First Impressions of Clear Capital’s AVM

An Appraiser’s First Impressions of Clear Capital’s AVM

An Appraiser’s First Impressions of Clear Capital’s AVM…

It’s no secret the lending industry is aggressively pursuing alternatives to traditional appraisals. While most participants in the industry will concede an appraisal is still the gold standard for collateral valuation, they increasingly see the appraisal as something to be steered around or avoided altogether. An array of products/alternatives are being bandied in lieu of a traditional appraisal: Hybrids, Evaluations, BPOs (broker price opinions), Desktop Appraisals, and outright Appraisal Waivers. The industry is also turning its attention more and more to AVMs (automated valuation models).

AVMs have been around for nearly three decades now. The first AVMs had a hard time with consistency and accuracy, but as the world has become increasingly digital and data driven, the accuracy of the models has been steadily increasing. In conforming tract home subdivisions with sufficient recent sales, their value may be extremely accurate.

An appraiser should keep an eye on alternatives to the services he/she offers, so I recently downloaded a number of white papers on AVMs from different websites, including Clear Capital’s. I was somewhat surprised that Clear Capital’s white paper freely admitted that an AVM is not as good as an appraisal, but could be a starting point in risk assessment and collateral valuation. I had to provide my email address and phone number to access the white paper. This resulted in me receiving a follow-up call from Clear Capital. (Full disclosure: I previously worked for Clear Capital for a couple of years doing quality assurance work on incoming appraisals.) The gentleman on the phone was very nice. We chatted a bit and I asked him how long the product has been offered and he mentioned they took their previous AVM off the market and just released a new and improved model a couple of months ago. I asked him if they needed beta testers and he said no, but he did email me a code to sample five AVM valuations for free on their website.

That day I had just completed an appraisal report and, after completing it, ran the subject property’s address through their portal. The AVM is highly specific in its dollar output: $416,771, which I thought was a bit weird. It might be their way of emphasizing this is an algorithmic valuation. If so, that is the opposite of what we as appraisers do, which is round an opinion of value to emphasize a measure of uncertainty. (I sure hope no licensed appraiser is signing their name to an opinion of value as specific as $416,771!) For reference, my developed opinion of value was: $400,000, so the AVM was ~4.2% higher.

The AVM output is very bare bones: just three pages and mainly a list of addresses. I got 30 addresses in total; 15 apparent sales and 15 apparent listings; I say apparent because, oddly enough, there is no legend anywhere in the document explaining what the colors denote. The AVM gives a high estimated value of $451,500; a low estimate of $390,000; and the official, highly specific, estimate mentioned previously. It also provides a confidence score with a letter next to it: “H,” “M,” or “L” to presumably denote either high, medium, or low confidence. (My AVM report had an “H” next to the confidence score.) A map of the properties is provided on the second page. The third page consists of just two paragraphs of disclaimers: first warning the product is not an appraisal and then warning the reader not to reverse engineer their work or infringe on their intellectual property. With so little explanatory material in the document itself, I don’t think they need to worry about anyone being able to reverse engineer their system.

All the sales listed are within approximately one third of a mile of the subject property and the dates of sale within ten months of the date of the AVM report. (The listings are selected from within three quarters of a mile.) Five of the seven comparables I used in my report are found on the list, but none of the comparables I used cracked the top ten on either the sales or listings tally. My subject is a single-level home and all the properties I gridded in the report are single-level as well. Of the top ten sales the Clear Capital AVM used: five are two-story structures; one was not listed in the local MLS; another was listed but had no photos and no agent comments at all; one was a bit older and smaller; and the other two would have made acceptable alternative comparables in my report.

As I mentioned before, there is almost no explanatory material with the AVM output, so I really don’t have a clue how it derived its value estimate. I checked to make sure the AVM didn’t do something as simple as average the 15 sales (or the 15 sales with the 15 listings). It didn’t.

So, is something like this useful? I think so. While many of the properties it listed were rejected by me in my comparable search, the results were within 4% of my opinion of value. As their own white paper stresses—and the disclaimers in the AVM report itself reiterates—the AVM output is not an appraisal. The cost of the AVM would have been $10 if I didn’t have the promo code. I can see lenders using products like this when the loan-to-value ratio is low and the credit score of the applicant is high. (A full-blown appraisal may be overkill in that situation.) A $10 charge is also nominal considering the total fees a mortgage or other real estate loan product may generate. A quick peak at the AVM early on may give a loan officer an idea what they’re in for or if the deal is feasible or not. (It is hoped said loan officer is also paying mighty close attention to the confidence score.)

(I am glossing over the bigger question as to how these products will be checked for accuracy, data integrity, tamper resistance, etc. But that is a blog entry for another day.)

While my opinion may be considered biased for obvious reasons, I genuinely believe appraisers offer an extremely valuable service to the public and are a pillar in sound collateral valuation and risk mitigation. However, it is clear that the future of valuation will include increased utilization of AVM products such as the one Clear Capital offers or the free Zillow “Zestimate.” Appraisers who work in areas with highly conforming properties will need to make sure they level-up their skill set to specialize in the valuation of complex properties; the type that currently gives computer algorithms nervous breakdowns. I strongly suspect the appraiser of the future will be, essentially, a data scientist. One that has strong Excel, R, Python, and/or SAS proficiency. There may be fewer of us in the future, but the ones that remain will be extremely talented professionals who offer local, boots-on the-ground expertise with high-level analytical skills. And, we can offer what no computer currently can: a friendly smile and a listening ear as the homeowner tells the story of their property!

Clear Capital AVM Sample Redacted by Reviewer

Abdur Abdul-Malik
Image credit flickr - IBM Research
Abdur Abdul-Malik

Abdur Abdul-Malik

Abdur is a certified residential, FHA-approved appraiser. He takes progressive appraisal education seriously to stay abreast of the latest valuation methodologies. Abdur is a Candidate for Designation with the Appraisal Institute and is an associate member of the REAA and the NAIFA Portland, Oregon chapter. Abdur Abdul-Malik on

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28 Responses

  1. Avatar Michael Curtis, SRA, AI-RRS says:

    You would really be surprised about the number of appraisers that state a value to the nearest $1. I reviewed a property the other day that sold for $3,995,000. OA had value stated as $3,451,017. Most similar comp had gross adjustments of $37.00 and net adjustments of $14.00. I have been reviewing and appraising for 35+ years and admit that I am not that good. All it shows me is that quality has gone down significantly since state licensing took effect in the early 90’s and since AMCs started running our businesses for us. When I review a report that has values and adjustments to the nearest $1, it is an automatic red flag to me about the competency of the appraiser. I know that this is not the topic of your article, but it is something that needs to be addressed.

    Hybrid appraisals are going to be the cause of the next bubble burst. Lenders pressure brokers into a BPO $ that they want, then they in turn send it to an appraiser who is spoon fed the comps they want to make the number. When you don’t make the number, the AMC tells you that the lender “wants a 2nd opinion”. I refuse to do these things. Found out on one that I reviewed, that the lender charged the borrower $700. AMC billed lender $350. BPO by broker was $45 to broker (don’t know what broker paid their “inspector”). Appraiser received $35. Lender got a “full appraisal” from an appraiser for $35. Appraiser is taking all the risk on this and doing 90% of the work obtaining the value. I can’t believe that appraisers are accepting garbage assignments like this. Made me sick just reviewing it.

    • Michael, a 3+ million dollar home with an OoV to the dollar? That’s crazy. I agree with all your points. Maybe you can write a blog post article highlighting the absurdity of adjusting to the nearest dollar. One thinks that if the appraisal software would allow it, they would give a valuation to the nearest penny. Also, I don’t do Hybrid garbage either. Not only are the fees criminal, but I won’t use any platform that doesn’t allow me to check sales in MLS. Too easy to be bamboozled.

    • Avatar JW says:

      I wouldn’t even review the report based off of what you know. If the appraiser did not do his or her due diligence in identifying the neighborhood characteristics but relied on third party information then not only are they putting their license on the line but you as well if you certify the report is creditable. Especially if the report is a full appraisal.

    • Mike, Absolutely concur re failure to round results. How can any appraiser be that lazy (or worse yet, that ill-informed?) At a minimum it suggests competency may be an issue. It’s also like a neon arrow saying “DOUBLE CHECK EVERYTHING CAREFULLY-AMATEUR HOUR.” Rounding is not a new concept. If common sense and generally accepted sound appraisal practices are not sufficient reason for appraisers to avoid doing this, then USPAP compliance should be.

      Pretending to be accurate to a $1.00 is misleading. At minimum appraisers, PLEASE start rounding to $1,000 and preferably to whatever your markets show as ‘market significant’ numbers. In many markets, that may mean the smallest recognized adjustment could be $10,000 or even more.

      Agree 100% re hybrids. They are ALL crap. No exceptions. As for the AVM above, any ‘client’ that uses it is a damned fool. There is insufficient unredacted data to double check the results but look at the range of sales prices for an indication of data credibility.

      • Avatar don says:

        If you are truly influenced by the securing offer in your analysis, why round, Why  Round down, Round up?

        If you discover the seepage pit is on the next door property from a credentialed engineered.

        Aren’t you bound to offer two values? One with costs, including odd amounts, the other one discounted for the awkwardness.

        Lots of differing problems, lots of differing solutions. Only free thinking appraisers with lots of experience can be relied on to save the LOAN for a competing lender. That myriad of experience makes a difference for competing lenders.

        Interest rates are increasing, competition among lenders also, guaranteed loans are being challenged. A lender with a justified appraisal in his file DOES justify your fee

        Offering and doing the best we are capable of illustrates our WORTH, but only if we charge for it.

        I’v done foreclosure appraisals in the past and the lender never had a copy, original or any thing resembling an appraisal, probably because it would have been incriminating.

        Otherwise I concur with Mike, the question remains “which way tooo round up or down”.

        A buyer can be winning negotiator, a seller can have a remarkable property, after all FMV is an impossible definition

        • Don, All should round. If for no other reason than not writing a misleading report by inferring a degree of accuracy that is simply not possible to attain in a market. ALL adjustments are supposed to market impact not merely some exact number produced by automated calculators, or appraisers that never learned about market-significant numbers. I’ve had cases, where the smallest adjustment made, was $100,000 because in those price ranges anything smaller wasn’t demonstrable.

          With 32 years as an appraiser with 6 years full time before that as an agent, I never once saw a market-derived adjustment, ie one that replicated market perceptions that were exact to the dollar. It’s possible they exist, but I’ve never seen one dictated by the market rather than dictated by an appraiser.

          As to which direction, absent a market dictate (and they DO exist), follow typical math rounding conventions. One example above was a cost-based estimate of $7,500…nothing wrong with rounding up to $10k at all – maybe the appraiser got three estimates or a range given to him/her. Up to their discretion as to round up or down…  We have all allowed ourselves to be pushed around by “UWs” far too long. (or those that pretend to be UWs). The whole point of rounding is that estimated numbers are not exact market reactions so much as they are market approximations.

          Agree there are many ways to approach problem resolution.

          • Avatar don says:

            This morning’s paper reported a fire in downtown gutted a small furniture store to the point of tearing it down.

            I won’t keep that file any longer as it represents an Uninspected property based on others information. This was for a MORTGAGE house in Spokane.

            A recent Seller had carried back a First and wanted to sell the paper at a discount. There was no access from a friendly party.

            “Back to the future”

            We will see this kind of financing in the future because of; Buyers credit, growing interest rates, sellers greed, unjustified pricing, 1031 exchanges etc.

            There was a strong market for discounted NOTES, the limits were from potential individual lender-investors. returned for commercial properties would range from 12 to 18% with payoffs from 3 to 7 years..

            These transactions required the appraiser to analyze cash flow as well as underlying values Sellers were offered NET amounts, varying from hard costs coupled with rounded discounts.

            I agree.

            In the 1960’s FHA included allowable costs ($450) in financing sales. These allowable costs came to be included with the sales price and effected a compounded price increases welcomed by all. Until the failures in 1965.

            Hopefully the world continues on

        • Avatar chris says:

          For all you non rounders….wait till have to sit in front of a lawyer and explain to a judge!!! You will get your ass handed to you ! We learned how to round in elementary school….remember ? Boggles the mind !

          • Avatar Michael Curtis, SRA, AI-RRS says:

            Well said Chris. You hit the nail on the head!

          • Avatar don says:

            Amen Chris,

            Don’t use a form report with exacting box’s.

            Maybe the lawyers correct, but maybe he’s not, shouldn’t we be prepared to argue in our report.

  2. Avatar JW says:

    The most effective way to preserve the industry is to stress how the AMC and Collateral Underwriter has bogged down the process. Let’s start talking about how we as appraisers can speed up the process and still provide creditable results. Slim down the report to provide 3 interior photos, get rid of the C’s and Q’s and B: N: A: location and let us get back to work providing what matters and that’s values. We need to be able to simplify the report and express that the AMC model is searching out cheap and fast but taking weeks to do so.

    I can tell you that corporate big dogs will completely botch the idea that they can do a better and faster job. The sad thing is once we are at that point it will be too late. There will be none of us left so we will be stuck with a dysfunctional process for lending period. If any of us are still standing after the dust settles they will realize what a big mistake they have made just hope it’s sooner than later

    • I am doing a lot of non-lender work these days and the company I work for offers a very compact but still very useful report. I agree that there is a lot of garbage in many 1004 reports that appraisers don’t need to bother with. I am actually all for doing appraisal reports using just MS Word and Excel. You really don’t even need appraisal software — but that is a blog entry for another day.

      • Avatar don says:

        Good on you, the form reports are to protect the FORM writer and that isn’t the appraiser. Tooo many differing reasons for value estimates to deal with a single format

  3. Avatar Koma says:

    Abdur thanks for the article I enjoy the discussions. Do not know where your located, but in my areas after completing an appraisal I look at an AVM for the same property (in tract housing) and the estimate is a range from 10 up to 30% difference. Also in some areas we have a good amount of cash sales that do not show up. I see sometimes they use distressed sales. One time one of the properties that was used had an attached apartment used as a SFR property.

    We all remember Zillow CEO had his property up for sale where his website showed his property @$1,300,000 and he closed if I remember correctly for just under $1,000,000. Could you imagine this happening 10 times, 100 times, 1,000 times? I agree with the above comment, what they are doing will drive the next crash. At least they won’t be coming after me! And for the appraiser that does this junk I’ll have no sympathy.

    • AVMs will really hurt appraisers in areas of homogeneous tract home subdivisions. I appraise primarily in the Portland, Oregon area and we don’t have tract home subdivisions like many places in California (where I started appraising). The data up here is a mess many times, so appraising is harder.

      Any appraiser surrounded by cookie cutter homes really needs to think about the long-term. AVMs will first eat up most of those valuations and then start coming for the harder stuff.

      I fear it is all but inevitable appraisers will continue to decline in total numbers and the ones left will be the ones that are essentially data scientists working on gnarly and complex valuations.

      • Avatar Bill Johnson says:

        Those tract homes in CA you speak of Abdur, often vary significantly (+/- $100,000) at the time of sale, and of course can become wider or closer in value weeks, months, years, or decades post purchase. Again, its the powers that be that want the appearance (today, tomorrow, next decade) of homogeneous homes, but in reality from day one of purchase homeowners improve, or fail to maintain their homes that ultimately drives the true market difference ($$) at the time of a future sale.

        Lastly, with higher prices in CA (My typical area +/- $900,000), that same 4.2% variance you spoke of results in value swings approaching $40,000 in my area.

        Seek the truth.

        • Bill, I appreciate your thoughts. I appraised in the Sacramento Area of California and many of the tract home communities I appraised in didn’t show wild swings among competitive properties. I was getting concerned with how close Zillow got on a number of valuations I did.

          The easy work is going to be eliminated. It’s inevitable. It’s the hard truth.

          Also, context is king. The underwriter has to decide how much variance and uncertainty they are willing to tolerate. You transformed 4% into a specific dollar figure, but its still just 4%. 4% of a $500,000,000 development deal is a lot of money, but it still is only 4%. It’s all about perspective. If underwriting is fine with a 5% swing in either direction, then that’s their risk model.

          I don’t know any appraiser who claims to be more than about 4-5% accurate. Again, if you are appraising within a tract home community with a bunch of model matches and maybe a 1% variance in sales prices, then, yes, we can be 1% accurate; but then, so would the AVM.

          I don’t believe human appraisers will ever quite go away, but our numbers have been dropping nationally for about a decade now and I don’t realistically see that trend reversing itself.

          • Avatar Koma says:

            Abdur, Of course our numbers have been dropping because before the last crash every realtor, brother, sister, cousin had an appraiser license. They did not want to hang when things got tough and they couldn’t make a quick buck. We got rid of the non-serious/bad ones and now we are at a good level. I personally do not want an over abundance of appraisers.

            AVM = Bubble = Crash

  4. Avatar Jack Of All Trades says:

    Clear Capital are one of the main pimps in the AMC industry , they are a lying bunch of parasites who love to exploit the common human being. Stay clear and run don’t walk.

  5. Avatar Ralph says:

    Bring back the old FNMA 2055 form! That was the best form! No need to comment on the wainscoting in the bathroom!!! Or Double hung windows!

    • 2055 was a poor form suggesting a level of analysis rarely ever actually achieved or performed. Usually inappropriate for the specific property involved. If ALL that is desired is a drive-by then bring back the original 704’s (NOT the later versions). At least they didn’t pretend to be more than they actually were.

      When lenders are whining to Congress and Regulators about high fees and delays, they dont admit their own part in taking old, highly efficient LIMITED forms and LIMITED processes and then over complicating them so that they could pretend they were ‘real ‘ appraisals rather than exterior drive bys only.

  6. Avatar Bill Johnson says:

    The problem with AVMs and such is that they start with a problem that is octagon shaped, and attempt to apply logic to each of the eight corners (we can live with that variance), only to end up with a circle (rounded corners) that no longer is stop sign shaped. The powers that be don’t wan’t real world complexity (octagons), but rather want everything to be stackable and uniform.

    Seek the truth.

  7. Baggins Baggins says:

    One of the reasons the data integrity is there is because so many human appraisers and agents still do the heavy lifting, then the avm just stands on their shoulders. Over time, the avm results will not line up well with the larger more complex market and logical price vs value relationships. The recent ethics updates have clear indication that if an appraiser can not explain how an avm worked on a basic level, the results are not adequate to be relied upon. As long as avm’s are monetized and their results and parameters are held behind a veil of proprietary secrecy, they should not be relied on nor will they stand the test of scrutiny as the author has illustrated today. Perhaps when someone finally puts out a not for profit open source fully transparent completely controllable for the laymen avm free for all to use, perhaps then, but not before. What justification would there be for the avm to bring in such a high result with a possible $50,000 room for error? Without an open source approach, nobody should be relying on avms for any reason. In terms of mortgage lending and debt, that is a possible pricing error which could result in a 30 year payment schedule where the borrower paid literally five hundred dollars or more a month than they should have. For every dollar borrowed on the front end, there is an amortization factor for cash out of pocket equivalency which is routinely 2x, (and 3x for lessor qualified borrowers or higher rates). That 50k just turned into 100k to 150k overpayment on a 30 yr schedule. Just not good enough and if that’s as good as it gets in tract housing, one can only imagine how far off the avm is with truly complex analysis. Inspection services pertaining to price and value and insurability analysis is sometimes a more important function of the appraiser than just appraisal value analysis itself.

  8. Avatar Teresa Martin says:

    Well written article, Abdur! Your professional, knowledgeable analysis demonstrates why appraisals will always be needed while also acknowledging that we will have to adapt to the technology that will inevitably change the face of our industry.

  9. Does this AVM work for new construction or fix and flip homes? Can you enter the property characteristics?


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First Impressions of Clear Capital’s AVM

by Abdur Abdul-Malik time to read: 5 min