Bank Profits: Eliminate Appraisers

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Bank profits - Get rid of appraisers

Zestimate Gone Wrong. It all comes down to money and profits…

Once again the Zestimate has a home-owner up in arms. In a small town in North Carolina a home just sold for $20,000. It was listed at $55,000, then reduced to $45,000, and finally sold in 2015 for $20,000. Safe to say it needed a little TLC.

It was a shell in need of, well everything. But, we have to remember that automated valuation services don’t know anything about condition or circumstances. Before the house was listed for sale, the owner (from a different state) thought they had inherited a nice little nest egg. Not a fortune, but if it was close to the Zestimate, they would have quite a nice amount to play with.

The Zestimate in this case came in at – $139,973. Yes, you read that right. Almost $140 grand for a house, that even without the bad condition, was never worth anything close to that amount. Even the tax value was at $51,000.

Think this home-owner was unhappy with Zillow? That’s NOT a small error, it is huge and changes people’s hopes and expectations. They had a very hard reality check. And, this is not some rare example but an everyday occurrence.

As far off as most automated valuations are, big banks are still hard at work trying to convince the public (and the government) how accurate these electronic valuations tools are, and that real live appraisers are not needed any longer. It is frightening because they have to know the problems, but they choose to overlook them. Why? Simple answer, profits. The less appraisers are involved in the process, the more liberties they can take with the loans. “It’s all about the people.” I’ve heard that so many times and if they believe so much in the “people” they are loaning money too, why not keep the loans in-house? They don’t care about the home’s value because they are not holding the loan on their books. Same ole pre-crisis problems.

Big banking is at it again and this has been the plan since the HVCC started – get rid of appraisers. At the end of every discussion, it all comes down to money and profits. Banks are looking for new ways to add profits and the appraisal industry is on their radar. Don’t be fooled into thinking banks are pushing E-Valuations because they trust them or think they are good for consumers. E-Valuations are good for one thing – bank profits. Welcome to the new home loan with at least two appraisal charges – both an online service – and both not worth the paper they are printed on. When will the madness stop???

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 - OC Roy
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11 Responses

  1. Tom D says:

    as soon as they can figure another party to blame for their criminal behavior, sorry, non-criminal cause no bankster ever went to prison, then appraisers will be gone.  then they, for themselves, will make billionaire banksters, with the us totally crashing economically into a 3rd world tribal mess after this final theft.   maybe the 4 horsemen of the apocalypse are the last 4 big banks left.  i’m not a prophet, but where did that thought come from.  have a happy medicated new year reply-ers

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  2. Koma says:

    Like I tell the borrower when I’m doing my inspection. Trash in…Trash out… when they mention an on-line AV. I say to them did you look at several sites, they say yeah I’ve seen values range from $150,000 to $240,000 for my property. Well there’s your answer..Trash in…Trash out.. These on-line AV’s don’t have access to the information or the experience I have and they are nothing but junk.

    The day loans are given out without an appraiser looking at the property is the day the economy crashes worst then ’08.

    …the piling on continues…

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  3. Bob Miller says:

    Zillow has no business projecting property values unseen.

    As an appraiser, one of the first thing I was taught; if you make a statement, written or oral of a specific properties value, you have done an appraisal and had best be able to back it up. This is just another example of the lending institutions, cutting corners to increase their profit.

    None of these “helpful” companies are beneficial to the public or lending institutions. They only muddy the waters and create a false impression for the public and the banks.

    An appraisal of a property, can only be accomplished by boots on the ground, we appraisers are the banks eyes and ears. No AVM or other computer generated value, can be considered valid.

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  4. In 1992+- representatives of LSI (long before they became completely useless as an AMC) visited us in California to discuss some way to involve automation (as in AVMs) to eliminate appraisals. When I pointed out that they had JUST THANKED me for saving them from a $1/4 of a million dollars over valuation as a result of pressure from one of their very influential customers; and that very same issue had arisen from that customers misapplication of data AND their potential misinterpretation of that data-they understood the connection. A KNOWEDGEABLE human appraiser was required to resolve the difference. It was my opinion then that no technology could ever adequately replace the ARTFUL application of SOME scientific techniques as well as experienced use and application of the best computer ever built…the human brain.

    Sometimes my brain literally leaps to the “right” conclusions without me even being aware of the process. It takes short cuts. Now, in fairness, we all agree that we cannot rely on our personal experiences alone to achieve proper appraisal results. We temper and quite frankly usually suppress our “personal PCs” results in favor of more traditional techniques that are becoming more and more cumbersome as time goes on. The more that academia gets involved in appraisal analyses and critiques, the further away we seem to get from reliable products (UAD & 1004MC comes to mind).

    We listen to self serving morons promoting the ‘era of big data’ and how wonderful computer science & technology have become. “Why there is virtually NOTHING they cannot do!” Or, so go the claims. Yet with all this high powered computer ability and giant databases economists still cannot accurately predict stock markets; or even what the GDP, or inflation rate or unemployment rates will be more than a 1/4 in advance.

    Why would we believe these same folks can accurately analyze the often subjective motives of real buyers reactions to specific pieces of real estate in terms of price and marketability?

    ‘They’ have attempted to replace the ‘art’ and experience based part of our profession with the arbitrarily purely analytical side. Analyses that fall abysmally short of even being real science since they modify or make so many assumptions to support their conclusions that the results are meaningless.

    Zestimate used to publish disclaimers about how limited their product was. Most similar services don’t even do that. Most users wouldn’t understand the explanations anyway…they are not trained appraisers.

    Despite most states prohibiting the use of the terms “appraisal” or “valuation” by anyone other than appraisers, it seems that these internet wizards keep getting a pass for their products. It does serious harm to Americans and the general public by offering services that are so easily confused with meaningful USPAP compliant appraisals which have been determined to be the “minimum acceptable standards” for federally regulated transactions.

    Why would anyone be so willing to accept something that does not meet MINIMUM standards?

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  5. Christine says:

    And why is no one stopping Corelogic from buying up AMCs, in addition to already owning a large share of MLS systems and Marshall and Swift. It’s unbelievable really.

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  6. Bubba Jay / Retired Appraiser II Bubba Jay / Retired Appraiser II says:

    i remember decades ago when it felt good to start the day off with an appraisal or two.

    with all the garbage going on nowadays, appraisers have to be feeling more like they are starting off their day off by brushing their teeth with dog crap flavored toothpaste.

    the bleeding continues . . . . .

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  7. Tom D says:

    also look at buildingJournal.com for a simple cost approach. good to have another easy backup of your cost approach. both slightly different so you can have some room to play.

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  8. Mike Ford Mike Ford says:

    Excellent advice Tom!

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