirect payment of buyer's agents was a holdover from when buyer's agents worked for sellers (i.e. an unintended side effect), and that it hasn't changed simply because some buyers want to wrap it into the loan (i.e. is still an unintended side effect). One interesting side effect is that it makes it easier to maintain a pricing standard. Like for the appraiser conflict of interest problem, I don't for a minute believe that the solution to the loan problem requires the listing agent to specify the buyer's agent commission, as that has absolutely nothing to do with the issue. And this convoluted payment scheme certainly shouldn't be necessary for cash buyers either.
Of course, my question wasn't about how things ended up this way. My proposal is about ought, not is. Indeed, one of the arguments in favor of change is exactly that the current standard is a holdover of a system designed for seller agents instead of buyer agents. No, my question was whether you thought about a system where the lender paid the buyer who paid the seller who paid the listing agent who paid the appraiser. Let's make it a more accurate analogy and say the listing agent decides how much the appraiser should be paid. Under such a system, would you expect more or less accurate appraisals?
Last edited by perfectlyGoodInk; 09-29-2012 at 07:14 AM..
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Of course, my question wasn't about how things ended up this way. My proposal is about ought, not is. Indeed, one of the arguments in favor of change is exactly that the current standard is a holdover of a system designed for seller agents instead of buyer agents. No, my question was whether you thought about a system where the lender paid the buyer who paid the seller who paid the listing agent who paid the appraiser. Let's make it a more accurate analogy and say the listing agent decides how much the appraiser should be paid. Under such a system, would you expect more or less accurate appraisals?
Appraisals will always have a lot of subjectivity to them and I would not expect any more accuracy no matter how they get paid. They may be less careful if they're being paid less, and they may not.
Some may be up to date on the local statistics and trends so they can see where the market has been and is headed. Some may not, therefore one appraiser may not realize that there is a strong up trend in a metro area, and not give credit for that, while another may be studying the statistical data everyday and know exactly what's going on. The first appraiser will most likely appraise low, and the latter will most likely appraise higher (based on the current trend)
Early last year my client bought a $1+million custom hillside home for cash. It was really a steal because it had sold for $2.5 mil a few years before, with a perfect layout and location with a spectacular 180 degree view of the Phoenix area. My buyer had an appraisal done just to see what it would come in at (not a contingency). We selected an appraiser who lived in the same city and paid him $500. We did not give him the contract price, but he did have access to the mls where he could, and probably did, get the listed price. The appraisal came in below the purchase price, which was below the list price.
Appraisals will always have a lot of subjectivity to them and I would not expect any more accuracy no matter how they get paid. They may be less careful if they're being paid less, and they may not.
Pretty much every job has a lot of subjectivity. This is clearly true of anybody in the service industry, including agents. It's true of engineers, as there are a multitude of different variables involved in good design. Even accountants, as while you can judge them by how few errors they make, the magnitude of each error is subjective. However, even though there is subjectivity, you can still recognize factors that will improve job performance or worsen it.
The point, however, isn't the size of the paycheck. Paying everybody a lot more will not increase performance, because someone who thinks they are overpaid is also less likely to be productive. People will also figure out that they can slack off and still get paid highly. No, the point isn't paying more, what works is linking pay to performance.
When a lender selects and pays an appraiser, they effectively get to decide what type of performance to reward. As the lender is making a collateralized loan, they have a lot of money at stake regarding the accuracy of that appraisal (at least, they used to before they could resell the loan). Changing it so that an agency pool selected the appraiser cut this tie. Changing things so that somebody who didn't want an accurate appraisal was paying the appraiser would make appraisals less accurate (e.g. the seller, who just want the transaction to go through).
This is probably a point lost on anybody who isn't an economist or an industrial organizational psychologist. Let me try something simpler. Note that there's a lot of subjectivity with quarterback performance. Even though there are gazillions of statistics available and even a rather widely accepted "QB Rating" system, there are intangibles such as leadership skills and how "clutch" somebody is. Currently, quarterbacks are paid by their own team, but imagine a scenario where the pay of visiting quarterbacks was decided by the home team.
This might seem strange, but remember that the fans are the ones supplying all the money, so it makes some sense to have them pay all the athletes performing for them. Furthermore, visiting quarterbacks are supplying a service to the home team in that fans won't pay much for tickets to intra-squad practice scrimmages; they want an opponent from another team to root against. Fans obviously also love to see the home team win, so visiting quarterbacks that lose are clearly worth more to the home team than visiting quarterbacks that win.
A good show requires close games (and an occasional loss to maintain some suspense), so visiting quarterbacks aren't likely to completely tank and throw an interception on every pass. Many quarterbacks would also claim their real duty is still to their own team and to win no matter what. But clearly, although visiting quarterbacks would still "report" to and "work for" their own team, their job would have changed.
Overall, on average, would you expect the performance of visiting quarterbacks to improve or worsen under this system?
In case anybody is still reading this thread and was wondering, we did end up buying a house using this plan. Followup is here:
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Originally Posted by perfectlyGoodInk
...the agent was fine with my proposal as it stood, which was:
3% * (maxPrice + minPrice - salesPrice)
The maxPrice was easy. We had $240,000 in cash from a California condo sale and did not want to exceed that... We agreed upon a minPrice of $170,000, as in our Internet searches, we hadn't seen any homes we liked listed below $170K...
The final home price was $168,500, so we paid him 3% * ($240,000 + $170,000 - $168,500) or $7,245, more than the $5K he would have earned under the traditional scheme.
It is interesting to note that many people on this thread had accused me of trying to cheat or deceive agents with this plan, but now I am being called naive for overpaying. Well, we got what we wanted and what we paid for: an agent working with our best interests in mind instead of that of the seller. Remember, it's only sellers who want to maximize their sale price. Buyers want to minimize their purchase price.
In case anybody is still reading this thread and was wondering, we did end up buying a house using this plan. Followup is here:
It is interesting to note that many people on this thread had accused me of trying to cheat or deceive agents with this plan, but now I am being called naive for overpaying. Well, we got what we wanted and what we paid for: an agent working with our best interests in mind instead of that of the seller. Remember, it's only sellers who want to maximize their sale price. Buyers want to minimize their purchase price.
I would do it in a minute. What you are doing is creating an incentive for your agent to push you to the cheapest place that meets your spec. That is a perfectly reasonable thing to do. He is however not motivated to perfect your happiness with your purchase. He is in fact trying to move you to the least costly...which he did.
In the process of course he may have not shown you any number of things which provided more value per dollar. If he came across a fantastic estate sale at $220,000 that is 25% below comps and in a better location with everything going for it. But you have told him or her not to tell you about such a place.
So I think your agent did good. You are happy and he is happy. And if you got screwed in the process....
What you are doing is creating an incentive for your agent to push you to the cheapest place that meets your spec. That is a perfectly reasonable thing to do.
Thank you for recognizing that.
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Originally Posted by lvoc
He is however not motivated to perfect your happiness with your purchase. He is in fact trying to move you to the least costly...which he did.
In the process of course he may have not shown you any number of things which provided more value per dollar.
True... but note that this is also true under x% * salesPrice or any other compensation plan. Remember that there's a big distinction between price and value, after all. No matter who the agent is or how they are paid, the buyer alone has the responsibility to determine which of the houses shown has the most value per dollar. The agent is, after all, merely an agent of the buyer.
Ideally the agent never pushes the buyer at all, which best allows the buyer to make their own decision, but notice that value per dollar has dollar in the denominator, so an agent that pushes a buyer towards lower cost houses is more likely to maximize value per dollar than an agent that pushes buyers towards higher cost houses. The latter is acting more as an agent of the seller.
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