This is just so dumb.
In 1991, I took out a $400,000 five-year loan on two small Miami apartment buildings. By now I’ve paid it down to about $250,000, and the five years are up. Pay-off time.
In the course of these five years, Miami real estate — especially on “South Beach,” where one of the buildings sits — has done OK. The buildings were probably worth $700,000 when I took out the loan. By now, even their combined tax assessment is $800,000, and tax assessments are usually under market.
(This is not my typical investment, I hasten to add. My typical investment makes for great cocktail party conversation, then tanks.)
I told the bank I’d like to renew the loan. The bank was pleased and suggested that we reset it at the same $400,000 we started with, and more or less do this all over again.
Fine. Now here comes the dumb part.
Last time a simple “opinion letter” from an appraiser sufficed. (“In my professional opinion, these two buildings are worth way more than $400,000,” said the appraiser, or words to that effect.) But now that real estate has been appreciating for five years and rents are up, and so on, that’s not enough. The federal bank regulators have changed the rules. Now not only do we need another appraisal, it has to be a full “narrative” appraisal, with photos and so on, that will cost (after shopping around) $2,600.
The thing I want to make clear is that this $2,600 is just completely wasted. No one but the appraiser and his wife derives the slightest benefit whatsoever from doing it. I gain nothing. The bank gains nothing. Uncle Sam gains nothing. (Supposedly, Uncle Sam is protecting the taxpayers from having to bail out the bank if its loans go bad. But if the county tax assessor says the buildings are worth $800,000, and if the bank has five years of history on this loan already, why is that not assurance enough?) The government would be better off ordering me to buy it four $600 hammers.
In the worst case, if the loan defaulted and the two buildings brought less than $400,000, I’d still be liable for the shortfall. And while not wanting to brag, I can tell you that I have been saving my loose change — pennies, nickels, quarters — in a large wrought iron tub for thirty years now. I don’t know exactly how much is in it, but we have had to get the floorboards reinforced. So I could probably make the bank and Uncle Sam whole.
What interests me about this is that it must be multiplied thousands and thousands of times. And not just in unneeded real estate appraisals, but in all other manner of government-mandated busy work.
Stuff like this drags down our productivity. Forcing bright people to go around writing up unnecessary “narrative appraisals” — and forcing people like me to pay for them — misdirects resources. On the margin, a few of these appraisers could be teaching our children. There are lots of overcrowded classrooms — with more teachers, each child could get more attention. Where to get the dollars to hire the teachers? For starters, from the extra tax I would pay if I didn’t have to do the appraisal. (Not having to pay a $2,600 business expense raises my taxable income $2,600, which ultimately generates more than $1,000 in tax revenue.)
The Clinton Administration has made a good start at cutting through some of this junk. (You may recall Al Gore smashing that ash tray on David Letterman, symbolizing the pages and pages of specifications once required to requisition an ashtray.) But there’s a lot left to be done. Tomorrow, I’ll offer my solution.
Quote of the Day
We're not trying to outsmart the smart guys. We're trying to sell bonds to the dumb guys.~alleged remark of the head of a Wall Street mortgage-bond group
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