AVMs Can NEVER Replace Appraisals
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AVMs Can NEVER Replace Appraisals & why FNMAs vaunted CU AVM is flawed!
Yesterday (March 15, 2016), an appraiser called me to discuss a complex assignment he had. One of his comparable sales was reported in MLS as having sold for $3,469, 898. It was in range with his other comparable sales for his subject property. It was the most similar comparable property.
When he went to verify the sale price with our Los Angeles, California subscription-equivalent to “public records” he discovered a shocking discrepancy he couldn’t explain.
RealQuest (CoreLogic) showed the full value sale price as $17,665,455! So what one may ask? Just use another comparable sale, right? Even though it was the BEST sale available? It’s the data reliability that is the underlying issue.
IF you had five (5) sales in the $3 million to $4 million range and their actual average was $3.5 million, but one had been misreported by the SAME DATA SOURCE used for AVMS as indicated above, the “average” would appear as $6,333,091! OK I opted to use averages rather than medians because it’s easier to follow and calculate, but the same extreme result applies when medians are used. Certainly the amount skews any AVM ‘value’ calculations. The extreme degree of error remains whether it is a FNMA conforming loan limit amount or in a super jumbo loan range.
This is not an isolated occurrence, but relatively few appraisers are aware of WHY it happens. It significantly affects statistical reliability. We’ll pretend right now that 1004MC isn’t affected by this too.
“Public Records” data aggregators like CoreLogic don’t receive confirmed sale prices from the County Tax Assessors Office. The County does not compile THEIR records that way. What they and most title insurance companies DO receive daily is an electronic tape reel (or digital equivalent today) with the dollar amount of documentary transfer stamps paid for each sale.
THAT amount must be translated into a “verified full value sale price” by the aggregator.
So, in the above case the aggregator’s translation-clerk (or OCR algorithm software) correctly read doc stamps as $19,432. They also “know” that Los Angeles County transfer stamps are $1.10 per thousand dollars of sale price. In their mind [$19,432 / $1.10] x $1,000 = $17,665,455. So far, so good aside from being completely wrong.
The CITY of Los Angles ALSO assesses an ADDITIONAL $4.50 per $1,000 of value (sale price)! Combined with the County Transfer Tax, “doc stamps” are now $5.60 per $1,000. So [$19,432 / $5.60] x $1,000 = $3,470,000. This by the way is the rounded equivalent of the actual sale price as reported by MLS?
OK, FNMA and all the AVMs fans will argue that in the era of “Big Data” that the sample sizes are so huge that overstating the sale price in one city by more than $14,000,000 “doesn’t really skew the results enough to affect reliability.” Hmmm. Sounds like snake oil to me, but…
How about when OTHER cities also have special calculations the aggregator misses? For example Culver City has $4.50 per $1,000 (Plus the County rate of $1.10) just like L.A. City; Pomona has $2.20 per $1,000 (plus the $1.10), Redondo Beach has $1.10 PER $500 ($2.20 per $1,000 equivalent but stated differently in their ordinances-PLUS the $1.10). Santa Monica has $3.00 per $1,000 PLUS the $1.10. NOT listed in my chart is the City of Torrance with a $2.20 per thousand.
So, it is NOT just one ‘small’ city like L.A. after all.
FNMA (and other AVMs/BPOs proponents) wants us to believe the sample size adequately minimizes the impact of human errors I just pointed out.
The problem is that their Collateral Underwriter bases the geographic area of comparison to the same census tract as the subject! Yes, it can be over ridden in an AVM but the default comparison is the census tract or a half mile radius, and THAT is a very small area in which fourteen million dollar errors on individual sales WILL have a significant effect!
IF the only concern were doc stamps in Los Angeles, I’d say it is a problem that COULD be solved (in time), but how many OTHER Counties across America have transfer stamp data translated this way? Maybe there’s a REAL reason Zillow can’t reliably value real estate.
In Eckert, Colorado or Enid Oklahoma the appraisers may still drive down to Grand Junction or wherever (sorry Oklahoma!) and look at actual deed copies but I doubt it. How was the FNMA data entered or derived for non-disclosure states like Texas or New Mexico? How many other states are affected by anomalies in “big data”?
Back to California. Like I said IF these were the only issues I assume the greatest unlicensed “appraiser” minds at FNMA who invented the patented CU But are they even aware of the OTHER issues resulting in near zero credibility for AVMs?software process could also solve these kinds of glitches that directly affect the credibility of their initial AVM based screening.
But are they even aware of the OTHER issues resulting in near zero credibility for AVMs? Like the number of refinances being reported as much lower value sales? Rare? Hardly.
The trend in California (often) whenever a quit claim is involved in the chain of title (when property is purchased as sole and separate property by a married couple for instance, OR where it is put into an LLC or S Corp via QC) the LATER refinance MAY or MAY NOT REQUIRE grant deeding by the original parties into whatever entity holds title presently.
In California if a grant deed is involved along with a refinance deed of trust, a ‘sale’ is presumed for calculating doc stamps. So, a two million dollar property owned free and clear for many years with the Medical Doctor owner and his or her spouse frequently having it QC’d in and out of both names over the years has the title insurance people dictating that the chain of title be ‘cleaned up’ by new grant deed to record a new $400,000 refinance.
The transaction shows as a SALE for $400,000 even though title data aggregators will claim it does not! Certainly the AVM sees it that way.
How about REO’s that are subsequently flipped at quick sale prices?
No algorithm can adequately screen out huge anomalies in ‘Big Data’ that require specific, competently trained local expertise to recognize.
That is why we have full real estate appraisals and that those in turn are required to be performed to meet certain MINIMUM standards under USPAP. Circumventing those MINIMUM standards is the same as circumventing the will of the Congress of the United States of America as expressed under FIRREA 1989 Title XI.
I never depend just on MLS for data, always verify and keep the records in PDF so you are never are overwhelmed with paper
Ross, you may have missed the point which was that the preferred VERIFICATION source is unreliable! No sane appraiser relies solely on mls or agents data, except perhaps in non disclosure states.
IF the data that we ALL use (appraisers and AVMS) has irregularities that only humans recognize, then any AVM based on them will necessarily be flawed! Like the FNMA AVMs used to pre screen CU appraisals. Like the same one s underwriters or AMC CLERKS are pulling and then asking us to reconcile OUR opinions to.
There is a bigger issue than whether or not an appraiser knows how or when to verify data. My fault for not making it more clear. Long day, though.
I never depend just on MLS for data, always verify and keep the records in PDF so you are never are overwhelmed with paper
the big hurdle with AVMs is how is the liability going to be handled when we have a RE downturn. Who gets sued? Who does the lenders hold liable??? How do lenders prove neglect??? When a AVM is providing values its almost like the lenders assume the software programming parameters. If so, the lender have no one to blame. that won’t work for lenders and lender interest group. Thus, AVMs will not work as a primary appraisal underwriting source.
The example used had no relevance whatsoever to the application, accuracy and usefulness of AVM’s. The example proffered as support to why AVM’s don’t work would be like trying to value a $20 million collectible automobile using Kelley Blue Book. Wrong application. AVM’s are most accurate for properties within 1-2 SD of the mean price, and virtually not usable for outliers, which are the “hard” or “complex” ones. A good AVM will provide numerous metrics, including a Confidence Score. The one offered as an example would likely result in a confidence score close to 0 (lowest), with ratings of 0-100, meaning that the AVM can’t be used. The good AVM’s self-report when unreliable, on a case by case basis, unlike appraisers. I have reviewed many dozens of fraudulent residential mortgages, with real appraisals, involved in Federally Related litigation. EVERY appraisal was done by a licensed or certified appraiser, and each over-valued by millions of dollars. All eventually went into foreclosure [many first-payment defaults] and becoming REO’s, and, the lender eventually going out of business. If AVM’s and/or automated reviews had been performed instead of using incompetent appraisers and incompetent reviewers, the majority of these would probably have been caught. AVMs’ will get better and better over time, and will have their place in the collateral valuation side of mortgage underwriting. In the meantime, appraisers are collecting data on behalf of Big Data to use.
I disagree Craig. In my example below its the appraiser who must use his or her local knowledge to filter in only those sales that would be true substitutes to the subject property. The appraiser must filter by ownership type (condo / non condo), (attached/detached) while the public records in my area have no such filter. Without such a filter in place and without local knowledge, are the AVM’s simply including all attached homes in with detached? The inclusion of such data (very specific market point att/det) would in fact taint the entire pool and provide misleading data for ALL PROPERTIES. Are the AVM’s aware that most attached homes in my area (non-condominium) are falsely indicated in public record files as having a land use code of Condominium? When looking at condo properties are the AVM’s programmed to include all that have a land use code of condominium? Again, the information produced would be tainted. The AVMs will not view such properties as complex and come back with a confidence score of near zero, as the system will have plenty of information to draw from, but not know what to include. Unfortunately, with no filter in place, its the appraiser who will be left arguing against computer.
Craig, you missed the average of the comparables A 3.7 is not an outlier when the average is $3.5! It does not matter how many zeros were behind the number. It could just as easily be $350,000 against a misreported 1.7 million sale. If enough of the underlying data is unreliable, then the end product CANNOT be credible.
The FACT is that the data reliability is GARBAGE and being pawned off as the Emperors New Clothes under the guise of a lot of assumptions that may or may not apply. Those praying at the alter of 70% Regression analysis accountability will never accept that consistently producing incorrect results reflects poorly on the method AND data assumptions.
It is an erroneous ASSUMPTION that “Big Data” eliminates the need for data culling to eliminate outliers.
I am not anti regression. I AM anti AVM because I have NOT seen one yet that works as advertised. NOT ONE. If it cannot handle the low, middle and high ends of a market range then it is of little use when put in the hands of a non appraiser clerk in a loan processing center. If it cannot ‘evaluate’ a two bedroom smaller than typical sfr on a larger than typical C3 lot in downtown L.A. rearing to the Hollywood Freeway and fronting across to a multi block area frozen in time for new development due to Browns CRA freeze, then it cannot replace the appraiser.
How does you AVM handle the second scenario cited where refinances are reported as full value sales?
Appraiser Assisted AVMs could have a place just like ordinary regression MAY be a valid tool or cross check, but by themselves, they are NOT real estate appraisals. I’m surprised an MAI would defend them over a complete appraisal, professionally performed.
As for fraud litigation that you specialize in, by definition intentional deception is involved. The perpetrators of the fraud could just as easily have culled and stacked the data deck to support their positions in support of the fraud.
Had AVMs been used in your cases there is no evidence those analyzing them would not have overlooked that data as well. First payment defaults suggest a LOT of other factors were involved like BAD underwriting. Have to ask, were those ALSO automatically underwritten?
I sincerely appreciate the counterpoint and explanations , even if I remain in disagreement. Thanks Craig.
Michael: You are missing my points. I am not arguing in favor of AVM’s over appraisers. Of course most appraisers are better than most AVM’s. It’s not that I think AVM’s are accurate than appraisers in all or most cases. It doesn’t really matter what you or I or others believe or wish for, however, which is my main point. It’s what those in the decision making capacity believe and want. I will say, however, that many properties can be valued quite accurately [within reason and high confidence] with an AVM. NOT ALL. There are always exceptions. Bloggers can point these examples out one-by-one. Those within 1SD of mean especially are good candidates for something less than full appraisal. Maybe 2SD. NOT multi-million dollar properties. NOT ocean-front properties. NOT acreage. Simple tract homes anywhere USA with sufficient data are easy with automation. They don’t have to be 100% accurate. From a lending perspective, is the collateral sufficient for a loan and is borrower qualified? No appraisal is 100% accurate and most lack any validation or testing. One thing offered by AVM’s is forecasting, which appraisers refuse to do. Some are quite good at this by factoring-in employment, affordability, interest rates, etc.
Craig we are cross posting. bear with me.
We both know that when any new product comes out its benefits are FAR over stated, and its risks grossly ignored. Why on earth would any sane person have approved a neg-am 2% ARM with pick a payment (to skip) options, guaranteed to recast for as high as 8% or 9% within three years?
When I postulated the same limited applicable use view about 704 drive-bys related to helocs in the early 1990’s the title company parent of our appraisal division over rode that advice. We went from 38% declined to do, to not more than 15% declined to do-which was still too high for them.
The fact that SALES PEOPLE demand cheaper, faster, misleading products to help defraud the next batch of investors is NOT a reason for me to cave to their willingness to accept and misuse lesser ‘products’.
A professional appraisal is NOT a commodity (Lance Coyle’s views notwithstanding). Any more than a doctors professional opinion would be. An AVM is.
Craig, I’ve SEEN how FNMA’s CU is being used despite the license limitations. I’ve read the process patent application for their system which relies on their own database PRE-adjustment Guidelines dismissal. An AVM predicated on a database KNOWN to be flawed in ALL important aspects! What could go wrong? Did I mention that no tone of their software designers holds a currently valid appraisal license, nor did they hold one when the patent was applied for?
You (figuratively) can review MY work to see if I am compliant. Neither you nor I will ever be reviewing an AVM’s work for the same purpose. With the stroke of a pen FNMA can say SD1 or SD2 is too restrictive. SD5 is where it should be! or 10!
In Five years Mr. Paulson’s future heir comes back and says the sky is falling, give me compete authority, no questions asked to save the world and taxpayers cough up another trillion plus dollars?
IF AVMS are so good, then let banks make UNINSURED loans with a frequent repeated public promise that NO WALL STREET firms or foreign investors will ever be bailed out by taxpayers again; and the rest of us can go back to doing appraisals for honest uses.
Thanks Mike. On a related note I completed an appraisal this week on an attached home (non condo) where my large search area only contained 12 closed sales over the past 12 months. I used 33% of the total sales and all 4 of these comps had significant errors as it related to their public records indication of their lot sizes (no lot size in the MLS). Each were in the range of 5,000 to 7,000 sf, however 1 comp reported a lot size of over 30 acres, while the other 3 were over 6 acres. How would this significant error effect an AVM when 33% of the data was being effected over the past year? The other issue is how does an AVM narrow down the search via public records as it relates to attached versus detached homes? Attached versus detached condominiums? Do the AVM’s understand that in the county of San Diego all condominiums have APN numbers that end in 01 to 99 (attached or detached)? All other properties (attached homes, detached homes) have APNs that end in 00? Local knowledge is needed.
I have seen sales prices from Core Logic not match up with MLS sales price or the actual recorded sales price in public records. I always check the recorded sales price. I have also found that sometimes one of the documentation sources for CT only pick up the mortgage amount not the actual sales price. I have had to send them a correction many time.
And how will those data points play into mers and clouded title? Remarkable.
No time for this issue today, although it’s still on point for today’s rush request: Must write letters in support of lowering deminimums, today is last deadline. I just sent a mobilization group email, and I suggest you guys do the same. Except for Mike of course, he’s long since been all over this issue like nobodies business.
Last day to write the letters. Correct me if I’m wrong, but if there are over 100k appraisers nationally whom this change would effect, a measly 150 appraiser commenters is simply not going to cut it.
Excellent comment posted by Hamp Thomas in support of lowering deminimis:
Facts are facts and not opinions. An appraised value represents an opinion, not a statement of fact. An appraiser may believe that the value of the subject property is “exactly X dollars“, not realizing that a property has a range of value, and that multiple appraisals on the same property result in multiple opinions of value. AVM’s operate in this realm. The vast majority of appraisals are not market-tested or validated and therefore remain only a non-validated opinion. This is why appraisers get defensive about anyone challenging “their” value. Clients who need to know the truth and obtain accuracy order two or three appraisals, like relocation appraisals. AVM’s are getting better and faster. They have their strengths and weaknesses. For many mortgage appraisals, they are adequate or at least “good enough”. I don’t mean Zillow. Appraisers unfortunately add less to the collateral valuation and underwriting process than what they believe. Automation and the abundance of data at first seems your friend as an appraiser, but, it eventually becomes your enemy, as we will see in the foreseeable future. Not because of the deminimus threshold but this will be a factor one day.
Garbage in equals garbage out Craig. How do the AVM’s know from public record files the following. The impact of special assessments; the impact of a new freeway that separates the old neighborhood (census tract numbers); the lot utility; the impact on value of being legal non conforming; seller concessions; the lot utility. The list of data that can’t be calculated is pages long. Do the AVM’s understand that in my area an in-ground spa shows up as Pool in public records? Do they understand that resort style pool/spas costing $100,000+ also show up as Pool? AVM’s are like old school broken clocks, just because they can be correct two times a day, doesn’t mean they should be trusted.
Craig they are validated opinions when an independent peer review finds them to be credible. Lets not quibble over point values versus ranges. Its a distraction to all our points.
As for the rest you may well be right. We already see symptoms of it in national network media where even superficial ‘investigation’ doesn’t exist. We see it in laws where the underlying concepts and reasons for a law give way to parsing of the language they are written in. We see it when people are adamant in believing rumor over documented FACTS.
One sign of hope remains. BOTH major parties popular support is falling to the non establishment candidates (forget their specific views for a minute); but being ‘establishment’ right now is seen as a HUGE negative by a lot of old timers, and many up and coming young folks. Lets not go into the woods on political views now. Just think about the extremely unusual, near spontaneous uprising of public sentiments CONTRARY to the ‘powers that be’. Government & GSE bureaucrats have NEVER been more afraid for the security of their jobs.
FNMAs $2 million to $7 million dollar a year chief execs should be quaking in their shoes. Neither party believes they are worth 1/10th that much.
Mike – our politicians in DC write and pass bills on behalf of their constituents. Their sponsors. NOT the public at large. Not you and me. For the Corporatocracy. Big oil, Wall Street, big Pharma, etc. This is one reason for a 13% approval rating of Congressmen.
I recommend a brand new book for all appraisers and other 99 percenters. It was written by a Certified Residential Appraiser, Jeffrey Collins of Huntington Beach CA. Name of book is “Where The Money Went – An American Love Story”. It covers all of the points you made and many more. This is a 366 page book and I am on page 260 already. I highly recommend this book. You should get this and report back with a review.
I keep saying, unfortunately the machines will win out. They work cheap, have no mouths to feed and will do whatever their owners tell them to do. Orwells 1984 all over again. 🙂
Diana: You see the light and offered a logical explanation in few words. Appraisers are unfortunately at the bottom of the banking and lending food chain, and are not in a decision making capacity with regards to the collateral valuation process. “Independent” Residential Mortgage Appraisers are simply reactionary to demands made for them by others. The really important and critical decisions (AVM vs Boots on the ground live appraiser vs Desk Top, etc.) will be made by those further up the apex who politically connected ($$ contributions help). This has nothing to do with being a good, ethical and accurate appraiser. No appraiser can ever keep up with an electron. Defies laws of physics. You can’t be fast enough or cheap enough.
Agree re Diana’s skills!
Respectfully to Craig, disagree with bottom of food chain belief & conclusions.
America was not founded by people that ‘went along to get along’, or that were willing to accept economic or political serfdom….though they did so until a critical mass of frustration was reached.
It is human nature to seek and then protect the benefits of privilege. To some extent this is a positive attribute. Its the foundation of Capitalism. It is only when dishonesty and manipulation of laws becomes prevalent that the system is at risk, and not operating properly.
We had dueling to keep honorable people honorable two hundred years ago. That was one of the first things the dishonest hucksters and charlatans made illegal. Then they convinced us that only attorneys and accountants could possibly make laws and policies. That common sense had no part. Only professional politicians can lead-not mere citizens as was originally intended.
We went back to being ‘serfs’ with mediocre retirement promised if we were good and loyal to some business for 30 years of our lives. Until that too presented untapped opportunities to steal.
Initially by the likes of Jimmy (The Weasel) Fratianno and other’s with access to union pensions [yeah, I know. THAT could get me in trouble with the bosses, but truth is truth]. Later on seeing how profitable THAT was, MANY politicians and their attorneys / accountants wanted a piece of the action.
They brought us Lincoln Savings & Loan and RTC; Enron, FIRREA (DAMNED inconvenient that one was!), repeal of Glass-Steagall, 2% Option ARMS with pick a pay and negative amortization built in, for maximum risk high yield securities that necessitated three to five year refinances.
Then the biggest “legal” ‘theft’ of public funds in history orchestrated by Hank Paulson via TARP I; quickly followed by TARP II and Quantitative Easing ad infinitum because free enterprise can no longer afford the interest on the national debt without it. The ‘serfs’ are starting to get upset.
For appraisers, OUR Concord was HVCC. We KNEW we had a problem…it just took us so long to do anything about it, many became frustrated and stopped trying; but some of us KNEW something COULD be done if we only tried.
I’ve seen it first hand, so I’m less discouraged than many. VERY small numbers of committed people can have influence far beyond their numbers, or stations in life.
We see it all over today in our current politics (regardless of which side you are on). The serfs are PISSED! Apologies.
First State coalitions; then combined coalitions to fight at higher levels were formed. A VERY FEW recognized appraisal associations became demonstrably active FOR ALL appraisers. Most notably the ASA though not to diminish the contributions of others. One, sadly works for the benefit of only a few of its members.
None of these have critical mass though. There are after all, only 78,000 of us left. In a nation of 330,000,000+ ‘serfs’ how much influence can they have divided?
The answer is “A LOT!” Consider:
Only 66% of the above are eligible to vote. Of those 66% only 57% actually voted in 2012. About 38% of all eligible (+-83,000,000) and about 25% of total population.
Each major party has very roughly from 35%+- to 40%+- influence or shared empathy with those people. That’s about 29,000,000 on any given issue at any given time. Given two sides of any issue, they are concerned MOSTLY with what the 50%+1 are concerned about. That’s only 14,500,001.
ALL politicians accept that everyone that appears or takes the time to write in on an issue reflects the views of from at least 10 others to as many as 100 others. (Trust me on this or go ask you own elected officials-I once ran for office and was VERY involved in influencing community issues).
AARP claims 3,000,000 members. That’s about 21% of the majority perspective noted above (any issue). No one denies that AARP is influential. As a (former) AARP delegate I could get into my Congressman’s office for a sit down meeting to present views ALMOST at will. Certainly every time AARP had a new issue to promote. This was the same congressional office that I had written to for over three years as an appraiser, asking for help on HVCC (admittedly under a previous non responsive hack).
Point is, that IF ONE (1) involved person equals 10 to 100 other similar views, the Congress member ASSUMES AARP could influence 30,000,000 actual VOTERS!
The American Guild of Appraisers (AGA, OPEIU/AFL-CIO) can speak for roughly 13,000,000 consumer, taxpaying, members, retirees, and their families at any given point in time, on real estate valuation related issues. OUR political leaders have to assume we COULD be speaking the views of up to 130,000,000 Americans and we are NOT limited to one party!
Federal & State Bureaucrats are deathly afraid of even ONE LETTER, that can end their careers or cost promotions. Federal Agencies have only 48 hours to respond to a Congress members official inquiries. They don’t like specific issue or personnel complaint letters to go to Congress members.
Our issues usually transcend political party interests. MY political leaders work for me, not the other way around. I don’t mind reminding them of that.
I am completing an appraisal at this time. It has been in the MLS for 5 times. 2x’s @ 2300 sq ft, 2x’s at 2650 sq ft and 1 at 2400 sq ft. I measure the house and the sq ft is 1600. It was purchased 15 months ago for $354,000. I have one comp 1800 sq ft in the same high dollar neighborhood for $265,000. I verified older comps 12 – 24 months sold for $250,000 – $290,000. I also verified 2,200 – 2,600 sq ft for same time period and they sold for $320,000 – $360,000. the subject has a 1000 sq ft finished basement with 2 bedrooms, 1 full bath and family room with walk out. All 4 bed & 3 bath is in MLS as a Rancher. Tax records state 1600 sq ft, Corelogic tax records state 2,600 sq ft. Realtors in this area are famous for adding the finished basement into the gross living area.
Now how is an AVM going to know that the county tax records have the correct sq ft.?
The home owner states they looked on Zillow and the value is way over what they paid for the house.
Prime example not to use an AVM. It takes an Appraiser to know the difference of above grade and below grade to determine gross living area.
Outstanding example Lindsay!
Tax records do NOT limit themselves to living area as typically defined by GSEs across all jurisdictions. They address taxable improvements.
If big data is so infallible, why is it that Wall Street investors and the Federal Reserve never know from month to month IN ADVANCE what the economic trends will be? Yet the talking heads almost ALWAYS announce a week or so after major changes or shifts, that they knew exactly what happened and even ‘predicted it’.
Either they don’t understand the concept of prediction, or their data is not nearly as reliable as they like to believe, despite all the scientific arguments about standard deviations, variances and my favorite “outliers.” Maybe FNMA could share CU with them? By golly, THAT would show them where the heightened risks are!
My favorite was when my immediate bosses at IRS developed a spread sheet for a potentially “acceptable” Discount for Lack of Marketability (DLOM) formula related to fractional interests in (business) Enterprise FMV Valuations where NO SAFE HAVEN formula exists! It’s at best, an arguable process based more on unsupported theories than real marketplace actions.
Perhaps one more concerned with career would also have fallen in line and simply remarked how wonderful the ‘Emperors New Clothes’ looked instead of asking how to reconcile “Blue smoke and chicken bones”; and exactly WHO is supposed to blow it up whose skirt?
Oh well, ultimately it’s math and math can’t be wrong……
Mike, you should take heart. The whole thing is rigged, and practically everybody knows it. The only ones still believing the lies, are the ones promoting them. Smart consumers escape mortgage servicing, at their absolutely earliest convenience. Thrift is back, and in a big way. The safe haven formula for consumers, is to hedge purchase, be thrifty and well informed consumers, and demand the purveyor of the product also have ethical dealings full circle consideration, and does not seek to hijack representative governance. America – No longer for sale. Game over.
Unfortunately the lowly Appraiser’s vote won’t be counted in any decisions made and adopted by GSE’s, regulators, etc. in determining the appropriate and acceptable methodology for Collateral Valuation. One good example is the 1004MC. Many appraisers and statisticians notified GSE’s of shortcomings and easy fixes needed when 1004MC was in development and testing mode. ALL were ignored. There is currently a cascading process already adopted and in use by many lenders for many situations where an appraisal was once a requirement. Manufacturing jobs were off shored to China and service jobs which were not off shored to India and still in the US have been taken over by automated systems. We all use them on the Internet. Capital trumps labor and appraisers are expensive and slow laborers. Those proposing lower educational standards and training for appraisal licensing help to perpetuate the belief that appraisers are not professionals.
That’s one side of the argument. I’m not entirely sure though. Only a fool of a consumer will trust one single company to handle both the commissioned sales, and the supposedly unbiased check and balance, simultaneously. I know that from a consumer perspective, I absolutely do not trust the systems in place, and I do insist on independent risk management assessment. As the old saying goes; If you can’t trust anyone else, you’ve got to do it yourself. Buyer beware if evals replace appraisals under 500k. The mortgage managers are spelling their own demise, because this system won’t revolve around credit forever. Audit the Fed, and the reasons to audit, continue to mount. This article being another in a long line of examples why a return to silver backed currency is not only appealing, it is necessary. With a more stable currency system, where purchasing power is not revolving around the fed rate and money cannot be printed on demand from the plunge protection team, there will certainly be less insider plays to disrupt the system at the expense of citizens, for lender benefit. Here is your new financial education, in an entertaining hour long broadcast. A must listen regular program, for those in the know.
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Baggins, you mean the consumer won’t trust First American Mortgage Solutions to have one of their franchise agents sell them the house; provide a First American Home Warranty, run it through a First American subsidiary escrow company, trust title issues to a First American underwritten policy of title insurance; order an impartial appraisal through a First American operated AMC, using only a First American appraiser panelist and then running the loan through a First American Mortgage affiliate with future servicing to be done by First American?
Oh yeah, IF the appraisal was reported using ACI, First American owns that too! With THAT much internal control I am SURE no one would in the chain would feel their job is at risk IF their actions were seen to be killing a deal. Would they?
Craig, I just lost (literally) a full hours work responding to your post. Oh well, probably would have bored people.
Be honest, you are a software designer of an AVM product (Veros Software?). Your views on AVMs are at best biased and a reasonable person would not deem them to be truly objective.
I’m actually happy to see you believe capital trumps labor. You see, as a Free Enterprise Advocating Republican Labor Organizer I still believe that the economy (and most businesses) function best when the elements of production are in balance. I’ve written my parent unions President suggesting approaches respecting that are the only salvation for unions of the future. They haven’t thrown me out of the club yet, and you may have noted huge labor donations from AFL-CIO and OPEIU are remarkably absent or minimal this election cycle. You see, I think real unions are sort of angry with old school self serving politicians outsourcing jobs too. THEY haven’t accepted your premise yet.
I know, its basic economics 101, but I’m not trying to baffle and bewilder anyone like a Wall Street economist would be doing (how often are they right, again?) to promote THEIR particular brand of bullshit.
Your final statement is flat out disingenuous. Appraisal license standards were high from day one. Either that or the tests we have been requiring for twenty five years were fraudulent and a LOT of people are owed refunds. Loss of respect started in 1989; was remediated and then recurred in 2005-2007. LONG before the standards were INCREASED needlessly, or anyone proposed “lowering” them to where they were as recently as 2013-2014.
Craig you are welcome to come join us and retrieve what USED to be your profession. It was an honorable one, worth defending and preserving, even if the AI doesn’t believe so anymore.
Mike, we have the same situation here in CT. a very large real estate firm also owns a mortgage company with their own appraisers, a legal division and insurance company. Do ya think it’s a conflict of interest ?? 🙂
Don’t forget the nearly half a billion dollar purchase of FNC, Inc. (Appraisalport) by Corelogic as they want to control and profit from the delivery as well.
Clearly Diana. When I used to sell for Coldwell Banker and it was a part of SEARS Financial Services, I ran into same thing. We were STRONGLY urged to use the in house services. That lasted for me only up until I had our ESCROW telling ME what the contract I drafted for buyers and sellers really intended. Once my Dad and I wanted to help someone out and the only way we could do it is if we took about a 1% (total) commission listing. To their credit, Corporate OK’D it but the fact is that we had to get corporate’s approval in the first place even though the PMI company, defaulted-seller and buyers were all on board already.
Mike, that’s why I’ve worked for myself for the last 40+ years as both Realtor and appraiser. Happy Easter.
Craig, I would love to see an AVM on the attached home (non-condominium) age restricted (55+) PUD assignment that I just took. By the way financing is limited by way of current pending litigation. I would love to see the series of 00011000100’s to have a machine figure this one out.
Bill- I am not a proponent for AVM’s but I know how they work (technical black box stuff) and can see the writing on the wall for residential collateral valuation. Remember that Core Logic is in process of taking over MLS platforms all over the U.S. The other big player on that side is Black Knight Financial Services (you may remember them as LPS and their Robo Signing scandals). The property that you described and more importantly the comp data are all coded in MLS, by assessor, etc. and can easily and instantaneously be identified and included in analysis. Geocoding, altitude, direction facing, what side of street, tract no., census tract block, etc. are all compiled and analyzed instantaneously. Not necessarily better than an appraiser, but faster and cheaper. No one with a big war chest and unlimited funds is there fighting for the appraisers to keep their jobs.
It was probably part of a bulk sale transaction. Did you call the buyer or seller?