Appraisal Quality Determined by AVMs?
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In a recent Mortgage New Daily article, Brian Coester with Coester VMS writes, “I completely disagree with the article not just based on owning an AMC, but on the basis of being an appraiser and being on both sides of the table. The reality is that appraisals are more accurate than they’ve ever been.” He even repeats himself, “in the short term there will be issues to work out, however appraisals are better than they’ve ever been.”
Next, he talks about the lack of quality in the appraisal industry. So, appraisals may be better than they’ve ever been, but there is still a huge lack of quality; at least according to Brian. Let’s look at his logic.
“The reason for the appearance of lack of quality, is now we have the ability to check appraisals against relevant data like an AVM, Automated scoring, UCDP and variety of other tools that weren’t available before.”
Stop the presses! So, now we can check to see if appraisals are accurate by checking them against Automated Valuation Services?
Wow! That’s frightening on so many levels. Remember the “garbage in, garbage out” articles about using AVM’s? Many AVM’s are close to useless. “Relevant data,” really, like an AVM? Gimme a break! Hard to get passed this on and it’s flat out crazy. If computers could price real estate accurately, the appraisal industry would have died out years ago. These automated valuation products have been around for over twenty years. They are just as bad today as they were when they first came out. Sure, the bells and whistles have dramatically improved. However, they depend on the same inaccurate public records and come up with the same inaccurate home values they are famous for (at least within the real estate industries). Some consumers like them because they give them false hopes about their home’s value. Then, when reality comes crashing in from a local real estate professional, it destroys all their plans. Relevant data they are NOT!
By the way, Coester’s services include Appraisal Management services for traditional appraisals, AVM’s, Broker Price Opinions, and Desktop Valuations. That’s covering all your bases! No wonder they like AVMs, it’s their largest profit item. Most of the data they need is available for free. Now that’s a large profit margin!
If you live in a huge urban area where the same house gets built over, and over, and over again, they can actually be pretty reliable. The problem is, they are only halfway reliable in about 10-15% of the country. In the rest (the 85-90% +-) of the country, they are just plain wrong. And, often by much more than a small amount. $10, 20, 30, $40,000, even hundreds of thousands are every day mistakes. Sure, it’s fun to look at your neighbor’s house and talk about how much better yours is than theirs. But, “if you really want to know the value of your house, they’re not worth the paper they’re written on.” That quote came from a 25 year banking veteran. “It’s an inside joke and it’s nothing but a way for the bank to bring in more profits. We’re laughing at this piece of paper we put in the file and after all, what’s the customer going to say? If the bank says we have to have it, guess we just have to pay for it. We just want to buy a house.”
AVM’s use public records, which have inaccurate data more often than not. They use a price-per-square-foot formula using the square footage details from tax rolls, which are so inaccurate it can change the value dramatically. AVM’s also never see the property in person, inside or out. For anyone that understands the home valuation process, they know the majority of these products are as close to useless as you can get. They are fun – that’s it. This is from ten years of following AVM’s and home values. The mistakes are easy to find, if you simply look. If the future of the appraisal industry is based around AVM’s, consumers get ready to be ripped off, again. At the end of the day, it all comes down to money. Banks want more, and they have discovered how to make more profits off the appraisal process. They keep searching for more and more ways to reduce the appraiser’s role in the home buying process, so they can be the ones calling every shot and leaving consumers in their ever so trusting arms. The only one in the process whose sole job it is to protect consumers and mortgage investors, is being slowly phased out and killed off. In the good ole days, when banks actually kept the loans in-house and had their personal money invested in the loan, they really cared about the value and appraisal quality. Now, they sell all their loans, and quality is not their problem. For banks, quality has a new definition – fit the form and make the loan go through. Who cares if the value is right or wrong, sell more loans and make more money. The Golden Rule continues to rule the appraisal business via the banking industry.