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on this episode I have the opportunity to speak with our chief appraiser dawn Lowe fun loans recruited Don to assemble and oversee a panel of appraisers to ensure the highest quality appraisals when working with fund loans we discussed being an appraiser during the glory days and why sometimes on luxury homes there's a large disparity between value listen close as we drill down on why you don't want to be cheap on your appraisal with an AMC appraisal fraud how to successfully craft an appraisal rebuttal and last but not least what to do when your appraisal comes in below value because you know it's gonna happen at some point now before we get started please like share subscribe and comment let us know what you want to hear welcome to the million dollar mortgage experience podcast listen we're here with Don low today chief appraiser of fun loans thanks for coming on thanks for having me awesome so chief appraiser you've been in the business a while yeah 15 years yeah nice yeah so you've seen a lot you've seen a lot of houses right I think we're up to around 10 grand now 10,000 houses yeah a thousand houses yeah so you've seen them all you've seen the the good ones the bad ones the ugly the pretty yeah lots of stories yeah awesome stories for sure I've heard a couple already but do you have any you want to just kind of open this up with maybe a story of a house meat was a little unkept or maybe it was pristine but you know something yeah I mean what I've noticed is there's no like clear linear thing saying oh if this is a million dollar house or a two hundred thousand dollar house one person's gonna be clean one person isn't yeah I've been in two hundred thousand houses and not the best neighborhoods you would eat off the force like Christine yeah and then I've been in one was a six million dollar house beautiful but I wanted to keep my shoes on when I got to the front door and they opened it yeah so there's really no rhyme or reason and these crazy dogs or anything like I have some crazy dog stories I'll go down some tangents there but yeah if some people think their dogs were fine but they're really nice garage or crate or backyard anywhere is fine but they're big pit bulls or Rottweilers like attacked but nipped a couple times yeah but normally I just kind of now after all these years to say you know what I'd be more comfortable if you put that dog away I'd appreciate it yeah I mean you're right everyone loves their dog but you never know when the dog might not love you exactly I'm a stranger coming in their house yeah so good I want to talk a little bit about to start out the good old days and I say that kind of you know not like half serious because obviously the good old days led to the not-so-good old days but there were some days when the you know loan officers would just call you up and I'm sure you remember hey man can you get a value on this 1 2 3 main street and you know you'd have to come back with the value and you know I'm sure you're not gonna incriminate yourself but I think everyone wanted to make deals work and every you know all the Prazeres out there we're pretty much feeling a little bit like you know if you didn't come into the value right that like maybe the guy was the girl was gonna go to the next freezer that would right it was it kind of like that back then yeah I mean there has always been like in any business you know 5 10 % of people there are little bad actors and pretty unscrupulous and I really didn't consider myself or anybody I worked with in those in that category right however there's some logic involved obviously it's a business relationship right but these things are still being reviewed even back then so you definitely would say hey can I get 1 million for this right and you would take a look now and how all these caveat you get back to me if it's really upgraded that view is really cooler then there's a chance right right but that's that's best you can really say unless you have like five model matches that sold last week that are all the same then you know the values but there was some pressure back in the day for sure it was a wild wild west and I definitely had to say no to a lot of shady people especially when I was starting to you know I say Oh eight ish early oh eight maybe late Oh seven but I'm starting to head down people start getting hungry and desperate borrowers brokers everybody yeah so do you think that we went in the right direction like do you think we you know obviously we we completely changed the model like you can't like I can't even right now this is toilet legal no but you know I mean like as an originator I can't call you up I can't say hey is a value here anymore but like what do you think we did the right thing as an industry like going in yeah I see what your question is they're just like any big mistake the government came in and kind of over corrected it right right so they started with H BC C home valuation code of conduct mm-hm and that made it sound like you had an AMC appraisal management company right being the loan officer and the appraiser like your firewall like a firewall right which is fine less pressure however it kind of morphed into the AMC becoming the most important player of those three players right so the fees when it was really slow the AMC would charge the borrower 850 900 for regular house pay did the appraiser 275 300 and keep 500 bucks that's extortion it is extortion and so they were getting bad appraisals our appraisers that wouldn't work for those fees right quality went down sure you had this firewall but it really was just an overcorrection right right yeah so you know I noticed as you know when I originate a loan in it especially in the jumbo space you're gonna get you know appraisal comes in at 5 million and then another praise that comes in a million less at 4 million and you're like how is this happening like do you do you have an answer because I know our viewers probably have the same thing happened to them where one appraisal comes in way high are you thinking wow that's the right value right when it comes in low first then it comes in high on the second one because all the loans you know when you're going over a million and a half you have to get two appraisals these days so what do you think's going on there is it is it like just they both don't know what they're doing is one know what they're doing the other ones you know because I don't think they're pushing value really cuz the god forbid they push a value in something because they don't have really an incentive to push value right I mean the Premio there's no incentive to push value because everything is getting reviewed once twice three four times who knows all these models they have out there now my opinion on why that happens a lot is kind of has to do a little bit the AMC models still coming into play mm-hm and I am myself will get because you have a license in your cover certain County with emails from these AMC's fastest turn time cheapest bid Wow and I've seen appraisals with the guys getting 250 on an 8 million dollar property 8,000 square feet on the ocean in Laguna Beach geez but you might need the money and so the Prazeres like if the rates are high and and and slow you know you might you might do that you might go yeah you're like you're not happy about doing it okay and nor are you gonna care or take the time and necessary because you're getting paid 20 bucks an hour basically what you pay for exactly so a lot of my former clients when I had my shop all by myself and that's all I did would be direct lender types with their own appraisal desks right it would not go through AMC just have like a portal they went through to keep it air compliant nice nice so so you think that the AMC kind of did a disservice to the you know I don't want put you on the spot with because I know mcs are important to Prazeres right it's like the feeder of most of everyone's business and if you're an appraiser these days but do you think that that model really just kind of I mean did did appraisers did people quit like the appraisal business during that time was it's like well I'm not doing this business for half the price very common especially the older guys were like maybe we'll hung on if it was a regular market yeah but definitely people got out of the business and not a lot of new appraisers coming into the business right so it's a really old demographic but now it's a lot better I don't want to diss all AMC's just respect them but I would say you know 60 to 70 percent or like how much profit can we gain during this middleman their business yeah they're yeah but the ones that are sustainable are the ones that have appraisals that they gain loyalty from right a fair fee fair fee to the bar a fair fee the lender everybody wins and there's some out there but the majority are kind of the opposite like one of the things I see happening is is you'll get an appraiser like you know maybe a borrower will call me and say I have to tell you this appraisal thing went terrible and it was you know the praiser was like they weren't even from the area they were from like you know whatever way our way like share their houses on the water but then the praise 'l the praiser came in and he's from like way inland you know has no idea about the market in that area so like what would you say I mean is that happened quite a bit where like you know am seem like you said they'll let's throw out a bid and maybe a guy from our girl from the inland immuno inland area will just say I'll come in for cheaper wear maybe the guy on the coast is hundred percent that's every day every so many appraisal orders that happens Wow so that's that's probably explains why that's another very cheap fee quick turnaround time don't know the area right that's a bad combo for any broker any lender any borrower right nobody wins in that one right so so one other thing also that it's like a pet peeve of mine that just perks me so bad is when you get a low value and you just try to do a rebuttal and you just you know maybe you're kissing you're kissing their ass cuz you just like no power anymore is it and and rightfully so you shouldn't have power necessarily as a loan officer but there's no like I think I'm think I rebuttal maybe ten appraisals is my in my career as a you know post-crash every single one of them said sorry except for one and that was only because it was due to square footage mm-hmm but like every other time nope this is my opinion it was my opinion it's my opinion I mean as an appraiser did you ever like get a rebuttal like that where you were like nest my opinion I'm just gonna keep it or you kind of like I mean I'm putting you on the spot no it's nothing and there's nothing unethical about a rebuttal right you're saying okay I found these airs and or omissions and you present it in a logical fashion that makes sense right the rebuttals are appraisers will do that it's my opinion I'm standing by it yeah is a they're in two camps the one camper they're just an idiot they got paid 250 for that appraisal yeah these don't even they don't deal with it anymore right or people that have you know genuine knowledge and care and concern about their clients they do look at it maybe I made an error we're human beings right there's like 18 hundred different field you have to input maybe you made an error maybe you missed a comp right so I think it's as long as a well-educated well reasoned rebuttal right and not an abusive demeaning tone right I think a logical appraiser will listen to that and least consider it yeah and I've seen multiple overturn and I overturn multiple like you know what they have a case there yeah this one is actually a little bit nicer than that one so yeah I see their point and you adjust it you make comments why you did it and it's not a pressure thing yes you gained or docked do you buy the AMC if you if you have to change your appraisal or do you some of them do some of the big like grind it out all one great don't like saying how many revisions you had per raise all and whether they're good or bad it doesn't really matter right what it was just a typo or is missed a comp or square footage is wrong yeah interesting so those are again kind of the churning right they're usually bad in all kind of the levels so how what do you think the I guess not percentage but how much of the was there praisers or the appraisal pushing value kind of what do you think how much of that led to the crash had a part in it yeah but was it the major part no because like I said the very beginning the there's just bad actors in every business whether or plumber or a doctor of attorney whatever it is they're gonna have that five ten percent of their have no morals or unscrupulous and they'll cheat lie and steal well it also mean lenders were looking the other way right they're looking at these looking at the values and they're looking at them go up and up and up and they're you know the lenders the ones given the money it's so at the end of the day I really think you you know obviously even if ever praised or says a values here you know it's not necessarily the appraiser that you know is their push they say the pries are pushed to values that's partly why the crash happened but I honest them with you I think it's at the end of the day you know it's it's up to the underwriter up to the the lender to say that values not there you know and I don't agree with the value or that's why there's you know a review process and all that stuff that hasn't proved some thanks I think yeah no review process now right right so how about market timing you know it's something I don't think of very often as a as a loan originator but when you especially when you're dealing with these high-end properties right like market timing kid mean a lot it could it could really especially if you're an underwriter your appraiser reviewing appraiser reviewer or a chief appraiser when you're looking at an appraisal do you look at that market timing much on on the big ones you mean as far as exhale time like how often how long based on market right days our market oh for sure and obviously the higher properties the higher-end park the bigger ones right we're gonna have longer days on market right because not a lot of people can afford those homes yeah whereas the entry level you know starter home town house and decent neighborhood those gonna go quick because everybody can afford them a decent credit and decent income right so it's just natural economics supply and demand kind of thing mm-hmm but if something super unique and it B wants that it's the best of the best that's where the reviews are hard the appraisals are hard and you need someone underwriting investor side and appraiser side to really understand the big picture of things not stick in the boxes that sometimes the secondary market will keep you in comp with a mile within six months like though there's not a lot of these so we all have to think outside the box and think big picture how much was someone else pay for this property also right a typical buyer I heard one time from investor they said you know a 10 million dollar house can quickly become a six million dollar house if say the decor whatever the style of house changes and then all of a sudden they don't want that house anymore and no one wants that house because of whether it's too big or whatever it's changing in the in the economy have you noticed any kind of changes or trends in the economy that would you know I know we've hear about the Millennials they all want smaller mini houses and whatnot or no houses or you know and things like that but like have you have you seen a trend in in like market days our market for bigger homes and yeah I think so that you know just Jenna generational wise I think the baby boomers is just my two cents on it with ten dollar houses doing this for all this time that people may be in their 30s even successful people in their 40s and even early 50s now they don't want 18,000 square foot houses they don't I mean they do but they think about it like okay I really want to take care of this 7,000 is pretty sweet 6,000 is pretty sweet yeah and so I think there's a lot of that you know logic and kind of just thinking like how much do I really need and then I can travel with the rest your money you just saved up keeping it why not so I do see that you know kind of maybe that's the richest of the rich of the tiny home people that better yeah I mean I was looking in Redfin I think on one of our podcasts and I think I googled I put in redfin 10 million minimum and I pulled the zip code out in Los Angeles and there was like a hundred and thirty three listings over ten million dollars Hey and so then you know talking about mark time days our market I think that's thick how long will that take to go through I mean there'd have to be you know another big tech boom or they're like what could how long would that take to get through oh my goodness is that is that a crack that's a crisis waiting to happen I mean right that's someone's something's gonna correct itself yeah the prices are gonna come down or they're not gonna trying to sell these kind of homes anymore and definitely not build them anymore right hard to say what will happen in the future but there's only so many Beyonce's right only one queen bee but like I mean think about I think about how how much it would take to afford a place like that and who cuz there's a lot of actors I was looking at Game of Thrones actors what they get paid and I think it was like the main two the two highest paid per episode there's only six episodes right so they were it was like something like 1.1 million per episode or 1.2 million and this is like one of the top shows you know in the country or in the world and you know there's six episodes so maybe they'll make six million seven million dollars you know and then after taxes and they're not gonna be a before to know I like so I mean you're in LA you know obviously there's a lot of foreign money there's a lot of other people but like when you've gone through and seen big homes like who who are these people are they just family money wealthy like what like what yeah as usually two camps it's family money well hope generational wealth right being passed down and being taken care of the entire time or someone hits a big on their business right they build the business in Scottsdale or Chicago or wherever sell it at 49 50 years old I don't wanna stay there they don't want to be there in the summer in Scottsdale or in Chicago in the winter right and they move to LA San Diego Bay Area rata Barbra and they just buy something catch they just got a check for 40 million 4:11 it'll keep the other 29 that's good yeah yeah interesting stuff and so um let's see what about values right now what you're seeing you know your eyes are on appraisals every day all day long what are you seeing as far as the trends in the real estate market right now he's seeing any kind of softening is it just its geographical as a geographical like in different areas and pockets cuz everyone says like you know the some areas are gonna always do great like coastal and then other areas like you know boom town like that boom town but like like mountains where there's ski resorts or where there's colleges and universities are always gonna be you know I need for housing and things like that do you see is there any area are there any areas right now that you're seeing kind of some weakness eyesight's the one that we just talked about yeah yeah definitely that range but I think also once you get past like the upper-middle class kind of thing locally here in San Diego County you know once you're above like 1/5 okay that's where it kind of there's a lot less buyers right cuz that's those are big mortgage payments and ya qualify for those true and a certain point the median income isn't there so you know six hundred thousand seven one thousand all day long but that's where I'm seeing the bigger supply again goes back to supply right simple economics 101 there's this much supply and there's only selling one of those every six months mm-hm or every month for the 1.7 million dollar house right how much can i sustain before it's a game of chicken yeah and that guy like you know I need to get out here I'm selling this for 1 3 instead of 1 6 like everybody else and it's gonna sell tomorrow right right so when is that game and so as to answer your original question it's pretty flat overall yeah maybe a little bit of cost-of-living increase 1 2% a year right locally and most nationwide but it's not dropping it's not crashing right there's no signs of that yeah I mean because like you said supply and demand I mean it's they're not they haven't built too many houses right like you have little pockets of little developments but nothing crazy where there's like these massive developments with like you know six fit seven phases and hundred homes per phase and like there's none of that like that I know if there's no land left in Southern California right so it's all the new stuff the builders I've talked to it's all a lot of attached prod yeah stuff people get into and they can move and turn make some profit on about condo I remember back in oh five when there was a huge shift to what they called condo tells but um version conversions yeah for sure is that happening at all I haven't seen it since then I've seen a couple smaller projects but I think the rents have being so high yeah I've really like some guys owns his property or Reid owns a property like should we convert these note we've gettin 5% more every six months for the last eight years right so let's just keep this going yes that's a good point like I heard on the news something like I think San Francisco's is like one of the top I think I've seen I think they said San Diego I don't know if this is true but they said San Diego was one of the hop highest rental markets as far as like cost I believe how much they the median income in San Diego County right versus the median rent versus San Francisco the more income right yeah and higher rents opposite as well so you get to see on appraisal you get to see the rental like has that gone up like quite a bit there oh yes for rents yeah I mean across the board one bedrooms up to a big 8,000 square foot single-family homes do you think that'll convert to people wanting to stop throwing money away on rent and buy a place like what what point does that continue to go up right to where all of a sudden they're like she's I'm paying so much in whren I could afford a house like I remember and that happened back in the early 2000s it was like similar where like people were like we'll shoot I can I can afford a house now more than I could afford rent oh sure I mean that's to me that's the logical play just compare the cost right tax write-offs I don't know if some of that has to do with the recent tax changes with the Mike and right off shore taxes and an interest income right but I mean a certain point it just makes sense you have me alone yeah cool what else any any any crazy stories that that you've had you know in your 15 years of being an appraiser like there's got to be something you want to tell us well there's something really crazy to happen I'll try to keep it concise I was appraising a property in inland San Diego County in town called Escondido yeah so warm summer day is right 95 degrees and how was not vacant but there was nobody home The Listening agent said the guy's a cop he's gone all day you're fine there's dogs in the dog around the side of the house great lockbox combo put it in do my whole thing and then my phone my iPhone the just kind of froze up so I continued more photos hmm so I went to reset it and so I'd sit out on the kitchen counter and went in to the garage to measure the garage with my laser measure door close behind me and I get in there and then I go okay measured it go back into the house it's got an automated automatic lock on the inside of the house so here I'm stuck in this garage and escondido in 90-degree weather haha and I go okay well I'll just open the garage door and go out the garage and come back in the front door no big deal right there's two padlocks on the garage door like old-school on the inside okay I'll just go out the side door here there's a lock logical but that is exactly where the two Dobermans in the dog run away Lily attached to the door so basically I timed out the window and went on top of that the dog run dog run but it had a ceiling on of chain leak and they're like jumping up almost getting me I'm just sweating to death I'm not a small guy was not a good situation but I crawl across Wow yeah yeah but that was only probably five six years ago my story dad is funny man yeah I mean you know we think of an appraiser you go out and you just do you know you measure real quick and you do this report but it's a lot of freaking work to do that appraisal oh yeah a lot of work and a lot of risk okay because we all have Arizona missions insurance all right there's attached to every single a praise report yep and when things go sideways on a loan this foreclosed on or short sale mm-hmm they're gonna investigate that whole loan file with the fine-tooth comb right in that appraisal as this guy says 1.5 million dollars of heirs no mrs. insurance right there and they go right after here let's try to see what this guy did wrong that's why appraisals are so important there's a lot of risk and that's why he's never doing for cheap or pay cheaply for them right it's just so important to the it's the collateral the loan is being based off of yeah so to me to try to save 200 bucks 600 bucks alone this big piece of property that has so many stakeholders involved the wrong officer the title that down the road the American public in some cases investors REITs to me it's a weird thing to cheap how toxic she brings up a good point like when when I talk to a borrower and they say you know normally they don't ever balk at an appraisal fee but sometimes they'll say well like you know why the why are there two appraisal fees or and you you tell them why but and then and then if they ever say anything about you know the appraisal fee it's it's you get what you pay for it and and almost always that's you know the easiest way to tell them cuz sure nobody wants to pay for a chief appraisal especially when they're trying to get the highest value that they can possibly get and so I just think you know it's so important and I think that's why we brought you on as our chief appraisers because we want to give the value and and it you know to every file that we have you want to put the the quality and the tension on these because you know at the end of the day we're not gonna have you know if you do bring a loan to fund loans that we don't we're not gonna have two appraisals that are that far off because you tell us how that you would kind of keep that from happening sure it's very easy because what we trying to do here bill your own panel right is kind of a mesh of the old school where you get the great service the loyalty right fraud just service loyalty and quality right and we can pay them a fair fee and give them a decent turn time not have to rush through it right because we want quality yeah well loyalty and we want good quality reports that will stand the test of time and it will be logical yeah and if I see something I can speak appraiser to them for lack of a better term and I think that really helps like hey I'm noticing this what's the rationale behind that right and I think over time slowly and slowly will build and build and build and just have the best in the business and all the markets that we serve I love it sound good so one last thing I want to talk about is technology and how you know that people have always tried to automate everything right you can't you can automate some some aspects of I'm gonna prese like you look at Redfin or Zillow and the Zestimate right and you get to get the value but you know there's always gonna be a need I think for an appraiser a human to look at it like but do you think what do you think the the aims that the MCV what do they call the the ABM ABM yeah yeah you think of a BMS what's your tape are fantastic with some caveats right is it a basic property like there's a lot of properties like it there's no like right is a homogeneous neighborhood with everything's very similar similar you're built similar size similar Anchorage and there's a lot of turnover in that mm-hmm it's probably better right you know cuz the percentage of nicer upgrades or views aren't even a factor and when is that much transactions when it's unique then the AVM are rendered useless right right you need a human set of eyes because they can't see an ocean view they can't see a busy street they can see you know 1982 kitchen in 2019 so it just depends property to property how logical they are right yeah and then talking about fraud presume fraud I remember back in the day there was I think it was Ameriquest mortgage I don't know if remember this story we're like they were using in a dead appraisers license just making up whatever appraisals they want and whatever values they wanted and you know it probably worked for for a good amount of time have you seen any fraud in appraisals in the last since the crash no not since a crash I did see some shady stuff yeah I know they were actually amending PDFs she should buy the special software or anything back then just flipping a zero yeah I want a zero here and a nine here instead of a two so super shady it's gonna get caught like any cheater sooner or later right but I haven't seen a lot of fraud it's hard to do that it's hard to do it Zillow cuz estimates so awesome yeah those are great if an appraiser her talks about a Zillow yeah estimate his estimate was estimate they're not an appraiser no and I don't know if anyone are never heard of one that would we have MLS access like the Realtors right see all the confidential remarks I just like any business the pro knows the stuff yeah a little computer is not gonna tell you much unless it's big development everything being exactly the same a lot of turnover let's good man yeah anything else you want to leave us with the to our brokers that was yeah I mean we're here for you we if a deal goes low like you think it should have been 2 million and it's 1/8 and you have some decent comps I can speak appraiser yeah I think it's a great service that we give to our brokers that like you're not just having a loan officer or a processor but account them interesting this value should be this because I think it should be right now we're gonna have with reason with comparables with a good data yeah and a logical explanation of it to maybe give it a chance I mean they're gonna sign it they're gonna agree to or not but at least if you say speak their language and use professional terms and look like you know what you're doing I think you have a better chance at it and it's definitely something we can provide that's awesome yeah well glad to have you here dawn thank you sure you coming on all right that was fun thanks John all right so what happens to the best of us appraisals sometimes come in low what do you do when it comes in low it's a deal dead no the deals not dead you get a HELOC our he locks go up to 90 LTV up to five hundred thousand self-employed borrowers twelve months bank statements so don't worry if that appraisal comes in low to either do a rebuttal but if the rebuttal doesn't work which sometimes they don't get a HELOC from fun loans thanks for watching thank you for listening to our podcast if you guys are looking for more content like this we have a fun loans YouTube channel where we give away more tips secrets and origination ideas you can also email us at info at fun loans calm and if you've made it this far I think it's safe to say you like our content so please subscribe share and send us your scenarios let's fund loans together