Winter 2011 - Home Builders Association of Michigan

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Michigan Builder • Winter 2011
Table Contents
Tankless
With an AIAified Course.
Michigan Association of Home Builders
Volume 19 • Number 4 • Winter 2011
of
The U.S. Department of
Energy estimates that
approximately 20 percent of
a home’s energy costs are
spent heating hot water.
Departments
Features
6 MAHB News and Views
from the Capitol
EVP for Government Relations Lee Schwartz
and Political Affairs Director Dawn Crandall review
the legislative session thus far and discuss the
upcoming election.
4President’s Message
4Calendar of Events
5Association Spotlight
15 Member Benefits
Appraisal Dysfunction
8
Low appraisals based on short sales and foreclosures
wreak havoc on Michigan’s homebuilding industry
and hinder the state’s economic recovery.
Builder Profile
12
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whole new market.
ergy costs are going? Just turn the
ers don’t qualify for the federal Energy Star
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t buildwithpropane.com/training.
Builder Profile • page 12
This Issue of Michigan Builder is brought to you by the underwriting support of the Michigan
Propane Gas Association (MPGA). The MPGA is a key partner of the Michigan Association of Home
Builders and its efforts to promote education and professionalism in the building industry. Go to
buildwithpropane.com/training to learn more.
President’s Message
Michigan Association
of Home Builders
6427 Centurion, Suite 150B Lansing, MI 48917
Phone: (517) 322-0224
Fax: (517) 322-0504
www.buildingmichigan.org
Senior Officers
Colin Herren – President
(989) 772-2202
Clyde Alcox – First Vice President
(517) 321-8200
Rich Kogelschatz, CGB, CAPS –Treasurer
(616) 863-9313
Bill Benedetto – Secretary
(517) 784-3654
Tony Bosco, CAPS, CGP, CGA – Associate
Senior Officer
(989) 751-0090
Dan MacLeish – Immediate Past President
(248) 524-3244
MAHB Staff
Diana Dixon
Special Projects Director
[email protected]
Dawn Crandall
Political Affairs Director
[email protected]
Pam Frankenberger, CMP, CMS, CTA
Director Affiliated Enterprises
[email protected]
Lee Schwartz
Executive Vice President for Government Relations
[email protected]
Greg McClelland
MAHB Legal Counsel
[email protected]
Robert L. Filka
Chief Executive Officer • [email protected]
PrintComm Staff
Publisher — Kevin Naughton
Managing Editor — Jennifer McDermitt
Graphic Designer — Jason Gabel
Advertising Sales Manager — Brenda Poe
Advertising Sales
(800) 935-1592 ext. 106
Advertising Sales Representative
Marsha Suwienski
Published by:
2929 Davison Rd., Flint, MI 48506
(810) 239-5763
4
Michigan Builder • Winter 2011
Let’s Write the Prescription
for Our Industry Together
Dear Readers,
n Dec. 1, I took the reigns as the president of the MAHB. I am very
excited that you are allowing me to help lead our home building
family during the next year. While things are slowly improving, our
industry and association face significant challenges in the coming year.
When you are sick, you visit a doctor. If the doctor is unsure of the diagnosis, he chooses other doctors or specialists with which to confer. They
collectively offer potential cures and allow you to invest in your own
health. That is what we need to do with our industry and our association. We need to come together
with our ideas, offer our solutions and invest in our future. Now is not the time to back away or
“be cheap”.
Let’s face the facts right away: home ownership is under attack. America’s families are struggling to attain or maintain homes for a variety of reasons. Some of those reasons are of their own
making, but many of the reasons are no fault of their own. Corporate greed, misinformed consumers, inappropriate lending, unscrupulous appraising and now a typical government reaction, overregulation, has brought us to this scary place for America’s home owners and home builders. And
even worse, no one has any answers to put us back on track to a healthy economy that must include
responsible home ownership.
MAHB and its collective local HBAs need to help defend the home building industry from
these attacks by offering answers and positive solutions to our problems. We live in a “what have
you done for me lately” society. Frankly, we (all HBAs combined) have done a lot for you lately.
Unfortunately, over the last few years, often the best we could hope for is to make a bad thing, well,
less bad for you. So it didn’t always feel like we were doing much.
However, now we have hope and promise. We have leaders of the State of Michigan that understand we have an industry that is sick. More importantly, our elected officials know we need some
medicine and are listening to our ideas. Most importantly, a vast majority of
our recently elected officials want to do the right thing every time, as opposed
to the “politically correct” thing. There are fellow businessmen in seats that
will listen to constructive ideas that are good for all Michigan citizens.
So that’s where the table is set for us to begin. We have an industry that
is sick, and we need to help in the healing process. We need to diagnose
O
Calendar of Events
Michigan Association of Home Builders Tentative Future Meeting Dates
2012
July 24-28, MAHB Summer Convention, Grand Hotel
Jan. 26, MAHB Winter Board of Directors Meeting, Comfort Inn,
Mt. Pleasant
Oct. 9-13, NAHB Fall Board of Directors Meeting, Colorado
Springs, CO
Jan. 27, MAHB Remodelers Workshop, 9 a.m.-12 p.m., Comfort
Inn, Mt. Pleasant
Feb. 8-11, NAHB International Builders’ Show, Orlando, FL
June 2-10, NAHB Spring Board of Directors Meeting,
Washington, DC
July 17-20, MAHB Summer Convention, Dearborn Inn
Sept. 12-16, NAHB Fall Board of Directors Meeting Austin, TX
2013
2014
Feb. 4-7, NAHB International Builders’ Show, Las Vegas, NV
May 31 - June 8 All NAHB Spring Board of Directors Meeting
Washington, DC
2015
Jan. 20-23, NAHB International Builders’ Show, Las Vegas, NV
Jan.22-25, NAHB International Builders’ Show, Las Vegas, NV
May 30-June 7, NAHB Spring Board of Directors Meeting,
Washington, DC
June 1-9, NAHB Spring Board of Directors Meeting, Washington,
DC
July 22-26, MAHB Summer Convention Grand Hotel l
the conditions, together. Then we need write
the prescription for the intended cure. And
lastly, we need to take our prescriptions to the
powers that be, make our case that we need this
medicine and argue that it will cure America’s
homeownership problem. That’s where you
come in; we need your knowledge, experience,
talent and support. We all need to rally every
building professional in the state to share in
this healing process.
Together, we need to start the healing by
getting relief on inventory tax, a more flexible
code cycle and other bills we are supporting. We
need to have meaningful talks with the appraisal
industry so that our homes are fairly valued. We
need to continue supporting reforms within the
regulatory environment on items such as UIA,
workers’ compensation and more.
We need to speak our minds loud and clear
on the EPA’s RRP and MIOSHA’s new fall
protection guidelines. Even more, we need
to keep our eyes on the horizon for the next
issue we might face. Members in 83 Michigan
counties have a much wider view of the horizon than those in Lansing, so we need to hear
your voice.
Has anyone said thank you for being a
member lately? I am saying thank you today.
Thank you for your past support and in
advance for your future support. I know that
running a business is a tough challenge today.
It would be easy to stop paying your share of
the cost that it takes to defend our industry. But
you aren’t in business because it’s easy. You
help build the American dream because you
believe in it. This is who you are, and it defines
your character. You are a building professional.
I understand that.
The MAHB needs to be the voice of the
building industry this year. We need not be
divisive, but rather inclusive. We need to know
what the entire building industry thinks, feels
and needs. Then we need to act on what we
hear. Your MAHB officers are ready to lead by
doing the right thing, not the easy thing. Let’s
make this next year one of which you can be
proud. Let’s work together to make our flame
burn bright once again.
Lastly today, consider this your invitation
from me to you; your invitation to call or write
me anytime, your invitation to have me attend
any of your gatherings in any of Michigan’s
counties, your invitation to have me work on
your ideas, your invitation help me lead. I can
only ensure that MAHB does what you want
and need if I am aware of such things. I want
to know so that I can lead well on your behalf,
with your help. We are all in this together.
Colin Herren
MAHB President l
Association Spotlight
The Home Builders Association
of Greater Grand Rapids
S
erving Kent, Montcalm, Ionia
and part of Ottawa County
since 1945, the Home
Builders Association of Greater
Grand Rapids (HBAGGR) has
a rich history. Growing from its
membership of 18 founding builders, the association now boasts a
membership of 440, of which 155
are builders, 243 associates, and
42 are affiliate members. Today, it is an organization empowering members
to succeed through education programming, advocacy initiatives, networking
opportunities & consumer promotion.
Annually, the HBA of Greater Grand Rapids hosts a Spring & Fall Parade
of Homes, partners with the Home & Garden Show, hosts a golf outing with
Habitat for Humanity, and most recently introduced a one-day education
conference: the Home & Building Summit. The HBAGGR also hosts many
professional development seminars, designation programs, and consumer
education events throughout the year.
In a tough building industry, the leadership of HBAGGR made strategic
partnerships to bring the association to a strong financial place and position it
for future growth.
The HBAGGR now feels as though the climate has “warmed” a bit in West
Michigan and is looking to brighter days ahead. The members and staff feel
as though there has been revitalization, and the organization has become the
“New HBA.” By moving to a new location to better serve its members and reinventing and re-tooling programs and services to meet member’s needs, the
HBAGGR is positioned to be able to take advantage of a changing economy
and be a powerful force for the local housing industry.
So, in one year, the HBAGGR made some big changes. But the HBAGGR
has proved that — in good times and bad — the association is, and always will
be, a place for industry professionals to grow their business, grow their skills, and be a part of a community
building and supporting its local community. l
Michigan Builder • Winter 2011
5
MAHB News and Views
from the Capitol
At Halftime the Score Is …
by Lee Schwartz, MAHB EVP for Government Relations
s the half-way point of the 2011-20122 legislative session
approaches, it’s time to take stock of what has been achieved and
what remains to be done.
After a nine-year battle, legislation to ban Michigan from adopting
a Michigan-only ergonomics safety standard for construction and other
industries was signed into law.
The Michigan Business Tax was repealed and replaced by a corporate
income tax (CIT) of 6 percent of a “C” corporation’s federal taxable
income. All other businesses only pay taxes on their business profits
through their personal income tax return, where they’re taxed at a flat
rate of 4.35 percent.
Project labor agreements (PLAs) on taxpayer-funded construction
projects were outlawed. Under PLAs, only firms and workers that are
subject to union agreements are allowed to perform work on a public
construction project.
The state’s unemployment insurance system underwent the first part
of a two-part reform intended to modernize the system and reduce costs.
Michigan’s UI system is 100 percent employer financed. Among the
changes was a decrease in the number of allowable state benefit weeks
from 26 to 20. After 20 weeks, the extended federal benefits are triggered.
Normally, just those four accomplishments would constitute a very
successful legislative session — certainly the most successful since
2001-2002 but there’s more on the way.
The flexible code cycle bill, House Bill 4561, sponsored by State
Representative Joe Haveman (R-Holland), came out of the House
Regulatory Reform Committee on a bipartisan 10-2 vote. This commonsense regulatory reform measure allows the state to update its construction
codes on either a three-year cycle or a six-year cycle and prevents any
code not approved by the Legislature from being mandated in Michigan.
It faced and still faces virulent opposition from manufacturers who use
the code to create a market for their products and the private companies
who write the codes and profit from the sale of the code books (to the tune
of $13 million in the last code cycle). A vote on the bill in the full House
in expected at the end of November or early December.
House Bill 5011, introduced by State Representative Mark Ouimet
(R-Scio Township), would help local building departments achieve
efficiencies through the structured use of private inspection agencies
while keeping all police powers in the hands of the local government.
HB5011 was reported to the floor on a unanimous bipartisan vote of the
House Regulatory Reform Committee and a vote of the full House is
expected in December.
House Bill 5046, introduced by State Representative Joe Haveman
(R-Holland), would amend the Condominium Act to extend the time for
A
6
Michigan Builder • Winter 2011
expanding, contracting, or converting units or common elements within
a condominium project from the current 6 years to 10 years. Already the
subject of one committee hearing, this important bill would provide some
much needed relief to condo developers who have had projects stalled
because of the downturn in the housing market.
House Bill 4134, introduced by State Representative Margaret O’Brien
(R-Portage), would end the state’s inventory tax on new homes. New
construction on development property would be exempt for the payment
of property taxes until the home was sold. A hearing on the bill in the
House Tax Policy Committee is anticipated to take place in December
or January.
Senate Bill 349, introduced by State Senator David Hildebrandt, was
reported from the Senate Finance Committee on a 4 to 0 vote with one
senator passing. The bill would amend the General Property Tax Act to
provide for a proration of the property tax when an individual claims a
principal residence exemption for the home they have just purchased.
House Bill 4446 introduced by State Representative Margaret O’Brien
would accomplish the same purpose and has already been the subject to
two hearing in the House Tax Policy Committee.
House Bill 5002, introduced by State Representative Bradford
Jacobson (R-Oxford), would make major reforms in the state’s Worker’s
Disability Compensation Act to bring the system back into balance and
lower employer’s costs. This measure passed the House on a 59-49
vote. The bill is currently in the Senate Reforms, Restructuring and
Reinventing Committee.
Senate Bills 483 and 484, introduced by State Senator Mark Jansen
(R-Gaines), would allow the state to bond out its $3.2 billion debt (every
penny of which is owed by employers) to the Federal Unemployment
Insurance System and hopefully create a $2.5 billion balance in the
state’s Unemployment Trust Fund by 2019. This legislation, which
was reported out from the Senate Finance Committee on a unanimous
bipartisan vote, would prevent the imposition of new solvency tax and
Base Credit Reduction penalties by the federal government. The bonds
would be repaid by an assessment levied each year on all employers. The
assessment would be tied to an employer’s experience rating.
Senate Bill 806, introduced by State Senator Jack Brandenburg
(R-Harrison Township), represents the second and more major overhaul
and modernization of the state’s unemployment system. It would
strengthen the “looking for work” requirements; tighten eligibility and
disqualification standards, allow for administrative garnishment when
money is owed to the Unemployment Agency and increase the penalties
for committing fraud, all without reducing benefit amounts.
Last but not least, after four years of hard work, a major reform of
the state’s Critical Dune Act will be introduced in December by State
Senator Arlan Meekhof (R-Olive Township) and State Representative
Jon Bumstead (R-Newaygo).
Election Year 2012: Stay
on the Sidelines and our
Supporters May Be Gone
by Dawn Crandall, MAHB Political Affairs Director
’ve said it before, and I will say it again. Election night results in
November 2010 brought energy, excitement and expectations. The
Republican sweep brought major policy change to Lansing. A new governor — with a CEO background — has changed the way things are done
at the Capitol. Some of that has brought a sense of relief, while to others
it has brought distress, frustration and recall action. While Lee Schwartz’
article in Michigan Builder discusses the MAHB legislative accomplishments seen in 2011 and what we expect to see in 2012, I want to stress that
politically, we must remain vigilant in helping our supporters.
From the “Occupy” movement to the unions feeling, they are being
personally attacked through legislation, many people remain frustrated. They
feel like they aren’t being heard from their elected officials. Just last month,
State Representative Paul Scott (R-Grand Blanc) was recalled. He is the first
elected official to be recalled since 1983. This was the result of the MEA
targeting him for his efforts to reform education in Michigan. Representative
Scott was recalled by a vote of 12,284 (50.4 percent) to 12,087 (49.6 percent)
in an off-year election. Less than 200 votes determined this recall.
With several legislative victories under our belt and the potential for
additional victories in 2012, what is at stake for the upcoming election
cycle? We either build upon the pro-business reforms seen since the 2010
elections here in Michigan or we step back.
First let’s take a look at what will be on the ballot. Starting at the top
you have a presidential campaign. President Obama is completing his
first term and there are several republicans in the race that would like to
make it his only term. Leading contenders to run against him include:
Mitt Romney, Rick Perry, Michele Bachmann, Herman Cain, Newt
Gingrich, Jon Huntsman, Ron Paul and Rick Santorum.
U.S. Senator Debbie Stabenow finds herself with a target on her back
by the GOP as well. The six-term U.S. Senator will most likely not have a
primary, but there are several republicans who will be fighting it out in the
primary to challenge her in November. The most well-known candidates (or
at least the one’s gaining traction) are former Congressman Pete Hoekstra
and charter school supporter Clark Durant. They will need to raise millions
of dollars if they are going to be successful in their November challenge.
Each of the 14 congressional seats will be on the ballot. Michigan lost one
congressional seat during reapportionment due to population loss over the
last 10 years. It looks like two freshmen (Congressmen Justin Amash and
Dan Benishek) could face challenges either in the primary and or general.
The Amash seat would be a primary challenge as it is fairly republican
and Congressman Benishek is already seeing a match up with the
democrat, Gary McDowell, for the general. Congressman Dale Kildee
is retiring and there are some democrat primaries lining up in southeast
Michigan. On the republican side, Congressman Thad McCotter finds
himself being challenged by State Senator Mike Kowall in the primary.
Each of the 110 state house seats will be on the ballot as well.
There are several members of the state legislature who come from the
building industry, and the Michigan Association of Home Builders
will be helping to ensure their re-election, as well as others who have
supported our key initiatives.
And finally, there are two Supreme Court justice seats on the ballot.
Justice Stephen Markman (who has been supported by the political arm
of the MAHB) is on the ballot and the seat currently held by Marilyn
Kelly is up for re-election as well.
I
Friends of Housing has started raising the dollars necessary to elect
pro-housing and pro-business candidates and legislators to office. We
need your help! You can send your personal check made out to Friends of
Housing to 6427 Centurion, Ste 150 B, Lansing, MI 48917.
If you want to do more and get involved locally, call me at (517)
646-2567 to find out how you can help a candidate in your area. You
can also check out the members-only section of our website at www.
buildingmichigan.org to see the benefits of contributing to our PAC and
being a Friends of Housing 2012 Club member. l
Interested in
Advertising in
Michigan Builder?
Call Marsha Suwienski
at 800.935.1592, ext.106.
Attend the
2012 Michigan
Builders Forum
Save the Date: Feb. 1 at the Capitol
Hear from Dr. Elliot Eisenberg, Senior Economist
with the National Association of Home Builders in
Washington, D.C. Dr. Eisenberg will be giving an
update on the economic impact housing has on our
economy and why policymakers in Lansing need
to adopt policies that encourage reinvestment in
neighborhoods across the state.
Meet and hear from key legislative leaders and
others behind efforts to reform State tax and
regulatory policies impacting the building industry.
With the many issues being discussed in Lansing
that will have an impact on you and your business,
take advantage of this opportunity to make YOUR
voice heard.
Complete agenda and the details for this forum are
still being finalized. But if you have any questions
or have an interest in attending this important
forum, please e-mail Dawn Crandall at crandall.
[email protected] or by phone at (517) 646-2567.
Michigan Builder • Winter 2011
7
Brad Ward
8
Michigan Builder • Winter 2011
Shannon
Morgan
Kevin
Vettraino
Krysta Pate
Jerry Meyer
by Mike Nowlin
ewspaper headlines have chronicled a tale of nearly unprecedented woe for the housing industry lately.
Here’s a brief sample:
“Judgment Call: Appraisals Weigh Down Housing Sales” — The Wall
Street Journal, Aug. 12, 2011
“Builders look back on bad year — Single-family home market has
struggled” — The Associated Press, Nov. 4, 2011
“Troubled homes stuck in logjam … could take decades to clear out
backlog” — USA Today, Nov. 9, 2011
Unfortunately, these reports are not news to members of the Michigan
Association of Homebuilders (MAHB) or their colleagues in Michigan’s
real estate, public policy and property development industries.
They all agree appraisals are among the chief culprits behind the slump
in housing sales.
As The Wall Street Journal observed, “One of the conclusions from the
housing bust: The appraisal system was broken. One of the conclusions
some have drawn from the struggling recovery since then: The appraisal
system is still broken, but in a different way.”
Real estate appraisers across the nation face intensifying criticism from
homebuilders, real estate agents, legislators, home sellers and buyers as an
ever-increasing amount of home purchases are canceled due to low appraisals.
“Appraisers and the lending institutions are making a bad situation worse,
and it’s disastrous for Michigan’s economy,” said Shannon Morgan, vice
president for Farmington Hills-based Home Renewal Systems and one of the
state’s leading experts on neighborhood stabilization housing development.
“They’re literally making up their own rules and holding up closings
for two months or more with unnecessary actions that are clearly not
within regulatory standards,” Morgan said. “The appraisal issue, in my
opinion, is one of the single-greatest factors hindering the growth of new
construction and neighborhood revitalization in Michigan.”
Rino Soave, owner of Infinity Homes Corp. in Livonia, remains
outraged by the complications he experienced earlier this year while
attempting to sell one of his firm’s Brownstown developments on a
Veterans Administration (VA) loan.
“The appraiser deliberately tried to kill the sale,” Soave said. “The
subject home was under contract for nearly $20,000 less than the previous
five homes we had sold in the community over the past five months, so
we assumed this deal would have no appraisal issues whatsoever.
“Instead, the appraiser took an attitude and started cursing at our sales
representative simply due to the fact that we would not provide him
access to the home without being accompanied by a representative of
our company, and he only gave us a two-hour notice to meet him at the
property,” Soave recalled.
Without even entering the home, the appraiser submitted his report to
the lender seven hours later, Soave added. The report cited the lowest
possible sales that had closed within the past six months – based entirely
on foreclosures and short sales – and ignored all the existing homes and
new construction homes that had closed for an equal or greater price
than the subject property. Because the transaction was through a VA loan,
Infinity Homes was not allowed to provide another appraisal.
The sale almost soured. Soave and his client refused to surrender,
however.
“Our buyer was able to plead his case with Veteran Affairs, and
after waiting nearly five weeks, the appraiser eventually readjusted his
appraised value from $143,0000 to the sale price of $163,000,” he said.
“We were fortunate, but I’m hearing horror stories like mine all the time
where builders aren’t so lucky.
“Appraisals are a major problem that have got to be addressed if we
ever want Michigan’s housing industry to rebound,” Soave said.
N
How Appraisals Are Supposed to Work
The Appraisal Institute, a national advocacy group, acknowledges this
is an era of heightened scrutiny for the appraisal industry.
Declining home sales and prices have homebuilders and sellers fixated on
the fairness – or lack of – of lender valuations, especially those in decliningmarket states such as Michigan that have been hardest hit by foreclosures.
A property appraiser makes judgments based on market research and
analysis to develop a “credible value opinion.” Research and analysis
required of the appraiser should consist of at least the following:
• Consideration of all relevant transactions that have occurred in the
market area.
• Determination of transactions that are the best comparable sales (“comps”)
to the property being appraised. A good comp is one most similar to the
subject property in terms of location, size, condition and other features
based on an understanding of the neighborhood and market.
• Adjustments for material differences between each comp and the
subject property (may include atypical buyer/seller motivations and
sales concessions). In many neighborhoods, selecting comps involves
distressed (foreclosed and/or short sale) sales. In Southeast Michigan,
for example, distressed sales are likely to be considered in many
appraisals due to the high numbers of foreclosures in the market.
• When considering distressed sales as comps, the appraiser
should investigate each transaction, including any atypical seller
motivations, sales concessions and property condition (both interior
and exterior); each of these could be considered for an adjustment.
Additionally, an appraiser must abide by professional standards and
must have a geographic and market area competency to complete an
assignment. Only an appraiser with a sufficient understanding of the local
market conditions — including supply-and-demand factors relating to the
specific property type — should be used to make reasonable judgments
about what factors influence value.
Appraisers say they have been wrongly accused of prolonging the
nation’s real estate downturn by developing value opinions that are below
proposed sale prices. Specifically, appraisal advocates say they’ve been
unfairly criticized for including foreclosure sales and so-called short
sales among the comparable sales used in the valuation process.
“Unintended Bad Consequences”
Housing industry experts in Michigan disagree. They assert the current
system of appraisals is promoting a never-ending downward spiral in
housing valuations.
“The process has gone seriously wrong,” said MAHB President and CEO
Bob Filka. “Too many appraisers are using distressed properties — many
of which have been neglected and are in poor physical condition — as
comparables in assessing the values of brand-new homes without accounting
for major differences in condition and quality,” Filka said. “Without such
adjustments, the two are not comparable. It’s appraisal dysfunction.”
The origins and impact of the appraisal controversy stems from market
and regulatory overreaction.
“I believe a number of larger banks are redlining Michigan and actually
have an incentive right now to de-value real estate holdings in our state,”
Filka said. “I understand why they are being pushed into this position, but
its impact is having a chilling effect on what could be a more significant
rebound for our industry. Part of our challenge is generating awareness
about Michigan’s improving real estate marketplace. It is getting better.
“The fact is, Michigan is still viewed as a high-risk state on Wall
Street. If large banks show too many real estate assets tied to Michigan,
they may find it harder to sell their loans or may face greater pressure
Continued on page 10
Michigan Builder • Winter 2011
9
Appraisal Dysfunction
Appraisals Causing Pain From Detroit to the U.P.
Continued from page 9
Since 2006, housing values have dropped 32 percent in Southeast
Michigan, with another nearly 3 percent decrease forecast through
the end of 2011, according to an analysis by the Southeast Michigan
Council of Governments (SEMCOG). SEMCOG is a partnership of local
government and education districts that covers Livingston, Macomb,
Monroe, Oakland, St. Clair, Washtenaw and Wayne counties.
Drastic declines in Michigan’s housing values have directly led to a major
reduction in municipal revenues and a reduction in the levels of services
communities can provide to residents. In Southeast Michigan, residential
property accounts for 75 percent of the region’s property tax base, the most
significant source of revenue for local governments and school districts.
“Falling home values continue to impact property tax revenues in
communities throughout our region,” said Kevin Vettraino, a SEMCOG
planner in community development and sustainability.
In addition, declining property values negatively affect the ability of
communities and businesses to get loans, which Vettraino said severely
hampers future economic development.
“We’re in uncharted territory now with appraisals,” he warned. “If the
status quo remains the same, our region’s economic recovery is going to
take much longer than we would hope.”
A 2011 SEMCOG report provides three scenarios of how today’s
appraisal structure is harming property values and communities in
Southeast Michigan.
Example 1: In neighborhoods with high numbers of foreclosure and
as-is sales, low appraisals have forced sales that are lower than the agreedupon price of the home. Low appraisals have greatly suppressed values
in the Grandmont Rosedale Neighborhoods, one of Detroit’s strongest
and most vibrant communities. In Grandmont Rosedale, as in many other
neighborhoods in the region, appraisals have been on average 10 percent
lower than the agreed-upon sales price, and almost always result in a
loss of sale or, at best, a home sold at below-market value. These low
appraisals effectively drive prices downward, with each reduced price
sale used to justify reducing the price of every future sale. SEMCOG
tracked the negative impact by charting the recent sale activity of the
Grandmont Rosedale Development Corp. of five homes.
from FDIC regulators. We’ve seen examples of banks doing internal
desk write-downs of appraisals before closings. They are not using other
appraisals. They’ve essentially said in a number of instances that we
aren’t going to accept legitimately obtained appraisals and are going to
arbitrarily write them down … It’s discriminatory and flat-out redlining
cloaked under the auspices of ‘reform.’”
The MAHB is fielding numerous complaints from members who are
angry that appraisers routinely do not enter fixer-up homes, Filka said.
If they did, they would recognize the substantial differences that exist
between a foreclosure that lacks working appliances and a new home
fitted with state-of-the-art appliances.
“Due to faulty appraisal practices, our builders’ houses frequently
wind up getting appraised at less than the cost of construction,” Filka
said. “This is not only unfair and unreasonable, but it perpetuates the
cycle of declining home values, drives more homeowners underwater,
negatively affects housing demand and acts as an obstacle to the recovery
of the housing market.”
Another key flaw with the appraisal process is that banks can no longer
talk directly with the appraiser. Instead, they rotate companies from a list
consisting of appraisers who often lack geographic competency.
Experts attribute additional “unintended bad consequences” to
lenders’ adherence to the now-expired Home Valuation Code of Conduct
(HVCC), a federal mandate that had required lenders to select appraisers
from a pool that included many with no prior history of working in a
local community that theoretically ensured an unbiased assessment of a
property’s value. The legislative intent was aimed at correcting inflated
appraisals that, in part, caused the housing bubble a few years ago
because of overly generous appraisals.
But when out-of-town appraisers who have not studied the market are
used, disconnects can occur. And even though the HVCC standards have
sunset, critics say Fannie Mae and Freddie Mac still continue to follow them.
“The separation of the lender from the appraiser under the HVCC
compliance situation means there is no accountability,” said Jerry L.
Meyer, a federally licensed mortgage lender who works on appraisal
issues daily at Metro Mortgage Group in Owosso. “The lenders have
appraisers driving way out of the area of their geographic expertise and
giving bad appraisals. Some of the appraisers don’t even have access to
the local Multiple Listing Service (MLS) to pull comps from.”
Bankruptcies (“BKs”), short sales and foreclosures were initially
supposed to be excluded from the comparable database by appraisers
when the housing bubble began to burst, said Meyer, who also serves as
an executive officer with the Home Builders Association of Shiawassee
County. Now, those sales have essentially become the database.
“The problem is not that construction financing and other money is not
available,” he added. “Quite to the contrary; plenty of money is available.
“The problem is that you can build a house between $90-$120 per
square foot and the appraisal comes in for $60-$80 per square foot when
all the work is done, which obviously is an instant loss of equity. The
homeowner is then required to have the cash to make up the difference,”
Meyer said. “Hence, the stalled construction market. It’s a dilemma.”
Example 2
Agreed-Upon Sale Price
$45,000
$90,000
$80,000
$136,000
$72,000
Total Decrease in Value
Average Decrease
10
Michigan Builder • Winter 2011
Appraised Value
$42,000
$76,000
$65,000
$133,600
$66,000
Recent Sale Activity in Grandmont Rosedale
Example 2: In communities using Neighborhood Stabilization
Program (NSP) funds to acquire, redevelop and sell properties to
income-eligible homebuyers, homes are being appraised at values
well below rehabilitation costs, insurance costs and comparable
properties that are located within a one-mile radius and that closed
in the past 90 days.
In this scenario, a community in Southeast Michigan receiving NSP
funds acquires a vacant and foreclosed home and spends $65,000 in
rehabilitation/renovation costs. This home is then listed at $70,000.
An interested and income-eligible homebuyer, receiving $20,000 in
homebuyer assistance, qualifies and is ready to purchase the home.
An appraisal is ordered for this property and comes back at $40,000.
This appraised value is not only below the cost for materials, but also
well below comparable properties. In this example, 11 comparable
Price Reduction After Appraisal
-$3,000
-$14,000
-$15,000
-$2,400
-$6,000
-$40,400
-$8,800
Percent Reduction
-7%
-16%
-19%
-2%
-8%
-10.4%
properties closed (within 90 days and within one mile) for between
$59,000 and $99,000. This appraisal of $40,000 for a newly
rehabilitated home, unless adjusted to a higher amount, will further
drive prices of surrounding properties downward and effectively
contribute to the destabilization of the neighborhood.
Example 3: Homeowners in relatively stable and higherend neighborhoods who wish to upgrade or expand their home
are unable to secure the financing because the appraisal for the
property including the improvements is too low. A family with
stable income and good credit that wishes to expand their home
due to an increase in family size currently owes $150,000 on their
home and wishes to invest $150,000 for the necessary expansion.
The appraisal on the property, including the improvements, is too
low for the family to get financing from the bank. At 80 percent
loan-to-value, they would need to appraise for at least $350,000,
but it will only appraise for $240,000 because the appraisal is
based on distressed sales as comparables or simple square footage
comparisons and does not take into account the intrinsic value of
the neighborhood or area/location.
The homeowners are trapped in the home because they cannot
sell for what they owe and they cannot expand to accommodate
their growing family. The neighborhood misses out on the
investment and the improvement. The municipality misses out
on the increased taxable value. And local small contractors and
suppliers miss out on the business.
“It would be nice to say we’ll have a solution by the end of the
year,” Vettraino said. “But it’s very complicated and with so many
different barriers, that would be extremely optimistic.”
The frustration felt by builders and civic leaders in Southeast
Michigan is mirrored in communities across the Upper Peninsula,
said Dr. Carol Hicks, a retired Northern Michigan University
professor and current board member with the Upper Peninsula
Builders Association (UPBA).
“The appraisal issue has hit us hard,” said Hicks, who also
serves on the board for Marquette County’s Habitat For Humanity
chapter and helps coordinate the UPBA’s annual new-home
construction efforts. Marquette County’s Habitat team thought
they successfully completed a home in Ishpeming this year, aided
by a $12,000 U.S. Department of Agriculture-Rural Development
(USDA-RD) grant — until they received their required appraisal.
“The appraisal value came in for less than it cost us to build,”
he said. “We build with all-volunteer labor. Our actual costs are
for materials and some required subcontractors. Only a complete
do-it-yourselfer can build a home for less than we can. We cannot
set our Habitat home’s mortgage for more than the appraised
value, therefore we are losing money even with free labor.
“I don’t know how a ‘for-profit’ builder can even make a living
nowadays,” Hicks said. “I’d like to see appraisers take distressed
sales out of the equation. That way you’d get a more realistic
appraisal. But I’m doubtful that will happen.”
MAHB, Michigan Realtors Join Statewide
Effort to Find Solutions
The appraisal provisions of the sweeping Dodd-Frank Wall Street
Reform and Consumer Protection Act included language that enhanced
federal oversight of state appraisal programs. Imposed last year, the
legislation sought to bolster the independence of appraisers by regulating
the industry and the fees they are paid.
Banks responded by outsourcing the valuation work to appraisal
management companies (AMCs) that are taking large percentages
of the fees and demanding that appraisers work more quickly and
for lower prices. One trend that’s emerged from the banks’ reliance
on AMCs is that experienced appraisers with extensive knowledge
of communities are being passed over in favor of less-seasoned
appraisers who produce cheap, fast, but arguably less accurate,
property valuations.
It’s anticipated the federal oversight work will increase in the coming
years as states implement legislation and rules on the registration of these
appraisal management companies.
However, MAHB’s Filka predicts the market’s overall problems are
so intractable that a federal mortgage policy overhaul or adjustments to
the appraisal system is unlikely to make it onto the congressional agenda
until after the 2012 elections.
In the meantime, MAHB has joined an informal coalition that will seek
to implement state-level reforms within Michigan’s appraisal system
during 2012. Coalition members include the Michigan Association
of Realtors (MAR), SEMCOG and the Michigan State Housing
Development Authority (MSHDA).
A fast-growing chorus is calling to expedite how Michigan consumer
complaints against unfair or inaccurate appraisals are processed and
administered by the state Department of Licensing and Regulatory Affairs.
“To say the process is slow would be a total understatement,” said
Krysta Pate, Home Renewal Systems’ director of residential finance.
“We’re talking about complaints involving (housing sale) transactions
we’d like to complete in a matter of days, not weeks. Under Michigan’s
existing regulatory framework, it’s standard operating procedure for the
complaint process to take months, it if ever gets settled at all.”
The National Association of Realtors (NAR) reports valuation disputes
have nearly doubled since last year. A 2011 NAR survey found 16 percent
of realtors reported a cancellation in June this year, compared to only
nine percent in June 2010. The NAR survey also showed a combined
total of about 25 percent of realtors had sales cancelled or delayed during
2010 due to low appraisals.
The Michigan Association of Realtors believes it has identified one
improvement that could transform appraisals.
“Appraisers are following the rules they’ve been given, but our
Realtors believe there are too many instances where those rules lead to
low appraisals that are unfair to our home buyers and sellers,” said Brad
Ward, MAR’s director of public policy and legal affairs. “That’s why
we’re excited to launch what we believe will be the start of a new era in
how appraisals are conducted in Michigan.”
MAR recently purchased Kalamazoo-based Midwest Appraisal
Management Group (AMG). By putting the REALTOR® name on an
AMC, MAR hopes to ease, if not solve, many of the issues challenging
the current market, including the geographic competence of appraisers,
rising costs to consumers and declining valuation independence
through third-party modifications to the scope of work. Midwest AMG
employs a unique structure that encourages one-on-one conversations
with management, creating greater flexibility in meeting all stakeholder
needs, he said.
“We’re raising appraisal standards by solely using certified appraisers
that are MAR members,” Ward said. “This is not a process that utilizes the
‘fastest, cheapest theory,’ but values knowledge and market experience.
MAR is creating a gold standard for AMCs that will give confidence to
Realtors, financial institutions and consumers.” l
Michigan Builder • Winter 2011
11
Builder Profile
Mayberry Homes
Husband-and-wife team Bob and Karen Schroeder
deliver energy-efficient homes to a whole new market.
by Jennifer McDermitt
n this economy, those who succeed usually have two things in common:
1). industry experience, and 2). the ability to adapt. For Bob and Karen
Schroeder of Mayberry Homes, those two qualities not only allowed
them to survive, but also opened up a whole new market.
“In a 90-day period, we redesigned our product to be much more pricevalue focused and shifted to people renting homes and apartments as our
market,” Schroeder said. The couple remained steadfast in their resolve,
however, to maintain the company’s energy-efficient standards, which
are a mainstay of Mayberry Homes’ focus.
As for experience, Schroeder says “building was in his blood,” and
working in the family business gave him a variety of skill sets. “My
father was a builder, so I grew up around the industry,” he said. “I started
out doing different trade jobs — roofing, painting, building decks, etc.
— then worked in the family business from supervising to heading up
operations.” Eventually, Schroeder became a partner in the business with
his father and brother.
In 2002 Schroeder and his wife Karen decided to start their own
construction business: Mayberry Homes. They were looking to move out
of state, but a local developer offered them a community of 600+ lots in
East Lansing with great pricing and terms.
“We had a clear vision of what we could do with it,” said Schroeder.
“We built mission-style homes, which were influential to us while
visiting the Celebration community in Florida, and found tremendous
I
12
Michigan Builder • Winter 2011
success.” By their second year in business, the Schroeders had built over
100 homes in a single community.
Taking Full Responsibility
From his father’s business to his current operation, family has always
been important to Schroeder. He said, “Mayberry Homes’ mission
statement is, ‘We are a family-oriented company passionately committed
to creating lifestyle communities.’”
Their passion comes across in their homes, and the responsibility that
comes with homebuilding is not something either Bob or Karen takes
lightly. “We deal with people on a very substantial level,” said Schroeder.
“Home is generally the largest investment that people make. It’s not only
a huge financial commitment on their part, it’s also personal, and it has a
major effect on their lives.
“The job we do is a big job,” continued Schroeder. “We change the
landscape and we help create community, but the challenges we face are
as big as the job we’re doing.” Schroeder cites governmental regulation,
politics, working with the banking industry, the complex supply chain,
and the logistics of dealing with dozens of small contractors and
coordinating their efforts as some of the challenges his company faces.
Among Builders of Fewer Than 100 Closings Annually (NRS and
Professional Builder magazine)
• 2006 — Mayberry Homes is .recognized for continued, generous
support of Ele’s Place: A Place for Grieving Children
• 2006 — East Lansing City Council recognizes Mayberry Homes for
outstanding contribution and volunteerism.
“Winning national awards based on customer input gave us the feeling
that we have successfully completed our goals,” Schroeder said.
The Schroeders strive to stay in touch with market needs and to be able
to move quickly and make adjustments to effectively serve that market.
He said, “We love what we do. We really strive to do the best we can,
utilizing our resources to serve the market.” l
Industry Accolades
Mayberry believes it is important to be involved with the local, state,
and national home builders associations for two primary reasons: the
first is to represent the industry in the governmental process, because
promoting and protecting the homebuilding industry is critical to the
long-term success of the industry. The second reason Schroeder cites is
the education and communication of ideas and products the associations
offer, which is vital in creating a professional, well-informed industry.
Mayberry Homes has received many awards the last few years, which
is testament to the dedication and passion the company has toward the
industry and the community. Some of the awards include:
• 2011 GOLD Addy Award — Sales Promotion Catalog — Presented
by Creative Alliance of Mid-Michigan
• 2011 Energy Star Award — 100% Commitment to Building
ENERGY STAR Qualified Homes
• 2010 Energy Star Award — 100% Commitment to Building
ENERGY STAR Qualified Homes
• 2008 Ballentine Award for Extraordinary Service to Family and
Children (St. Vincent’s Foster Home for Children)
• 2007 Environmental Stewardship Award (Meridian Township)
• 2006 #1 Builder in North America in Customer Experience
Proud supplier for Mayberry Homes
MPC Cashway Lumber is an independent building supply
company that provides builders with products at low prices
and offers superior service. Our experienced staff ‘s job is to
make the builder’s job easier.
Huge sash and door departments, at both yards, carries
hundreds of moldings. Many in stock
Builders Studio – Has a variety of beautiful kitchen displays
and bath cabinetry, counter tops and top of the line appliances. Also featured are interior and exterior doors, moldings
and windows. Our friendly, knowledgeable staff is there to
help customers with their selections.
Delivery is available to almost all Michigan counties.
Please give us a try.
3 Lansing Locations to Serve You
www.MpcCashwayLumber.com
Michigan Builder • Winter 2011
13
14
Michigan Builder • Winter 2011
Member Benefits
Membership Pays
The Michigan Association of Home Builders (MAHB) has a
multitude of programs, services and discounts that can help you
run your business and save you money.
When you join your local association, you get a three-in-one
membership through the local association, the MAHB and the
National Association of Home Builders (NAHB), expanding the
range of benefits and services membership provides.
SuperFleet Fuel Discount
MAHB members are currently saving over $14,000 dollars
every month collectively on their fuel, netting an average savings
of $412 per year/per participant! The Superfleet card is accepted
at over 1,200 locations in Michigan, including all Speedway and
Rich Oil, and carries a 10-cent per-gallon discount for your first
90 days at these locations, as well as any Marathon location for
5-cents-per-gallon discount. After 90 days, you receive 5 cents per
gallon at all three locations.
For more information on how to apply, please contact Tom
Farnham, account manager, Superfleet, (989) 615-2736.
Manufacturer Rebates
What if you could get a rebate for your loyalty to many of the
nation’s leading housing industry manufacturers? Now you can
with the MAHB Member Rebate Program, which is aimed at
increasing your bottom line. For minimal effort of informing us of
the products you use when you close a home or remodeling project, you will be putting money in your pocket. When you participate in the MAHB Member Rebate Program, you can count on
receiving checks every quarter! Go to www.hbarebates.com/mahb.
html or call toll-free (866) 849-8400.
Insurance Programs
Health, Life, Disability Insurance
Blue Cross Blue Shield Health Insurance provides medical
insurance at a great group rate.
Fort Dearborn Life disability and life insurance are also offered
at a group rate. For authorized insurance agents, check online at
www.buildingmichigan.org or contact your local association.
Workers Compensation, Property & Casualty
Frankenmuth Mutual Insurance provides coverage to meet
the specific business insurance needs required by the majority of
MAHB members and their employees. For authorized insurance
agents, check online at www.buildingmichigan.org or contact your
local association.
Long Term Care
New York Life has established a partnership with MAHB to
offer an exclusive premium discount of 10 percent for MAHB
members, their employees and families. Contact Albert W. Scace,
Financial Services Professional, at New York Life, awscare@
ft.newyorklife.com.
Webinar Classes
Lead Certification: Northern Environmental Consultants offer
online training to complete your certification at a discounted price,
www.buildingmichigan.org.
Info Plus Accounting: You can receive a 10% discount on all
webinar classes purchased through Info Plus Accounting. Go to
www.infoplusacct.com.
MAHB and Frankenmuth Insurance
Partnership a Win-Win
For more than a decade,
Frankenmuth Insurance
has served members of the
Michigan Association of
Home Builders (MAHB)
as an endorsed provider of Property & Casualty, Business Auto
and recently, Workers’ Compensation insurance.
Through participation in the MAHB endorsed program, qualified association members receive an additional 10% discount
(most lines) on premium rates already among the business insurance industry’s most competitive.
Additionally, the Frankenmuth-MAHB partnership returns
marketing support to both the state association and its local chapters. To date, nearly $1 million in marketing reimbursement has
been returned to the MAHB and its local affiliates.
A Michigan-based company, Frankenmuth Insurance has been
serving policyholders’ needs for more than 143 years. An A.M.
Best “A” (Excellent) rating supports the financial stability sound
business philosophy necessary for success in today’s economic
environment. The company’s geographic service footprint includes
14 states and representation by more than 500 independent insurance agencies.
Additionally, the nearly 700 employees who make up the
Frankenmuth Insurance team pride themselves on exceeding policyholder expectations. In fact, random samplings of policyholders
who have filed a claim with the company indicate a 98 percent
“Meets or Exceeds Expectations” rating.
Frankenmuth Insurance products are available through association-approved independent insurance agents. A complete listing
of approved agents is available through your local MAHB chapter.
For additional information about Frankenmuth Insurance, please
access the company’s website at: www.fmins.com.
Check Your Mail for this Meijer Discount
MAHB and Meijer have teamed up again for another year
of savings with the MAHB Member Meijer Card.
Spend $25 or more on general merchandise and get $5 off
your purchase. No limit on use and with any type of payment.
One card will be mailed to each member in June 2011.
Contact Diana Dixon at [email protected] or
(517) 646-2553 for more information. l
Michigan Builder • Winter 2011
15
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