Editor’s note: This article, reposted with permission by The Real Deal, highlights policies and proposals floated to get New York City’s real estate market back on track. Click here to view the original article.
By SARAH RYLEY
NEW YORK — This city’s real estate market is at something of a crossroad. For more than a year now, the industry has been dealing with the fallout from Wall Street and the credit crisis, leaving brokers, developers, city officials and everyone in between groping for strategies to keep financially afloat. While it’s hard to fault real estate professionals for throwing any ideas they have at the problem to see which ones stick, some of those approaches have worked better than others. This month, The Real Deal dissected some of the biggest policies and proposals that are being used — or considered — to help shore up the industry.
The goal was to see which ideas have helped get the market moving, and which have fallen flat, and to examine how much promise the ideas being bandied about now have.
The strategies evaluated were selected based on interviews with real estate professionals, research and new reports from the past year, and an informal survey.
None of them provide a "silver bullet" answer to the extremely complicated economic reality of solving problems like the massive wave of foreclosures or trying to sell condo projects that penciled out during a different era of spending and lending. And no one strategy alone will save the struggling New York market, which is suffering from declining prices and reduced deal volume amidst the highest unemployment levels in more than a decade.
But here is a sampling of some of the most noteworthy attempts, including the flops.
Hurts: Appraisal reforms
The new appraisal guidelines for Fannie Mae and Freddie Mac that went into effect nationwide in May, called the Home Valuation Code of Conduct, or HVCC, are so unpopular that many jokingly pronounce the acronym "havoc."
The code was designed to prevent appraisers from being coerced into overvaluing properties by requiring a third party with no stake in the sale to select them. Previously, appraisers were picked by the mortgage lender or real estate broker.
As The Real Deal has reported, many brokers in the five boroughs have complained that the appraisal management companies (AMCs) that have increased their market share as a result of the reforms routinely select out-of-town appraisers who are uneducated in the nuances of New York City’s housing. They say these appraisers have come back with figures up to 40 percent below the contract price, sabotaging deals in an already struggling market.
New York appraisers further complain that these AMCs — essentially middlemen who take a hefty fee for each job — pick the lowest bidder instead of the most qualified one, contracting out jobs at half the market rate.
"You’ve got people from Albany that will drive down and crank out a dozen appraisals in 24 [or] 48 hours, and then drive home," said Jonathan Miller, president of the appraisal firm Miller Samuel. Based on the paperwork he’s reviewed after an appraisal, Miller said he suspects some properties are being valued sight unseen.
"It’s physically impossible to do meaningful research or develop any understanding of the value of property at that pace."
In a survey, the National Association of Realtors found that 86 percent of Realtors and appraisers nationwide felt that the quality of appraisals has decreased since the new code took effect.
The agreement is set to expire sometime between July and October of next year, but it will remain in effect at Fannie and Freddie unless it is amended. Industry leaders are, however, lobbying to change it.
"At a minimum, it should strictly prohibit ‘broadcast ordering systems’ that hire appraisers for all the wrong reasons — this cram-down fee and fast turnaround time that is not conducive to appraisal quality," said Bill Garber of the Appraisal Institute. Garber also noted that the newly passed Truth in Lending Act officially outlaws the type of collusion HVCC was meant to discourage.
Helps: Condo to co-op conversion
Developers and lenders of struggling condo projects seem to have few options these days other than taking huge losses on their investments.
But there may be hope for them yet. …CONTINUED