Objects In The Mirror May Be Smaller Than They Appear

{This is my sixth submission in a series on the financial crisis here in America. I want this to be an honest account of why we are where we are based on my tiny perspective of the mortgage/housing debacle.}

It never fails. It's human nature, I guess. But if you tell people the heated square feet and the total square feet of their house, usually the only number they will remember is the total square feet. Why? Because it's bigger. People hear what they want to hear...and most folks want to know the biggest number when you're talking about their largest investment.

Now this is not an issue that has created any dilemmas with the mortgage crisis, but it does give me a chance to usher in one of the reasons why we're in this mess. Everybody wants more. Now let me explain.

If three different appraisers were to go out and inspect a house for an appraisal, chances are they would all have different opinions of value. Hopefully, if they do their job right, they should come up with values that are within 5% (+/-) of each other, especially if it's a conforming property - one that is like others in the immediate area. Now this situation doesn't happen often because usually one appraiser is hired to do an appraisal, not two or three. But sometimes, over the course of three or four years, a borrower may go to a lender for three different purposes and the house could be used as collateral in each situation. Therefore, it's not uncommon for me to go behind (or before) other appraisers on the same house.

If Appraisers X, Y, and Z all do the same house, guess which value the homeowner is going to remember? The highest one. Like I said, it's human nature. So let's say for the sake of this argument that Appraisers X and Y had values of $100,000 and $103,000 respectively; and Appraiser Z had a value of $120,000. The homeowner will be happy to tell you that X and Y are stupid and used inferior comparable sales. But Z is the coolest cat on earth. Well, at least until Appraiser Q comes and gives him a bogus $130,000 value. Are you starting to see the cycle we're getting into?

Now here's a real life situation. I appraised a house years ago that was a single-story dwelling with a double carport. Attached to the carport, but not to the house, was a game room. The owners had enclosed a large storage room, installed indoor/outdoor carpet in it, and installed a window unit for cooling during the summer. I thought it was a nice amenity. For crying out loud, they had an in-ground pool too. So the game room was a perfect place for the kids to come in from swimming and horse around without being in the house. The problem is one of the veteran appraisers had appraised it about a year before me and he counted the game room as part of the Gross Living Area. The GLA is the actual heated square feet of the dwelling...not any exterior amenities. I could bore you with the actual FNMA and ANSI rules, but I won't. Take my word for it, I've looked them up. But what do you think the homeowner thought of me when I told him that his house didn't have 2500 heated square feet, but only 2200. The guy told me I was stupid. He told me that I didn't know how to appraise...that I needed to go back to school. Funny thing was I was the guy who had read the textbook.

You can't help but feel a little dismayed when something like this happens. It especially hurts when you know that you're trying to do the right thing...when you're trying to play by the rules. It kills me that there are still a lot of appraisers that either (1) don't know the ANSI guidelines, or (2) don't care to know. I've explained it to my kids this way: a man who does not read is no better off than the man who cannot read.

I've got one other real-life case I have to tell you about. It happened about a year ago. I still laugh about this one because one of my best friends did an appraisal on the house a few months before I did. The house was a 40-yr-old brick home in a good area. As I was walking through the home with the owner, he explained that it had been appraised twice within the past couple of years. He said something to this effect:

Homeowner: "Now, I want you to know, that I've had two appraisals done on this house. One appraiser was good, but the other guy didn't know how to appraise. He tried to tell me that this was a two-bedroom house and I've got three bedrooms."

Me: "Really? Well, let me draw the floor plan and we'll see what I think."

I walk through the social areas of the house (living room, kitchen, dinette), and then go into one bedroom, and then another.

Homeowner (pointing to a door located in the living room): "Behind that door is a bathroom and another bedroom. That's where that dumb-@ss appraiser didn't know what a bedroom was."

I open the door, and I'm standing in a bathroom...standard in size...enough room for a tub, a toilet, and a sink. I'm thinking, "Where's the bedroom?" I turn to my left and there's a door...one that typically would open up to a towel closet. I open the door...and look into a closet...with a twin bed in it. Don't get me wrong, it wasn't a standard size closet, it was a walk-in closet. But the width was five feet. The twin bed barely fit into it. ANSI guidelines state that a bedroom has to contain at least 90 square feet (trust me, that's small) but this room had 60 square feet...tops. I actually had to bite my tongue and keep from laughing. This homeowner had an idiot tell him this was a bedroom...and he held on to that as the truth. My friend had the courage to tell him that it wasn't a bedroom. For his actions, he was labeled a dumb-@ss. I called my buddy after I left the house and we had a good long laugh about it. He and I were like X and Y above...our values were within 5% of each other. The rocket scientist that told the guy he had a 3-bedroom house, was about $30,000 away from us.

It never fails. I run into these situations all the time. Early in my career, I was apprehensive about telling people the truth. Not any more. I know human nature will cause people to believe things that are not true...only because they want to believe it. My dad drove home the point about being honest by saying it this way: "Pard, some dogs will howl at the moon just because it shines. And what does the moon do? It keeps on shining."