VAR endorsements for Governor, Lt. Governor, Attorney General, page 6 September/October 2009
A journal for real estate professionals published by the Virginia Association of REALTORS® • www.VARealtor.com
HVCC Now that we have your attention...
ANDREW KANTOR PUBLISHED BY THE VIRGINIA ASSOCIATION OF REALTORS® The Business Advocate for Virginia Real Estate Professionals John Powell, ABR, CRB, CRS, GRI President Cindy Stackhouse, GRI President-Elect John Dickinson, CCIM, GRI Vice President Pat Jensen, ABR, CRB, CRS, GRI Immediate Past President John Daly Treasurer R. Scott Brunner, CAE Chief Executive Officer scott@VARealtor.com Ben Martin, CAE Vice President, Marketing & Communications ben@VARealtor.com Andrew Kantor Editor & Information Manager andrew@VARealtor.com For advertising information, Brittany Sullivan at (410) 584-1968 or e-mail email@example.com The mission of The Virginia Association of REALTORS® is to enhance its membership’s ability to achieve business success. Commonwealth magazine (ISSN#10888721) is published bi-monthly by the Virginia Association of REALTORS®, 10231 Telegraph Road, Glen Allen, VA 23059-4578; (804) 264-5033. Virginia Association of REALTORS® members pay annual dues with a one-year subscription included within their dues. Periodicals postage paid at the Glen Allen, VA post office and additional mailing offices. USPS Per. # 9604. Postmaster: Send address changes to: Commonwealth magazine, 10231 Telegraph Rd., Glen Allen, VA 23059-4578. Custom Publishing Services provided by Network Media Partners, Inc. Executive Plaza 1, Suite 900, 11350 McCormick Road Hunt Valley, MD 21031
VARbuzz.com. Your virtual café for real estate news, views, and issues. Read the perspectives of your fellow Virginia REALTORS®. Join the conversation at VARbuzz.com today.
Get it? Got it? Good!
In addition to the print version of Commonwealth, VAR publishes electronic newsletters at regular intervals, including...
...the online version of our print magazine, published every month. If you’re not receiving newsletters via e-mail from time to time, it may be that we don’t have your correct email address. Contact your local association of REALTORS® to enter your address in the database. Also, check the spam filter on your computer and authorize any email from VARealtor.com.
Endorsement follies — or not SO I SAT in on most of the RPAC Trustees’ interviews with the six candidates for statewide office — Mssrs. Bolling, Cuccinelli, Deeds, McDonnell, Shannon, and Ms. Wagner. My job being to take notes so I could write the press releases and articles that would follow the endorsement. I had heard some grumblings about the process since last year (my first Election Day with VAR). The endorsements were a done deal, they said. The interviews were more a ritual than anything. And so on. Being a natural cynic, it’s hard to dismiss them. So I sat there, wondering if one group of candidates would get light treatment, and how heavy the criticism of the others would be during the breaks. How much discussion would there really be? Was it all a formality? I sat down, wondering what to expect. The cynics, it turned out, were wrong. When I thought one candidate was being treated unfairly, it wasn’t long before I saw that same “unfair” treatment given to the opponent. At one point, someone criticized Candidate A’s answer to a particular question — criticism I thought was a bit strong, especially when, flipping through the candidates’ response sheets, I saw that Candidate B had given a virtually identical answer. But a few minutes later, one of the trustees said, “By the way, I see that Candidate B gave the same answer to that question.” Pages were flipped, answers were read, and then there was much grumbling of the “Et tu, Brute?” variety. So much for favoritism.
Softball questions? Not many, and all the candidates got ’em. Hardball? Ditto. And all those questions were related to real estate. (Although I’m sure some of the trustees would have liked to grill them on other issues.) I wasn’t privy to the detailed and official endorsement discussions, but the conversation I picked up during breaks and lunch were heartening. There was plenty of talk of the bad points of candidates I thought were shoo-ins, and there was plenty about the good points of those I thought didn’t have a chance. And I heard several times comments along the lines of “I didn’t expect to be impressed, but I was.” (In fact, the same goes for my personal opinions about the candidates. I was impressed and disappointed where I didn’t expect to be.) This wasn’t a formality or ritual — the RPAC trustees took the process seriously and professionally. If there were partisans in the room, I couldn’t see it. By the time you read this, our picks for those state offices will be common knowledge, and comments and criticism will be flying. This is politics, after all. But as you read the how and why of the endorsements (page 6), even if you don’t agree with the choices you should know that they were far from foregone conclusions. ●
Andrew Kantor, Editor andrew @VARealtor.com
SEPTEMBER/OCTOBER 2009 Volume 16 ● Issue 5
departments 4 quickhits The latest news and tidbits from around Virginia.
10 legallines Lem Marshall answers readers’ questions about the law.
18 formfactor Leases: the fine print; and, terminating with extreme prejudice?
22 accessibletech Quick and simple steps to better listing photos and video.
34 realtycheck Is the appraisal situation really all that bad? Surprising answers.
in every issue feature 1 firstword 36 rpacreport 40 varbuzzcontest 42 contactvar 44 lastword APEX Award of Excellence winner
The Best Laid Schemes
The Home Valuation Code of Conduct was supposed to make the appraisal process more fair and accurate. Ask around; that’s not what people are seeing. Here’s what happened, and what went wrong.
Correction: In the July/August edition of Pearl of Wisdom, an example was cited in which earnest money was deposited in an agent’s escrow account. Of course, in Virginia, all earnest money held by the firm must be held in a firm escrow account that meets the requirements of the Real Estate Board regulations. Agents and associate brokers, of course, should not hold client escrow monies in any other account. Please visit www.VARealtor.com/LegalResources for complete information about earnest money deposits. We regret the ambiguity.
Virginia Homeowners Alliance (www.vahomeownersalliance.com) relaunches
The Virginia Homeowners Alliance (www.vahomeownersalliance.com) has been reborn, and now it’s an even more effective tool for your clients, and a better way for you to reinforce your position as a trusted advisor. The new site is designed to impress your clients not just with its striking good looks, but with more and more useful information up front — information that goes straight to the issue of property values, and that is specific to their individual city or county.
Dig this (but call first)
We didn’t rebuild the site. We created a new one from scratch. For starters, though, here’s what’s new: News, front and center. As soon as you view the page, you’re hit with the latest news — news from across the state that affects property values. Visitors won’t have to click for content; it’ll be right in front of them. Information by city and county. The original VHA site was divided into eight arbitrary regions. Pah! The new site divides its news and information by city and county — and each has its own page. Distilled information. No more just copying stories from newspapers’ Web sites. Now we have dozens of sources, and each story is reviewed by a media manager, who summarizes the article, provides a homeowner
There’s a good chance you didn’t know about Virginia’s 30-year-old Underground Utility Damage Prevention Act — at least not until recently, when the State Corporation Commission told us it was going to begin enforcing the act more stringently, especially for real estate signage. According to the SCC, even putting up a typical spike sign is considered “excavating,” and Realtors® or their sign companies who don’t first get the go-ahead from Miss Utility face up to a $2,500 fine. In fact, the SCC’s Division of Underground Utility and Railroad Safety originally prohibited even those coat-hanger signs; VAR fought for and won that concession. And while we agree that Realtors® who are actually excavating — digging a hole for, say, a 4×4 post — should be required to check with Miss Utility, we feel it’s overkill
perspective on the story, pastes a snippet from the story, and gives a link to the original article. Sign in and be recognized. When users sign up, they instantly receive a welcome e-mail with a link to a page containing seven quick ways to get the most of their Alliance membership. They also get access to a prominent “members-only section,” which we continue to add content to. Back end improvements. Another benefit to the new Web site (besides making upkeep and changes fast, cheap, and easy) is that we can better track which Realtors® sign up which members. We’ll soon be able to give you a list of who you’ve signed up. We’ll also be able to deliver news to members in a variety of ways — e-mail, news feeds, and eventually directly to their mobile phones.
to mandate up to a three-day waiting period to erect a common steel-frame sign or info box, then impose such a steep fine, especially when the homeowner can install one without calling first. We’re continuing to work with the SCC to determine if there is a more reasonable middle ground, and will consider working on legislation if necessary. And, of course, we’ll keep you informed of our work and of any changes to the signage rules. Until then, however, you need to be sure to obey the regulations.
We’re number 1 — again
CNBC named Virginia its top state for business for the second time in three years. It compared the states’ “competitiveness” — the quality of its work force, the cost of doing business, and support for innovation.
VREB speaks — you listen
The summer issue of VREB Speaking — the Virginia Real Estate Board’s newsletter — is out. You may remember that VREB stopped mailing the newsletter, opting for an electronic-only version. So grab your PDF copy today at VARbuzz.com/go/vrebsummer.
New Truth-in-Lending requirements take effect Be forewarned: Residential borrowers who are financing (or refinancing) a primary or secondary home will see some changes from their lenders and may face some additional delays. Lenders are now required to give good faith estimates of mortgage costs within three business days after the consumer applies for a loan; it can’t collect any fees until then. After this early disclosure, there’s a seven-day waiting period before the sale can close, although consumers can waive this for a “bona fide personal financial emergency.” (The Fed made it clear that waivers should not be used just to speed things up.) And if the loan’s APR changes by more than 0.125 percent, the lender must correct the disclosure, get the new version to the borrower, and wait an additional three business days before closing the loan. But, because the Fed’s definition of “APR” includes the interest rate and certain settlement costs, lenders will have to be extra careful calculating those fees, or they risk having to go through that corrected-disclosure process. For more for information: NAR’s brief: VARbuzz.com/go/ NAR-TILA. The Mortgage Bankers Association’s summary: VARbuzz.com/go/TILA-summary. Volume 16 ● Issue 5
Short sales training resources To help Realtors® and brokers deal with the evermore-common short sale, VAR has sought out the most helpful resources online and put them all in one place. That’s not to say that short sales won’t still be difficult and lengthy, but hopefully we’ll make you a bit more prepared for them. And face it — the Realtors® who have accepted them as the fact of life that they are, are making sales, making money, and pleasing clients. The Short Sales Resource Center is at www.VARealtor.com/shortsales. It includes: • best practices for handling these transactions. • video, print, and online education resources for agents, clients and brokers • consumer resources for your clients. • communication tools for client counseling and information. • contact information for expert presenters who can hold classes for your office or association. l
2009RPAC endorsements Support the candidates who support your business. On November 3, cast your votes for the people who offer the most for your real estate business, and for your clients’ homes’ values. The Virginia Association of REALTORS® and the Realtors® Political Action Committee of Virginia have announced endorsements for statewide candidates in the 2009 election: • For Governor, Bob McDonnell • For Lt. Governor, Bill Bolling • For Attorney General, Steve Shannon We chose these candidates for a variety of reasons — but reasons that relate to a single concern: their support of VAR, for Realtors®, and for the real estate issues that impact our members and the clients they serve. We realize that not everyone will support these same people. Elections are personal things, and voters have many reasons for picking a candidate. But your RPAC trustees’ responsibility is to choose who they feel are
the best candidates for the real estate profession. It matters not what the candidates feel about gun control, or health care, or leash laws, or any of the myriad issues that individuals consider when choosing whom to vote for. VAR and RPAC focus only on representing and protecting your real estate business. All that matters: Who will best support Realtors®’ issues? Because when it comes to politics, we believe you should support the people who support you. That is, the candidates whose philosophy and voting record we think best reflects the business needs of Realtors®. But past history isn’t always a good indicator of future performance. Besides considering the candidates’ voting records (where possible),
Governor: Bob McDonnell Both McDonnell and his opponent, Creigh Deeds, are eminently qualified for the office they seek. But we were most impressed by McDonnell’s detailed knowledge of the issues that concern the real estate community, and by the specifics he offered, in particular regarding transportation policy. Although we may not agree with his entire plan, the fact that he presented a concrete and detailed one demonstrated an important understanding of the issues. McDonnell has consistently supported the real estate profession, and he shares our core philosophy: the need to support and defend property rights. And he, like VAR, is opposed to over-regulation of business. Virginia consistently ranks as one of the best (often the best) state for business, and that’s important to our members, many of 6
each statewide candidate filled out RPAC’s extensive questionnaire that asked their positions on issues like housing affordability, smart growth, and transportation. Finally, there is the live interview in front of the 23 trustees. In that forum, the candidates outlined their overall positions and answered real estate-specific questions from the RPAC trustees. (Five of the interviews were in person; Creigh Deeds’s was done by telephone at his campaign’s request.) All three of these endorsees share some important qualities. Most notably, they’re known quantities; they have a proven track record of support for your real estate business. We have a history with them — a history that shows us, rather than tells us, how they will stand on important issues impacting your business.
whom are small-businessmen and -women. “I have a long established record of protecting private property rights,” he said. For example, on eminent domain, he pointed out that “I worked with your staff from the Virginia Association of Realtors® to develop reasonable legislation that would protect Virginia citizens from the government taking their property for economic and tax enhancing benefits.” Further, looking at development, McDonnell believes in more-centralized control of growth — statewide standards that keep regulations consistent across jurisdictions. “At this time I believe that local governments have the authority they need to regulate growth,” he said. “I am not supportive of efforts to expand [it]” — a position VAR generally shares. When it comes to transportation, McDonnell said he wants to spend $1.4 billion to upgrade Virginia’s infrastructure — and to do this, he said, “Without raising www.VARealtor.com
significant general fund taxes” and instead rely on bonds and what he hopes will be a budget surplus under a McDonnell administration. And on the issue of proffers, McDonnell pledged to work with Realtors® and others to “devise an alternative that is meaningful and will garner support from the General Assembly,” because “the proffer system that has evolved was clearly not the intention of the General Assembly that created it back in the 1980s.” Most important, though, was McDonnell’s clear willingness to continue to work with VAR and Realtors® on the broader economic issues facing us. “I will make the housing industry part of my economic recovery plan and include you and your colleagues in the process,” he said. And more specifically, he promised to develop an executive branch housing policy, and to “make sure that all state agency representatives are taking the housing policy into account and any impacts their activities could have on housing as they conduct the dayto-day business of the Commonwealth.”
Lt. Governor: Bill Bolling Bill Bolling and the Virginia Association of Realtors® have a longtime relationship — one stretching back to 1995 when the Mechanicsville resident was first elected to the Virginia Senate. He has been a consistent supporter of Realtors®’ positions, and has repeatedly demonstrated his commitment to your causes and issues. For example, Bolling has shown his interest in housing growth, but done properly: “I am a strong supporter of efforts to embrace aggressive smart growth strategies in Virginia,” he said, “including proposals to advance more cluster development and infill development projects.” One aim of “aggressive smart growth” is something important for the long-term health of the real estate industry: affordable housing, and Bolling’s position matches VAR’s: “Moving toward the implementation of more aggressive smart growth strategies and cluster development will help reduce the cost of housing,” he said. Bolling is also behind us when it comes to proffers and the changes we feel are needed, saying, “I believe that some reasonable controls need to be placed on the cash proffers that are currently being implemented
in many Virginia localities.” For that reason, he is “a strong supporter of the Dillon Rule, which promotes some continuity of policy making from locality to locality.” He’s also a supporter of open space, although he admits that finding the money to help preserve it might be difficult, at least in the short term. The bottom line is that Bill Bolling has been a consistent supporter of the real estate profession throughout the Commonwealth, he has worked with us often, and we can look forward to working with him in the future.
Attorney General: Steve Shannon Shannon is also someone VAR has worked with for years; he is currently a member of the General Assembly, representing the 35th district, part of Fairfax County. We know him well. His policies — and, more important, his voting record — jibes well with VAR’s positions. He supports our vision of growth, for example, and doesn’t want to put on unnecessary restrictions, especially now. “We have seen the real estate market flatten throughout Virginia, particularly in Northern Virginia,” he said. “I believe that new restrictions on residential or commercial property at this time will hinder economic growth and should not occur.” We also like Shannon’s view on smart growth — especially that it should be managed locally. “I believe that looking at growth from a regional perspective can sometimes yield the best results,” he said, and plans to work “to facilitate a regional framework that encourages smart regional planning.” And he believes that framework needs to include preservation of open space. Perhaps what impressed us the most was Shannon’s pledge to work with Realtors®, not just at our request, but proactively as well, “reaching out to the leadership of VAR for advice as I review bills introduced in the legislature that could affect the real estate market.” He also promised to “bring stakeholders from the real estate community and local government together” when discussions of policy are held, ensuring our members a seat at the table. Our history with him tells us we can rely on him to follow through. l
Who do we endorse in the House of Delegates? Find out at RealtorsChoose.com! 8
Lem Marshall, VAR Special Counsel
Short people, places, and things This issue I’m going to devote almost exclusively to short sales, REO, and other madness-inducing phenomena. So in the interest of clarity, let’s look at a functional definition of a short sale.
short sale (\shôrt sāl\) n. [New RE, from OE skort, to be fleeced] 1. Early twentyfirst century transaction in which a buyer who purchased property he could not afford, in the hopes it would make him rich enough to afford it, sells such property to someone he hates.” I am getting more and more calls like the first one here:
A short sale listing has resulted in a ratified contract that has been submitted to the lender for approval. Now that the great darkness has descended and the winter of interminable waiting is on us, the listing agent receives another offer on the property, and another, and another. One or more of these offers are better than the submitted offer. Seller is also likely to have to repay some or all of any deficiency that results from a short sale, as is becoming more and more common. How should the listing agent and seller deal with these offers? Should they be treated as backups? Should they be ratified by the seller and submitted to the lender for consideration? What about the earnest money deposits?
A. Gee, I didn’t get these questions more than two or three…hundred times this last couple of months. I now have some idea of what waterboarding must be like. First, let’s deal with some legal technicalities. A contract that has been fully executed and accepted by the parties is a ratified contract, even if the seller’s obligations are contingent on lender approval. (It would be different if ratification or acceptance is made subject to lender approval, but very few contracts are written that way, and with good reason — lenders usually require a ratified contract as part of the package.) Many Realtors® think the need for lender approval somehow means that the contract is not yet ratified. But think of it this way: Suppose you have a contract in which 10 SEPTEMBER/OCTOBER 2009
buyer’s obligations are contingent on buyer obtaining lender approval of a loan application (the vast majority of our contracts). Would anyone argue that the contract has not been fully ratified? Of course not. So why would we assume there’s no ratified contract because seller’s obligations are contingent on lender approval, albeit of a different kind? No, these contracts are indeed ratified, and that means several important things. First, the earnest money deposit must be deposited into escrow within five days of the date of ratification. Second, the listing must be shown as pending in most MLSs, although there is a fair amount of variety as to how systems treat pending contingent short sale contracts. But although these things are undoubtedly true, we really do need to think differently about the other effects of having a ratified contingent short sale contract. Because although they are ratified contracts for certain important legal purposes, they might as well be unratified offers for other purposes, especially as relates to treatment of subsequent offers. Why? Well, sellers are able to walk from any contract the lender does not approve, and the lender will approve only one. In such a situation, these contracts have the same practical effect as unratified offers: only one will be accepted and mature into a contract that binds the seller. Consequently, there is usually no downside to a seller’s submitting multiple offers to the lender for consideration. (This is not the case if the lender will put new offers at the back of the line, and start the entire process over with each new submission; sellers and listing agents need to be aware of this possibility and find out the lender’s policy.) There are practical reasons for submitting subsequent offers as well. For one thing, as I mentioned above, the seller might be responsible for a deficiency and will want to get the best offer in front of the lender, to reduce the deficiency. We also have to remember that sellers are often desperate to get the approval process moving, and will frequently accept an early lowball offer just to get the package submitted. If a better offer does not halt the process, the seller can often gain by continuing the marketing. Who loses by the seller’s submission of better offers? The buyer who submits a below-market offer, and frankly that should not bother us but so much. Frankly, I don’t think the buyer usually even loses that much, because lenders often reject the low offer or counter www.VARealtor.com
at a higher price even if the offer is the only one. And sellers will often permit the first buyer to better the price of the ratified contract rather than submit another better contract. The point is that to freeze the process with the lowest offer is not in the interest of our sellers, is often unavailing to our buyers, and certainly is not desirable from the standpoint of our larger goal of stabilizing our markets at reasonable valuations. Favoring lowball deals is not a winning strategy just about any way you look at it. This is why I believe MLSs should consider a status that differentiates between pending contingent short sale and pending contingent non-short sale. It will allow buyer agents to identify these potentially desirable listings, which reason tells us should be evaluated differently from the contract contingent on, say, a home inspection or financing. Second buyers are unlikely to get those, even at a higher price, but they will often get the short sale if they do better than the contract on the table.
Volume 16 ● Issue 5
Pushy banks and short commissions
A buyer agent secures a contract on another firm’s short sale listing. At the demand (request? bluff?) of the lender, the listing firm agrees to a reduction in the total commission payable to the listing firm from 6% to 5%. The commission offered in the MLS was 3%. The MLS did not disclose that the sale was a short sale, but in the remarks section, the listing agent put the following: “Commission is split 50/50.” The listing firm is now insisting that it owes the selling firm only 2.5%, while the selling firm demands the 3% that was offered in the MLS. Who is correct?
A. This dispute will inevitably be resolved by looking first at the rules of the local MLS (I do not know what they are in this case) and whether the MLS permits agent remarks to modify the offer in the commission field. It will also be important to parse the recent changes to its MLS policies promulgated by NAR over the last couple of years, and as recently as this summer. For
SEPTEMBER/OCTOBER 2009 11
legallines example, Note 6 to Section 5 (Compensation Specified on Each Listing) of the NAR MLS policy says as follows: “Multiple Listing Services may, as a matter of local discretion, require participants to disclose a potential short sale. In any instance where the participant discloses a potential short sale, they [sic] must also be permitted to communicate to other participants how any reduction in the gross commission…required by the lender…will be apportioned between listing and cooperating participants.” (Emphasis added.) Does the highlighted language apply if there was no notice of a short sale? If the MLS does not require disclosure of short sale? I express no opinion here because I don’t know all the facts, and I wouldn’t even if I did. But one thing becomes clearer with each passing day. The sooner we start standing up to lenders and refusing to accept their demands that we cut our fees (alone among all service providers in the closing), the better. I understand some Realtors®’ reluctance, but history is on our side here. Fannie and Freddie no longer require a reduction in any fee that does not exceed 6%, and the experience is overwhelming that most other lenders will yield if we refuse to cut our fee. And it just feels so good to say, “No, thank you very much. I worked hard for my fee, both you and my client have benefitted greatly from my efforts, and I expect to be paid what I was promised.”
Expecting someone taller
At closing on a short sale, the selling agent and buyer are surprised to see that the seller of the property will be an entity or person different from the party shown on the purchase agreement. it turns out the owner has granted an option to buy the property to an investor, who will take title at closing and simultaneously convey title to the purchaser. Shouldn’t this have been disclosed to the buyer? Shouldn’t we suspect some sort of fraud on the lender by the investor who is obviously flipping the property immediately after taking title?
A. I have weighed in on this phenomenon before, but it bears reexamination. What has happened is pretty basic. The investor has secured from the lender a price at which the lien will be released (the seller being under water and often in default under the mortgage), and from the owner an option to purchase the property for that price. The option agreement authorizes the investor to handle the marketing of the property on terms acceptable to him and to exercise the option upon obtaining an acceptable offer to purchase the property. He then hires a listing firm to secure a contract, at — he hopes — a substantially higher price than the strike price. He pays 12 SEPTEMBER/OCTOBER 2009
VAR Legal Hotline: (800) 755-8271 Is it risky? Quick! To the Hotline…
The VAR Legal Hotline is a free, members-only risk management tool that is among the top-rated services offered by the Virginia Association of REALTORS®. Through the Legal Hotline, you can receive timely legal information on the issues you confront day-in and day-out in your real estate practice. The VAR Legal Hotline has one major objective: to increase Realtor® professionalism and decrease professional liability.
Before you call: Please note that many of the routine questions the Hotline receives — and we receive a lot of routine ones — have previously been answered in Commonwealth articles; check the indexed Hotline archives at VARealtor.com before calling.
Guidelines for legal Hotline calls: All principal or supervising brokers are eligible to use the Hotline. In addition, one other designated person from each office (for example, an associate broker or office manager) may register as designees of the principal broker.
How to sign up: Registration is easy. Complete the form found under the Member Services tab at VARealtor.com. You must register before you call the Hotline.
Hours of operation: Monday through Friday (except holidays) from 10 a.m. to 4 p.m.
How to contact the Hotline: By phone: (800) 755-8271 or (804) 264-5033. By e-mail: hotline@VARealtor.com
Call handling process: When you call, please have your NRDS number ready, and include it with any e-mailed questions.
Questions? If you have questions about the Hotline, contact VAR at (800) 755-8271 or (804) 264-5033, or by e-mail at info@VARealtor.com The VAR Legal Hotline should not replace your own legal counsel. No questions will be answered on matters that are unrelated to real estate, real estate brokerage, or pending arbitrations.
the costs of the closings and pockets the difference. I’ve noted before that this is a curious sort of arbitrage where the investor is taking advantage of the terrible inefficiencies the mortgage lender faces when owning REO. Let’s categorize the results for the parties involved, and judge for ourselves whether there’s anything wrong with this increasingly common practice. 1. The seller gets out exactly the same way as if a laborious, time-consuming and uncertain short sale were to occur. It doesn’t matter whether the seller markets the property independently of any lender agreement on the payoff amount, because if the more typical short sale route is taken, the seller still gets zilch. However, this way the seller gets a far more certain result, and gets it much more quickly. 2. The lender benefits enormously as well. It gets quick cash in roughly the same net amount as if it had foreclosed, held and then resold the property at about the price our buyer is paying here. Why does the lender not benefit from the higher market value? Because the cost to the lender of advertising, paying an attorney to foreclose, paying the taxes and insurance, repairing the results of vandalism and foreclosure parties, maintaining the place, and paying a Realtor® to sell it, plus the lost use of money and drain of reserves almost always equals or exceeds the difference in price, so ineﬃcient is the lender in its ownership of the property. This is especially true when you consider the depressing effect on final price of the fact that the property is the sale of REO. Similarly, if the seller were to go the typical short sale route, the higher price would also be unattainable, because we have made sure in all our MLSs that buyers are aware up front of the seller’s distress, something our buyer here did not know. In short, out lender knows it will never get the market value for this house, and it is crazy to try if a quick, certain, acceptable alternative is available. In this case, it is. 3. The Realtors® gain enormously as well. First, compare the deal ﬂow here to the purchase of REO or — gawd help us — a typical short sale. At least as to the latter, the time is far less, the commission will not be chewed up by the lender, and the outcome is much more certain. Headaches? Negligible, compared to the short sale or REO deal. 4. How about the buyer? Buyer gets exactly what he bargained for, he gets it relatively quickly, and he gets the deal without the uncertainty attendant on a short sale. Oh, sure, he has to take title from someone he didn’t expect, but so what? Good title is coming his way just the same. I don’t see why he should care whose name is on the deed. VOluME 16 ● iSSuE 5
So who loses? Nobody. Even the tax collectors and insurance folks come out ahead, as they get payments from owners making productive use of the asset. We all gain when ineﬃciency, uncertainty, and waste are squeezed out of the system. And we help hasten the return of reasonable market valuations, something of great benefit to our communities at large. By the way, Fannie and Freddie, as mortgage holders, don’t allow this kind of thing. Is anybody surprised?
Is that a contract in your pocket, or are you just trying to stall the bank?
A DC Realtor® sends a Realtor® in the southern valley a referral of a home there that will be a short sale. The seller does not speak much English, and the DC agent must act as go-between. listing agent lists the property at the suggested price of around $500,000, but after about two months has had no interest and reduces the price to $450,000 at the urging of the DC agent. There is still no interest, and a further reduction is made to $400,000. Finally, two offers are received at about $350,000, but both have been withdrawn because the buyers do not want the hassle of a short sale. Foreclosure notices
SEPTEMBER/OCTOBER 2009 13
legallines have been sent and the process is under way. The DC agent has been urging that the listing firm present a contract with the short sale package to stall the foreclosure, but there is no offer to present. The DC agent has now called to inform the listing agent that they have a buyer who can make an offer, which offer will be assigned to another buyer before closing. The listing agent believes this is boooooogus, and just a ploy to buy time to find a real buyer to whom the contract will be assigned. How should the listing agent handle this?
A. First, submitting an offer will usually not forestall the foreclosure. But even if it will, the offer needs to be a bona fide offer, and not an offer made by a straw man. I think the listing agent should ask the DC agent for details about the buyer, how he came to be dealing with the DC agent on a listing so far away, etc. She should have him arrange a meeting with the buyer, just as she would for any unrepresented buyer wanting to make an offer on a listing. She should get details about the buyer, just as she ordinarily would, and should vet the buyer carefully, as she ordinarily would. She should especially be sure that the contract is a good contract for her seller, and that any contingencies (financing, inspections) are
To advertise in Commonwealth magazine, contact Brittany Sullivan at 410-584-1968 or firstname.lastname@example.org.
14 SEPTEMBER/OCTOBER 2009
satisfied very early in the process. In short, make the contract work as if the buyer were bona fide. If the buyer resists being bound (because he’s not really interested in the house), discourage your seller from accepting the offer. Any time he wastes on this buyer will be lost forever, and he has no time to waste. Obviously, if the listing agent thinks it’s not a good faith offer, she should either refuse to deal with it, or, if the seller is part of the fraud, ask her seller to let her go, or both.
What’s mine isn’t really yours
A Realtor® from another part of the state contacts a local agent and asks for help with buyer clients looking to purchase in that area. The local agent agrees to help, but when the buyers arrive, they inform the local agent that they have already identified the property they are interested in, and they ask the agent to call their agent for instructions. The local agent agrees, and is informed by the out-of-town agent that he (the out-of-town agent) will be writing the offers for the buyers and working with them on the purchase, and that he wishes only for the local agent to show the property to the buyers. The property is not the local agent’s listing, and he politely declines and suggests the referring agent contact the listing firm for a showing. What can be done about this kind of situation? Isn’t it improper to attempt to represent clients in markets with which the agent has no familiarity?
A. The answer in a case like this is either (i) to work with the buyers as their agent and work out a referral arrangement with the other agent, or (ii) not to get involved at all. Of course there is an element of geographical competence at issue here, and we must know the markets in which we work. It would really have been justice had the buyers seen one of the local agent’s listings and entered into a contract through the out-of-town agent. The local agent could then have had the pleasure of informing the other agent at settlement that since he was not a member of the local MLS, the MLS offer of compensation was not extended to him, but that we would be happy to offer him a modest referral fee. But the most condign treatment would be to interest these buyers in a short sale property where the listing agent — from a different firm — also understood the importance of MLS membership (but hated paying unearned referral fees), and where the lender was Countrywide. We can dream, can’t we?
legallines Agents and demons
A commercial listing agent has listed a building that is going into foreclosure at the end of the month. (Any sale of the property would be a short sale.) The lender is approached by a buyer agent who is interested in the bank’s REO for a client. The bank tells the agent about the commercial property and the imminent foreclosure, and he promptly visits the property where, of course, he sees the listing firm’s sign. The agent contacts his buyer and prepares an offer on the property through the bank, with a commission of 6% to be paid by the seller to the buyer agent. The offer is accepted. The bank then contacts the listing firm and tells the listing agent that the seller can avoid foreclosure by simply replacing the bank’s name with the seller’s name on the contract (the buyer will initial), and proceeding to closing, paying the bank the proceeds of the sale net only of ordinary closing costs and the 6% commission paid to the buyer agent. This is a godsend for the seller and the buyer agent (who will receive the full 6% commission), but is not very peachy for the listing firm, who will receive nothing from the closing. By the way, the seller does not have the money to pay the listing firm its commission outside of closing. what are the listing firm’s rights here? Are the buyer agent’s actions unethical?
A. Did you ever take a step where you thought there was a stair, but there wasn’t? I have a similar disoriented feeling with this situation, although with 15 fewer broken bones. Are the buyer agent’s actions unethical? Well, Article 16 tells us that all dealings with a client who is exclusively represented shall be conducted with the client’s agent and not with the client. But no contact with the client occurred here. The buyer agent was dealing with a third party, and not with the owner of the property. SOP 16-14, which covers ‘not subjecting parties to more than one commission’ doesn’t seem to apply here, because it contemplates unrepresented parties, and it excuses even the dealings resulting in two fees if the client is aware of that dual obligation (as was the case here). I’m not sure I see the ethical problem, at least explicitly, but something surely does feel out of round. The bank, of course, should be ﬂogged, or hanged, or given life in front of a firing squad. It clearly could have insisted on a 3% commission to the buyer agent, with the listing side going to the listing firm, and it would have received exactly the same net amount. I expect there was some relationship at work here, perhaps growing from previous deals the buyer agent had brought the bank. Certainly the listing firm can go after the seller for the listing fee, but it will be chasing an empty pocket. Or the 16 SEPTEMBER/OCTOBER 2009
seller could refuse to accept the contract terms, out of gratitude to the listing agent for its months of work and expense. I wish devoutly for the end of this downturn, if only so that the greed that will always be with us feeds once again on plenty, and not on dearth.
A short sale has first and second lenders, both of whom are under water. The second demands payment of a certain amount to release its lien, but the first is unwilling to agree to permit that much to go to the second. The deal appears dead when the brokers get together and decide to make up the difference between what the second needs and what the first offers. is it legal for the brokers to do this? isn’t this the payment of an illegal commission to unlicensed entities?
A. This is perfectly legal. It is not an illegal commission because the payment is not for any activity for which a license is needed. The second lien holder is not acting as a broker; it is merely the recipient of the brokers’ largesse.
Ihre papiere, bitte*
Some payoff lenders in short sales are now requiring copies of settlement statements showing both buyer and seller settlement figures. is it permissible for them to make this demand?
A. I’m frankly surprised they haven’t been doing this before now. There’s certainly a confidentiality issue, but if the buyer wants the deal, he’ll have to permit the lender to see the full extent of the deal he is getting. The lender wants to see how rich the deal is for the buyer, and if it’s too rich, the lender might pull back. Why doesn’t the contract suﬃce? Well, lenders being lenders, they just don’t trust folks (that is, unless you have lousy credit, no down payment, inadequate and unverified income...). The settlement statement is the best snapshot of the deal, and they want to see the deal in its entirety. Next time, some different kinds of questions — if you’ll call and ask me some. ● *Look it up Legal Lines is written by VAR Special Counsel Lem Marshall. Please note that answers to Legal Hotline questions are informational only. Consult your own legal counsel for legal advice. More Legal Hotline questions and answers are in the Legal Resources Center on VARealtor.com. www.VAREAlTOR.COM
Forms — they’re the bread and butter of a deal. They’re full of fine print and legalese, and not everyone “gets” the details. And that often ends up as a call to our Legal Resources Center. (Shameless plug: (800) 755-8271.) So we asked our intrepid associate counsel (read: lawyer), Blake Hegeman, to take one of the forms the LRC gets the most questions about and illuminate it for us.
Remember, you can download this and all VAR’s standard forms free at www.VARealtor.com/standardforms, where you can also access our ZipForm electronic-form service.
This issue: VAR Form 200: Residential Lease and VAR Form 400
VAR Form 200: Residential Lease I am a property manager holding a security deposit. The lease is up and the landlord and tenant disagree as to how much to return to the tenant. What should I do? The Real Estate Board regulations require the licensee acting as the property manager to hold and disburse the money in accordance with the terms of the lease and the governing law. Beyond that, there’s no guidance, except the obligation to act reasonably. Ultimately, this is a dispute between landlord and tenant, and the money belongs to one of them or is to be shared in accordance with the terms of the lease and law. The property manager must make a good faith effort to determine the reasonable amount to be deducted, if any, and may give that amount, even if disputed, to the landlord. The property manager may not simply do as the landlord requests or demands, but must make a good faith determination of entitlement, and act accordingly. If the parties dispute the disbursement, they may fight it out in court. In short, act as the lease and law require, in good faith, exercising the appropriate due diligence to determine what goes to whom. Please note that rules concerning the release of earnest money deposits (EMDs) in purchase contracts are substantially different than the rules for the release of security deposits in leases. Check out the articles in VAR’s Legal Resources Center for an in depth analysis of EMD releases.
18 SEPTEMBER/OCTOBER 2009
VAR Form 400 My firm’s client has made it impossible for us to sell his house. I believe he is in default of our listing agreement. Can I simply terminate it and walk away? Listing agreements are bilateral, so each side has binding commitments. However, if the seller is acting in an unreasonable way, or making it substantially difficult or impossible for the broker to do the job he was hired to do, it is probably a breach entitling the broker to terminate. However, there is always a risk if you terminate without a cause (other than that your client is just being difficult). He must be substantially interfering with your ability to perform under the agreement. Another consideration in terminating the listing agreement 20 SEPTEMBER/OCTOBER 2009
without sufficient cause is that the VREB may find that you didn’t act in accordance with the brokerage agreement pursuant to the statute below (see Subsection A1): • § 54.1-2131. Licensees engaged by sellers. • A. A licensee engaged by a seller shall: • 1. Perform in accordance with the terms of the brokerage relationship; If you have decided to sever your relationship with the seller, you should attempt to secure a signed, written mutual release from the listing agreement with the client. If he refuses, make sure there is good cause, rising to the level of substantial interference with your ability to do your job. ●
If you show me yours…
A few simple things can make the photos and videos of your listings a lot more attractive. Photos (and, more and more, video) are an integral part of a good listing, so it pays to take a little extra time and do them right. We’ve all seen bad photos and video, but seeing something is different than avoiding it. So here are a few tips to help make your images — still and moving — a little better.
Hardware It’s an axiom: Whatever the product, you can’t get a good result without the right tools. While chances are you’re not going to shop for a new camera just to improve your listings, you should know if what you’ve got fits the bill. (Plus, if you’re looking for an excuse to justify the expense, maybe this will help.) Rule #1: Don’t use your phone’s camera. Period. No matter how good you think it is. No one uses the phrase “phoning it in” to mean something good. (Exception: If you want to send a quick shot to a client, that’s obviously OK.) The good news is that even a low-end digital camera or camcorder made during the last few years will be more than good enough. You’ll want two things in a still camera: a wide-angle lens, and a tripod mount. (It should also be relatively modern and from a reasonably well-known company.) Whether you have a point-and-shoot or an SLR, you should be able to find the focal length of your camera’s lens. It’s given in millimeters, and it ranges from wide angle (28 or 35mm is typical), to “normal” (50mm), to telephoto (typically 200mm or more). Most cameras come with a zoom lens, so they cover a range, e.g., “28-105mm.” If you were shooting wildlife at a distance, you’d worry about the large end of the zoom. But for most property shots what matters is how small it goes — that is, how wide an angle it gives you. A 28mm lens is terrific, but 22 SEPTEMBER/OCTOBER 2009
35mm should do just fine. There are plenty of cameras and lenses from every major camera maker that will fit the bill. No matter what you have or get, make sure it has a tripod mount — a ¼-inch screw thread on the bottom. You’ll see why in a moment. (Wondering about megapixels? Don’t. They’re about size, not quality. Unless you’re planning to create muralsized images for museum display, anything over about five or six megapixels is gravy. For pictures on the Web, a 1.3 megapixel image will fill the screen, if not overfill it. Bottom line: Don’t worry about it.) For video, as long as it’s digital — and not, say, the Fisher Price L’il Spielberg Video Cam — and shoots at least 640 x 480 (often labeled “VGA”), you should be fine for Web-based video. You’d be better off, though, with one that offers “H.264” (sometimes called “MPEG4AVC”) video. One that shoots in high-definition is even better. You probably won’t be offering HD video for your clients, but an HD camcorder — which almost all new ones are — should guarantee good-quality Web video. The Flip Ultra HD, Kodak Zx1, and Sony MHS-PM1 are all well under $200 and will give you excellent results… if used properly. See below. And many still cameras now shoot high-quality video as well; several of Canon’s PowerShot SD models shoot HD video and cost less than $300.
Whether shooting still pictures or video, one thing you should do: Shoot a lot. Digital is cheap, so don’t hesitate to shoot the same scene several times, or to linger the video camera a bit longer. Shoot now, delete later. There’s www.VARealtor.com
an old adage: How can you tell the difference between an amateur photographer and a professional? The professional has a larger wastebasket.
Software Once you’ve shot your pictures and video, you’ll look it over and pick out what you want to use. You’ll also want to edit your photos — tweak them to make them more appealing. You can rush out and blow $600 on Photoshop, but that’s overkill. Instead, download Google’s free Picasa 3 image viewer and editor (picasa. com), or try Picnik.com, a free online photo editor. Picasa or Picnik will let you make all the changes you need — crop them, adjust the lighting, tweak the color — and then save the result for easy uploading to whatever site or service you use. (For details on how to edit, see below.) On the video side, Windows’ built-in Movie Maker (or iMovie on the Mac) will let you trim your video down to a manageable size, remove moments you don’t want (e.g., when you dropped the camcorder), join separate scenes, and even add a separate narration. If you’re really into the whole video-editing thing, consider paying about $55 for Sony’s Vegas Movie Studio —sonycreativesoftware. com/moviestudio. It’s arguably the best “prosumer” video editor around.
Photos Search the Web for “bad MLS photos” and you’ll be laughing for quite a while…until you see one of your photos there. It doesn’t take much to make your photos better, and these days every little bit helps.
1. Make the rooms look larger. Use a wide-angle lens for starters (hence the suggestion to make sure your camera has one). Just as important, shoot the room from above — stand on a chair or stool.
Volume 16 ● Issue 5
2. Pay attention to composition. Don’t shoot mostlyempty walls. Make sure a lamp or plant isn’t so prominent that it distracts from the room itself. Don’t shoot straight into mirrors. Clear clutter away, even if you have to move it to another room while you shoot — remove it from tables and even walls. Simple, simple, simple. Search for some of those bad MLS shots to see what happens when you don’t. 3. Don’t use your camera’s built-in flash. There are only two times you should use it: Outdoors for “fill light,” and in an emergency when the killer is coming right at you. Instead, turn on the lights, open the blinds, and use a tripod. Yes, a tripod. You need one. In fact, stop reading now and go buy one — spend about $25 or $30 on a floor-standing (not tabletop) model from Sunpak that’s at least 60 to 70 inches tall. Don’t get too fancy, but you’ll probably want one with a quick-release plate for the camera — much more convenient. Once mounted on a tripod, you can shut your flash (see your camera’s manual) and get much better pictures. If for some reason a tripod is too much — maybe it’s a really small room — use a monopod instead. It’s better than handholding the camera, but it’s much smaller than a tripod. 4. Improve the lighting. Sunlight is the best light, especially late in the afternoon. Incandescent bulbs come next, and fluorescents are the worst. You want warm colors — leaning toward red/orange instead of blue/green. If your camera lets you set the white balance, set it on “Cloudy,” even if you’re indoors or the sun is shining. That will tilt the color balance toward those reds and oranges. Otherwise, use the lights you have. When you’re done and in your office, go through those photos and delete all the bad and so-so ones. Take the good ones and use Picasa or your image editor of choice to edit them. Crop them to remove extraneous junk (like too much blank wall, or someone’s foot or hand). Adjust the lighting. You never want to mess with “brightness” and “contrast” settings. Modern image editors, including free ones like Picasa, give you much SEPTEMBER/OCTOBER 2009 23
accessibletech better options. Picasa’s tuning controls, for example, let you adjust “Fill Light” (add some light), “Highlights” (make bright areas a little darker), and “Shadows” (make darker areas lighter). If you can, “warm” the photos a little bit. Picasa does this with its Color Temperature control; just slide it a bit to the right. Other programs will have something similar. A warmer image — one that has just a slightly red-orange tint to it — is more comfortable and relaxing to look at. Of course, remember Article 12 of the Realtor Code of Ethics: Presenting a “true picture” in advertising can be taken quite literally in this context. In other words, don’t use Photoshop to add a window or two. You can do more with pictures than simply display them. “Virtual tour” vendors (and there are plenty) can stitch your photos together Ken Burns-style with captions and music. You can even do it yourself with Picasa or with Microsoft’s free Photo Story 3. But if you’d like a little more control over your virtual tours, read on….
Video If a picture is worth 1,000 words, then — at 30 pictures per second — a one-minute video is worth…um… 1,800,000 words. No wonder video is getting more popular as a tool for showing off a property. But there’s good video and there’s not-so-good video. The not-so-good video tends to have a few specific problems. The good thing is they’re easy to avoid. 1. Move slowly. No, slower. Slower. The biggest problem with most amateur videos is the camera moving too quickly. Hold the camera steady, then move it as little as possible and as slowly as is reasonable. And always gently. If your head jerks and your eyes get tired watching the end result, you’re moving too fast. It’s even more apparent on the Web, when the image is small.
The biggest problem with most amateur videos is the camera moving too quickly. Hold the camera steady.” When you’re in a home, plan your movements ahead if you can — for example, decide that you’re going to pan from left to right, then gently up to show the skylights. That can keep jerky movements and confusion to a minimum.
24 SEPTEMBER/OCTOBER 2009
2. Don’t touch the zoom. The zoom button should be used once, and that’s before you begin shooting. Exception: If, after showing a room, there’s an item you want to draw particular attention to, you can slowly zoom in on it. Otherwise, don’t touch the zoom.
3. Be aware of the lighting. Just as with a still camera, sunlight is best and incandescents are next. Shut fluorescent bulbs to avoid a greenish tint, and try to make sure there’s as much light as possible. When you get back to your office, you’ll want to trim that video to focus on the most important parts of the property. That means cutting it down, possibly by a lot. Hence, your video-editing software. One easy way to avoid boring the people who view your videos is to break them up. (The video. Not the people.) Instead of giving a whole-house tour, offer indiv idual videos of different rooms or areas. Whether you go for one long video or several short ones, chances are there will be “in between” moments that just take up time — when you’re walking from room to room, for example. Cut those moments out and use simple transitions (e.g., fade out, then fade in) to switch from one to another. Note that word: Simple. Your video editor may come with a few hundred transitions, but you should only use three: a simple cut, a “crossfade” (one scene fades out while the other fades in), or a fade out/fade in. Period. If you want to take your video up a notch, learn how to add on-screen captions, or even better add a narration — remove the sound and record your voice in its place. (It’s actually very easy to do.) Go to Freeplay Music (freeplaymusic.com) and download some free background music from the “Inspirational/Heartfelt” category. The bottom line, whether shooting still pictures or video, is simplicity — bright light, low clutter, gentle movement. Take the time to get it right at the beginning, and the end result will be much more likely to pay off. l www.VARealtor.com
Best ! Laid Schemes by Rachel Bailey and Andrew Kantor
Quick quiz: What new set of requirements caused these gentlemen to make the following comments? Chris Call, an appraiser with Areas Appraisers in Springfield and chair of VAR’s Appraisal Alliance: “The past two months have been the least pleasant in terms of how we deal with people.” Jamey Leonard of Appraisal Services of Virginia in Roanoke: “They’ve taken the mortgage broker out of the mix and basically inhibited free trade in this industry.” Pat Turner, owner of P.E. Turner & Co. and former member of the Virginia Real Estate Appraisal Board: “It is price fixing, in my opinion.” Answer: The HVCC — the Home Valuation Code of Conduct. Some would say it’s the latest four-letter word to enter the lexicon. 26 SEPTEMBER/OCTOBER 2009
Agents hate it.* Independent appraisers hate it.* Legislators are getting an earful about it. Realtors® are trying to deal with it — and complaining loudly and clearly. NAR wants a moratorium on it. And VAR’s Public Policy Committee is looking at new regulations that might lessen the impact it’s having. How did a regulation — not even a law! — meant to make things better end up causing this much angst? (So much so that many of the things people told us when discussing the HVCC were unprintable.) The answer is a combination of unintended consequences and a lot of misinformation. * No, not every agent hates it, nor every independent appraiser. But, based on the feedback we’ve gotten, the vast majority are at least very unhappy about the HVCC.
Good intentions In 2007, New York Attorney General Andrew Cuomo sued eAppraiseIT (an appraisal management company owned by First American), accusing it of colluding with Washington Mutual to hand-pick appraisers for properties — appraisers that would give the bank the valuations it needed to make some deals work. Cuomo said at a press conference, “By allowing Washington Mutual to hand-pick appraisers who inflated values, First American helped set the current mortgage crisis in motion.” (A bit over the top, perhaps, but that’s what he said.) Instead of fighting in court, a settlement was reached. As part of that settlement, Fannie Mae and Freddie Mac agreed to adopt a set of rules spelling out how appraisals would need to be handled for any mortgage they were part of — i.e., just about all of them. And thus was born the HVCC. (Eleven months later, WaMu was taken over by the U.S. Office of Thrift Supervision and closed.) The HVCC’s primary purpose: to keep lenders and appraisers honest by limiting the chance that the appraisal process will be influenced by someone who’s part of the loan process. According to the Federal Housing Finance Agency, “The HVCC is designed to promote professional appraisals free from inappropriate pressure from lenders, borrowers or brokers.” Quoth the HVCC itself: “No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner.” Considering the headaches it’s caused, the HVCC is short — only four pages. Those pages build (or try to build) a wall between lender and the appraiser. More specifically, between the lender’s loan-production staff and the appraiser. Yet the HVCC gives the responsibility of hiring the appraiser to the lender. “The lender… shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser,” it says. Further, the lender can’t use a report from an appraiser “selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents).” So the lender is supposed to hire the appraiser, but not have anything to do with the hiring? Volume 16 ● Issue 5
The HVCC doesn’t apply to all appraisals, only to one- to four-unit singlefamily loans sold to Fannie Mae or Freddie Mac by mortgage originators.
Yes. Enter HVCC’s “wall.” The HVCC forbids any member of a lender’s loan production staff — and anyone who might profit from “the successful completion of the loan” — from having anything to do with choosing an appraiser. So while the lender is responsible for choosing and paying the appraiser, it is supposed to clearly separate that process from its actual lending. Thus the loan production staff is forbidden from “having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment.” If that sounds like a questionable proposition, you’re not alone in thinking that. Craig Butterfield of Craig Butterfield & Associates, an appraisal company in North Carolina, equated it with hiring the fox to guard the henhouse.
Asking for trouble The first questions, of course, are these: Did the appraisal rules need to be changed, and did they need to be changed that much? It’s hard to find someone who’ll say “Yes.” The consensus instead tends toward the word “overkill.” “From my perspective, because a fix was made for the actions of a very few, the negative impact to many has been catastrophic,” Chris Call says. But doesn’t the WaMu debacle show that the appraisal process clearly needs more oversight? “Having been on [Virginia’s] Real Estate Appraisal board from 2001-2005, there’s plenty of oversight,” Call says. “The board is receiving cases all the time and reacting with suspensions, fines, required continuing education — there’s plenty of oversight.” And Mack Strickland, president of Strickland Appraisal in Chester and incoming chair of NAR’s Appraisal Committee, says he thinks “it’s much to-do about nothing…what it has accomplished is that they’ve taken appraisers who have had long-time experience with mortgage brokers…out of the loop.” And when it took the brokers out of the loop, the HVCC presented lenders with a conundrum: They were now responsible for hiring appraisers, but they had to SEPTEMBER/OCTOBER 2009 27
insulate themselves (or at least their loan production staff) from that process. So they turned to a buffer: appraisal management companies. AMCs serve as brokers for individual appraisers. The bank hires the AMC, and the AMC has a list of approved appraisers. It typically takes the next name from its list (although such a rotation isn’t required) and sends that appraiser out to the site. The bank is insulated from the process. What could be wrong with that?
What the traffic won’t bear With so many lenders turning to AMCs, it gives those companies a lot of control over the process and the price. They decide not only what to charge the lender, but what they’re willing to pay the appraisers. Appraisers and appraisal companies who had developed solid, professional working relationships with brokers over the years found all that experience flushed down the tubes. “It’s had a very negative impact on our business,” Call says. “The relationships we’ve developed for years have been wiped out — our whole business model has been wiped out.”
seen their gross receipts reduced in most cases,” he says. But don’t be so quick to blame AMCs says George Vann, chief appraiser for LSI, a national AMC. “The HVCC is definitely not cutting out the appraiser,” he says. And, he points out, it was the mortgage brokers’ fault the HVCC came about in the first place. “[T]hey did the loans and ordered their own appraisals and abused the privilege they had,” he says. “They’d go out and order two or three appraisals until they got the one they wanted, and then that’s the one they sent to the lender. I’m not saying it was all the time – there’s good and bad [mortgage] brokers – but it was a problem.” But Vann does understand how appraisers feel. “I was an appraiser and I didn’t like AMCs when I was appraising,” but don’t lump them all together. “You’ve got good AMCs and you’ve got bad AMCs, just like you’ve got good appraisers and bad appraisers. That’s how you have to look at it.”
So who is working for AMCs? What you’d expect — a mix of experienced and inexperienced appraisers. What has some in the business gnashing their teeth is that the low fees so many AMCs seem willing to pay — that encourages appraisers with less experience while discouraging those who have Although there are at least two bills in Congress dealing been on the job longest. And that, they with HVCC, the chance of either going anywhere is small. say, means consumers are more likely to get an appraiser with fewer miles under the belt. They now have to build from scratch relationships with “You’ve got a lot of appraisers who will not work for an entirely new set of clients: The AMCs. And, they say, [those fees]. They just can’t,” Strickland says. “And you have some that do. These are the ones that are usually the defining standard with those companies isn’t so much professional competence as price. (We tried to talk to new, just starting out, getting work any way they can.” AMCs for this story; most were unwilling to comment “Some of the ones willing [to work for the lower on the record.) fees] are new to the industry,” Jamey Leonard says. If an appraiser meets the basic standards and is willing “Experience plays a lot into what’s going on with them.” to work for what the AMC is willing to pay, chances are It’s basic capitalism. As AMCs have more influence in he’ll make the rotation. But a top-of-the-line appraiser the market (thanks to lenders not taking any chances with with years of experience and the fees to match? Good luck. the HVCC), they effectively lower the price the market Take P.E. Turner & Co. It’s been around a long time — will bear for an appraisal. With less money coming in for Pat Turner’s Virginia appraisal license number is 4 — but, each job, competition heats up. Appraisers need to be he says, that didn’t matter. What did matter was his fee, willing to go a little farther for a job and accept the fees and it was too high for at least one AMC. the AMCs are willing to pay — or hope to get assign“My firm is the oldest, most well established firm in ments from risk-averse lenders. Central VA,” he says, “and I’ve been blacklisted by [one The result, people like Pat Turner say, is lower fees — large AMC] because,” he believes, “I will not reduce my but at the cost of experience. fee below the ‘competitive fees’ they’re willing to pay.” It’s simply a matter of math, he says. When you take Call also says he’s been on the short end of the cominto account driving to a site, the overhead of an office, petitive-fee stick. “Appraisers who work with AMCs have plus insurance and incidental costs, it can feel like an 28 SEPTEMBER/OCTOBER 2009
appraiser is working for fast-food wages. And that, he says, pushes out appraisers with the most experience. Tony Whaley is eastern United States appraiser manager at Quantrix, an AMC that’s a joint venture between First American and Chase. (And yes, banks own AMCs, which makes the whole ‘separation between Church and state’ even more complex.) Whaley agrees that the price an appraiser charges is a factor, but not at the cost of experience. Yes, he has guidelines for how much he can pay, but, he says, appraisers who charge more “are not blacklisted, they just might not get as much work.” After all, “You’ll go to the store where you can get it cheapest. It might be the same product, you know.” In other words, Quantrix does look for quality. But if there are two appraisers for an area, both competent, and
one is lower fee than the other, he’ll pick the lower fee, because, he says, fee doesn’t relate to quality. You won’t get Turner to buy that logic, though. But worse than the issue of the fees AMCs pay is the idea that as the price the traffic will bear goes down, appraisers are more willing to take assignments out of the areas they know — and that’s the other issue with the HVCC.
Don’t know much about geography The Realtor® Code of Ethics says that Realtors® should not accept a job in an area they aren’t familiar with. That’s why many will opt for making a referral. The same is true for appraisers. Even Fannie Mae makes it clear: “If an appraiser is not knowledgeable about a particular location, is not experienced in appraising a particular type of property, or is not familiar with (or does not have
Misinformation There seems to be plenty of incorrect information about the requirements of the HVCC floating around — so much so that in June both the Appraisal Institute and NAR released ‘HVCC myths and facts’ flyers (Realtor.org/ hvcc), and Fannie and Freddie published their own HVCC clarification.
The highlights: Myth: Appraisers don’t need to come from or be familiar with an area to do appraisals there. Reality: Geographic competency is a requirement of the HVCC. According to Fannie Mae, “[W]hen an appraiser signs Fannie Mae’s residential appraisal report form, the appraiser is also certifying the following: “I have knowledge and experience in appraising this type of property in this market area.” And “I am aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records, and other such data sources for the area in which the property is located.” And no, that latter part doesn’t mean, “I beg the listing agent for comps.” Myth: HVCC prohibits Realtors® and lenders from talking to appraisers. Reality: Realtors® and lenders can talk to appraisers, including making requests to consider additional data or to correct errors. “That’s an ignorant appraiser who says ‘I can’t talk to Realtors®’,” Pat Turner says. “They can talk to us and we can talk to them. How else can I get in the house if I don’t talk to the listing agent? How will I do an accurate market analysis if I don’t at least interview the agent and get their thought process on marketing the house at that price?”
Volume 16 ● Issue 5
Remember, the HVCC prohibits anyone from ‘influencing or attempting to influence the development, reporting, result, or review of an appraisal.’ It doesn’t say they can’t talk to an appraiser. “I’m hired to do an objective opinion of value,” Turner says. “But that comes with doing full research.” Myth: A lender is required to use an appraisal management company to get an appraisal. Reality: Lenders may directly retain the services of an independent appraiser, as long as its loan-production staff is not part of the selection process. Mack Strickland: “HVCC doesn’t require lenders to use AMCs. What it boils down to is there needs to be some insulation between the loan officer and the AMC. So instead of the loan originator and the loan officer ordering the appraisal, they have someone in their office who calls to order the appraisal.” Myth: Lenders are required to choose appraisers from a rotating roster approved by Fannie Mae or Freddie Mac. Reality: Lenders may choose to use a rotating roster of appraisers but are not required to do so by Fannie Mae or Freddie Mac. Myth: Appraisals are not transferable between lenders. Reality: Lenders can choose to transfer an appraisal; nothing in the HVCC prevents that. Lenders receiving such a appraisal are responsible for ensuring that the original appraisal met the HVCC’s requirements.
SEPTEMBER/OCTOBER 2009 29
access to) the appropriate data sources, a lender should not give the appraiser assignments in that market area or for that particular type of property.” That’s straight out of the Fannie Mae Single Family Selling Guide. The logic is clear: It’s hard to estimate the value of a home in a neighborhood if you don’t know the neighborhood. Before the arrival of the HVCC, mortgage brokers would turn to the appraisers they knew — appraisers who were familiar with the area a home was in. With AMCs running the show, however, the job can go to whomever is next on the list, no matter where that person is from. Which brings up the catchphrase so many independent appraisers are using: geographic competence. “I’ve spoken now to five different real estate offices here in Richmond and they’re all upset just because appraisers are coming in here from Virginia Beach and from Roanoke to do appraisals,” Turner says. “They don’t know the marketplace, they’re only picking up foreclosed sales, they’re not members of our MLS — they’re not geographically competent.” Mack Strickland: “You have appraisers coming in to a market that they’re not familiar with, and they’re asking Realtors® to do a lot of the work, and even though they have a license that allows you to work anywhere in the state, you have to be competent.” Anecdotes abound, mostly of the ‘way-out-of-line
HVCC’s deep impact NAR Research asked its Realtor® and appraiser members how the HVCC has affected them. Some of the results: • 76% of real estate practitioners say the time to obtain a completed appraisal increased after May 1, the effective date of the HVCC. • 69% of those said those appraisal times increased by more than eight days. • 37% of respondents reported lost sales — 17 percent reporting one lost sale; 20 percent reporting more than one. • 70% of Realtors® reported an increased use of out-of-area appraisers. • 39% of NAR’s appraiser members reported more than half their assignments come from AMCs. Before May 1, only 14% said so. • Half of appraisers asked reported receiving lower fees. • 55% of Realtors® reported a perceived reduction in appraisal quality; 85% of appraisers reported the same.
30 SEPTEMBER/OCTOBER 2009
valuation’ variety because of appraisers trying to work outside their areas, but also of appraisals taking much longer than before (attributed, rightly or wrongly, to inexperience). Call, for example, says that out-of-market appraisals often take longer because the appraiser needs to fix errors that a local appraiser wouldn’t make, and find information that a local appraiser would already have. Elizabeth Greenfield, government affairs director for the Richmond Association of Realtors® says she’s “getting a lot of calls [about] the geographic issue.” And Suzy Stone, GAD for the Fredericksburg Area Association, echoed that: “It’s huge in Fredericksburg.” The issue of geographic competence is so big that Fannie Mae and Freddie Mac issued a clarification of the HVCC on July 22, specifically discussing the issue of geography. The HVCC guidelines, it said, “require appraisers to have knowledge of the local market. The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies.” And Quantrix’s Tony Whaley cautions that seemingly out-of-area appraisers may actually be local. “They might work for a company that’s out in Virginia Beach but they live in Richmond,” he explains. “I know an appraisal company that has employees living all over the state, but when one sends a bill out it’s going to say ‘Richmond’ on it.” But while that might alleviate some concerns, it adds yet another layer of complexity to the HVCC mess. “It has become increasingly frustrating for Realtors®,” said Susan Gaston, government affairs director for the Williamsburg and Virginia Peninsula Realtors® associations. “It’s creating a situation where there’s such a feeling of distrust.” And Call says he knows someone who calls it the “Home Valuation Crisis of Confidence.” “We already had a code of conduct,” Call says. “We didn’t need another one.”
Quis custodiet ipsos custodes*? Call, Strickland, and Turner all point out that appraisers are regulated, thankyouverymuch. They must abide by the appraiser code of conduct — the Uniform Standards of Professional Appraisal Practice (USPAP). “Realtors®,” says Pat Turner “have the Code of Ethics. They’ve got to be competent to handle a transaction. We have, under the USPAP, a set of conditions — the appraiser has to be competent too.” And competent, he * “Who watches the watchmen?” What, you didn’t take Latin? www.VARealtor.com
said, includes knowing the location and even the submarket. Appraisers who violate it can find themselves facing the Real Estate Appraiser Board. And USPAP’s competency rule makes it clear: “[A]n appraiser preparing an appraisal in an unfamiliar location must spend sufficient time to understand the nuances of the local market and the supply and demand factors relating to the specific property type and the location involved. Such understanding will not be imparted solely from a consideration of specific data such as demographics, costs, sales, and rentals.” Appraisers without that knowledge, USPAP says, should either become competent, work with a qualified local appraiser on the assignment, or decline it outright. “We just had somebody disciplined by the REAB for going last month from Richmond down to Suffolk,” Turner says. “Not only that, she then went to Eastern Shore to do an appraisal – from Richmond!” But someone actually has to realize that an appraiser lacks that geographic competence in order for USPAP to be enforced. You would think that job would fall to the AMCs giving out the assignments, but, while appraisers are regulated, AMCs are not. “Often, I am asked [by AMCs] to perform an appraisal assignment outside the areas I am most familiar with,” posted one residential appraiser to the Appraisal Foundation’s Web site, and “the assignments come with a requirement that a completed report be submitted within 48 hours or less.” Which is one reason there’s a call for AMCs to be regulated by, say, the Real Estate Appraiser Board or even the Real Estate Board. “Even the termite guy is regulated!” says Strickland. So AMCs should at least be required to meet the standards of the appraisers it hires, he says. The law should “require AMCs to hire local appraisers with geographic competence.” The free-for-all that exists now has to go. “AMCs can be started by anyone,” he points out, “including convicted felons.” It’s not just the geographic competence issue that begs for regulation, either. From Turner’s perspective, the best way to deal with all the issues is by regulating the AMCs. Because without someone watching them, he says, the situation will remain a messy one.
The price isn’t right Stories abound. The inland appraiser assigned to a waterfront property — he didn’t know which features brought value to a waterfront home. Volume 16 ● Issue 5
8 questions you need to ask Although AMCs aren’t regulated, individual appraisers are — and they can be held to the regulation of the USPAP. Pat Turner suggests that Realtors® ask potential appraisers these questions: 1. How long have you been a real estate appraiser? 2. Are you licensed, are you certified, or are you a trainee appraiser? 3. What license do you hold? 4. Where are you from? 5. When was the last time you appraised a property in this neighborhood? 6. Do you know any of the local long-term Realtors® in this area? 7. After you inspect the property, how long will it take you to deliver the appraisal report to the lender? (It should be turned around within 48 to 72 hours unless it’s an unusual piece of property.) 8. Are you a member of this MLS? “The appraiser’s answers are going to help that Realtor® gauge the competence of the appraiser in order to complete that assignment in a timely manner,” Turner says. “If the lender is not going to insist on geographic competency, the Realtor® and borrower should.”
Or the appraiser who asks for a copy of the sales contract…and who produces an appraisal that matches it to the dollar. “I just had an appraiser call me today and ask for a copy of the sales contract,” says Marty Martin, a Realtor® with Wainwright & Co. in Roanoke. “I always want to ask, ‘Why the heck do you need that?’ It’s amazing how many appraisals come in for the exact dollar of sales contracts. What are we using them for anyway?” And, over and over, the same tale: Deals lost when buyers can’t get a loan because the appraisal comes in too low for the bank. Peggy James, who works with her partner, Eric Blackwelder, at Exit 1st Choice Realty in Woodbridge, is one Realtor® who’s been hit hard by low appraisals. And, she says, it started suddenly, in May, just as the HVCC took effect. “We had one appraisal come in $70,000 low,” she says. “The seller couldn’t sell. The buyer couldn’t buy. The deal fell through. The appraiser was from Maryland.” But is it possible, in this market, that the home was overpriced? James doesn’t think so. SEPTEMBER/OCTOBER 2009 31
CAUTION CAUTION CAUTION CAUTION CAUTION
“As a good listing agent you run the comps and formulate a solid value. Then a buyer’s agent does the same,” she points out. “How can all of the real estate professionals in the trenches of the real estate market be that far off base? And only in May and June of 2009?”
$425,000, and I got an offer for $465,000. I knew it wouldn’t appraise nearly that high. We accepted an offer that was lower but that would appraise [at that value].” And let’s not forget that not too long ago the issue was appraisals being too high, Jones points out. A few years ago, “one day a Yes, there’s a lot of complaining, she says, but it’s like air travel: home was selling for $400,000 and two weeks later the same house Disasters get all the attention, but they’re very much the minority. sells for $425,000 with no questions about the value? Weren’t It hurt. “We had five contracts blow up in one week,” appraisals part of the problem then as well?” James says. “Never have we ever had anything like that. I It’s a matter of the seller’s agent being careful about almost left the business.” accepting realistic offers. “I’ve closed 16 transactions this Stacy Magid of Coldwell Banker Elite in Prince year,” she says, “and not a single appraisal problem.” William says that “not only are we having problems with Meanwhile, Peggy James hopes her luck begins to turn appraisals being significantly lower than the comps in the and there will be some change to the HVCC. “Hopefully area, but appraisers are putting a tremendous amount of the pendulum has swung too far to the left and it will ridiculous conditions on properties.” And when appraiscome back again.” ers start talking about painting or carpeting or cleaning, What now? they’re going above and beyond the call of duty, but not Because of all the trouble the HVCC is causing, legislators in a good way. and regulators are getting an earful, and changes are hap“We had one do a complete electrical critique,” Magid pening, if slowly. says, “I don’t believe the appraiser was a licensed electriNAR president Charles McMillan met in July with the cian.” And the worst part: “Many of these conditions are New York Attorney General’s office and the head of the ridiculous and end up killing the deals.” Federal Housing Finance Agency to share NAR’s conBut not every Realtor® is willing to put the blame on the HVCC or on appraisers. cerns. That led to Fannie and Freddie’s July clarification. “Let’s not blow the new HVCC rules out of perspecNAR is also pushing Congress and the FHFA “to immetive,” cautions Cindy Jones of RE/MAX Allegiance in diately implement an 18-month moratorium on the new Woodbridge. “Appraisal concerns were around before the HVCC rules to further address unintended consequences new regulations and they will be around when this set of of this new rule.” rules is replaced by another.” In Virginia, VAR is looking at introducing legislation Yes, there’s a lot of complaining, she says, but it’s like that would regulate AMCs, or at least put a certain air travel: Disasters get all the attention, but they’re very burden of responsibility on them when it comes to much the minority. assigning appraisers. “I just think that if you took all the sales that are Call thinks even a basic change such as regulating happening and said, ‘What are the percentage of the sales AMCs (as appraisers themselves are regulated) would that have an appraisal problem?’ we’d find the number make a huge difference. And Strickland also thinks there wouldn’t be that bad,” she says. are some simple solutions that could go a long way. For And the deals nuked by a low appraisal? “How many example, spot checks, where appraisers are told “give of these are caused by the agents themselves?” Jones asks. me three sample appraisals out of your file and let me How many agents are accepting offers that they know are approve them.” too high, from buyers agents who want to get the offer “I don’t want to get them out of the business,” he says. accepted now, then deal with the price later? “I want to get them to conform to standards.” l “I had a listing in Lorton,” she says. “I priced it at 32 SEPTEMBER/OCTOBER 2009
Value propositions Water-cooler talk about appraisal problems is easy to find these days (see the cover story), but we wanted a bit more. We wanted someone to get some stories straight from the horses’ mouths. So, as always, we sent our intrepid Realtor ®-on-thestreet reporter, Gary Duda, to ask Realtors® and brokers for their stories from the front lines.
June Chapman, Broker RE/MAX Olympic Realty, Haymarket In the Haymarket area – located just outside Washington, D.C., — June Chapman says she sees a lot of problems with appraisal in her area. She blames that on recent changes in how appraisers are chosen by lenders. Chapman, who is also a licensed appraiser, says the new Home Valuation Code of Conduct for lenders (again, see the cover story), has resulted in banks hiring appraisers who are not from the local market and who often come from great distances. That, she says, often results in a “not very qualified” appraiser making a valuation of a home. She realizes that the intent of the HVCC was to keep appraisals independent. Instead, she’s seen the changes cause more fees for the consumer, less experienced appraisers getting more assignments, and 34 SEPTEMBER/OCTOBER 2009
John Daylor, Realtor ® Joyner Fine Properties, Richmond Not everyone is having problems with appraisals, including John Daylor. He sells mainly in western Henrico County – a suburb of Richmond — and he says things are just fine. “Between my buyers agents and me, we’ve closed more than 40 deals as of July and — knock-on-wood — we’ve had very few issues,” he says. “Our market is fairly strong compared to other parts of central Virginia and we continue to see consistent sales.” One way to avoid appraisal problems, Daylor said, is correct pricing. (It also helps not to have to compete with many bank-owned homes or short sales.) About the only issue Daylor has run across has been dealing with a relocation sale. In that case, two appraisers hired by the relocation company came in almost $80,000 below the prices suggested by Daylor and two other Realtors®. “Relocation appraisers are erring on the low side,” Daylor says. “Sometimes I think they are trying to protect the relocation company more than offer an accurate assessment of the home’s value.” But, contrary to other stories, Daylor says he doesn’t deal with many out-ofarea lenders and that most of his appraisals are done by local appraisers who know the market. “We are fortunate in that agents in our area typically rely on local mortgage lenders,” says Daylor. “We just don’t see that many people using Internet lenders or lenders who are not Richmond based.”
business being taken away from local Realtor® members who are also appraisers. “I don’t think they intended the consumer to pay more or to have an appraiser who does not understand the area,” Chapman says, but “I think it’s ended up producing results that nobody wanted.” The large number of foreclosures and short sales in her local market — and the low prices they bring — have resulted in multiple contracts at one time, Chapman says. But appraisers are not considering that demand, in part, she believes, because many of the appraisers just don’t know the local market.
I don’t think they intended the consumer to pay more or to have an appraiser who does not understand the area.
“If the appraiser doesn’t have a good understanding of the local real estate market you’re not going to end up with a very accurate appraisal,” she says. “You really have to know the local market.”
Bryan Cerny, Associate Broker Rose and Womble Realty, Hampton Roads Bryan Cerny likes the fact that lenders cannot as easily choose who the appraiser will be. “I personally think it’s a better element to have just a little more arm’s length transaction,” he says. “I don’t see how it can hurt a transaction.” Cerny hasn’t seen many problems with appraisals in his market, where almost half of the sales are distressed properties. And he makes a point to be involved in the appraisal process and provide as much assistance as possible. “It’s only fair to [the appraisers],” he says, “that we provide as much information as possible.”
David Dunivan, Broker The Dunivan Co., Mechanicsville David Dunivan’s experience lately with appraisers “has not been very good.” Dunivan, whose market sees a third or more of its sales from distressed properties, says appraisers are using the bad sales as comps, and that’s killing home values. It feels as if appraisers are more concerned “with what the underwriter at a lending institution has to say, as opposed to the value of a home that has a ready, willing, and able buyer,” Dunivan says. Dunivan represents several builders who, he says, are building in some cases with little to no profit. When appraisers use foreclosures as comps, those builders have to further discount the homes. And appraisers will no longer consider the comps he suggests – something they used to do. “In one case the appraiser came up with three comps. Of those, two were short sales and one was bank owned,” Dunivan says. “It seems like they are actually looking for properties to drag the value down to protect the underwriter and lender.”
John Medaris, Broker Kerry Medaris, Associate Broker Exit Advantage Realty, Fairfax Getting to the closing table on time is the main issue John and Kerry Medaris — a father-daughter team — have had with appraisals. By Volume 16 ● Issue 5
creating a system where lenders can’t as freely choose and converse with appraisers, Kerry says that communication has broken down, which means closings are often delayed. “Maybe there was too much pressure and too much undue influence before,” she says, “but now they’ve gone too far the other way.” But despite the delays, if client expectations are kept in check, the deals do close. “Hold that settlement date with an open hand and manage the expectations of your client,” she says. “It’s not a two-week or even a 30-day
Donna Patton, Managing Broker Real Estate III, Charlottesville The problems with appraisals are so much of a concern for Donna Patton that her firm recently invited underwriters and lenders to discuss the problem and find solutions. “The biggest problem we are having is the out-of-area appraisers coming in to do appraisals,” Patton says. “Some lenders are using a national database of appraisers who come from one-and-a-half to two hours away and they don’t know the market. When they get here they don’t have a clue and can’t get access to the MLS system.” Patton says she’s dealt with issues like wide difference in appraised value, and with what she called a “drive-by” valuation. One piece of advice she got: Use local lenders. While they still can’t pick the appraiser, they can be assured that the appraiser is local and has knowledge of the area.
process anymore. It could be 45 days or more.” John says that in order to prevent problems he schools his clients on the value of using lenders with whom he has an existing relationship. “I compare it to a patient choosing their own anesthesiologist when having surgery,” he says. “It’s like us being your surgical team. We want to be able to use the anesthesiologist that we have worked with successfully before. An Internet lender can promise you anything, but how are you going to put your hands around his throat when he doesn’t deliver?” l SEPTEMBER/OCTOBER 2009 35
GOLDEN R INVESTORS ($5,000)
As of August 14, 2009 the following REALTORS® and local associations have joined RPAC of Virginia as Major Investors. For more information on the value of RPAC and how your investment works to protect your business, contact Meredith Cox at mcox@VARealtor.com or (804) 264-5033. Or, if you want to get invested today, please visit rpacofva.com. *Hall of Famers have contributed a cumulative amount of at least $25,000 to RPAC.
Thomas Jefferson, III* Joyner Fine Properties Richmond
John McEnearney McEnearney Associates, Inc. Alexandria
GOLDEN R ASSOCIATION ($5,000) Dulles Area Association of REALTORS®, Leesburg Fredericksburg Area Association of REALTORS®, Fredericksburg Northern Virginia Association of REALTORS®, Fairfax Richmond Association of REALTORS®, Richmond Roanoke Valley Association of REALTORS®, Roanoke Williamsburg Area Association of REALTORS®, Williamsburg 36 SEPTEMBER/OCTOBER 2009
Linda Belcher-Brown Coldwell Banker Residential Manassas
John Dickinson Hall Associates Inc. Union Hall
Stanley Palivoda Century 21 Battlefield – Tappahannock Dahlgren
Charles Burnette Burnette Real Estate Sales Blacksburg
William Chorey Chorey & Associates Realty Suffolk Dedicated in the memory of Peggy B. Byrd
Joseph Funkhouser, II Dorcas Helfant-Browning Coldwell Banker Coldwell Banker Funkhouser Professional Harrisonburg Virginia Beach
Tom Stevens* Coldwell Banker Residential Vienna
Dennis Cronk Poe & Cronk Real Estate Group Roanoke
Steve Hoover MKB, REALTORS® Roanoke
Melanie Thompson Century 21 AdVenture Realty Fredericksburg
Jack Torza Long & Foster REALTORS® Mechanicsville
Todd Rogers Hometown Realty Mechanicsville
Dee Spraker Keller Williams Realty Manassas
CRYSTAL R INVESTORS ($2,500-$4,999)
Angela Dougherty William E. Wood & Associates Williamsburg
Mike Minnery RE/MAX Allegiance Woodbridge
STERlING R INVESTORS ($1,000–$2,499)
Jerry Bartlett Jobin Realty Alexandria
Bob Barton Barton Real Estate Services Richmond
Pat Billheimer Long & Foster Real Estate, Inc. Sterling
Bob Blount RE/MAX Allegiance Virginia Beach
Karen Bohlke Enriquez RE/MAX Select Hampton
Candice Bower McEnearney Associates McLean
Kevin Breen Coldwell Banker Elite Fredericksburg
R. Scott Brunner Virginia Association of REALTORS® Glen Allen
Callie Dalton Long & Foster REALTORS® Roanoke
Benton Downer Downer & Associates Charlottesville
Mary Dykstra RE/MAX Valley Realtors® Roanoke
Angela Eliopoulos Long & Foster Real Estate, Inc. Washington, DC
Sandee Ferebee Prudential Towne Realty Virginia Beach
Libby Gatewood Legacy Properties Colonial Heights
Bill Gearhart Coldwell Banker Townside Roanoke
Charlee Gowin Prudential Towne Realty Virginia Beach
Lynn Grimsley RE/MAX Peninsula Newport News
Kit Hale MKB, Realtors® Roanoke
S. Scott Avery Avery Hess, Realtors® Dunn Loring
Mary Ann Bendinelli Weichert Realtors® Manassas
Charles Bengel RE/MAX Allegiance Alexandria
Brad Boland Jobin Realty Reston
Michael Bosley RE/MAX Allegiance Alexandria
Billy Coons Realty Executives Virginia Beach
Claire Forcier-Rowe Coldwell Banker Elite Fredericksburg
VOluME 16 ● ISSuE 5
Wayne Babb RE/MAX Allegiance Alexandria
Deborah Baisden Prudential Towne Realty Virginia Beach
Julia Avent RE/MAX Allegiance Arlington
Laura Benjamin Roanoke Valley Association of REALTORS® Roanoke
David Charron MRIS Rockville, MD
SEPTEMBER/OCTOBER 2009 37
rpacreport STERLING R INVESTORS ($1,000–$2,499)
Margaret Handley M.C. Handley, Ltd. McLean
Steven Hill Century 21 Real Estate Unlimited Harrisonburg
Tom Innes RE/MAX Commonwealth Richmond
Donn Irby Rose & Womble Realty Chesapeake
Betty Jasmund Coldwell Banker Elite Stafford
Pat Jensen Real Estate III - North Charlottesville
Jo Anne Johnson Westgate Realty Group, Inc. Falls Church
Lilian Jorgenson Long & Foster Real Estate McLean
Sita Kapur Arlington Premier Realty, LLC Arlington
Betty Kingery Lake Realty Rocky Mount
Patricia Kline Avery Hess Realtors® Springfield
Luis Lama Long & Foster Real Estate Falls Church
Barbara Jean LeFon Rivah Realty Montross
Richard Limroth RE/MAX Valley REALTORS® Roanoke
Scott MacDonald RE/MAX Gateway Chantilly
Andy Mason Weichert Mason-Davis Company, Inc. Onancock
Shane McCullar Keller Williams Realty Alexandria
Kayvan Mehrbaksh Sperry Van Ness Vienna
Susan Mekenney Re/Max Allegiance Fairfax
Dee Meredith Coldwell Banker Forehand & Co. Lynchburg
Tom Meyer Condo 1, Inc. Falls Church
Vinh Nguyen Westgate Realty Group, Inc. Falls Church
Lee Odems Buyer’s Advantage Real Estate Woodbridge
Susan Oh New Star Realty & Investment Fairfax
Contributions are not deductible for income tax purposes. Contributions to RPAC are voluntary and are used for political purposes. The amount suggested is merely a guideline and you may contribute more or less than the suggested amount. You may refuse to contribute without reprisal and the National Association of Realtors® or any of its state associations or local boards will not favor or disfavor any member because of the amount contributed. 70% of each contribution is used by your state PAC to support state and local political candidates. Until your state PAC reaches its RPAC goal 30% is sent to National RPAC to support federal candidates and is charged against your limits. 38 SEPTEMBER/OCTOBER 2009
STERLING R INVESTORS ($1,000–$2,499)
Gwen Pangle Long & Foster Real Estate, Inc. Sterling
Gail Penman Century 21 New Millennium Stafford
Tracy Pless Long & Foster Real Estate Reston
John Powell Long & Foster Real Estate, Inc. Colonial Heights
Jane Quill Re/Max Presidential Fairfax
Anne Rector Long & Foster Real Estate Alexandria
Peter Rickert Coldwell Banker Residential Brokerage Alexandria
Zinta Rodgers-Rickert Re/Max Allegiance Fairfax
Henry Scholz Hall Associates Inc. Roanoke
Trudy Severa Long & Foster Real Estate Reston
Susan Spellman Long & Foster REALTORS® Williamsburg
Cindy Stackhouse Century 21 Stackhouse & Associates Dumfries
Wes Stearns MO Wilson Properties, Inc. Woodbridge
Suzy Stone Century 21 AdVenture Realty Fredericksburg
Mack Strickland Strickland Realty Chester
Crystal Sullivan RE/MAX Peninsula Newport News
Trish Szego ERA - Elite Group Realtors® Haymarket
Richard “Dick” Thurmond William E. Wood & Associates Virginia Beach
STERLING R ASSOCIATION ($1,000–$2,499)
Christine Todd Northern Virginia Association of Realtors® Fairfax
Volume 16 ● Issue 5
Todd Wampler Wampler Realty, Inc. Daleville
Clifford Wells Century 21 Nachman Realty Norfolk
William A. White Joyner Fine Properties Richmond
Greater Augusta Association of REALTORS®, Staunton Harrisonburg-Rockingham Association of REALTORS®, Harrisonburg Lynchburg Association of REALTORS®, Lynchburg New River Valley Association of REALTORS®, Christiansburg Virginia Peninsula Association of REALTORS®, Hampton
SEPTEMBER/OCTOBER 2009 39
varbuzzcontest HERE’S YOUR CHANCE to win a cool HD video camera just for reading this magazine and VARbuzz, our official blog and ‘water cooler.’ It works like this: Answer the questions below by reading this issue of Commonwealth. On September 22, go to www.VARbuzz.com. There you’ll read simple instructions (e.g., “Take the first letter of each word to spell out the answer” or “What’s the opposite of answer #3?”). That will give you the final answer and instructions for sending it in. We’ll take the first 20 entries with the correct answer and draw one randomly. That winner gets a Flip Mino HD video camera. Simple, huh? Notes: This contest is only open to current members of the Virginia Association of Realtors®. Contest winners must skip two issues before they’re eligible to win again. All decisions about correct answers rest with VAR staff, and are final. Bribes are accepted but not acted upon.
This issue’s questions, and yes, they’re a bit tougher than usual: 1. What were the first names of the father and daughter interviewed in Realty Check? 2. Only one name, aside from the candidates’, appeared in First Word. What was it? 3. What author did Lem Marshall mention in Legal Lines? 4. Aside from Steven Spielberg, what well-known director’s name appeared in Accessible Tech? 5. Only two appraisal management companies would talk to us for the cover story. What were their spokesmen’s first names? 1.
2. 3. 4. 5.
Remember: Hang onto this form until September 22, when you’ll get your final instructions at www.VARbuzz.com and can fill in the… FINAL ANSWER:
Last issue’s winner: Tamara Inzunza, Alexandria Last issue’s answers:
1. The firm Shawn Harris owns is Exit Metro [Realty]. 2. In VAR form 600, “The purchaser or borrower is” replaced “You are.” 3. The brand of blank disks archive geeks consider the best are Taiyo Yuden. 4. Text was added to the standard residential disclosure statement about stormwater detention [facilities]. 5. Scott Brunner never gets invitations to his sons’ school’s Career Day.
40 SEPTEMBER/OCTOBER 2009
If you followed the instructions on VARbuzz, you took the first letters of each of the ten answer words in pairs, got their numerical value (A=1, B=2, etc.), and found the difference: EM (5, 13) — difference of 8 YA (25, 1) — difference of 24 TY (20, 25) — difference of 5 SD (19, 4) — difference of 15 CD (3, 4) — difference of 1 You took the largest difference (24) and turned to that page in the magazine, where you counted to the secondlargest number (15) and sent in the caption from that image: Henry Scholz, Hall Associates Inc., Roanoke. Congrats to everyone who went through the trouble to find the answer! ● WWW.VAREALTOR.COM
We’d love to hear from you
We’re online at www.VARealtor.com Our official blog is VARbuzz, at www.VARbuzz.com If you have questions, we’re ready to help. During normal business days, we’re available from 9:30 a.m. to 3:45 p.m.
Our phone number is
(804) 264 -5033 For membership and dues questions Ask for Kim Martin, Membership Records Manager email@example.com
For questions about professional standards and the Code of Ethics Ask for Blake Hegeman, Associate Counsel blake@VARealtor.com
If you’re interested in marketing or advertising opportunities Ask for Amanda Rainsford, Marketing Manager firstname.lastname@example.org
To reach our Legal Resources Center (formerly the Legal Hotline) Call (800) 755-8271* *You must register first at www.VARealtor.com — click Member Services
If you’d like to have someone speak at your association or brokerage
To find out about conferences, seminars, and professional education
Ask for Lisa Noon, Vice President of Member Outreach email@example.com
Ask for Glenda Puryear, Conferences Specialist or Lili Paulk, Director of Education glenda or lili @varealtor.com
If you need to know about professional designations Ask for Lynne Wherry, Specialties and Chapter Manager firstname.lastname@example.org
If you have comments or questions about Commonwealth or our Web sites Ask for Andrew Kantor, Editor & Information Manager email@example.com VAR Member Service Partners
Advanced Access Internet Marketing & Website Development Bank of America, WorldPoints Credit Card DNCSolution, Do-Not-Call Solutions Security Code SC1795VR Liberty Mutual Home, Auto & Renters Insurance LLE Language Services Telephone Interpretation & Document Translation Promotion Code VARM08 Office Depot, Office Supplies & Copying Outstaffing, Staffing & Payroll Pearl Insurance E&O, Medical, Life, Dental Insurance TASC/BizPlan Medical Expense Tax Benefits
Our CEO is Scott Brunner (804) 249-5712 firstname.lastname@example.org 42 SEPTEMBER/OCTOBER 2009
T-Mobile, Wireless Service VAR Wireless Center Wireless Plans & Hardware Zipform, Electronic Forms Solutions
For information about RPAC Ask for Meredith Cox, Director of Political Communications email@example.com
VAR 2009 Leadership Team
John Powell, GRI, ABR, CRB, CRS President Long and Foster Real Estate, Colonial Heights (804) 520-5600 john.powell@longand foster.com Cindy Stackhouse, GRI President-Elect Century 21 Stackhouse and Associates Prince William (703) 580-0880 firstname.lastname@example.org John Dickinson, CCIM, GRI Vice President Hall Associates, Inc., Roanoke (540) 982-0011 email@example.com John Daly Treasurer Prudential Towne Realty, Virginia Beach (757) 826-1930 firstname.lastname@example.org Pat Jensen, ABR, CBR, CRS, GRI Immediate Past President Real Estate III – North Charlottesville (434) 817-9200 email@example.com R. Scott Brunner, CAE Chief Executive Officer (804) 264-5033 firstname.lastname@example.org
Got to hold on to what we’ve got
This economy has all the makings of a Bon Jovi song What are Realtors® doing to make it (or not) in a down economy? Quite a few seem to be waiting tables or working retail. Some have gone back to school: nursing, drafting, culinary arts. Others are temping, landscaping, working odd jobs to make ends meet. These days, for many, real estate is one continuous loop of Livin’ on a Prayer. They’re sweating it out, trying to hold on to what they’ve got. And while it doesn’t speak particularly well for a “profession” to have so many of its members having to look elsewhere to make ends meet (at least, that’s what we’re hearing anecdotally), neither have most of us seen in our lifetimes an economy like this one.
Ask some longtime top producers – the aces in your profession – who’ve gone 30 or even 60 days or more without a single transaction. Ask brokers and owners, who thought their margins couldn’t possibly get any slimmer, but now know otherwise, and are jettisoning unproductive agents and discretionary services and calling upon seldom-used lines of credit simply to stay afloat.
It’s tough, so tough… Since the downturn began, many practitioners in Virginia have left the real estate profession altogether — as many as 8,000 since January 1, 2008. Some of those who remain view that as a good thing for the profession, suggesting that we’ve long had too many real estate licensees chasing too few transactions; that the current real estate economy encourages a necessary and even welcomed winnowing; that it’s Darwinian theory writ large, and the “fittest” will survive. That could well be true, but I also sense that some who’ve long demonstrated themselves to be “fit” are having to work harder and smarter than ever before for a diminishing return. Ask seasoned appraisers, reeling under the unintended financial consequences of the HVCC (an overreaching response to the problems it sought to correct). 44 SEPTEMBER/OCTOBER 2009
Ask any Realtor® who survived the early ’80s (they’re sure to mention those 18% interest rates) or the 1990 downturn (thanks to the S&L implosion) or even the less severe recession of 1999-2000 (the dot-com bust) — and who vowed they’d be prepared for the next one (and thought they were), only to find themselves the poster children for the worst real estate economy since the Great Depression.
We’re halfway there… And yet some things may be looking up, if only a bit. Unemployment
numbers dipped ever so slightly, unexpectedly, for July. Home sales in Virginia markets are on the rise. Inventory levels are coming down, and we’re beginning to see multiple offers again. Lenders are lending, albeit cautiously and not in the upper ranges. Sure, today’s lower prices mean you’re working harder for less money, but hey…at least you’re working, right? Like a Bon Jovi song: “Something inside … makes you do what you got to do.” And here’s the cool thing: We’re working, too. Your associations, I mean: those folks at your local, state and national Realtor® associations whose job it is to serve you, support you, advocate for you. We’re at work daily trying to rectify myriad issues you’re confronting in this difficult economy, from HVCC to credit availability; from the lack of uniformity in short sales processes to the surfeit of legal liability; from the dearth of affordable health insurance to the abundance of onerous regulation. What I’m saying is, you’ve got good people behind you. And resources. So hold on to what you’ve got. Together we’ll make it — I swear. l
VAR’s chief executive office Scott Brunner thinks Bon Jovi’s Living on a Prayer may just be the best rock ’n’ roll song ever. Feel free to dispute him: Scott@VARealtor.com. www.VARealtor.com