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THE APPRAISAL OF REAL ESTATE – 15TH EDITION

SEPTEMBER 26, 2020 – The Appraisal Institute has published the latest edition of the industry’s bible.  I will let them describe noteworthy items in the new edition.  See below.  You can purchase it at their website.

“The Appraisal of Real Estate,” 15th edition, is a book that fits current times. It reflects a renewed commitment to the essential principles of appraisal and the sound application of recognized valuation methodology. In addition to updated information on changes in real estate markets and valuation standards, longtime readers of “The Appraisal of Real Estate” will notice these significant changes in this edition:

  • New chapters focused on applications of market analysis and highest and best use analysis;
  • Additional emphasis on identifying the property rights to be appraised in an appraisal assignment; and
  • Deeper discussion of accepted techniques for allocating value among real estate, personal property and non-realty items.

In this book, readers will notice the expanded discussion of market analysis and highest and best use, with new chapters clarifying these important concepts and demonstrating procedures for their application. Readers will also notice the relationship between market analysis and highest and best use is made explicit and described in a step-by-step analytic procedure. Lastly, the major development in this new edition is the emphasis on the necessity of definitively describing the property rights to be appraised in an appraisal assignment to ensure that all the necessary steps are taken to produce a credible value conclusion.

Order your copy today!

WELCOME SOUTH DAKOTA TO THE EVALUATION WORLD

JUNE 29, 2020 – South Dakota has become the 11th state to allow licensed/certified appraisers to perform non-USPAP Evaluations.  We have 39 more to go:)  When we get back to in-person classes, if you are in a state that allows non-USPAP Evaluations, I have a 7-hour seminar on Evaluations and Validations that I will gladly come and teach.  I don’t teach over the web.  I can only share my 28 years of experience with Evaluations in person.  The Appraisal institute’s news item on this follows:

South Dakota Passes Legislation Allowing Appraisers to Perform Evaluations

South Dakota Gov. Kristi Noem on March 4 signed HB 1127, legislation that allows appraisers to provide real property evaluations to federally regulated financial institutions. When the law takes effect July 1, the state will join at least 10 others that allow appraisers to provide evaluation services. Several other states are considering similar laws.
Evaluations provided by appraisers must conform to Interagency Appraisal and Evaluation Guidelines. South Dakota’s secretary of the Department of Labor and Regulation will be authorized to promulgate rules relating to “exemptions and standards allowing appraisers to perform an evaluation for a federally insured depository institution.”
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Everyone stay safe.
The Mann

VALIDATIONS

MAY 29, 2020 – Validations are the little known and little used product that get overlooked in the world of Appraisals and Evaluations.  The December 2010 Interagency Appraisals and Evaluations Guidelines (IAEG) document has the following section that addresses Validations:

XIV. Validity of Appraisals and Evaluations
The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Therefore, an institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid). Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as:
 Passage of time.
 Volatility of the local market.
 Changes in terms and availability of financing.
 Natural disasters.
 Limited or over supply of competing properties.
 Improvements to the subject property or competing properties.
 Lack of maintenance of the subject or competing properties.
 Changes in underlying economic and market assumptions, such as capitalization rates and lease terms.
 Changes in zoning, building materials, or technology.
 Environmental contamination.

Validations answer one simple question – is the value of the real estate collateral equal to or greater than the value in a prior Appraisal or Evaluation?  If so, then that value can be brought up to today.  If not, then a new Appraisal or Evaluation is needed.

Validations are useful in level to rising markets.  They are not very useful in the current market conditions.

However, not all property types have experienced a value decline this year.  In general, industrial properties and national tenant leased properties where the tenant has a bond rating A and above, are still candidates for Validations.  Apartments might be depending on the age of the prior Appraisal or Evaluation and the property location.

I have updated the Validation Report that I originally developed in 1994.  This report is intended to be used by internal bank employees.  It is not for use by fee appraisers, as it does not comply with USPAP.  If you are a bank employee and want a copy of my report template, just email me at GeorgeRMann@Aol.Com.  I will send it to you for free:)

It took me 25 years to finally get Evaluations to be mainstream.  Validations are next.  They are under utilized.  Albeit, today’s market is not ideal for them.  But, we will get back to market conditions where they are useful again.  My plan is to design a Restricted Appraisal Report (RAR) specific to the Validations need for fee appraisers to use.  But, at this time, this is not needed for the most part.

Again, bank staff please contact me if you want a copy of my template.

Everyone stay safe.

The Mann

GUEST POST – BY JOHN CULBERTSON, CCIM, CRE, SIOR

MAY 5th – Happy Cinco de Mayo!  Below is from John Culbertson, CCIM, CRE, SIOR of Cardinal Partners.  He can be reached at jculbertson@cardinal-partners.com.

John gave me permission to reprint this.  I totally agree with his take on this subject.  I don’t only post things I agree with – I  am open to anything that makes people think.  Of course, non-political, non-religious, no insults, et al.  I hope you find John’s thoughts of use as you hear people all over saying work from home is here to stay and office buildings are in big trouble, et al.

Stay safe.

The Mann

Dear El Cardinale,

As people get used to Zooming and working from home in their pajamas, do you think the way we work has changed forever?

– Homer

Dear Homer,

You are right in that we are likely to make some tweaks to our work habits because of the unprecedented order to work from home. However, I don’t think this will change the way we will work in the future.

To start, new habits are hard to form. Research shows it takes 21 days of conscious, enthusiastic, and consistent effort before a new habit is formed. I’m what I call a habit cultivator, and I know how difficult it is to create new ones. To some extent, the degree to which our working habits change will be tied to how long it is before the all-clear whistle blows.

There also are other factors to consider.


  • The fiefdom. The physical office is where the boss is, and he or she often likes his or her fiefdom. The person that pays your salary likes to see employees busy at work. Your employer also has a huge commitment to that fixed cost of the office that they don’t want to see wasted.



  • Long-term commitment of office space. Office leases are usually seven years long on the short end, with facility expenses usually being one of the top three expenses for any company, this represents a sunk cost that the company is going to want to use as an asset.



  • Lack of suitable infrastructure. I have an Asian client that is struggling now in part because they don’t have a lot of experience with working from home. Their residential areas do not have adequate bandwidth, and homes tend to be smaller, meaning less space for an office. I suspect they will return to working from an office setting as soon as their government allows it.



I view what’s happening now akin to when one takes a sabbatical. There are some occupations and cultures where every three years or so people are expected or offered the chance to take a month-long sabbatical. Some people study or conduct research in another country, while others may simply check out of their daily routine. When they come back, they may be refreshed or rejuvenated, and they may have new ideas. But typically the way they work hasn’t drastically changed.

By the way, Microsoft disagrees with me – here is a link to a deeper dive. But I am an Apple guy 😉

My suggestion is to enjoy this unexpected sabbatical that has been thrust upon us and to look forward to returning to a new normal with some new ideas and a fresh outlook.



 

 

CAN LOAN OFFICERS TALK WITH FEE APPRAISERS? YES, BUT…..

April 30 – In the past 30 years, my wife and I have worked at 4 large banks ranging in size from $150 Billion to over $1 Trillion.  At all of these banks loan officers were allowed to talk directly with fee appraisers about the subject collateral.  Obviously, there were important restrictions on what could not be discussed – e.g. value.

As many banks do not allow loan officers to talk with appraisers at all, I took a survey of some Chief Appraisers and Chief Credit Officers to get their viewpoints.  Their anonymous responses are below.

First, I talked with the Federal Regulators that write and interpret FIRREA guidance.  It is not against any law or guidance to allow loan officers to talk with fee appraisers directly.  Each financial institution can decide how they want to handle this issue.  Those institutions that allow such contact should provide training to their loan officers and also make it clear to their fee appraisers what is permitted to be discussed.  ((NOTE: I promise the Regulators I will not publish any written responses they provide.  Therefore, I cannot provide their exact reply.  Feel free to call them if you doubt the above is their response.))

I always like to present both sides of an issue.  Then you can decide which side you prefer and have information to defend your stance.  The responses follow in no particular order.  Editing is minimal and mostly limited to getting rid of the use of my name or any personal discussion or anything that would identify the author.  Again both sides are represented, so there is no attempt to influence you to go one way or another.  It is you and your financial institution’s decision.

Stay safe.

The Mann

If there is information that is pertinent to the appraisal, then yes, the LOs or property contact can provide property specific information during the appraisal process. It helps in the exchange of information to the appraiser. However, many times, they would rather communicate through us, but it just depends. They know they cannot discuss value, fees or changing delivery dates.

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We require any and all info to go through the appraisal department, however if there are complex issues regarding the assignment and the loan officer has an extensive knowledge of the property we may refer the appraiser to them if it is necessary for credible assignment results.

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We recently provided training on AI rules, prohibited topics, and provided examples of various influence e.g. bribery, coercion, etc.  Once a lender has undertaken training he may speak to an appraiser after engaged, but only in response to inquiries regarding property.  I prefer all conversations are monitored by my team.  Lenders are not allowed to initiate dialogue with an appraiser at any time or discuss appraisal after receipt of report.

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during the assignment, the appraisal department must be aware in advance of all communication between the loan officer and the appraiser.  This allows the department to monitor any potential change in scope of the appraisal and oversee appraiser independence.

The reality is that some loan officers can be trusted not to “cross the line” in their conversations with appraisers, and others, maybe not so much.  Our policy allows the appraisal department access to those conversations.  The bias of the borrower is obvious and expected by appraisers.  However, since the appraiser’s client is the bank, and loan officers are representatives of the bank, their influence on the appraiser can be significant.  Independent oversight is therefore important.

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after the assignment is awarded, we do not categorically restrict all communications between the LOB and the appraiser but do ask that all communications concerning needed information and clarification go through the appraisal department so that we can keep track of the status of the assignment and to facilitate the flow of information. We prefer to keep copies of any data shared with the appraiser so we can understand what is going on. However, sometimes direct officer contact is not possible to prevent. If the issue is needed information, we are more lenient,  but if the officer oversteps their role and starts raising value or timing issues, then they likely will be contacted by the job manager. Direct contact has not been a major problem in many years and on the rare occasions it does occur, it’s typically a new officer hire!

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I think it depends on the size of the organization. In our case, we do not have an “appraisal department” so the Lenders do issue the Appraisal Engagement letters, send copies of leases, tax cards, the contact number of the Borrower, etc. While not prohibited, once the appraiser is engaged and the name and contact number of the Borrower is provided, the appraiser usually does not have any more contact with the lender unless there is a need for some type of clarification, until the final report is delivered.  The lenders do not pick the appraiser, we have a process in which they go to a single person that gives the name of the next appraiser on the list, or in limited cases they give a couple of names for an expensive appraisal to make sure the fees charged are fair. In that case a couple of appraisers would be asked to give their bid for cost and delivery date. Without naming the appraiser, the Lender may have a situation in which one has lower price but a longer delivery time frame so the lender would ask the Borrower (without naming the appraiser) which is more important, price or delivery date to determine the appraiser. Once the appraisal is received by the lender, if there are any issues that need to be addressed (after your review) the Lender makes contact with  Appraiser to point out those issues and requests a re-submission/correction, etc.

 So in summary that is what we do, understanding our Bank size does not afford us the luxury of having an appraisal department. I think our process maintains the integrity of keeping the appraisal assignment away from the Lender, but, it would be too cumbersome to keep the exchange of initial information regarding the assignment (leases, tax cards, addresses, surveys, etc.) away from the lender. And, as you know,  we could not just assign such a task to just anyone, so the instructions for the appraiser need to come from someone that has some understanding of appraisals and the subject property.

 Finally, our lenders do not question the appraiser on a final value unless the Review results in a questionable value. And, our lenders do  not discuss “where the value needs to be to make the deal work” or any such discussions during the appraisal process. And, of course we have an approved list of appraisers that we use, divided by residential and commercial designations.

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we do not allow the line of business to communicate with the appraiser. All information from the line runs thru the appraisal group.  If the line is involved in any way having contact with the appraiser the appraiser always shows some allegiance to the line of business blurring the true client in the assignment which is the appraisal group. It so pure allowing no contact.   on occasion when we allowed the line to direct info or other communications directly to the appraiser, the appraiser even copied the line on the completed appraisal and all other communications making our job much harder
 Bottom line if it’s absolutely necessary to involve the line in having contact with the appraiser only due to complex assignments, we will but put in hard stops with the appraiser
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We allow the loan officer to have very limited contact, but they are allowed to discuss factual information about the property and coordinate site visits with the appraiser if they need to see the property and it is too disruptive to have multiple inspections. The appraisers and account officers are cautioned to not discuss anything related to value, whether that be the actual value, investment parameters, rents, etc.

If there is any question as to whether an account officer might cross the line, we require that someone from appraisal be on the call.

We actually have “relationship managers” and “account officers”. The RMs are more salesmen, are closer to the borrower, and have more to gain by trying to influence an appraiser. We try to limit their access to the appraiser to none if possible. There have been a few that consistently try to cross the line (usually only the smaller loans and SBA loans as far as I know). The institutional property group RMs are rarely a problem, although when learning they might make a mistake. They learn quickly though. The account officers are in a different role and are in general much more professional and aware of the consequences. They will generally ask permission first if they want to talk to the appraiser, or will send comments / concerns to me and I filter and pass along to the appraiser.

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We eliminate any loan officer communication with appraiser. Safe full proof approach. Unfortunately I’m heavily involved in all aspects of the appraisal process but necessary due to loan policy. Have a great weekend.

Facilitating Real Estate-Related Transactions Affected by COVID-19

Summary

The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System (collectively, the agencies) issued an interim final rule (IFR) that allows institutions supervised by the agencies to defer obtaining an appraisal or evaluation for up to 120 days after the closing of certain residential and commercial real estate loans. The agencies, with the National Credit Union Administration and the Consumer Financial Protection Bureau, in consultation with the state financial regulators, also issued an Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus (Statement). The Statement outlines existing flexibilities provided by industry appraisal standards and the agencies’ appraisal regulations and highlights temporary changes to Fannie Mae and Freddie Mac appraisal standards to facilitate real estate transactions.

Statement of Applicability to Institutions under $1 Billion in Total Assets:

This Financial Institution Letter (FIL) applies to all FDIC-supervised institutions.

Suggested Distribution

FDIC-Supervised Banks

Highlights:

The agencies recognize that the National Emergency declared in connection with coronavirus disease 2019 (COVID-19) presents challenges for individuals performing appraisals and evaluations to perform inspections and complete valuation assignments in a timely manner.

  • The IFR:
    • Defers the requirement to obtain an appraisal or evaluation for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions, excluding transactions for acquisition, development, and construction of real estate
    • States that the agencies are providing this relief to allow regulated institutions to expeditiously extend liquidity to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of COVID-19.
    • Indicates regulated institutions should make best efforts to obtain a credible valuation of real property collateral before the loan closing, and otherwise underwrite loans consistent with the principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards.
    • States that this temporary change to the appraisal rules expires on December 31, 2020.
  • The Statement:
    • Outlines existing flexibilities in the Uniform Standards of Professional Appraisal Practice and the agencies’ appraisal regulations.
    • Advises that there are temporary changes to Fannie Mae and Freddie Mac appraisal standards that can assist lenders during this challenging time.

 

ANOTHER WEEK, ANOTHER 8% MOVE IN ONE DAY

APRIL 6 (EVENING) – Today’s huge rally has increased the odds that this Bear Market rally has a ways to go.  The high end for the rally is in the low 25,000s.  This is beyond what I thought could happen initially.  However, the goal of this first major Bear Market rally is to convince the public that a V-shaped recovery is underway and we are headed back to new all-time highs.  A Bear Market’s goal is to get as many people in to it and then go down to a level where people don’t ever want to own stocks again.

Regarding real estate, since this market lags the stock market by 4-5 quarters it will be awhile before things become more clear.

One property type to add to the high-risk list is movie theaters.  DIsney and others had to quickly learn how to get their new movies to the public without going thru the movie theater distribution routine.  Now that they have done this, will the public be content to go back to the old way of doing things?  Forever, new music has been sold directly to the public and the public then decides if they want to go see the artist in concert.  Why should movies be any different?  Sell movies directly to us and we will decide if we want to go see them in a movie theater, also.  Will movie theaters die a slow death like drive-in movie theaters have?  These properties are certainly attractive to those seeking last mile distribution points.

Reports are that developers are moving forward with projects.  Investors may have called a time-out.  But, developers have not.

Dozens and dozens of national and regional retailers have asked their landlords for rent relief.  This puts landlords in a tough spot as their mortgage payments are obviously due each month.  A domino effect will occur with everyone helping each other.  But, there will be enough hiccups that things won’t go smoothly.

Many businesses will close up for good (one report is 30% of all restaurants in California will be closed permanently…..I would think this would occur nationwide, too).  As a result, some property owners will default on their loans.  This won’t be 2006-2011 all over again.  But, there will be enough carnage for everyone to deal with.

A former head of the SBA predicts 20%-30% of all businesses will fail.  This sounds dire.  However, I also heard that 1/3 of businesses fail every year anyway.  As always, I encourage you to do your own research.  Don’t take anything you hear as gospel – especially if it is coming from the Fake News Media!  The number of conspiracy theories grows by the day.  People (who desperately need to do something better with their lives!) are circulating reports that quote Stanford or Johns Hopkins or other such respected organizations as saying this or that.  Those are made up stories.  Go to Snopes.Com or other places to see if they address any story you think may be fictitious.

An interesting  item of note…..Amazon has their annual Prime Day on July 15th.  An internal memo says they plan on delaying this event.  That is a telling sign.  For Amazon to think that consumers will not be ready to spend, even online (!), by mid-July is extremely negative.  Keep that in mind as we hear cheerful news in May and June.

Depending on how the markets move, I may post Wednesday evening or wait til Friday evening.

Everyone stay safe and well.  Have a blessed Holy Week.

The Mann

ENDING MARCH AND INTO APRIL WE GO

UPDATE APRIL 3 (EVENING) – Thankfully, a calmer week in the books.  Nothing has changed regarding my market forecasts.

I did want to congratulate Morgan Stanley on correctly forecasting the 700,000 job losses that was reported this morning.  That was an extremely difficult forecast to make and to nail it is impressive.

Oil was up 40% in two days.  We will let it play out a bit more to see if a final low is in place or not.

It is becoming apparent that there will be some major changes in our world going forward.  Hopefully, AirBNB and Uber are dead.  Dining in at restaurants might be forever changed, too.  How do we know that someone in the kitchen area doesn’t have the virus?  Plus, the virus can stay around 2-3 weeks after a place has been thoroughly disinfected (per the Diamond Princess experience).

Grocery delivery will finally succeed.  25+ years in to its existence, telecommuting will finally go mainstream.  Executive offices (now called shared worked areas, .e.g. WeWorks) should go back away.  They are simply VIs as I have termed them – Virus Incubators.

Other VIs are apartment complexes (especially mid- to -high rise buildings) and large cities like New York and San Francisco.  The denser the population the higher the rates of crime, disease, and numerous other issues.  If people truly want healthy lifestyles, move to the suburbs or rural areas.

The changes will be interesting to observe.  Everyone continue to be safe.  Maybe next week will be more interesting regarding the markets.

Godspeed

The Mann

UPDATE APRIL 1 (EVENING) – You know you are becoming immune to the chaos when 1000 point days in the stock market are no longer shocking.   Not much to add this evening.  Stocks might be starting their next significant downturn, but it isn’t a certainty.

One thing to note is that all of the stimulus acts that are being passed are only trying to replenish what has been lost.  There is no pent-up demand.  Wealth and Output have been permanently lost.  It is a misnomer to call these stimulus packages.  No stimulus is going to occur.  The money handout is simply trying to make as many people and companies as whole as possible.

I will say that it is about time that an infrastructure act is being considered.  $2 trillion at this time.  We missed the opportunity to do that in the last crisis.  With an expected 45 million people being unemployed over the next month, it would be good to put people to work to build our versions of the Hoover Dam and TVA and so on.

I won’t bore you as there isn’t much to add to what I have already said.  It is truly tragic that we will start seeing 3000 and 4000 Americans die each day.  Amazing we will likely hit 100,000 deaths by the end of this month.  And we just surpassed 4000 today.

Hopefully, we have learned a lot from this experience.  The sad thing we have learned is that some people are plain stupid and some just don’t care about others.  But, that is nothing new for the human species.  A lot of the virus spreading is due to plain selfishness.

The upside is we have seen how good most people are.  How we help each other out.  It would be great if we continued that after this pandemic is gone.  But, well before Election Day I am sure we will be back to a hateful 50/50 split country again.  Tragic.

I will post Friday evening.  As the markets are starting to calm down (well, to me they are getting boring already), I will likely post less frequently.

I did want to thank everyone that has been sharing information with me.  The more I can absorb the better.

Please stay safe!

The Mann

MARCH 30 (EVENING) – As expected, our essential shelter in place recommendation has been extended thru the whole month of April.  April has been projected to be the month where we finally peak in cases and start to see the curve flatten and rollover, hopefully.

I am confident the shelter in place will be extended to at least May 15th.  Maybe until Memorial Day weekend.

Trump is right when he says people in this country want to live a normal life.  Colds and the flu have never gone away.  We live normal lives with them coming and going thru the population and seasons.  I guess that will be the way with Covid-19, also – when we have a vaccination.  That is supposed to be 12+ months away.

There is a point where we just have to get back to normal and deal with the Covid-19 cases and deaths.  There is no choice.  But, we had to do this Social Distancing in this initial phase so as to avoid the 2,000,000+ deaths that were projected if we did nothing.

Continue to be safe.  And take advantage of the world being on a long time out.  I always wanted things to slow down.  To stop.  Time to stand still so we could relax and smell the roses.  Now is that time. This likely will not happen again in our lifetime.  Take advantage of this.  Reduce your stress, permanently.  Learn that things do not need to be rushed.  Do all of those things you stacked up to do when you finally had some time to do them.  You have that time now!

As for the stock market, today was up a bit.  I still cannot rule out a move above last week’s high of 22,595.  Whether or not that occurs, the expectation of a 25%+ decline remains.  I took advantage of the rally last week to get out of some oil stocks I stupidly got in too early.  We all make mistakes eh:)  But, best to cut your losses than let them ride.

Oil broke below $20 today.  I believe we are seeing the final down wave to what might well be the end of a 120-year combined bull and bear market.  I haven’t followed up on the timing issue mentioned last week.  So, just sitting on the sideline and watching the crash continue.

Gold and silver didn’t do much.  Significant declines are still expected.  That is a bit longer-term view so this isn’t a day-to-day forecast.

Everyone went crazy about the US Dollar being so strong.  So last week, I believe, was one of the worst weeks ever for the USD.  The markets love to get everybody to one side of the ship before sinking them.

So, nothing has changed re my forecasts.  The markets are starting to trade in a bit of a range.  This helps alleviate all of the record oversold readings for technical indicators.  We can’t go straight up to infinite nor straight down to zero.  More Wednesday evening when I post next.

I will drop this after one more mention of it….I don’t recall firefighters and police whining after 9/11.  Those people were proud of the fact that their peers ran straight into those towers to save as many people as possible.  I don’t recall them saying they were like lambs being led to the slaughter.  They were true heroes.  They know every day they go to work could be their last.  They don’t ask for sympathy.

So, I just don’t get it, and am truly disgusted by, the doctors and nurses in New York complaining about everything…we are risking our lives, we are overworked, whine whine.  They are truly ruining the appreciation they would get and deserve.  Maybe they just aren’t as tough as firefighters and police officers.  That isn’t in doubt really.  If you didn’t think you were going to be in many situations where you could become very sick or die by helping others, you shouldn’t have become a healthcare provider.  Thanks to the majority that do their job proudly and don’t whine in hopes of getting pity.

And as to us real estate appraisers arguing that what we do is essential….really?  An appraiser friend in Puerto Rico said they ruled it wasn’t essential.  I agree.  Albeit, I was happy the appraiser came out and appraised my daughter’s farm today so hopefully her closing will still occur in 2 weeks:)  But, truthfully, this isn’t an essential service.  Closings can be pushed back 2-3 months like everything else.

Enjoying life on the 5/3 Farm…..til Wednesday evening….be safe and stay well.

The Mann

THIRD PARTY INSPECTORS & USPAP

MARCH 24 –  I wanted to share with everyone an excellent post about the above topic.  The Appraiser Coach has given me permission to re-post his article on my blog.  I am thankful for that.

Their website is https://theappraisercoach.com

Instead of cutting and pasting the entire article, the link is https://theappraisercoach.com/do-third-party-inspectors-violate-uspap/

I hope you enjoy the article and their website.

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My quick opinion on the matter excluding the USPAP issue (no doubt USPAP allows 3rd party inspectors, in my opinion).

Since 1993, I have NOT inspected any property I have performed an Appraisal Review (where I opine to value by either agreeing with the appraiser or coming up with my own value) or Evaluation on.

For Appraisals, the appraiser has already done that inspection and provided all the description I need to see.

For Evaluations, the past 10 years we have used a national firm to provide inspections.  They do a far better job than any appraiser I know of.  Clients love the inspection report we include in Evaluations.

The point is this has been going on for 25+ years.  More and more appraisers realize it is not good use of their time to be doing the inspection.  They serve their clients better by concentrating on the valuation analysis.

Lastly, the common concern I see regarding hybrid appraisals (again, maybe new to residential appraisers, but 25+ years in existence for commercial appraisers) is the quality of the inspection.  As I note above, the inspection report we have obtained is done by people more qualified to do such than most appraisers.  I agree, the level of competence of the 3rd Party Inspector must be addressed in order to avoid problems.  It can be addressed.  The GSEs just need to do it in advance.  Not after problems occur.

Stay safe.  Enjoy time with your family.

The Mann

THE MARKET ENTERS THE PREDICTED RANGE

UPDATE MARCH 27 (EVENING) – The DOW peaked at 22,595 on Thursday.  That is within 100 points of my target.  I’ll be surprised if my third forecast target in a row is this accurate.  But, if so, I’ll take it.

I will revisit price targets for the upcoming low next week.

The way the waves are looking the following should occur:  The US Dollar will rally to new highs short-term, Gold will fall below $1050-$1250 longer term, Silver will decline below $8 longer term. and stocks will fall 30% from current levels short-term.  How all of that happens I have no idea.  But, that is what I see happening.  I never ask why or how.

The $2+ Trillion stimulus bill was signed today.  And the DOW was down 915 points.  The markets already have priced in all of the stimulus that will be thrown at the country ($6+ Trillion).  They are looking at where we will be this Summer or Fall and they aren’t happy with what they see.  I am guessing they are pricing in the virus coming back in the Fall and Winter.

Regarding Oil, I did get a reply from the experts at Elliott Wave International.  My thoughts that the combination 120-year bull and bear market might well be coming to an end are on target.  Obviously, it is rare to have such an opportunity occur in a our lifetime.  There is an issue regarding the length of this bear market (timewise).  I need to analyze the 120-year move in a bit more detail to see what I can figure out.  I will keep you posted.

I have a gripe about healthcare providers complaining about going to work….about being on the front lines and subject to getting the virus.  Seriously?  Did you think you would take care of sick people and not encounter a contagion?  Geez, too much complaining about having to work nowadays.  Just do the job you chose as a career.  Be proud that you are helping people.  You have a chance to help others and change the course of history.  Stop complaining.

Oh, I do hope GM cans their CEO.  Trying to make a killing off of this crisis is obscene.  Like him or not, Trump is great at not letting anyone screw over our country.  I am glad he invoked the Protection act and I do hope GM doesn’t get a dime for the respirators they will make.  To think we bailed them out last time around….and this is the thanks we get.  I will never buy a GM product.

Til Monday evening…stay safe.

The Mann

UPDATE MARCH 25 (EVENING) – The DOW rallied to 22,020 today.  It has satisfied getting to the range of a top for this counter trend rally.  It then fell almost a 1,000 points in the final 5 minutes due to Bernie Sanders threatening to hold up the bailout legislation.  It cannot be ruled out that the DOW could rally back above 22,020.  But, once a target range is satisfied, I start concentrating on the next wave – which is down to 13,900 to 15,400.

For trivia, this was the best 2-day rally since the 1987 crash.  And I think it was the first consecutive up days in a month.

Gold backed off its rally quickly.  Oil is starting to get its legs back.

Hopefully, Friday evening the waves will be telling us more.

Regarding real estate, early info is saying that buyers are asking for a 5%+ reduction in price on existing contracts.  That isn’t all buyers.  And that isn’t much at all.  Starter homes continue to sell well.  National Tenant Lease properties are in demand as a flight to safety.  Since these are really corporate bonds, and not real estate, this makes a bit of sense.  Of course, the question is do these buyers know what kind of downgrade the corporate bond rating will get for the tenant in the property they are looking at?  Or are these unsophisticated buyers just looking for anywhere to put their money?

Please share anything you are hearing regarding real estate prices, cap rates, closings falling thru, et al.  Til Friday evening…

The Mann

UPDATE MARCH 24 (EVENING) – I was going to post this regardless of today’s outcome.  But, worth noting today was the largest up day since the depths of 1933.

Most, if not all, analysts never state what could occur that would show their forecast to be wrong.  Flat out, if the DOW rallies above 24,200 my interpretation of the wave theory will be wrong.  Technically, it would just mean the waves were showing something else was happening.  But, to me, I say I am wrong.

I did some analyzing today and thought this rally would terminate around 22,500.  Bob Prechter’s firm put out their analysis this evening and said about 21,200-22,100 should be the top of the range.  The main point is this rally absolutely cannot go above the late February low around 24,200.

Some additional analysis suggests that 15,300-15,400 is really looking good for the final bottom (i.e. for this first ‘A’ wave of a Bear Market….wherever this low occurs, it should be broken down the road after a significant rally occurs).  But, a lower target of 13,900 showed up so I would have to update the ‘final’ bottom range to be 13,900-15,400.

So far, the 27,100 top forecast for Wave 2 of the decline was almost exactly on target.  And the 18,200-18,400 range for a possible appears to be for Wave 3 of this decline.  Both have been right on the money.  I suppose my luck will run out soon:)  Albeit, I usually do excellent in a major downturn, so we shall see.

22,500 for the top of Wave 4 and 13,900-15,400 for the bottom of Wave 5 of ‘a’ are up next.

I need to confirm with Mr. Prechter something I am observing regarding the Oil market.  It is significant, so I hope to get his thoughts on the matter.  Sam Zell said he bought some energy stocks.  If what I see occurring in the Oil market, per the wave theory, is accurate, then we might have an opportunity like that of the stock market in April 1933.  Will keep you posted on this one.

Oh, the $200 Gold rally in two days is due to people suddenly realizing they can’t buy the physical product anywhere.  I use KITCO and they are all but sold out.  However, the wave theory allows for this rally to still be part of the larger decline below $1056.  No change of thought on that forecast because of these two days.

Stay at home.  Be safe.  Enjoy time with your family.

The Mann

MARCH 23 (EVENING) – A fairly calm day in comparison to the past few weeks.  The Dow bottomed below 18,300 today.  It thus, entered the 14,600-18,400 range I forecast when it was around 25,000.

My analysis of the waves is very much in sync with others.  I would say there is a 25% chance of a significant bottom occurring between the 17,000’s and today’s low and a 75% chance of a bottom occurring in the 15,400 range.  This latter figure has significant support as bottoms in 2015 and 2016 occurred around this figure.  With both the waves and chart support suggesting 15,400 as the low, this figures gets greater weight at this time.

It is amazing to hear predictions of -30% to -50% for GDP and up to 30% unemployment.  If these figures occur, we will have blown away The Great Depression and The War of Northern Aggression (aka the Civil War for those north of the Mason Dixon line).

TRIN is at 0.82 is incredibly far from signalling a bottom (1.60+).

VOO is at about -$2.5 Billion for last week.  I would need to see -$10 to -$20 Billion to know the public has thrown in the towel.  Or maybe several weeks of -$10 Billion at a minimum.

For those interested in Corporate Bonds, I was introduced to an indicator to watch.  First, about 40% of Corporate Bonds graded BBB (lowest investment grade before becoming junk bonds) are expected to be downgraded to junk.    Keep that in mind regarding current ratings.  Remember, rating agencies are almost always BEHIND the curve with their grades.  They will finally lower their ratings once all of the decline has occurred.  They get paid for such hindsight.

Back to bonds….as long as the ETFs are trading at a discount to their NAV (Net Asset Value), the market is saying prices aren’t low enough, yet.  I will follow ticker symbol BND (Vanguard Total Bond Market Index Fund).  It is currently trading at about a 3% discount.

Regarding Corporate Bonds, does anyone have a source that shows what is out there and what their prices are?  Barron’s and the WSJ used to list all of them in their papers.  But, they don’t do that any more:(  If you know of a site that has this info, please share it with me.  Thanks.

We shall see what the next two days bring and I will be back Wednesday evening with an update.

Stay safe.

The Mann