Who Benefits & Who Pays the Price?

George Dell
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Who Benefits from Hybrid Appraisals & Who Pays the Price?Why does a hybrid appraisal work better? What are the benefits? Who benefits? Who pays?

A hybrid appraisal, as it has been proposed, separates the field work from the desk work. The assumption is that an appraiser is good at filling out the forms, while another “cheaper faster” person can do the property inspection. Also, we presume that the client would be the one to select the field inspector. For this post, we also assume that the property inspector is a real estate agent.

This is the third post considering “hybrid appraisal”. I had intended it to be no more than two or three parts. It appears that each aspect I consider seems to generate two or three more, like a hydra. You chop off one vicious venomous head – and two more appear. A data scientist would call it a “multi-dimensional” problem. We will take one view, one dimension at a time until all the heads are chopped off, and the goal of common good is visible. One bite at a time.

The first hybrid article, What is a Hybrid?, describes the appraisal version of the sterile hybrid mule (offspring of a donkey and a horse). Part two gives an overview of some of the general issues.

And, we have a lot of issues here. Let’s look at the benefits, and who gets the benefits, and who pays the price? To answer this, we need to be clear on the “players.” Who are the players? We have: appraisers, lenders, investors, regulators, legislators (state and federal), and the public good. Quite a list – not easy.

For lenders we have four elements of desired service: cost, speed, quality, and borrower satisfaction.

Reportedly, loan losses and “appraisal defect” levels are similar for hybrids as for appraiser-inspected properties. However, it’s important to note that this comparison has been controlled through pre-screening of the property. Such as a maximum site size, “jumbo” loans, or other pre-screening parameters. One caveat: the hybrid experience is less than two-years old, so longer-term losses may be different. Borrower satisfaction appears to show no subjectively-judged difference.

The cost to the client is reportedly nearly half for exterior-inspection hybrids, and the “turn-time” also nearly half the “traditional” appraisal turn-time. What I have not found as a control for this comparison is whether AMCs were involved in the traditional appraisals. I would guess that AMC involvement slows the process from directly-ordered appraisals.

Also, it’s not clear whether the “cost” includes the additional administrative burden of the pre-screening process. Is this fully automatic (an ASM – Automatic Screening Model)? Or does it involve another human pre-screening non-appraiser person? (Now we have a three-headed appraisal process.)

And also, also: do “turn time” elements include the processing time within the lender’s administrative staff? Do any of these include work normally expected of the AMC? I.e., when does the clock start running, and when does it end?

So, it appears that hybrids (with the above caveats) have the advantage of speed and cost, and similar “quality”. So why do we care? The problem, as I see it, is that there are unintended consequences. Especially long-term. We’ve heard complaints of “appraiser shortages” and poor quality.

The most critical appraiser training takes place out in the field. Hybrids will reduce or eliminate a critical training ground. This is a long-term negative impact. Also, will appraisers, with forms to fill and E & O insurance – will their ability to apply good judgment degrade as they never go out in the field. I suspect that will also happen. A human, form-filler automoton.

Alas, who cares? There will be so little judgment left, a good algorithm will speed the process even more. Even cheaper. The end is near. No need for a desk jockey.

Until appraisers learn to also evaluate asset risk (not just a point value last week), others will fill in the real need of our clients: risk scoring and investment prospective.

Stay tuned. We will further approach the risk topic. Stuff to sell. Expanded services by those most competent to do so: appraisers.

Image credit wikimedia - Vi Ko
George Dell

George Dell

George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.

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25 Responses

  1. Mike Ford Mike Ford says:

    Another good article;

    George, the first underlying assumption is a false one. The appraisal process is as much about the field analysis of a specific property and it’s competitive market area as it is about the paperwork “form filling analysis.” The latter being yet another false assumption.

    Lenders forget or choose to ignore that the form filling part of an appraisal is nothing more than a summarized reporting process. It is not the appraisal itself.

    There is no question that hybrids are cheaper. If that is the sole criteria, then by all means go ahead and order hybrids from Hyderabad, Pakistan as loan originators securing over $8,000,000,000 have done. Price of hybrid: $25.00. Potential long term cost: Also Eight Billion Dollars!

    Speed? Again, if that is the driving consideration we can also greatly speed up full appraisals too. All we need to do is eliminate virtually ALL quality and verification considerations; and couple them with UNREASONABLE, unsupported extraordinary assumptions like hybrids do. Of course, they would then cease to be appraisals.

    Quality? Another unsupported assumption. What was the criteria used? Were they measuring only loan defaults? Comparing undefined appraisal defect of one type to another-where the latter HAS NO STANDARDS is misleading. What constitutes a defect? I have had a long standing challenge issued nationally to all promoters and vendors of hybrids. I repeat it here. “Show me JUST ONE USPAP compliant hybrid appraisal report prepared for the fees usually cited and in the time frames usually claimed” (45 minutes I believe is the most commonly cited time for appraisers ‘doing what they do best’). To date no one has ever submitted such a report for peer review by myself or other experts.

    There is a good reason that’s never been done. There is no such thing as a USPAP compliant hybrid appraisal report prepared for $25 in 45 minutes. There is no such thing as a USPAP compliant hybrid appraisal report done for $50 in 90 minutes either (plus time for the phony third party field inspection). Double it again and I contend the same result.

    Simply stop calling these fraud facilitating ‘products’ appraisals of any kind. THAT is all I ask. Quit pretending they are more than the extremely limited desk analyses that they are. Essentially 100% comp checks with no market derived adjustments or verified terms, conditions and comparison of all or most relevant characteristics.

    I can go out and buy $50 cars even today. If all I want these POS to do is serve as derelict lawn ornaments, or monuments to Detroit it could even make sense to do so.

    Hybrids are also POS…though they lack even the limited utility of a parts car or yard ‘ornament’.

  2. Baggins Baggins says:

    Good article. These products only make sense in a bubble. If an appraiser was trained by only completing this type of work, they may never understand such risk and real property factors. The test of surety with mortgage lending products is in the arrears, risk comes home to roost at a later date. There is a constant default rate in lending, retrospective reviews happen more frequently than many realize. Many suits from the 2005 to 2010 period only recently were finalized. By decoupling and compartmentalizing essential services, the lender gains control where they can re order any given service as many times as necessary until they get the results desired. The changing face of mortgage fraud.

  3. I want to respond, but I do not wish to be redundant. Great responses. An Appraisal is An Appraisal, anything else is Not.


    • Vincent R Simon on Facebook Vincent R Simon on Facebook says:

      Isn’t it true that a conversation, just a conversation about a property and value can be construed as an appraisal? Your barking at a report ? Lol

      • Baggins Baggins says:

        A ‘report’ which relied on significant assistance from unnamed unknown persons.

        When your ‘home inspector’ gets paid 10 dollars, picked up the assignment from day laborer style web systems, and the providers of this service refuse to put the inspectors name in the reports and requests, you might have a problem.

        Are you smarter than a 5th grader. Better yet, can you rely on the inspection services of someone whom otherwise can’t get a real job and relies on third party connection services for steeply discounted rates off the internet?

        That’s an ‘appraisal’ I would not even write down on a napkin.


      • No Vincent. we are all taught that as licensees that if we have a casual conversation with a buddy that it “may” constitute an appraisal. I’ve never actually HEARD of that happening in the real world nor outside of a USPAP instructors class where I suspect their suspenders were too tight. There is already too much guessing and hypothesizing about what ‘may’ be something under USPAP. Lets start holding the experts accountable for what IS rather than what ‘could be’ depending on how the planets are aligned that week, or what TAF ‘s sponsors choose to redefine each month..

        While oral court testimony can easily be an appraisal, we need to start standing up to those who perpetuate the false myth that an over the fence; around the campfire or over a beer discussion between two friends is “an appraisal” simply because a value guess or value range is tossed into the discussion.

        1. Appraisals are defined in both USPAP and state codes.

        2. There is a specified client and a specified intended use in an appraisal. Both of which are missing from the imaginary conversation.

        3. USPAP only applies to federally regulated transactions… unless you are in one of those states that still expects integrity and has required USPAP be followed in all appraisals.

        4. Appraisals also have intended users and intended uses.

        IF all the garbage that is labelled evaluation (which per fed regs may NOT be an appraisal); or hybrid or “AVM” or zillow or “Proprietary Algorithms better than an appraisal” don’t constitute an appraisal then neither does my personal conversation with a friend.

        There is still a First Amendment to the U.S. Constitution that protects my right of free speech

  4. Avatar Helen Rae says:

    I wish I could just sit back and watch these politicians, AVM’s, AMC’s and Freddie and Fannie Mae cut their own throats and watch it all blow up in their faces but, I did not invest 27 years in this CAREER to throw it away like these bastards want to do for us.

  5. Avatar koma says:

    Is it not still the appraisers responsibility for what goes into these Hybrids? I will pass on this junk, sit back and wait for the next crash for my attorney clients to send a ton of work my way. There will be a crash and borrowers will need someone to sue, luckily it will not be me.

    Thanks for the article! I enjoy the discussions.

  6. Avatar California Appraiser says:

    And of course Alamode is now implementing their Comp Sharing platform which will faclitate the proliferation of Hybrid appraisals even more.




    • Baggins Baggins says:

      Inferior to subject. Superior to subject. Better porches. More exterior items. Assumed offsets. Reasonable offsets. Expected updates. dtd in comparison. Better kitchen items. Sup K & bath imprvmnts. Much bettr locatn. Share that.

      Relative to the subject. Comps sharing is for the birds.

  7. Avatar Jeff Weeks says:

    I am having more and more borrowers reaching out to me personally saying that their lender’s AMC can’t find an appraiser in our area. I’m worried this is a cover up to push their personal agenda to either try and choke appraisers out or take us down with their ship. Can we get any responses from other appraisers on this issue.

    • Baggins Baggins says:

      Ha! That’s a clever trick isn’t it? The reps are beaten down, exhausted their limited calling list, and rather than raise the fee or provide agreeable terms, they trick the borrowers into trying to source an appraiser themselves. I have had 2 such calls over many years. The borrower was instructed by someone in the process although I can’t say for sure, to try and source an appraiser. Once I entertained and explained, the borrower told me they were instructed to have me call into this particular amc and sign up with them.

      Sounds like an AIR violation to me. But then again, what do I know, it’s the non licensed managers with no educational or records checks compliance requirements whom are in charge of appraisal assignment through appraisal management companies now. They probably don’t even understand it’s illegal activity, like many other of their common activities.

      Acquire the lender’s’ name, call the managing broker, and use it as a sales opportunity. “I’m available, as long as I don’t have to share the fee with an amc.”

      It is the lenders burden to assure oversight of them, and they’re been running around without leashes for so long, they really do think there is no oversight and they can do what they want. I referred to this with a peer appraiser a few years ago as using the borrower as unpaid salesmen to help build appraisal panels. They have a financial incentive not to be honest with lenders, because otherwise they’ll get dropped in lieu of one of the many readily available direct assignment systems.

      • Avatar Jeff Weeks says:

        I told the borrower that and it got me thinking that the lender has a contract with the AMC and now the AMC is holding the lender hostage. I told the borrower if their lender wanted to call me directly that would be fine with me but I wasn’t allowed to discuss anything except I am able to accept an assignment on her property.

        These antics AMC’s use surely are about to dry up. I really hardly work with any AMC’s these days

      • It’s a pretty thinly disguised work around to self-selected lender panels. Personally I think the current refusal of FNMA to buy a loan where an owner pays for the appraisal direct; OR where the owner selects the appraiser is misguided.

        For years, the only thing we had to sell was our skill and reputations for honesty. Period. Sacrifice either one, and there was a 10% probability it WOULD be discovered on each assignment because back then FNMA was having about 10% of ALL appraisals reviewed.

        FNMAs adoption of bogus review forms intended to produce ‘clean’ reviews lead to the demise of meaningful QC checks and balances. It also lead to increased instances of incompetent reviewers being assigned to do the newer abbreviated reviews…especially the so called “enhanced reviews” where an alternative value was required but you were still only paid for a half page garbage review form intended to find everything ok.

        For years, ERC gave at least three choices to owners to select from. People whose work was known to be solid. Owners selected primarily on the basis that the appraiser would be thorough and professional. ERC appraisals have the lowest tolerance for error than any I’ve ever done (2% or less was the sought for allowable variance standard); and there were usually two and sometimes three appraisals completed. Appraisers didn’t feel compelled to “cheat”. Just the opposite. We did our darndest to be as spot on the money as was humanly and professionally possible.

        HVCC originated practices and current AMC competition are so far removed from real integrity that it is COMMON PRACTICE for correspondent lenders to get their own appraisal panels approved by AMCs used by the funding lenders.

        Their first names are usually “Skippy”.

        • Avatar don says:

          Some times a fourth appraisal, and we did work hard to ferret out the details. Some times those ERC’c would move a whole bunch, a whole industry over a short time, creating a flooding of the market. Some regulars both appraisers and agents would get a low ball reputation. When two or more do the same job in information was perfected by the ERC counselor.

          Sometimes the selling agent, and the buyers agent had different interpretations, and we had to consider what was probable. Verification may change everything or not.

          Worked for the DOJ on trespass properties. The two independent appraisers followed the FBI verifying all sales and info, made the unimportant appraiser respectable, not the typical beggar seeking free info.

          FNMA allowed its sellers to order an extra appraisal every tenth one, as QC.I ran into several questionable situations. Lomas &; Nettleton (TJ Bettes), one of the biggest mortgage houses was making a loan in a bad neighborhood, every other year it would foreclose on IT and resell to another Unqualified buyer to address the issue of diversity.

    • Hi Jeff, when they say that, give them this link https://www.asc.gov/Home.aspx

      Also suggest to those borrowers that it may really be more related to how much of the total “appraisal fee” is being skimmed off by the AMC. Borrower tells you they paid $650 and AMC is trying to only pay $350, there’s the problem.

  8. Vincent R Simon on Facebook Vincent R Simon on Facebook says:

    Monopoly like Core logic

  9. Baggins Baggins says:

    This just in. 50 years study. And they wonder why it’s tough to attract new appraisers.

    Too Much Job Strain Can Lead To Depression By Age 50, Researchers Warn

    After controlling for factors like an individual’s personality, IQ, mental health history, and other related issues over a person’s lifetime, the researchers found that participants who dealt with greater job demands, lower job control, and higher job strain were more likely to have a mental illness at age 50.

    “These findings serve as a wake-up call for the role workplace initiatives should play in our efforts to curb the rising costs of mental disorders,” says Harvey. “It’s important to remember that for most people, being in work is a good thing for their mental health. But this research provides strong evidence that organizations can improve employee wellbeing by modifying their workplaces to make them more mentally healthy.”

    Harvey says it’s important for company leaders to place a heavy focus on creating a comfortable and low-stress work environment. One way to do that is to make employees feel more empowered by boosting their level of authority over their work.

  10. Avatar OldFartiganWithaClue says:

    Just more of the same from the appraisER community. If you seriously think you have a choice in this coming forms change I have Oceanfront property in Nevada for sale.

  11. Avatar ArtBHolder says:

    GAHHHHHHHHHHHHHHHHHHHHHHHH ! ! ! ! I am completely exhausted in my efforts to get paid for these hybrid appraisals I’ve been completing for months. It seems like I am late to the party with regards to Clarocity Valuation Services, LLC. They had been paying (somewhat) regularly earlier this year and now its like pulling teeth to get anyone to answer my calls and tell me why I am not getting paid.

    Has anyone else had any issues with Clarocity Valuation Services not picking up the phone and running months late on payments? Anyone have any ideas on how to get recourse? I have done some poking around and there are stories of the company being out of money and I am owed several thousand dollars worth of fees.

    • Avatar Jeff Weeks says:

      Cant wait to hear all the responses on this one

    • Hi Art, Look up their current stock value – it’s on the Toronto Exchange – they are not allowed to sell or offer stock here in the USA.

      There is a LOT of online published data concerning their financial abilities… or lack thereof.

      JUST FOR FUN… repost your post above on AppraisalBuzz.com. You could also try to contact someone at the CRN. I think they just honored Ernie Durbin as Grand Poobah AMC Operator of the Year or best fiction writer… I’m not sure which.

      THEN file complaints with your states AMC regulators AND the lender clients regulators. I wouldn’t worry too much about ‘losing’ them as a client. They don’t have a lot of people still willing to work for free.


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Who Benefits & Who Pays the Price?

by George Dell time to read: 3 min