Tax Values Just as Accurate as AVMs?
In a head to head contest between tax values and AVMs for use in mortgage lending, I’ll take tax assessments every time…
The battles rage on to decide who will take over the automated valuation process. There are big companies lining up to take over this massive profit arena. And, make no mistake, it’s all about the money. At the end of every discussion about AVMs verses traditional appraisals, it has less to do with faster or cheaper, or better, and sadly little to do with consumer protection. It has to do with who gets the profits that will be taken away from the appraisal industry.
Let’s talk about the goal of these valuation products. Supposedly, lenders are looking for faster and less expensive ways to get a valuation product to speed up the lending process. All of this is the pursuit of making the entire process faster and less expensive for consumers. I certainly agree there are times when a full appraisal seems like overkill. For a client looking to get a 40% loan with an 800 credit score, paying for a full appraisal seems unnecessary. We do need other options.
Well here’s an idea. Instead of paying for automated valuation services, which depend on public records for a large amount of their data, let’s just use the tax assessments. Whoa, stop the busses! What are you talking about? If we really want to speed up the process and save consumers a ton of money at the same time, lenders and the GSEs can simply use the tax assessment value to establish an estimated home value when making loans that don’t require a traditional appraisal. At least the tax department has seen the property in person. And, if you will take ten homes, pull three AVMs for each one, and then pull the tax assessments, I am betting you won’t find a 1-2% difference in values. So, why all the drama about who has the best algorithms and fancy programs for sorting through all this data? The tax department wins hands down. Other than getting inaccurate square footage (which is NOT part of their job description), tax departments do a great job. Their track record on accuracy is certainly as good, or better than that of AVMs.
I’d also like to give a shout-out to Lima Ekram with Moody’s Investment Services, who has the foresight to realize the dangers of automated valuations. Moody’s has concerns over the vast differences in the models for AVMs, and the lack of standardization in data which provides a greater risk to investors. Any loan supported by an AVM should NOT be packaged with loans supported by traditional appraisals. Moody’s is trying to protect their clients, understands the potential dangers of these big data products, and is a voice of reason in an arena of frenzied AVM products racing to the market.
Please, do your own test. Then share it with everyone who will listen. Find ten houses and compare the assessed values with any automated valuation service. I am betting you will find it proves my point. This automated valuation revolution is all about making profit. It’s got nothing to do with saving consumers time or money. It is simply a new prize on the table, with everyone fighting to see who wins. It’s also part of the bigger plan to allow big banks more control over the lending process, where appraisers are the last line of defense for the consumer.
Think about this. Assessed value is a single number. It is a number available for anyone to see. With automated valuations, if the lender doesn’t get the value they want with the first AVM, they can simply find another product until they get the value they need. There is no such option using tax records and that’s another plus for consumers.
In a head to head contest between tax values and AVMs for use in mortgage lending, I’ll take tax assessments every time. That is the best way to establish values without the use of a traditional appraisal. It would also be a huge win for consumers…
No AVMs – use tax records instead? Would that rock the world of big banks and AVMs? Just imagine if the only people allowed by law to profit from the appraisal business were those who invested their time, talents, and money to earn a license. Think about that a minute…
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The only problem with tax records is that they aren’t always accurate. In addition to regular appraisals, I have done quite a few tax appeals over the years and have found errors on field cards in living area, amenities, number of baths, bedrooms, etc both for the subject, which would change the assessed value and the comparable sales. Revaluation is typically every 5 years in CT, and changes are made to properties that aren’t always reflected on a field card, unless permits were pulled for work.
And the assements in CT are 70% of market value, better hope the mortgage person in Iowa knows that
Being in CA and with Prop 13 from many many years ago, property value increases are capped at 2% per year, thus assessed values are meaningless. Many new owners today (median price $575,000), pay significantly more in property taxes compared to properties that are valued over a million dollars. On a side note, just completed an assignment (sub market within a gated sub market) where 4 of my 6 comps all had positive time adjustments of over $100,000 (+10% YOY increases). The joys of working in CA, where single line item adjustments can be equal to the values of many entire homes in the US, but AMCs and lenders want to offer national average appraisal fees.
Seek the truth.
Hamp, I appreciate the view, and in states that are accurate where ad valorem really does mean ‘at value’, it could work. Count out all states where legislation prohibits millage rate increases and they simply assess at higher values to get around it (Texas). Also, as Bill noted-California. We are only tax-accurate immediately after a sale and reassessment. One is no good without the other and not reliable for lending.
I read an appraisal yesterday from New Jersey. Assessor and appraiser are $100,000 apart on the land value. No idea whose right yet.
Truth is, that if consumers are willing to accept LOW to very low values for their loans, of around 50% to 80% of MV, then AVMs will thrive. If the feds are willing to let taxpayers keep getting fleeced, then the odd loans with 150% LTVs, wont matter.
I’ll offer a new appraisal service involving lawsuits on behalf of borrowers post-closing.
How are avm’s managing flat fee realty? Hell, the human agents are in a stir and can’t figure it out. And what, am I supposed to adjust up or down, look at net, all while not being able to even speak to the listing agent? Next time, I’m passing that nonsense to the other guy. Is CU even considering the influence of flat fee realty? Doubtful. So let’s check the scorecard, avm’s are built on assessed data via sales records. Final sales pricing are increasingly based on avm and waiver programs. This is what happens when you trust a tech programmer to do the job of a real estate professional, calamity ensues.
The AVM fees are controlled en grosse ‘by the marketplace.’ Don’t confuse that with being the same as the marketplace of appraisers.
An AVM approaches a bank to get all or big chunks of their appraisal management work. It’s at this stage where the bracket of allowable fees is established. Long before any appraiser has been contacted. Any appraiser fees must necessarily fall within that preset bracket…regardless of appraisal complexity. We are finally seeing a very few exceptions due to appraisers push-back for C&R fees.
Depending on whether the banks (or direct lender) decision maker also takes a kickback per appraisal, or the bank has simply based what they are willing to permit their customers to be charged; a flat fee is established. Usually it is $650. In some instances it may still be as low as $500 but the vast majority of lenders set it in the $600-$650 range. (Smaller AMCs with fixed offices and staff require $75 to $150 per order to break even or profit)
This goes back to when Brian Coester’s VMS advertised that they were the first ones offering a national flat rate AVM fee. Everything since then has been competition among AMCs for banks business.
AMCs already know where they can still get $225 to $300 appraisals. That is their preferred ‘tier 1’ (contrary to Mr. Hagar’s belief that tier 1 stems mainly from appraisal quality). IF they can’t get one of the lowest fee appraisers to do the job, then they will consider paying up to $400 MAYBE even $450…but you can immediately see what that does to their profits.
So, what happens when the job complexity calls for a fee of $650 (or more)? IF they are doing it for a good client or one they are afraid of losing they may take no profit on one periodically.
So what happens when the fee must be $1,000 to $3,000? AFTER they run through all their lowest; lower, and slightly low appraiser fee panels they may communicate to the client that they can’t get anyone in the range. Once in a great while (rare) a fee up to $1,000+- gets approved though anything above that is truly rare.
Appraisers setting their own fees? Only those of us that can and have walked away from AMC work.
Moodys? Weren’t they one of the credit ratting companies involved in the whole derivatives fraud ? Let’s give Wells Fargo some kudos too while we’re at it.
Here in Mass the FY 18 assessments will be be up on public websites until Jan 19. Those values have an effective date of 1/1/17 so they were developed using sales from calendar year 2016. That’s quite a lag time in a period of declining values
I print a copy of the tax records and bring it to the inspection. I print the sketch on a separate page. I use that sketch as a template when I measure the property. I strike out the mistakes and write in the accurate measurements.
I estimate that public records are incorrect 85% to 90% of the time. Sometimes the house is completely different due to the lag time in updating the records.
That has a very significant impact on value. We NEED real time and accurate information.
I never really thought about the fact that lenders could use many AVM’s until they find the value they need. Very interesting comment, but we need to see the property in real time with current market conditions.
Last year I was doing a relocation appraisal in large city in lower CT. after inspecting the property and comparing my measurements to the tax records I found that the square footage was over 950 more that actually existed. The listing agent never bothered to measure the house or check the field card and compare it to the property so the listing information was wrong too..
I contacted the property owners and advised them to contact the Assessor because they have been overpaying on taxes for at least 4 years based on the square footage.and it amounted to over $8,000 They were ignored, I then contacted the Assessor on their behalf, calling several times and finally sending a registered letter, which was also ignored.
After several weeks, I was finally put through to the Assessor who kept skirting the issue, saying he has been appraising for 12 years and there can’t be a problem, I said I’ve been appraising over 45 years and you are wrong and these people are getting shafted. He got very nasty and I finally hung up on him, which I’m sure he was hoping I would do.
The difference in GLA along with my comments about the taxes was in my report, I also contacted the relocation company to make sure they understood the problem and maybe would help the transferee get some money back. I don’t know the final outcome, I figured a month of my time was enough trying to help them, but this goes to prove field card information assessments can’t always be be believed.
Saddest part to me is not the error, but the unwillingness to admit and correct it. kudos to you for trying to fix it.
I tried, really felt sorry for the transferees, nice young couple. They bought it from the same agent it was listed with, and she never caught the error in the beginning when she listed and sold it to them the first time.
You trust those people right…. They’re all to willing to take it up, good luck getting them to take it down. They live and die by the mill levy. Therefore; read my lips; No New Taxes! “If Americans had to get out their checkbook and write a monthly and yearly check for all the taxes they actually paid, actually paying it out of pocket, the government would shrink in size overnight.” Ron Paul.
Don’t tell the assessor they’re 50 years behind on data entry from the building department, they simply don’t have the budget for that. It’s a tricky area when dealing with borrowers. I tell them it’s not my job to tattle to the assessor, but if they were to actually sell, they’ll want to self correct that discrepancy, otherwise they’re quite often saving a few bucks on slightly low assessment. Illusions in real estate. If you’re a good boy and always get permit approval, you get a hella lot more tax than the guy whom does not, as you’ll be categorically rated in a lower less improved tier category. Often assessors look categorically in terms of quality valuations, they track that via quick drive by’s, but primarily through permit and improvement validation. Things they don’t tell you in real estate school. Do you think your average non licensed appraisal assignment person could keep up with this? What’s your fee and turn time, by the way?
Tick tock people. 🙁
The concept is valid, unfortunately the individual assessors offices can have variable reassessment periods and in areas like CO, are at times woefully understaffed. However, despite those shortfalls, they’re still staffed with what is often a dozen if not fifty to a hundred actual licensed appraisers, if you’re in a big city area. That’s far more than your average data aggregator hires which is probably zero. Here the standard is bi annual reassessment. If one were to err on the side of caution rather than treating homes like atm’s and needing the max value to squeeze the highest ltv’s possible, tax assessment as an alternative to avm’s would win almost every time. Hamp, thank you for being an astute reader of the blogs and links therein. They’re all fighting for a piece of the valuation industry pie, as well as title, insurance, brokerage, servicing, and every last dang other thing. The larger picture is complete elimination of independent personnel to bypass all previously long established checks and balances system. The last time I found a pc programmer to be trustworthy was never. If you can’t read code, you should not trust the coding. Foreign language to most people whom presume through over a decade of intense propaganda and conditioning, if the data comes from a tech device it’s more trustworthy. Nothing could be further from the truth. No business is good business, until it’s old business.
Assessed value??? How would that work? Your listing is listed at $300.000 and property tax cards says the value is $225.000. How will this even be able to close if a person cannot get a mortgage for the sales price? I think not!!! remember assessed value is not market value. and hopefully it will never be.
In ct the assessed value is 70% of the appraised value which is supposed to be based on comparable sales.
Yes, but that’s likely a consequence of certain strategic tax planning, low mill levies, a lot can play into that. It would appear you’ve already extracted the multiplier, you’re all good.
Assessed value runs in arrears to market value. It’s a catch up game which protects citizens from over taxation. It appears you’re close to extracting a reasonable multiplier, you’re all good. That’s a great quickie product I could get with; extracting the current average assessed vs market value multiplier so the lender can run a quick deal based on the tax value scaled up to estimated market value. I do that every single time when I scale up the land value for 1004’s… I’ve said it before, they’re burying QE in real estate. Nobody is stopping to consider the consequences of rapidly rising house pricing.
I think the point Hamp is trying to make here is why not use assessments instead of avms? He states that assessment values are more accurate than avms and they are FREE. Since those pushing avms argue that they are faster and cheaper alternatives to traditional appraisals, then why not use assessment values which are free, instant, and more accurate than avms?
“No AVMs – use tax records instead? Would that rock the world of big banks and AVMs? Just imagine if the only people allowed by law to profit from the appraisal business were those who invested their time, talents, and money to earn a license. Think about that a minute…”