Automated Revolution, the Valuation Imposters

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Automated Revolution Valuation Imposters

Along comes the automated valuation revolution…

The appraisers we need, to keep consumers protected, are the very ones being driven out of the business. They are being forced out by big banks and AMCs (who much too often provide zero benefits to consumers). Everyone seems to have forgotten that these services (provided by AMCs) used to be part of the bank’s responsibility for every loan. It was just the cost of doing business. Then came the AMCs and banks’ profits had to go up. After all, they lost a whole department. Now they pass the expenses along, mostly on the backs of appraisers, who haven’t had a raise in over a decade. They have had fees lowered due to AMCs taking part of their fees (which are still undisclosed in settlement statements). Appraisers also have not had an increase in fees, but have had their work load more than doubled. Think about that, twice the work for less money. No other business would have been allowed to follow that path, yet it’s exactly what is happening to appraisers.

With bank profits up already since the invent of AMCs, now this has become “normal business” so banks need more. Along comes the automated valuation revolution. Now banks want to push the use of AVMs with more and more loans, which gives them even greater profits. This is not rocket science and it’s nothing more than the Golden Rule at work (the one with the gold makes the rules).

With Zillow® and RPR® pushing online valuations to consumers and agents, and banks pushing the same, it is all very bad for consumers. The hard, cold facts are – AVM’s are not accurate. But, they are a money making machine that is driving this revolution, and no one in the government seems to care about protecting home buyers from these valuation imposters. All these automated valuations are based on inaccurate sqft details listed in tax records (and flooding the MLS as agents have stopped measuring homes). Local tax values are typically more accurate than AVM’s, but there’s no profit in that.

So consumers will suffer once again, and so will the companies and people who invest their money in mortgage securities. It’s simply a matter of when, not if, another mortgage meltdown strikes. Someone needs to pay attention to the ‘big picture” here. In the next 10 years, if something doesn’t stop this current trend, we will be too far gone to correct. Write this down and mark my words – appraisers (as we knew them) will be all but gone within the next ten years. I believe less than 20% of all loans will require a traditional appraisal if we continue on this current course. With the appraisers we need to train the next generation all gone (which is what big banks have wanted all along), it gives them total control over the loan process and no oversight. Appraisers are trained to be fair and lookout for consumers and mortgage investors. Everyone else has a motive in the process and is rewarded much greater than the lowly appraiser who got the brunt of criticism over the last mortgage crisis, when it’s beyond crystal clear that big banks were the problem so much greater than appraisers ever were. Big banking fines and penalties are still making news but no one cares. It certainly hasn’t impacted their profit statements.

These changes will take a heavy toll on the real estate industry. True equity values may be dependent on which AVM the banks use. And, they will have several at their disposal. People who are not trained in real estate values will be in charge of loans and collateral security. It’s like turning the hospital over to the pharmacists. They may be very good at their job, but they have no business treating patients and giving out medical advice. We need doctors, and we need appraisers. The train is rolling full steam ahead and appears unstoppable.

The next generation is doomed if all real estate pricing is dependent on home values created through automated online valuation services, most of which are not worth the paper they are printed on. It’s an ugly truth. Buyers beware…

Hamp ThomasBy Hamp Thomas, founder and president of the Institute of Housing Technologies. He is also the president of Carolina Appraisers & Real Estate. He is the author of the American Measurement Standard; the Size Matters – Residential Square Footage books, continuing education courses (for agents and appraisers), the course Inside the New Appraisal Process; ANSI, Home Measurement & the Power of Price-Per-Square-Foot; Understanding ANSI, and numerous other real estate courses, webinars, videos, and blogs. Hamp also authored the Professional’s Dictionary of Real Estate Terms; Home Measurement Basics; Realtors and Square Footage; and his latest book Death of an Industry-Real Estate Appraisal.

Image credit flickr - Kain Kalju
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14 Responses

  1. John Hinnant says:

    Great post – I recently completed a form 2075 Desktop Appraisal (with no value). Not sure why its called an “appraisal form”. I was required to drive by, take an exterior photo and do a neighborhood analysis. The engagement letter stated “we have already done an automated valuation methodology and have approved the loan, please complete ASAP”. When I drove by, the home was situated in front of a power sub-station with high tension power lines, and was one lot down from a sewer lift station that the utility authority has identified as “high priority” for replacement -yes, there was a heavy stench in the air when I drove by with the windows open. In my photos, I included photographs with labels showing the location of the power station. The adjacent property was on the market and the listing agent meticulously posted photographs omitting the high tension power lines. I included my photo of that property (showing the lines) and subject property. I also included the MLS data sheet (with no wires). See, their AVM relies on what is publicly available – which often obscures the reality … which is why you need an ethical professional to protect the public … and the lender.

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    • Scott says:

      Unfortunately, I see appraiser’s commit the same omissions in their photos and do not report external influences. Can’t understand their motivations. Is it sheer laziness or something more egregious?

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      • Diana N says:

        I guess if you are working for $250 per report and have do do one a day you get it done as fast as you can accuracy and quality be damned.

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    • Scott says:

      Unfortunately, I see appraiser’s commit the same omissions in their photos and do not report external influences. Can’t understand their motivations. Is it sheer laziness or something more egregious?

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    • Diana N says:

      I did a Field Review a few years back, the only truth in the entire report was the address and borrowers name. The house abutted an auto junk yard, never in the photos, and the comps didn’t even exist. Honestly, they were all made up. I really hope these reports come back to bite the Lenders and AMCs in the butt. And again, public be damned as long as the lenders are making money.

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    • koma says:

      John, something similar here. Happened to me twice in two of my counties over the past year. When I went by the first property it had burnt three quarters of the way to the ground. In this county it has to be reported in the newspaper by the Fire Dept or the owner has to update the assessor as to what happen for it to be reported in the public record. Well I talked to the Fire Dept. and it was stated they forgot to report it! Now the second property had been condemned and knocked down to leave just a vacant lot. In this instance the condemnation was reported by the county, but they used the old address (pre 911) and it was not caught until it came to across my desk. When I mention it to my friends they think I’m joking, but I’m not.

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  2. Seneca says:

    I do not subscribe to the author’s “sky is falling” conclusion of the future. This AVM article has been written for 10 years straight. Also, who is working for less these days? My fees have gone up over 40% since 2008. Who else got a 40% raise in that same time period? I turn down $5,000 a week in business and I am in an appraiser competitive market in the Columbus Ohio area and not in a state where there are few appraisers. If anything kills the appraiser business it will be from within. I too do reviews (75 a year) and as others have said a consistent flow of bad appraisal work will make lenders says it’s not worth it. Just report things as they are. If it’s external, so be it, if it’s condition, so be it. It’s just being lazy not to report it. Still see appraiser doing crazy things to hit the contract price. Why? Believe in your data and just report it.

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    • Bill Johnson says:

      In Southern CA where nearly one in ten of all 75,000 appraisers live and work (the state has 15 out of 100 (11,000 +/-), most are still offered lower gross fees today compared to 2009 (HVCC). The lower gross fees do not take into account significantly increasing business expenses, nor the fact with scope creep our work now takes twice as long to complete. Complicating the issue is the fact that Southern CA (my area Coastal San Diego), as a region has some of the most expensive areas to live in (my primary zip code is now $975,000). As it relates to turning down business, it really depends on the business your turning down. Today, I have turned down $1,800 in work (4 at $300 one at $600) because if this was 2008, the fees would have been $4,000. Congratulations on winning the location lottery Seneca, as with todays gross fees, expenses, and time to complete, many areas have been pushed back to the late 80’s.

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      • Seneca says:

        So you’re the one who is accepting that work at the $300 fee. Shame on you for helping to keep fees low. I have visited a dozen appraiser sites for California and almost all are charging $395 or more. Don’t give me crap about the location lottery. the ratio of appraisers in Ohio is exactly the same.  It’s called hard work.

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    • Retired Appraiser Retired Appraiser says:

      If you are making 40% more than you were in 2008 we can only assume that you were a trainee eight years ago. Either that or you are selling crack on the side. Yet another competitor in the “last appraiser standing” contest.

      Good luck with that!

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      • Seneca says:

        Nope, I will be celebrating 25 years of being an appraiser in Feb 2017. I hope I am the last appraiser standing. Maybe I can take my 6 figure income and turn into 7.

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    • bill johnson says:

      Seneca, I said “offered fees” and made a point to tell all that I turned down four appraisals just yesterday at $300 each. The lenders and AMC’s of the world need NO help from me “for keeping fees low”, as they don’t care what I want (turn down my quotes). Living in a very high cost of living area my fees from 2000 ($400, $450 FHA, & $700 units – noncomplex, under 1 Mil, etc.,) were what I considered reasonable at the time, based on the scope of work, liability, regulations, and the business expenses of the day. Your CA research ($395), only proves that many appraisers today (6,000 within a few hundred miles from me / So Cal), have lower gross fees from, 5, 10, 15 or perhaps 20 years back.  In MAKING, KEEPING, or NETING, 40% more, based on the current environment, (twice as long to complete, min wage soon to be $15 in my entire state, expenses, liability, etc.), the gross fees in my opinion need to be tripled in my area just to be equal to the year 2000. Congratulations on getting a 40% raise, but to my point, your local, region, or state success in my opinion is the minority and not the majority.

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  3. Baggins Baggins says:

    “If anything kills the appraiser business it will be from within.”  Wow, that’s a bold and slanderous statement, anti-logic at it’s best.  Audit the FED!  Well, this individual has one thing right, the AVM article has been going on for about a decade.  It’s called vigilance to preserve financial liberty for citizens.  You know why everyone keeps on clicking into zillow? The numbers are higher than anywhere else!  I can see that ‘free market competition for the lead avm service’ now.  For the record, the purpose of the appraisal is checks and balances systems, not bottom line.  The powerful interests whom advocate for removal of effective checks and balances systems are clearly insane, or corrupt beyond measure.  Any mention of removal of checks and balances deserves pen to paper and a vote of no confidence.  Another great article Thomas, keep it up.  The question posed is how to get the representatives to perform their function properly.  Well, first we must return to representative democracy and prohibit paid lobbyists.  Audit the fed is not just a catch phrase, there is a world of financial correction behind that, a whole centuries worth in fact.

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Automated Revolution, the Valuation Imposters

by AppraisersBlogs time to read: 3 min
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