Dan's Papers - March 28, 2008 - Estate of Mind - Real Estate Rants and Rumblings

Despite the inundation of reports about the languishing housing market and the fire sale on the East End, not to mention our current administration's recent admission that there just may be a little problem with the economy, East End real estate soldiers on. This publication reported last week that, any way you crunch the numbers, the percentage of foreclosures out here is inconsequential. There are many reasons. A secondary home is usually purchased with monies earmarked for investment rather than day-to-day living. Few mortgage holders out here fall into the sub-prime category. Some investors, disillusioned with the stock market, are seeing East End real estate as a classic "buy low" opportunity. And the weak dollar has made this unique resort community by the sea especially attractive to foreign investors.

What it all comes down to is that most sellers on the East End are not in a forced sale position. Yes, they'd all like to get the bloated prices of yesterday - I mean, yesteryear (it seems like only yesterday...) but those who have been willing to do a price correction are seeing activity. As Montauk-based appraiser Charlie Fuchs put it, "The attitude among sellers is, 'I'm not going to sell the house below X. I don't have to.' Out here, we plateau."

But real estate agents will tell about the glut of daily emails announcing price reductions. Coupling that with lenders' increased scrutiny and lower loan to value ratios, a few questions come to mind: What's going on with appraisals? Are properties "appraising out" on or about the sale price? Or is the perception of lower market values driving down appraisal rates, forcing buyers to come up with more cash down, or walk away?

According to both Fuchs and Cliff Troyansky (of Long Island Real Estate Appraisal Services in Westhampton), there have been no surprises on the appraisal front. "Most deals make it. I haven't noticed anything out of the ordinary," said Troyansky, who's done appraisals on the East End for 21 years. Fuchs, with about an equal amount of time in the field, said, "The market out here is much more stable. Houses are priced correctly and going for what they're worth."

Fuchs describes the current market on the East End not as a declining, but "fluctuating." He did say that a challenge for appraisers now is finding enough sold comps within the time period requested by lenders, since there is less volume. "Most lenders want 3 comps within the last six months. If you can't get them, you have to go to nine months." said Fuchs. "There's more gap work. You have to widen the parameters of the search."

Troyansky echoed the sentiment. "A lot of lenders want more sold comps. They're demanding more RECENT comparable sales, as well as sales in contract, listings - that's a big deal," he said. "To an appraiser, a listing doesn't mean anything, but it seems to get [the lenders] off our backs. Contract sales are not a matter of public record. Once again, lenders want what we can't give them."

Lenders are clearly in the catbird seat, but as Fuchs pointed out, they too have a vested interest in moving things forward. "Banks want the deal to happen. So do the broker, buyer and seller," he said. "The appraiser's job isn't to come in and screw it up - but to see if it makes sense. We're there to protect the bank."

Fuchs pointed out an occasional liability in the appraisal process: non-local appraisers. "I got several calls [from banks] about appraisals that were inaccurate as to value - which has a tendency to make a deal go south. This is usually because the appraiser is from outside the area and is using the same analysis of up island properties for those in the Hamptons," he said. "I then take a look at the first appraisal and see if it is accurate or if I can clear up the problems and give a more accurate picture of the house."

There was appraisal for Wainscott north (which Troyansky calls "its own little world") where the appraiser looked at comps south of the highway. And a house on Shelter Island appraised from a New Jersey-based company. "The appraisal was sub-standard in my estimation," Fuchs said.

Appraisers from other areas are coming this way for several reasons. First, there are more appraisals happening here. Second, fees are based on the value of the house - of course, as that price goes up, so does the appraiser's liability and amount of due diligence. And third, according to a local real estate agent, some New York buyers have a mistrust of or lack of confidence in local practitioners, so they hire appraisers from the city.

Just as appraisers from the west are moving east, local appraisers have the same option, in reverse. Fuchs has been offered appraisal jobs outside of the East End, but has turned them down. "I wouldn't go to the middle of Long Island to do an appraisal because I don't know that market," he said.