Appraisal Forum Recap

Waivers, Hybrids, AI Roams the Halls of Irrelevance in DC, & CollaberationThe Appraisal Foundation Hosts National Appraisal Forum to Discuss Appraisal Waivers and Hybrid Appraisals

“Preserving the Public Trust”

I really got a lot out of this week’s joint meeting with IAC and TAFAC of The Appraisal Foundation that took place in Arlington, VA. I represented my appraisal firm Miller Samuel at IAC (Industry Advisory Council) and RAC (Relocation & Consultants) at TAFAC (The Appraisal Foundation Advisory Council) and I’ll be sharing new insights on these and other topics in the coming weeks.

Appraisal Waivers – Both Julie Jones of Fannie Mae and Scott Reuter of Freddie Mac spoke about the waiver concept. On the whole, I feel much better about the GSE’s intent from their presentations. They’ve been offering appraisal waivers for more than a decade but recent efforts were ramped up and widely touted (and widely criticised). Their market share of loans with an appraisal waiver is a little under 10% so of course, the fear by most appraisers is that it is a slippery slope and soon all appraisals for Fannie Mae and Freddie Mac loans would be waived. The FNMA explanation was that if market share were to increase beyond 10%, their credit box would have to be expanded and that is a difficult process, requiring approval by their regulator FHFA (Federal Housing Finance Agency). In my view, they have been trying to entice lenders to better match their underwriting interpretation of risk with the actual risk out there. Lenders have lost their appetite for risk with the exception of some recent easing. With the economy strong and some consensus building for a recession by 2020, I find it hard to see a significant expansion of the FNMA credit box if at all, at least in the near term. Therefore it would follow that the expansion of appraisal waivers would be unlikely. On another note, I don’t think the understanding of the AMC impact to loan quality has been properly exposed because the GSEs can’t distinguish between AMC appraisers and non-AMC appraisers.

Hybrid Appraisals – An analyst for Moody’s spoke about hybrid appraisals that rely on a separate inspector rather than the appraiser. There has been little adoption observed in the securities markets. Moody’s knows of only one deal that included hybrid appraisals in some of the loans of a portfolio and there is no apparent impact yet on portfolio pricing. This deal had nothing to do with the GSE portfolios. Moody’s perspective was that portfolios include broker price opinions (BPOs) and they are more comfortable with appraisers being involved in the process. However Moody’s along with S&P and Fitch missed the housing bubble, thinking they could mitigate all risk but were using the wrong data to feel comfortable. My takeaway is that there is no real data or precedent to base risk decisions on this new product at this time and their biggest concern was the lack of standardization of separate inspectors for this product. The Fannie Mae waiver product is confusingly inserted into this line of thinking yet Fannie Mae appraisal waivers are not part of these portfolios. If their use becomes prolific much like AMCs have grown to dominate the mortgage appraisal industry, I start wondering about the expanded misplaced quality assumptions built into the bond market. In other words, bond pricing is likely appraiser-qualify influenced and with 80% to 90% of all retail mortgage appraisals going through AMCs, up from 10% in before 2009. This lack of AMC understanding as it relates to the value of mortgage collateral for securitization should make regulators nervous. What is going to happen to the bond market, whose mortgage collateral that is largely tied to AMC quality (which are generally poor) when the quality issue finally becomes more front and center.

Appraisal Institute Roams The Halls of Irrelevance in DC – Despite being denied re-admittance to TAFAC for not agreeing to honor the TAF mission statement, Scott DiBiasio of the Appraisal Institute continues to attend Appraisal Foundation meetings like this week’s, trying to insert influence and assert AI’s presence despite its current industry irrelevance. The more feedback I get about their actions, the more I am convinced they have some sort of private agreement with REVAA (Real Estate Valuation Advocacy Association) to encourage the industry adoption of evaluations despite pushback from their own residential members. Time will tell but as history has shown us, they don’t share these types of things with their members. Afterall, it took members a decade to get AI National to admit and disclose their deal with FNC. Residential appraisers I know – who are and are not AI members – continue to scratch our heads wondering why they are so unnaturally and over-enthusiastically supportive of demeaning our profession to enable us to do $25 (and I have heard of $7 to $12) evaluations as if that serves their members best interest. No logical reason for their over the top enthusiasm has been shared. To date, AI National has had no success on the state legislature level nationwide with this agenda that is unsupported by their members and in fact, I heard AI just lost its bid to enable appraisers to switch on or off their USPAP licensing requirements in Florida by a 1-7(?) vote.

A Better Day Ahead Through Collaberation – I had several appraisers at the conference mention to me that the mood in this regulatory body was noticeably more upbeat. The elimination of the constant AI National-fueled drama was no longer poisoning the collaborate efforts of stakeholders. That makes sense. Jim Park, director of the Appraisal Subcommittee (ASC) spoke to the joint TAFAC and IAC group and said that the only way our profession moves forward is in a collaborative way. I totally agree with that observation. It would be great to see AI National be a part of that but sadly that can’t happen if the current leadership remains and they continue to ignore the needs of their hard-working residential members. Read more »

Jonathan Miller

Jonathan Miller

President & CEO at Miller Samuel Inc.
Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.
Jonathan Miller

Latest posts by Jonathan Miller (see all)

Jonathan Miller

Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.

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28 Responses

  1. “Credit Box?” Sure.

    “An analyst for Moody’s spoke about hybrid appraisals that rely on a separate inspector rather than the appraiser. There has been little adoption observed in the securities markets. Moody’s knows of only one deal that included hybrid appraisals in some of the loans of a portfolio and there is no apparent impact yet on portfolio pricing.”

    Moody’s used to be SO much better at keeping track of what was going on…or perhaps their blinds were less opaque. “http://appraisersblogs.com/bpo-outsourced-2-india-replacing-appraisals

    I know $20 Billion is chump change to Wall Street, but to some of us that’s still ‘real money.’ A Nimitz Class Aircraft Carrier costs around $4.5 billion. So with little effort at all I can find about 4 1/2 Nimitz Class carriers worth of BPO/hybrids that got securitized. Thats enough money for almost half the entire (original proposed) fleet of such carriers.

    Maybe Moody’s is closely parsing their analysis and doesn’t consider anything called a BPO to be a hybrid. With all the different trade names and terms (evaluations, bpo, hybrid, steaming pile of poney loaf) maybe we need an even more generic term so Moodys isn’t so confused.

    Im not real impressed by a conference where featured speakers can deliberately mislead or downplay valid concerns without being called to account for it.

    “Preserving the Public Trust”? My ass!

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  2. marion says:

    Thank you for the report Jon. Too bad no one spoke about changing USPAP so it does not conflicts with hybrid bi-f and other inventive ways to get around the appraiser must chose the scope of the work, and the credibility is judged for the intended use; not the loan amount, or fee the borrower paid, or the specific client. 

    And nobody spoke about High Cost mortgages in relation to the appraiser’s scope of the work, or even, disclosure of those loan types for each assignment that an appraiser is engaged for? Even though the specific language for those loans is that the appraiser performs an interior inspection. Pity. Maybe next time.

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  3. Jeff says:

    Off the topic but who all remembers the markets before capital gains tax changed. We use to have a much larger pool of buyers and builders in our markets. The reason I bring this up is it seems that only those who look at the past can fix the future.

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  4. Baggins Baggins says:

    Hybrid appraisal is just a misnomer, a clever branding. In more strict terms focused on fact not branding, they would be called; Minimalist reduced appraisal service reports with inspections performed by non appraisers and many value conclusions formed from the use of non verifiable data and unregulated automatic valuation systems models, where the lender selects comparables for the appraiser. So yeah, they’re ‘hybrids’. Certainly a hybrid appraisal should not be mistaken for any sort of intellectual advancement or advanced better risk management approach, because it’s not. Let’s couple the hybrid appraisal with the flat rate listing and see what is born of that, perhaps they’ll have little tiny waiver babies.

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  5. marion says:

    IX. Appraisal Development

    While an appraiser must comply with USPAP and establish the scope of work in an appraisal assignment, an institution is responsible for obtaining an appraisal that contains sufficient information and analysis to support its decision to engage in the transaction. Therefore, to ensure that an appraisal is appropriate for the intended use, an institution should discuss its needs and expectations for the appraisal with the appraiser. Such discussions should assist the appraiser in establishing the scope of work and form the basis of the institution’s engagement letter, as appropriate. These communications should adhere to the institution’s policies and procedures on independence of the appraiser and not unduly influence the appraiser. An institution should not allow lower cost or the speed of delivery time to inappropriately influence its appraisal ordering procedures or the appraiser’s determination of the scope of work for an appraisal supporting a federally related transaction.

    https://www.fdic.gov/regulations/laws/rules/5000-4800.html

    We don’t need no stinking regulations.

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    • Baggins Baggins says:

      Clearly, the most logical position. We have a winner! Marion, you are as always, the best.

      Hey, do you mind if I ask what your fee and turn time is? We have this awesome new fast product we’d like you to try out, they’re called hybrid reports. You’ll never have to leave the office! Also, it’s important you do not disclose your fee to the borrower on these ones, we don’t want them getting confused about fee distribution. Oh yes, and at the appraisal assignment desk, ran by non appraisers, direct communication with the lender by the appraiser is prohibited. So if you’d like to help us impress our new lending client, we’d love for you to fill out a panel application and complete an additional criminal records check. All appraisals must be completed within 48 hours of inspection or this could negatively affect your ability to get work in the future. Also, to help meet this demand, we recommend you use our appraisal report typing services.

      Did I miss anything? That’s appraisal engagement in 2018 and I dare anyone to reconcile that with the above guidance rule. Every single point is easily verifiable by reviewing any given appraisers email.

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      • marion says:

        Hey Bags,

        You missed a lot of stuff, most of it in the IAEG, when coordinated with and USPAP, that credibility requires relevant evidence and logic for the intended use. You got any safe and sound lending requirement that says intended users (not just a specific client) find all those EAs concerning condition and inspection credible? You got a regulation that says this is an appropriate reporting format? Nope, and FIRREA required lending appraisal formats to be UNIFORMED that’s why USPAP is the UNIFORMED STANDARD Oh my. But there is lots within the IAEG that should be referenced, especially between the definition of credible Appraisal Assignment Results and USPAP’s definition of credible.

        But if you are concerned how I price my products,

        Obviously you don’t have the newest high tech appraisal C&R fee calculator

        Yes, because one of the two ways to evidence C&R was not by a Fee Calculator, but, somebody thinks they are going to win an FTC case, because lemmings will accept less than 1990 fees for their work.

        And let’s not even talk about “free market pricing”  or education and experience.

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        • Baggins Baggins says:

          Good Afternoon,
          Class Appraisal has an order in your area, if you are able to assist us with this assignment, we ask that you submit your turn time and fee. We understand the current market conditions and would appreciate any response.
          Details on the order have been listed below for your convenience. If you have any questions regarding the assignment, please feel free to contact me directly at
          ____________

          Hold on… If they understand the market, why do they need a quote? Another gem… One begins to understand how the model will never ever self correct, and why appraisers in some areas get pressured so much more than others. Also, all appraisal fee increases will be deemed temporary, all surplus must flow back to the management company, eventually. They brag about growing faster than any other appraisal management company. From an appraisers perspective that’s a very scary thing to hear. Picture included, and which one of you was my manager of the day again?

          Your fees are pretty much in line with what we pay our appraisers right now. Our appraisers make their own fees and that is what we go by. I had also asked for your fee and best turn time in the email I sent out, not your best fee. We know the fees are a lot higher right now, and we are OK with that. We are here for our client’s and pay what is necessary to get these reports done (even when that means we are losing money). We also pay our appraisers in 48 hours after completion of each report. We do see the bigger picture and appreciate our appraisers very much. Without you guys, we have no client’s.

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          • marion says:

            See how well this works when appraisers connect all the dots and just drop out of the industry.

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            • Baggins Baggins says:

              I’ve opted out. Have not had but one or two amc orders in many many years. Made it 4 or 5 on reo, then ran the last 3 or 4 on direct assignment. It’s not rocket science, appraisers simply need to solicit to lenders. If they counter with they use an amc, just let them know that’s an unacceptable assignment condition and please save your email and flyer, you’ll be available when they are able to move away from amc’s. It’s an important action for perspective, when you speak to many mortgage bankers they don’t like using amc’s either. The most tangible difference is that amc’s seek to play appraisers against each other, always flex fees based on demand. If there is only 1 order should it only cost 1 dollar? If there are 10,000, should all appraisals cost 10,000. It’s such a simple market concept, if a lender pays consistent fees and appraisers can expect consistent work flow, that’s the obvious smart choice for a client. Appraisers whom sit in amc chairs are replaceable at a moments notice, the second the next guy adjusts his fee downward, their name populates first instead. That’s why some appraisers go rock bottom just to capture the work and keep it moving. There is a better way. If an assignment company does not have a firm minimum fee, they have failed in their obligations to implement the process fairly. What’s your fee and turn time? That’s an odd question, what’s yours? Easy simple negotiation methods. If a purveyor of a service or product seems apparently confused about the worth of their product, one takes pause. If they don’t understand C&R by now, I can’t help them. None of us can run a business around a question mark. In Colorado, at $550, some appraisers tell me I’m the discounter these days, va moved to $700. If $550 is a discount, call me the discounter. But I can not work with amc’s at all, knowing they ‘take losses’ and drive appraisers fees down elsewhere to cover the difference. These are not sustainable business models. Gum chewers.

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              • marion says:

                If they counter with they use an amc, just let them know that’s an unacceptable assignment condition and please save your email and flyer, you’ll be available when they are able to move away from amc’s.

                This is awesome advice Bags.

                You do know there is anti-competitive law that says competitors can not sign exclusionary contracts that reduce competition.

                ghee, if only the FTC would get involved.

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                • Baggins Baggins says:

                  Try with honest efforts as I might, I could not get any amc’s to answer one simple question, what their established minimum fees I could rely on were. It’s not that difficult of a question to answer, but they found a way. If there is no established number, the first one to say a number loses. Old fashioned sales techniques can still be relied on. These guys are so difficult to negotiate with in a consistent manner, I would be open to silver contracts or even trading barrels of whiskey. They seem to have a tough time understanding the value of cash.

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                  • Baggins Baggins says:

                    Also just a tidbit point about my above initial response comment. “Best fee.” There seems to be some confusion about the term. Best to whom? How can a licensed appraiser held to a non advocacy position effectively negotiate with someone who presumes you’re their advocate? Marketing lenders is in the end, a much easier more effective way to go about it. Amc’s, the long arm of the lender.

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  6. ASC says there is no daylight between AMC and the lender clients. How then can an AMC prohibit an appraiser from contacting the appraisers own client directly? As a normal business matter it wouldn’t usually happen, but if a dispute ever arose or AMC represented that their client was asking for something that is prohibited (OTHER than the underlying fraudulent-appraisal request itself) the appraiser has every right in the world to contact his or her client.

    In fact, Id want to see the AMCs written authorization from the client stating this is prohibited.

    Seems the AMC has forgotten their role in the process AND the definition of who the actual client is. Yet more evidence that they have never read USPAP except to cite that the phony reports conform to it.

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    • Baggins Baggins says:

      Of course, totally accurate. It’s a telecom out of the box business with rather high employee turnover. The amc is not a person, it’s a moving middle man target, populated with non licensed individuals whom have no mandate to be educated regarding these rules in the first place. We are literally being ‘managed’ by tech people who’s end goal is to put us out of business and replace our services with their own. Hows that for a breach of trust on the lenders behalf? You may not be aware of this, having insulated yourself from having to actually work with them, which is good. But now a days the language has changed. The amc language is ‘our new client’. That does not include the appraiser. In their minds, the lender is their client, we’re their employee. The entire industry is structured that way, so much even ‘direct’ assignment companies now operate much like amc’s, less the pay to play aspect of flexible fees. Individual licensing for every single amc worker or rescind separation from loan production rules. Since when was a coding programmer a qualified real property valuation consultant? I guess since they said so. Seems to be good enough for lenders.

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      • “It” (AMC) started as major, national influence Title Insurance Companies. Pre 2009 it was largely LSI (Lenders Services) out of Coraopolis PA; and ATM out of San Diego, CA (Appraisal Title Management; as a rebellion against LSI by some of its original founders and dissatisfied leaders). THIS is where AMC pricing wars started circa 1993.

        There are other AMCs claiming to have been around since the 1970’s but they were not widely known. Rels and Landsafe were considered ‘in-house divisions’ originally rather than AMCs.

        My point, is most of these were NOT small, independent start ups. They were extremely deep pocket national corporations with the ability to capture (sometimes dictate) receipt of all of a major banks appraisal orders.

        I was Chief Appraiser for one in the very early 1990’s (with only 5 years appraisal experience, so you get an idea of the limited expertise and background they typically hire).

        The NUMBER ONE and overriding concern was net profitability. This was above ALL other considerations. Appraisal standards and accepted processes were something to be overcome or sidestepped whenever they impacted profitability or speed of service.

        Most title companies became disenchanted with owning their own appraisal divisions (for HELOCS) due to overhead. They started sub contracting to non appraiser ‘appraisal coordinators’ that were only marginally encumbered by standards.

        By 2009 though Cuomo and (it is alleged) select title insurers, saw an opportunity to capture ALL appraisal business across America. Hence HVCC.

        This is when and why all the ‘little guys’ like appraiser owner AMCs popped up. Initially in self preservation appraisers formed them to capture otherwise lost work.

        Then came the inevitable business opportunists. People with great organizational and sales skills; no appraisal experience, limited morals, and suspect integrity. Appraisal fees and quality plummeted.

        “With reasonable profit, comes healthy competition. With excessive profit, comes ruinous competition.” Enter the software hucksters.

        Software con artists had sniffed around the periphery of appraisal for years. The ONLY thing stopping them from taking over completely with faster and cheaper services were those pesky  appraiser standards; and human imperfections that make real estate markets unique.

        In this environment we also had the normal and natural desire of mortgage brokers to ‘get deals done.’ NAR wanted to get deals done. NAHB wanted to get deals done. Title insurance companies (that now owned damn near all aspects of a transaction from home warranty companies, to realtors, to escrow, to loan origination and even servicing companies) also wanted to ‘get deals done.’

        The only thing stopping them was FIRREA and to a limited extent, Dodd-Frank; coupled with damned uncooperative appraisers.

        Now is a great time to look at MISMO “opportunities for collaboration”  
        (See end of article-editing issues)

        Thought UAD was only for SFRs? Think again. See above. Next they want to demand reform to narratives to get rid of all those pesky graphs to facilitate data scraping. NOT my interpretation-its MISMOs opportunities list.

        Again, look at MISMO Directors; The Appraisal Foundation Sponsors, & FNMA participation. Do you think changes in definitions of what appraisals are (were) was accidental or related to APPRAISER needs? Preservation of the public trust? TAF HAD to show a way that “Evaluations” could be USPAP compliant; then definitions had to be modified or at least clouded so that HYBRIDS could be slipped in as variants of evaluations which already had exceptions for lenders….which brings us to today where the fraudsters are claiming “Hybrids ARE appraisals.”

        Some actually are the same fraudsters that used to tout ZAIO.

        To get an idea of how far the tentacles of huge title companies reach look into First American (PACEPro), that used to be sisters with Corelamode. One bought ACI and the other bought alamode.

        Baggs, merely calling them ‘middle men’ isn’t enough. They are the bookends AND the middle.

        Appraisers: Its not paranoia when the bastards actually are out to get us (end us). They want and need to keep appraisals. Its just the  appraisers performing them that have become undesirable.

        We are not going to overcome this at a state by state level folks.

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    • marion says:

      What you need is a copy of the written agency agreement between the AMC and the lender and NOT relying on the common law definition of agency in what the AMC is responsible to the lender for. Don’t rely on a misunderstanding of what common law agency entails and makes each party responsible for. That’s why sales agents have to get their agency agreements in writing.

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  7. marion says:

    Want some real fun?  Scroll past the Mortgage Broker ads until you see the front of the Fannie Mae HQ.
    11,000 Secret Fannie Mae Papers

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    • Baggins Baggins says:

      They pulled that page. Is this it?

      Fannie Mae (FNMA): RELEASE the 11,000 SECRET FANNIE Mae PAPERS !!!

      Oh yes, this is it. Shocker! Must watch!

       

      The insider trading reference somehow relates to the use of avm and hybrid, flat rate, a general scoot of independents out of the way? “The same people whom are setting the terms for restructuring fannie and freddie are the same people whom are going to replace fannie and freddie in the private sector, and are going to make a killing doing this. This is the worst case of a good old boys club I have ever heard of in my life and it is entirely illegal. If taxpayers knew about this they would…”

      “Ten years after they were placed in Conservatorship the GSEs have nothing more than a $3 billion capital buffer. FHFA’s capital rule calculates the GSEs need $154.1 billion of capital (excluding the deferred tax assets). For FHFA to ignore its clear responsibilities under HERA, and to leave taxpayers fully exposed to potential future losses of up to $154.1 billion is not only not prudent but it is an unsafe and unsound decision by a regulator who possesses all of the necessary authorities, in law, to require the GSEs to build larger capital buffers”

      GF&Co – FHFA’s Proposed Capital Rule

      Holy smokes, the beat skips on in the above link. Ron Paul called this, the fed promotes first receivers of money, first and foremost, first receivers money benefit more than anyone else. The stock payout and definition work arounds here despite being undercapitalized has got to be just the perfect example. I called this one a while back, they’re burying QE in real estate. Now we know why. They are first receivers of money from the fnma markets, via stock. Bombshells on the blog today. Thanks Marion.

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  8. marion says:

    I knew you would understand.

    Not many do.

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    • Baggins Baggins says:

      Suggested reading. Bombshell information. Great leads, thank you.

      Previously I posted a Liberty Report video, regarding first receivers of fed money. Not sure if I have time to find that right now. Daily Liberty Report vids keep me aware of much of the relevant financial content. A fresh but traditional perspective. We don’t need no stinking changes… The regulatory mechanisms are broken, revolving door, co opted federal government, generational moves away from local governance, etc, etc. Only informed consumers can save us now, they are the invisible hand we must rely on. That’s why I post here instead of other places, the ready availability of data via bot crawlers and search engines. AF no longer offers such realistic benefit to public researchers. Behind closed doors? Pass, I’m not going with the keep the appraisers over here in a dark silent place program. It’s all or nothing now, this is the precipice where we all somehow through collective effort, make it or break it. Myself, I vote with my wallet primarily. Think of all the disclosure on the AF kept under lock and key for a mere 20k a year site monetization…. Your presence is as always much appreciated, have a good one.

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  9. Major Dick (Ret.) says:

    Me thinks that Jonathan Miller is going to be roaming the halls of a court house very soon.

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    • Major, I don’t think that’s very likely. Nothing actionable in his opinion statements. Impolite, but not actionable. AI has been a bit schizophrenic in their evaluations/ hybrids approach versus traditional standards for quite awhile. I was going to suggest scrolling up to my pdf MISMO attachment above but its too hard to read. Separate article on it coming out shortly. Bottom line is it shows MISMO intend to do away with BOTH residential and commercial appraisals after forcing a data mining system on commercial side first; then promoting hybrids initially, but with an ultimate end goal toward ending those and going fully automated.  That’s not opinion by the way its specifically stated in their (MISMO) collaborative objectives agenda above.

      Respectfully, AI cannot believe that is a worthy or acceptable objective for MISMO, but its one that they are (inadvertently?) facilitating via their past promotion of alternative standards. Even that’s not needed anymore. Hybrid hucksters are claiming new SOW itself allows ignoring inconvenient standards.

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Appraisal Forum Recap

by Jonathan Miller time to read: 4 min
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