Big Data, A Bold Lie

With Fannie Mae and Freddie Mac’s new appraisal waiver programs, these GSE’s are pushing to use less appraisals and more AVMs. “Big Data” is pushing appraisers out of the lending process. But, just like Zestimates®, all AVMs mislead homeowners with inaccurate home values. They are an equal opportunity offender and the values may just as likely be too low as too high. Homeowners are often far too trusting in this systems, as they believe they are similar to an appraisal and any differences are only listed in the very fine print. However, any computerized valuation is based in part on public records. Regardless of how elaborate their algorithms or formulas, they far too often depend on a price-per-square-foot formula. This over simplified formula only considers two numbers – the sales price and the square footage. If the square footage data is taken from public records (which many people believe is the “official record” for square footage – another myth), when you rely on only two numbers and one of those numbers is wrong the majority of the time, then any home values they create are also in error. It’s just the facts of life. The tax department does not need precise square footage data and does a great job gathering the data they need. The data they need has nothing to do with the data the real estate industry needs and Realtors® stopped measuring homes in the mid-nineties when tax records first started being available online. While some agents still measure or have their listings measured, there is a very large percentage that take the square footage numbers from tax records and both MLS and tax records have wrong data. Big data has zero to do with quality. The bottom line is that AVMs, by design, are not capable of providing accurate or consistent home valuations. However, their use continues to grow, not because of their quality, but simply because of their potential profits.

Appraisers are the only unbiased party in any real estate transaction and without them, be prepared for what comes next-real estate crisis-act II. This is real money to real people and the myth of “quality” automated home values is a bold lie being force fed to a nation by big banks, simply trying to take the only true consumer protection (appraisers), out of their lending process. All the time, with plans to add appraisal profits to their own books. With appraisers out of the way in more and more home loans, lenders are free to “bend the rules,” and this will lead to another lending frenzy with catastrophic results inevitable. Don’t fall for the hype. Big Data is NOT the answer to appraisal quality. More information does not solve the big problem and more bad data just furthers the errors in home valuations. “Better Data” is the real answer, and it starts with each individually owned MLS system and more educated Realtors®. Until the MLS is improved any home valuations are at risk. If you’re sick, don’t go online-call a living, breathing, licensed, highly trained doctor. If you need to know the true value of a home-don’t go online – call a living, breathing, licensed, highly trained appraiser. Your money is too important!

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