Chief Appraiser says AVM is an appraisal
Appraisers,
Maybe I’m too much of an anal retentive type person, or perhaps it’s because I believe it’s important to use correct terminology.
Regardless, I’m very concerned when someone with Chief Appraiser attached to their name attributes an AVM electronic value statement to an actual appraisal opinion produced by a human.
So where did this rant come from, you ask?
Future of Valuations Marries Automation and Human Instinct
Within the article is this statement by the writer:
“While AVMs do hold value — they are a cost-effective, fast tool to produce appraisals — the popularity of AVM usage among home equity lenders has been a large contributor to loss mitigation and defaulted loans. These valuation products may be more cost-effective than traditional appraisals — costing $12 to $15 per address versus upwards of $500 — but they often lead to discrepancies because they lack the precision of an inspection-assisted valuation report. It is not uncommon for AVMs to produce unconfirmed, arbitrary values and information.”
The definition of an appraisal, per the Dictionary of Real Estate Appraisal, 4th Edition:
“(n) The act or process of developing an opinion of value; an opinion of value.”
That same dictionary says, in the definition of an AVM:
“Note that the output of an AVM is not, by itself, an appraisal.”
These definitions were first revealed in the 2002 USPAP, so they’ve been around for almost 14 years.
Another item of note: The GSE appraisal forms prior to 2005 said the value statement was an ESTIMATE of Value. In 2005, form terminology was changed to an OPINION of Value, to align that with the 2002 USPAP definition.
Humans give opinions, and do appraisals. Computers, and AVM’s, merely generate numbers.
Dave Towne on e-AppraisersDirectory.com
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I hope the AVM has E&O attached to it… because I sure as hell would not sign one and what lender would accept that without the appraiser being liable?
This business is so screwed up I doubt it will ever be reversed.
everything is way too gooned up to be fixed at this point. the only way to fix all the problems is to completely clean house, bring in new people with fresh ideas, listen to appraisers, and start from scratch. it will never happen.
god help us all when the real estate part of our economy starts coming to a screeching halt or appraisers, (the only honest and trusted part of any transaction), are taken out of transactions.
like i have always said – fixing things now is like trying to pick up a turd by the clean end.
good luck with that.
the bleeding continues . . . . .
Correct, the people at the top don’t even know whats wrong, they think it’s a lack of College education
I once worked for a company which told me I had to comment on the client’s additional comparable’s produced by their internal AVM. There were several hundred more sales to analyze. When I looked at the first few in their report I noticed that they were all condos. The subject was a Single Family. I told my company this and they said Mortgage Company does not have the expertise of the appraiser to differentiate the property types and just pulls a large sample of everything which sold within a 1 mile radius in Boston which is why there are several hundred sales. My response was they want something for nothing and I was told they were the client which we need to keep satisfied. This was back in 2009 and I no longer work for this company but this was the reality of trying to keep clients happy in height of the recession. I’m sure AVM’s have gotten better since then, (but never be as good as an appraisal) but moral of the story If they ask for additional commentary, NEVER DO IT FOR FREE!
i think its fantastic that an AVM is considered an appraisal!
because if an AVM is an appraisal, then every value/appraisal created by an AVM violates every rule in USCRAP, and should be prosecuted to the full extent of the law.
i am sorry, but i thought doing appraisals without a license was ILLEGAL? due diligence? explain your conclusions? work file? need i go on? wouldnt a licensed appraiser be brought before state regulatory boards and fully prosecuted for giving someone a value with proper support, documentation and explanation?
will anyone do ever anything about this? heh heh. of course not.
AVM’s will never go away in our life times, because if anyone would ever decide to do anything about something like this, it would take at least 15 years or more just to hold the meetings about it and over-analyze the problem to death.
the bleeding continues . . . . .
What a shame for the industry you retired.Enjoyed the read
What a shame for the industry you retired.Enjoyed the read
Great article Dave!
An AVM is NOT an appraisal. Nor is it an appraisal report. An “appraiser assisted avm is an appraisal” if an opinion (or statement) of any kind of value or value range is provided.
The mere fact that there is such basic confusion by users of appraisals and some purported “Chief Appraiser” reinforces legitimate appraisers concerns that this is a product or service that has NO BUSINESS being called an appraisal/”valuation” of any kind.
The statement that it is ‘not as reliable a valuation’ as a traditional appraisals wrongly suggests that it has ANY / some validity when in fact it (AVM) does not. No more than a cursory “comp check” anyway.
Automated Valuation Model (or Method depending on locale) or AVM is just that; an AUTOMATED process without human (appraiser) analysis. It is only as good as Zillow or CoreLogic’s multiple linear regression “big data” analyses are.
An appraiser assisted AVM may or may not be an AVM coupled with appraiser stated limitations, assumptions, hypotheticals, a certification and some degree of limited but defined appraisal techniques being applied.
The biggest problem is that the cheap-skate idiots that use such products RARELY understand the nuanced differences between the two. While the appraisal firm may have boiler-plated limitations and use restrictions up the wazoo so that the product meets any technical requirements of an appraisal, the manner in which that appraisal is used is subject to probable abuse rather than ‘possible’ abuse.
What amazes me is that virtually every state and the Feds cite promotion of sound appraisal practices and protection of the public trust as a basic foundation or justification for all their rules, and laws, but they still knowingly allow garbage such as AVMs to be portrayed as “appraisals” or some form of acceptable alternative ‘valuation’ product. It’s hypocritical.
Then again, I also object to an appraisal being referred to as a “valuation” to begin with. But THAT is a battle I’ve already lost. With it’s roots in business valuation, even TAF adopted the phrasing as being universal for all appraisal. Bad mistake since it really opened the door to confusion about what an appraisal is or isn’t in the first place.
You’ve got to be kidding me?!!!!!
Some of our appraisal programs ( as almost everyone knows) have many of the same properties, to choose comparables from MLS, owned by Core Logic of course.
Perhaps appraisers should have access to AVM’s as another possible check to their thought process. Followed by a well thought out commentary explaining the reasons for their assumptions. Echoing what has already been said above comments by others. Many have worked many years in this profession in a specific areas of the country; it must be said that their is no substitute for geographic knowledge, neighborhood trends, specific zoning and the list goes on. No regressive analysis has that ability to my knowledge.
Bradford says it does when it comes to Fannie and Freddie.
DO THEY ?
The tools we have today are far better than 15 years ago, and used properly can cause an appraiser to complete better work today than in the past. More improvements are coming. Nothing on this earth can replace an experienced appraiser’s eyes or area knowledge.
Someday perhaps the Banking industry, Congress, Fannie & Freddie and other will realize this fact and laws and rules will be put in place to prevent the RAPE of The appraisal profession.
I am constantly writing emails to correct room counts and square footage either to a realtor or if I see errors in sketches, I contact the county appraiser.
I am constantly writing emails to correct room counts and square footage either to a realtor or if I see errors in sketches, I contact the county appraiser.
I doubt it