Are PIW’s & Hybrid Appraisals the Radithor of The Mortgage Industry?

Sharing is caring!

According to Wikipedia.org (Photo also take from Wickipedia) “Radithor was manufactured from 1918 to 1928 by the Bailey Radium Laboratories…” The article went on to say that “The expensive product was claimed to cure impotence among other ills”. It was a triple-distilled water with at least 1 microcurie each of Ra-226 and Ra-228,  radioactive material”, according to the site www.orau.org. It went on to say that a man by the name of Eben Byers, president of A.M. Byers Company in Pittsburg, one of the largest steel companies at that time, injured his arm on a party train. His doctor recommended that he began drinking Radithor to assist the healing process. At the time, it was a dollar a bottle. According to the inflation adjuster on www.dollartimes.com, one dollar in 1918 had the same buying power as $17.99 today. A cheap price if the results promised were a reality!

According to the article, he drank three bottles a day over the course of two years. The article noted that he “felt invigorated and toned up, at least in the beginning, he extolled Radithor from the rooftops.” He even “fed it to his race racehorses”.

It seemed to be too good to be true. Something relatively inexpensive and yet beneficial to one’s health. Sometimes well-meaning ideas can be costly. Can that be said of the relatively new PIW’s (Property Inspection Waivers) and appraisal hybrid products, which are becoming more popular? Let’s talk about them.

PIW’s

Property Inspection Waivers are slowing being used in some situations in which a borrower qualifies for one. What it means is that no appraisal is necessary in the loan processes. It goes without saying that part of the reason for this product is that it speeds up the loan process and lessons the money the borrower has to pay in the loan process, as there is no appraisal to pay for. This seems like a great idea, at least initially.  Perhaps in a HELOC (home equity line of credit) or loan re-structuring situation, this might be a reasonable idea. But what about in a purchase?

What happens if the property is being sold higher than market value? What if the gross living area is much smaller than public records reflect? What if the purchase price is based upon inaccurate information? If a PIW is being used in a purchase and the sales goes through, with the buyer paying considerably more than the what other comparable homes are selling for, this will lead to a toxic situation.

First, the purchaser will likely be upside-down on their mortgage immediately. Second, that sale, with the inflated sales price, becomes a comparable sale that appraiser’s may use in another appraisal. Now imagine a sale or two that are sold considerably over market value in a neighborhood. Appraiser’s will continue to use those sales for months down the road. Especially since there is currently nothing in most, if any, MLS systems to indicate if the sale uses a PIW. The unintended consequence is the same as if a dishonest appraiser stretches the value on a purchase. It will lead to an artificial inflation of sales prices in the neighborhood.

PIW’s sound great at a glance. But there could be serious consequences from this product down the road. Doesn’t that kind of sound like what happened with some of the supposed great lending products from the past, like “stated” loans, adjustable arms, 100% financing and the like?

HYBRID APPRAISALS

A hybrid appraisal is when an appraiser completes an appraisal based upon the data that is collected from an inspection of the home by someone who is not an appraiser. In the past year, I completed two of these kinds of assignments just to get an idea of what they are all about. I was not impressed. I should note that my experience may not be reflective of others.

The orders were both sent to me with due dates. However, I had to wait over a week beyond the dates they said they needed the reports because apparently there were issues in getting the inspector’s information to me. I run a very tight schedule. This makes it very challenging for me to accept this kind of work. With this type of product, the client is now at the mercy of the schedule of two people instead of just the one appraiser. So does this kind of product really speed up the process? I don’t think so. I think lenders that use this kind of product are going to find just the opposite. And since time is money, they may loose more than they spend on this kind of product.

On one of the desktop appraisals, the inspector noted that the front shrubs needed to be trimmed for curb appeal. This was on the list of repairs that were provided from the inspector. From the photos provided of the subject, trimming the shrubs would make no difference in value. Of course, an inspector who is not an appraiser wouldn’t know that. But I had to explain this in my report.

Additionally, there was no measurement made of either property. I was to use the GLA (gross living area) that public records reflect. In my opinion, that is a big mistake. Often public records are inaccurate when it comes to GLA, which has a direct impact on value.

The fee they paid me was based upon an estimated 30 minute completion time. On an hourly basis, I still felt that the fee was below market at 30 minutes. Both reports took me an hour and a half each to complete. Why?

The reports were completed on a glitchy cloud based program. The program makes recommendations as to what might be some of the most comparable sales that have sold in the area within the past year. However, when I ran a search for comparable sales in my MLS, I found better comparable sales that were more appropriate. That took time to find the best comparable sales. I also had to determine the highest and best use of the property based on the information I had. That takes time. It also took time to make a proper analysis of neighborhood trends as well as trends of what comparable sales were doing. The cloud based program offered boxes to check to indicate market trends. However it takes time to make a proper analysis and to get it right.

After completing two of these kinds of appraisals, I determined that the only way to complete one of these reports in 30 minutes was to blow through them with relatively no real analysis of the data, just accept the recommended sales, and come up with a number. That’s not how I am going to perform my appraisal work. So, until this product comes with a more respectable fee that will pay for the time it takes to make a proper analysis, it is unlikely that I will accept another one any time soon.

I am not afraid of change. I am not afraid of technology or doing things differently. In fact, changes, when made in a responsible and sensible way, can be refreshing! I embrace every type of new technology I come across that can makes me more efficient. The more efficient I am, the more money I can make. But as a professional appraiser, I cannot take dangerous shortcuts in the process, simply for the sake of offering a cheaper product.

THE REST OF THE STORY

So what ever happened to Eben Byers? The aforementioned article went on to relate that “his whole upper jaw, excepting two front teeth, and most of his lower jaw had been removed”, due to the radiation poisoning. “All the remaining bone tissue of his body was slowly disintegrating, and holes were actually forming in his skull.” He died a short time later. It’s interesting to note that even then, there were those who believed in the product, including some medical professionals.

The point of this article is to remind everyone that just because something seems promising at first, doesn’t mean that it is a good alternative. Sometimes, the “fix” has more side-effects than the problem itself. (See the commercial below) We have seen this in the past with some mortgage products that made loans “toxic” in the end. I’m not saying that these products are all bad.  Only time will tell. Even light forms of radiation can be beneficial. For instance, for x-rays or killing some forms of cancer cells. However, I do fear that if the mortgage industry is not careful about the way they administer the use of PIW’s and hybrid appraisals, too high of a dose to the market could be disastrous.

There’s no shortcut for good health care, and there’s no shortcut for a proper analysis!

---

Tara Subdivision Baton Rouge Reader Question Post-Flood Values – Baton Rouge Housing Reports

Residential Real Estate Appraising: “Hot Legal Issues” – NAR’s Interview with Peter Christensen

I Am Not “Just” A Residential Appraiser – Ann Arbor Appraisal

Going Concern Valuer in Virginia – Valuation Nation

Why Do Appraisers Take Pictures of My Home? – DW Slater Company Appraisal Blog

Most Overvalued Housing Market in America – The Appraiser Coach