Hey BIG Data, Leverage This!

Special Report on Appraisal Technology Rebuttal - Hey BIG Data, Leverage This!

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“Across the street from a house are two vacant lots. Zillow thinks one of them is worth $16K and the other one’s worth $169K. You can see them on the aerial view here.”

I was recently asked by professional peers if I would read and comment on a Special Report published by ValuationReview, with the introduction penned by Mike Holzheimer, Editor. This Special Report may be downloaded here.

Let’s be clear up front. I was not asked because of my proficiency with grammar, punctuation or even my willingness to help the English language grow and adapt… in a forward sort of way. It goes without saying that brevity wasn’t required.

I don’t know, or at least don’t recall who Mr. Holzheimer is, or if I have read his work in the past. It is a name that is naggingly familiar to me somehow.

Until today I never knew that ValuationReview was apparently oriented toward title company interests and their customers, though that’s not made very clear in their ‘About Us’ disclosure.

Valuation Review is a production of October Research, LLC specializing in business news and information for the valuation industry and real estate appraisal professionals, and is published 24 times a year.”

One has to go to the publisher’s parent company October Research, to put the article and views in context. I urge all readers to check their background before reading their views. Nothing nefarious in that. It just helps to understand what may have prompted them to write such a slanted pro technology view despite their parent publishers website disclaimers about unbiased information. Think National Settlement Services Summits.

In any event, Mike Holzheimer’s (unbiased?) introduction to the special report has a few embedded phrases that affect a reader on at least a subconscious level. It starts with the heading

“Technology is change that appraisers must embrace”

Why exactly must appraisers embrace technology?

Is it all good? Is it all beneficially time saving? Does hugging technology (like a tree perhaps?) make me a better appraiser? Does technology always lead to better adherence to my legally required standards of performance, or does its design and use seek to circumvent them?

The answer is both ‘Yes, and No’ or perhaps even the universally vague ‘sometimes.’

I’d be happier with an introduction that read Appraisers must be critically selective before adopting new technology. Certainly, that would be more applicable. Sort of a blend between an outright Luddite and an Emperor’s New Clothes or Pollyanna perspective.

There is nothing incorrect in Mr. Holzheimer’s first two paragraphs. As cliché as they are, both are basically correct… in a yawning sort of way.

The outright unsupported brainwashing doesn’t actually start until the third paragraph where Mr. H. opines that

“Those who readily accept these technological changes and apply them to their business will keep moving forward and continue to see appraisal reports satisfying all parties involved.”

Golly gee! 47 years in the real estate, finance and professional appraising businesses and I never knew that my job was to satisfy all parties. As an agent it was a lofty goal but when all was said and done my obligation was to satisfy my client. In finance there was not one time that ‘satisfy all parties’ was suggested as being either a possible or desirable objective. Creating the illusion that it was a concern is another matter.

As an appraiser satisfying all parties has never been a consideration. You see, satisfying all, or even any of the parties is not something that is taught or contained in legislative standards that govern my actions.

As a practical matter, satisfying my client that I have performed my work in a professionally competent manner is a concern, but little beyond that is.

As for Mr. H’s statement that “The determination of property value can be as simple as a touch of the tablet screen”, I think he’s either been seduced by the dark side of hyperbole, or perhaps he was dropped on his head as a child. It’s certainly an insultingly uninformed comment to make about what appraisers do. I’m not surprised their subscribed readers think appraisal is little more than a coin toss or dart board driven process.

His fourth paragraph boldly states that companies continue to see the benefit of advanced technology for the appraiser, but doesn’t identify which companies. AMCs? Monopolies in data aggregation, or settlement services?

I recall the word ‘forward’ being used relating to use of technology. If that’s true then why have fees regressed to what they were 20-25+/- years ago?

Paragraph six offers the comforting words that the experts emphasize that the specialized equipment/technology will never physically replace the appraiser in the field, but merely enhance their abilities to achieve more work in less time and with greater accuracy. I suspect that he has never actually followed how appraisal technology is used from start to finish and then reconciled how that application complies to USPAP.

The final paragraph “Second guessing and doubting the accuracy of numbers tabulated is erased by using the tools at one’s disposal. More than ever, appraisers are coming to the realization they cannot afford to be without technology, literally” appears to be at least half right. We all know we need some degree of technology (and data), but as for trusting that the resulting numbers are accurate or meaningful is pure fantasy. Anyone that has ever used the UCIAR-EP or SP forms can tell you how unreliable the carry forward fields are. The new replacement form? No wonder so many commercial appraisers prefer boilerplate narrative software instead!

In any case the purpose of this article is not to find fault with Mr. Holzheimer, or his article (special report) . It’s merely to put the information in the Special Report in perspective.

The first three paragraphs of the Special Report (Section or Page 3 per Special Report TOC) try vainly to reassert a comforting old adage inferring we will all get what we put into an endeavor out of it, and that we cannot possibly do so anymore without using some unspecified technology in the field.

The next paragraph (#5 of section 3) cites CEO Brent Jones of R3 Review, R3 AMC and a former western regional grand poobah with FANNIE MAE in a variety of positions from June 2010 to early 2015 “ish”. (About the time FNMA implemented its disastrous Collateral Underwriter Process… the one that wasn’t going to rate, score or review appraisers. Merely score the risk associated with collateral).

Like FNMA, his LinkedIn profile suggests he’s sold on use of appraisal search and adjustment technology in his ‘cutting edge’ appraisal and appraisal management company.

Mr. Jones asserts (along with a claim of proof by larger AMCs) that appraisers including “technology that reflects the adjustment support within the report has increased scores and orders dramatically.”

At last! A kindred spirit whose verbiage is even more confusing than my own. Actually, I DO understand it.

It’s very clear to me that technology derived adjustment data using the same erroneous data as is incorporated within FNMA’s CU Process will produce lower CU scores (or appraiser scores – which weren’t supposed to exist) AND result in more work.

So… If I use some unverified software’s multiple linear regression analyses software that can only capture 70% of the value related characteristics in any given market, and which then reallocates the unidentified remaining 30% among the 70% on some magical unknown basis, my FNMA CU score will improve. Particularly if that software shares some form of incestuous relationship in its development to the FNMA process.

You get what you put into it, out of it”, or GIGO perhaps? Garbage in, garbage out? GIGO hasn’t been around as long as YGWYPF, but like so much about technology and it’s euphemisms it looks cooler when you abbreviate it.

Mr. Jones comments are briefly interrupted by Appraisal Institute President Jim Amorin who goes on to suggest appraisers that adopt ‘big data’ and new software work faster and smarter.

It must be true because last week headhunters told me I could earn $150K to $200K a year doing an average of 1.5 commercial appraisals & reports per week using magical new software and pixie dust at a large MAI owned and managed national franchise. Imagine that – inspect commercial projects on Mondays and Tuesdays, and then have three more whole days to verify, analyze, reconcile, develop and report an opinion of market value. Imagine, a whole narrative appraisal in only 1 ½ days each after field work!

A resumption of Mr. Jones’ comments indicate irrefutable logic – Bad work means less work. OK, no problem with that analogy. The problem comes when it’s inferred that a technology derived adjustment is somehow more reliable or more accurate than an appraisers local competitive market area derived estimates and opinions.

No technology available today knows the contributory market value (perception) of a 25 year old in-ground pool on an acreage parcel in Chantily, VA, on or above the slopes in Beverly Hills among multi-million dollar housing, in Enid, OK or Wilmington, CA better than the local agents and appraisers.

To pretend that some magical e-pixie dust or formulae do is pure hubris.

The agent, the buyer and the appraiser all saw the pools in question. They know the construction cost ranged from $20,000 to over $1,000,000 and that the physical wear is as different in each of them as is possible. They also know what the local maintenance costs is going to be based on the condition. They may also consider current financing costs related to the amenity.

They also use a technology that modern science has not yet replicated: their brains. To date, the best most flexible computer system ever known to exist.

The above is not limited to a pool. It could be a tennis courts, open yard area, wooded land, ocean front and so forth. Not to mention specific adverse externalities

Mr. Jones recognizes many appraisers will not do something until they are specifically told they must do it or use it. He attributes it to panic, or disgust among appraisers. He further claims that “no matter what appraisers think” the (unspecified) technology is readily available.

I disagree. I’d attribute that reluctance to a desire to stay in compliance with USPAP, ethics and integrity. I think the AI also recognizes that many of the currently proposed market solutions or client desired products also fail to meet the standards required under USPAP… otherwise why the push to have alternative standards in order to utilize those ‘solutions’?

The comment reminded me of a borrower or seller that doesn’t like the appraisal results. “I know my house is worth XX no matter what the appraiser thinks.”

So far I’m only into the special report one full page and I am still reading only about vague, unspecified technology that will tell me what the adjustments are supposed to be. Why do the author and experts have to hide everything behind the huge umbrella of general technology?

Has regression analysis become so bad that it is avoided like a four letter word? Would its use make it too easy to challenge the fraud being perpetrated on investors, taxpayers and regulators alike?

It’s only ONE of the tools in the appraisers’ arsenal folks. Certainly it is not so reliable as to make every other traditional (PROVEN) method suspect.

The special report acknowledges that trust in the results is a huge factor The special report acknowledges that trust in the results is a huge factor. Appraisers know that to date the results are NOT trustworthy (other than those that choose to buy the new sparkly blinders that hide all inappropriate appraisal shortcuts and deficiencies).

For me the Jones argument falls flat when it asks “Are you making adjustments supported by the market, and are similar to what your peers are doing and what Fannie Mae and the Collateral Underwriter (CU) model are using? The more adjustments that are in line, the better your scores.”

Seriously? Someone actually citing CU as a reliable source for anything, as it is currently used or even as the adjustment database was derived? Refer to other AppraisersBlogs’ CU articles for background.

Following Mr. Jones comments come those from the First American Monopoly Service’s, ACI division. Y’all know the one. It used to be a reasonably reliable respected appraisal software provider until it got gobbled up. ACI has the dubious distinction of being the first one to try to foist off PACE PRO as a USPAP compliant form on us, remember? Anyway, George Opelka a VP of ACI (again, a member of the First American Family of Real Estate Service Monopolies) offered the following:

“The industry is migrating toward data-driven solutions that leverage cloud-based computing and third party integrations.” … ”This platform shift will continue to evolve, enhance the speed and efficiency of the valuation process, allowing appraisers less time completing forms and increase their focus on developing the final opinion of value.”

Sure it will Georgie. Got any room left in your scenario for us to focus on everything that goes in an actual appraisal and not merely the form report?

Why am I not surprised that the ASC National Appraiser Registry has no one listed under the name George Opelka? With that in mind, tell me why his view of what an appraisal is or should be is relevant to me?

“Compliance technology has improved, and as data-driven solutions evolve, I believe compliance will move closer to the appraiser, which will remove the back-and-forth in the current process and allow the appraiser to focus on the analysis,” Opelka said. “In the end, this will shorten turn times, meet client demands and, ultimately, improve the consumer experience.”

Soooooo, the president of the software form-whores is now telling us how the inherently flawed compliance software is going to improve the actual appraisal process?

George, please. When you can redesign the PACEPRO product as it was originally advertised in a USPAP compliant fashion, THEN lecture us on the benefits of your firm or others e-pixie dust!

Mr. Jones wins the next award for outright chutzpah though.

“Appraisers know good data from bad data. There is enough information out there to make a good decision,” he said. “Obviously in the end, appraisers have to verify. Those appraisers claiming they don’t have all or enough data information to complete the assignment is just not a credible excuse.”

Shame on those lazy no good appraisers using lack of expensive data as an excuse for not doing this $200 appraisal with rent survey for a 7,000sf SFR with barn, pool, tree house, tennis court and horse shoe pit in an area of 1,500 sf ranch homes!

Tell us Mr. Jones, since the appraiser peer adjustments are based on pre 2015 databases where appraisals were done to the guidelines rather than to market (per FNMA Lender Letter 2/2015), will I also be able to find my comparable sales for the above property within the non-existent ½ mile of the subject, all within the prior three months and without line, or net /gross adjustments of 10/15/25%?

If not, then any used will be out of line with my peers and the CU data base.

Typical AMC owner. Who is he to decide when an appraiser’s explanation “…is just not a credible excuse?” About data availability AND credibility? Isn’t that decision still the appraisers and the appraisers alone? Am I missing something in the current or proposed USPAP, or A.I.R.?

OK, I give up! The rest of the special report is largely filled with equally self serving drivel. I’m as bored writing about it as you are reading of it.

Mr. Jones comments about using CU scores as sort of a “review triage” is pretty insightful… if not alarming to anyone that’s ever read SR3 of USPAP and its associated certifications.

More spurious (unsupported) claims follow from FNMA and others, about PIWs only taking away 4 appraisals per year per appraiser. Is that based on the total population of 76,000 appraisers, or on 80,000? Total of 304,000 or 320,000? Mere drop in the bucket for bad loan origination!

There are some interesting comments by John Dingeman, but I don’t see advocacy or opposition to tech among them. I personally think he’d prefer to reword one comment about C3/C5 and the appraiser being out of line with the sheep (my word) suggesting that the one appraiser calling a property C3 may not be doing what those calling it a C5 are doing, is not compliant with USPAP! (inference).

John, sometimes it is the one guy standing by his or her guns that is the ONLY one doing things the right way; and with the integrity to stand up and say so…regardless of consequences.

The Day 1 process and SSRs, UCDP and host of other tech implementations that serve no one except the investment packagers and quality-camouflage experts at FNMA seem to be the remaining thrust of the special report.

It certainly is special.

As for big data and technology, both have their place. Let’s just not lie about what that place is, OK?

2017 Appraisal Technology Special Report

opinion piece disclaimer
Michael Ford
Latest posts by Michael Ford (see all)
Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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13 Responses

  1. Avatar Tom says:

    AMC’s and FINTech QUANTS are startups and companies that play fast and loose with Appraisal regulation in every state that they’re in, all the while having created hundreds of bogus lawsuits across the country since their inception. The AMC  rhetoric to date is to destroy all those before them regardless of the collateral damage. The AMC’s claim is that Appraises are incapable of leveraging technology (A commodity in 2017). Then aggresivly enter into a market, appropriate the Appraisers former clients, skimming/profiting off the Appraisers hard earned Credentials, Profit in some areas w/o just compensation with the Lenders blessing. Once this tacit plan by the producers displacing the Appraisers is complete, then eventually, they’ll become a monopolistic entity, push prices up, and render the definition of Protecting the Public Trust as just another corporate marketing slogan. The More You Know!

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  2. Tom, I think it’s more insidious than that. I’m loathe to classify all AMCs in the same negative light. Some (usually appraiser owned) were started in self defense after HVCC was imposed.

    At the time HVCC was imposed only a very few large AMCs existed. I recall LSI and ATM from the early 1990’s. Countrywide had its own Landsafe and Wells Fargo had Rels. Their history speaks for itself.

    As HVCC was drafted, it’s clear intent was to facilitate very large Title Companies (like those in the size range of First American and a few others) establishing a monopoly over ALL appraisal orders.

    Beyond that, I don’t think the intent was to side step USPAP; or deprive appraisers of reasonable fees. That’s merely an outgrowth of how large title companies think and operate. They do not care about appraiser rules or regulations that they do not understand, except to the extent that they have to be seen as paying lip service to compliance. I had first had knowledge of this in the early 1990’s both pre and post USPAP implementation.

    These entities were and are so huge and so well entrenched and funded that I can think of no company or group of companies able to compete or offer alternative competitive services. I don’t believe any exist. (Pssst! FTC-Over here! )

    https://en.wikipedia.org/wiki/CoreLogic ) As a 1.5 BILLION dollar a year corporation they can well afford some of the the best politicians that money can buy; or that paid lobbyists can seduce.

    It really is going to be an uphill battle.

    i like a good challenge.

    ALL appraisers should click and read the wiki link above. THAT is the face of the appraisers enemy and the most serious threat to the security of the nations financial structure we have ever seen.

    Right now, they own ALL facets of the real estate transaction from str to finish AND the data that is used for all the traditional checks and balances…not to mention the software used to report it.

    8
  3. Avatar Chris says:

    I have been hearing this crap of replacing appraisers for 25 years. I am still here! And as busy as ever. I turn down work every day !!!

    Big data, my rear end…if it worked the way they wanted it to, appraisers would have been gone by now.

    They will NEVER get rid of appraisers….why you ask ???

    Because they have someone with insurance to SUE.

    Why do you think they use us ??? We see the sites, the properties, the neighborhood, the MLS…etc…

    We protect them !!!

    We THINK !!!  Computers DONT think !!!

    4
    • Baggins Baggins says:

      Hence the rub.  When one day we appraise a declining market rampant with reo, we literally will not be able to have a low risk assessment score on our reports, regardless of how good or how accurate of a report we have completed.  In weak markets, the CU system will likely penalize appraisers w/ time and unnecessary revision and clarification requests.  Also I’ve already noticed that underwriters will turn to unnecessary addition of scope or revision or clarification requests simply based on borrowers risky credit position.  This is pressure from a tech program, providing a system of negative rewards vs positive rewards, based on factors beyond our control.  Stipped, stipped again, nope not good enough yet.  Change this change that, explain this explain that, answer why your figures differ from our model figures you have no access to.  Justify your higher value position against previous ones, even though you are not allowed to review previous valuation reports or figures.  These tech tools are applied in a severely imbalanced manner.

      5
  4. Lorna Hall on Facebook Lorna Hall on Facebook says:

    Zestimate is Based on transfer tax.

    2
  5. Baggins Baggins says:

    Related. I’m just still in disbelief that the review tools in their entirety are not provided to the appraisers themselves. We should be able to specifically answer all of these concerns without playing this data secrecy cat and mouse game. I think some of these companies are conflicted about who the client is and who the customer. This single screen shot speaks volumes about how review is approached today.
    https://help.mercuryvmp.com/lender/mercury/Mercury/images/AQM-PrelimResults-TechDoc.png

    3
  6. Mike Ford Mike Ford says:

    Baggs, the CU could be a decent tool for appraisers to use IN ADVANCE of an appointment. Many reasons why. It helps point out data inconsistencies and gives the appraiser the cu comps that will pop up. Not necessarily better ones, but sales dating back to two years ago that may need to be addressed. Knowing to so called peers bell curve I’d adjustments could also be helpful. Unlike new tech software that purports to TELL us the adjustments, cu would merely make us aware of a broad possible range…that we may still conclude and explain, is inaccurate. The only people truly qualified to understand and use CU aren’t allowed to even see it’s results.

    One has to wonder why.

    5
  7. Thanks for the consideration and review of our report. Valuation Review is a publication that is written for appraisers and the valuation industry, and although it’s parent company does produce publications that cover the title insurance industry, settlement services, and mortgage lending, those considerations are not part of what we write about in Valuation Review.

    If you would like an opportunity to talk with our editor, Mike Holzheimer, our phone lines always are open, his inbox is always available. You can reach Mike at mholzheimer@octoberresearch.com or 330-659-6101 ext 318

    Also, we have requested that the link is this story be removed for violating our copyright, and for scribd to remove the copy of the report which was unlawfully loaded onto its site.

    If you are interested in reading the report for yourself to determine whether the content and experts interviewed are worth your time, it is available free of charge at http://www.valuationreview.com/VR/Appraisal-Technology-Report-2017.aspx

    1
  8. Seems we struck a nerve. Decent response though. I’d urge all that have any questions about the original technology report editor’s views to take him up on the offer, and call him.

    2
  9. Avatar koma says:

    Bing Maps is now giving out estimates on home values. WTH! When appraising a property I always look at multiple maps (tax assessor/county/state flood/google/bing/etc) of the subject to see if anything sticks out before venturing out the door. Well on left side under the address seeing some info about the house sf/site sf/year built and I click on the drop down and it starts talking about their “estimate of value” and “Comparable” nearby homes.

    Well, lets take a look at their comparables. Actually just one because the orders are coming in before the holiday. First the subject is a 4/2/1 single family house built in 1920. They list the address of their comparables and wouldn’t know it one is a 5/3/2 sf house with an attached studio apartment built in 1930. Just have to give the next 6/3/1 sf house built in 1956. Realize that I’m giving you not much info., but you get the drift though.

    This is just crazy! AVM’s are leading us to the next crash.

    2

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Hey BIG Data, Leverage This!

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