Appraisers Are Historians
I mean no disrespect to the modelers of the Automated Valuation Models (AVMs) or to Zillow for relying on their AVMs. As an appraiser since the 80s, I have yet to find a computer that can tell me if I want vanilla or chocolate ice cream. Does the buyer want more acres, or less grass to cut? I will admit that a raised ranch, a two story farm house, a colonial, a split level, and a Dutch colonial can all sell for the same price. Unless they don’t. Then I have to figure out why. It’s not a mean thing, or an average thing. With 36 years of real estate appraisal experience, I say the bottom line, it’s a gut thing. Also referred to as a qualitative appraisal, that I have to explain so that the AVM underwriter approves it for lending purposes, or explain to the IRS for estate purposes, or to a jury or the judge in a tax appeal.
It is gratifying when appraisers are correct, and the AVMs burn; unless you invested in their stocks. Back in 2021, WUSA9 reported that Zillow lost millions in the home buying market. What took Zillow Ibuying down? They relied on their AVMs and “did not see the market start to cool”. Their AVM did not see the market start to cool and they did not use the expertise of appraisers. Zillow let down their investors for a significant loss of market value.
In other words, DelPrete said the pandemic housing market sent home values through the roof. Zillow and other iBuyers bought along with it.
But then, in the summer of 2021, the market started to slow down. However, Zillow Offers according to DelPrete didn’t slow down with the market.
Appraisers are independent individuals who train themselves to recognize the market value of a particular property. We appraisers are the buyer and the seller, we track the motivations of the moment. We are historians trying to recognize the changing markets.
On April 1, 2020, we were watching closings take place for contracts written before COVID. Maryland was on lockdown. I called an agent and asked what was going on in the market. He said “instead of showing my buyer 10 houses over a week, I showed 2, and they picked one because they did not want to go into any more houses. The seller said yes to the offer because they were not sure if there would be anymore buyers until the pandemic was over.” This was repeated by many, and we were off to the races, ending up with 4 times the number of sales above a typical year. At first, prices were stable but then by August prices increased as the inventory dried up. The computer models would not know about this hot housing market until several months after the August settlements, and even then, what was the real price? And what was the value? Homes were being bid up, with multiple offers above the asking price. By spring 2021, there was no inventory, we had 1,800 sales in the prior 12 months, and 22 houses on the market. There were offers on coming soon listings, before they hit the market and before they were inspected, some without any conditions. And then all of a sudden agents were telling me that the buyers were balking at the prices. I remember this happened in Y2K. The market stopped, and there were no buyers for 3 years. But Fannie Mae thinks they can create an AVM to project a safe investment for a bank. Good luck with that.
I do feel sorry for the buyers who moved to the country, the land of pleasant living, only to find out later there is nowhere to purchase a latte, the restaurants close at 9 or earlier, and the nearest grocery store is a 30-minute drive. Some of our comers are trying to sell and move back to the city but the interest rate is much higher. Can the AVM adjust for this? Appraisers follow these changes in real time with real people in their markets.
I have a copy of an article from 1987 warning that the computers will be the end of appraisers. At the time my secretary would type both side of the 1004 form in 15 minutes on her Selectric typewriter. When I would find an error, since no white-outs were allowed on the form, she would type it again. In the early nineties I added digital photos, which was better than polaroid and a lot more convenient than going to a photo lab and getting 3 copies of each picture. I hated sending the pages of the appraisal report on my single page fax machine. Thank heaven for Gmail. When the AVM can tell me whether I want a beer, wine or a mixed drink, then perhaps I will begin to believe it can think like appraisers and value a property correctly.
By Fitzhugh Turner, Certified General Appraiser and owner of Tidewater Properties Appraisers in Maryland.