The RPR® Epidemic – Online Valuations vs Trained Appraisers
Consumer protection goes right out the door as consumers learn to trust these online valuations over a local, highly trained appraiser.
Realtor Property Resource® is a private automated system just for Realtor® members. They are making great strides in promoting this service, and more and more agents are using this system to create their CMAs to present to owners. I recently reviewed a report provided by the listing agent which included sixty-nine pages of every imaginable piece of information. To an owner, this must look very impressive. However, to anyone who understands what a “Comparable” sale is, this report was downright frightening. To think that many of the newer agents are using this tool to develop home prices is a warning sign we are in for a new run on low appraisals. With the RPR®, chances are the agent will get over and under valuations. They might get a report with a close value in a large urban area, but only in limited areas. The reports with accurate values, in my opinion, would be no more than 20% nationwide. It’s a bad system, but with great advertising. And, much like the new Zillow® ads telling consumers they can feel better about what they are paying for their new home by checking the value on Zillow®, these warm, fuzzy commercials are geared for first-time home-buyers and they are trying to teach a whole new generation to trust in automated valuations. Consumer protection goes right out the door as consumers learn to trust these online valuations over a local, highly trained appraiser.
Let’s take a look at the comparable details from a “Seller’s Report.” First the subject property is listed with 3,436 sqft of finished living area. Per my measurements, based on the ANSI® standard, the home measured 2,923 sqft or GLA. A difference of 513 sqft. So, no matter what happens, this report (using the sqft details from local tax records) is going to be wayyyy off. Now, let’s look at their selection of so-called “comps.” This home should be priced somewhere between $425,000-$450,000. The list of sales used in this report ranged from $275,000 all the way up to $1,100,000. That’s an $825,000 spread. These comps were homes ranging in ages from 1913 to 2016. The total sqft range was from 1,240 sqft up to 6,388 sqft. Coming up with an average price-per-square-foot value, using this range of sales, is basically useless. These homes don’t even remotely resemble “comparable” properties. Any valuation based on such wide parameters is not a true indication of fair market value.
But, to a seller, they look very professional and the agent explains how they look at the “total market” to come up with a listing range of values. A seller may not understand, but an experienced real estate agent should know the difference and realize this is comparing apples to grapes and watermelons. What is a seller supposed to think? They may bring in two agents to interview for their listing. The first shows up with this 69-page report that has the Realtor® brand all over it, color graphs, and all the bells and whistles possible. The next agent shows up and suggests they get a prelisting appraisal to be sure about the fair market value. This agent comes in with an appraisal summary and a final value that is $80,000 lower than the number the first agent gave them. Guess who gets the listing?
Then what happens if they do get a contract? They get a low appraisal. They will be told it’s because the appraiser did a bad job. No one ever considers the home may have been over priced from the start. It’s a new twist on an old game and it is very bad for the public who has to trust in the real estate profession. The “one number” that really matters, the “final value,” is the most important element of any valuation and in online valuations, it’s far too often not worth the paper it’s printed on. It comes down to the “Trust Game” and for right now, online valuations are winning in dramatic fashion.
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So when financing goes south when actual appraisal is done or the owner tries to sell, whose a$$ is going to fry ?
Us of course the ones with the money (E&O)!
Here goes the market down the tubes again. Glad I’m getting ready to retire before it hits the fan again.
Does anyone know if there are any stats for how many BPO or AVM loans went down the tubes. I am in CT and it’s only one of four states (for now) that do not allow BPOs.
Just curious, as most of the crash was blamed appraisers.
Corelogic has the instant 3 up deal, but it’s essentially the same thing. Everyone and their mother thinks they’ve got what it takes to be a sales agent these days. At this point the most effective thing we can do is also double as financial educators. People often ask me about best methods to get ahead in these mortgage markets, strategy, etc. My response; The only way to beat the mortgage markets is to not participate. You don’t own this home until the final payment is satisfied. Sadly the majority of mortgage seekers don’t even know a 15 year is an option. Financial education in this country is at an all time low.
Thanks Hamp, like your articles.
I can only think of one group that can solve this problem quickly and completely. That group is those of us in the appraisal industry. Yep…those of us that do this each and every day. We are the ones that can fix it. Take Corelogic for example….If you use Marshall & Swift Valuation Services…give a guess as to who owns them? Do you take your continuing education from the Lincoln Institute…Let’s guess again who now owns them.
How about this EXPO foolishness? Are you one that pays to go hear what a “GURU” at an AMC has to say? Really….some of us need to purchase a mirror and take a close look at the problem! Just my two cents….
Unfortunately appraisers see this when they look in a mirror Wayne: A spineless weakling.
Frederick Douglass may as well have been speaking about the appraisal profession when he made this comment. The statement is as true today for appraisers as it was over a it was for slavery over a century ago.
After 3 years of fighting AMCs and HVCC on my own I chose to follow the best advice that’s ever been written on appraisal slavery and extortion. I strongly recommend posting this quote on your mirror appraisers and reading it daily.
Wayne, your comment is worth a lot more than two cents and as usual, right on the money.
I ran an RPR on my own property EXCEPT that I did not do any adjustments which is one of the options or requirements for the Realtor® to generate a “valuation report” (They can generate other reports that show dollar ranges that aren’t called valuation reports).
ALL the physical characteristics were wrong (ok, only 90% – they appear to have gotten the lot size right). The CMA comps were all from 200 sf to 250 sf larger (roughly 10% to 15% larger); Unit mix was mostly higher. Most probable range per RPR was $497k to $650k. A lot of inferred weight near $550k. My personal belief is that the lowest end of the indicated range is about 10%+- too high. (Even though the price per sf was skewed low due to over size comparables being used).
Most comps provided were three to four units. Only one was a similar 2 on a lot (duplex). I did not use the adjustments function at all. It would be interesting to see what my local agents would have put in. From the data provided I could easily show support for a $550 to $600k price. Several comps included are properties I know to be high flips. In my neighborhood I find it hard to believe they didn’t include ‘creative’ financing and inducements – but I could be wrong.
The BIGGEST omission in the entire report are permit issues for permits pulled dating back to 1951; updated in 2001 and arbitrarily VOIDED sometime after we bought the property in ’09 and verified permits (we think voiding was 2011 but cant verify). MAJOR impact on marketability. Amount? Who knows. IF City keeps playing hardball it could render top story and major additions to front and rear uninhabitable. Of course before that happens, they AND Wells Fargo (REO Seller) get sued.
Point is that RPR CANNOT identify these kinds of issues. Worse case scenario is property would become unmarketable. I think most would agree that would be a pretty big deal for most lenders. BTW, its a HUD/FHA loan. Appraiser did a GOOD job. No recourse there. He verified permits and correction notices individually by permit numbers – two years before city deleted that data from their old website. We had refused to close escrow til that was resolved. I personally cross checked the verifications and confirmed them.
If there were no permit issues, then the low end of range comp property backing up to the 710 freeway would be the most probable value indicator but even that would be a tough call. I still think it’s high.