I choose not to be part of the big data valuation revolution.

Just say NO – female hand writing text

The big data and automated valuation explosion will ultimately destroy the real estate industry and it will take decades for it to recover. The facts are, we live and work in a price-per-square-foot industry. The square footage data used in the so-called “official record” in local tax records is in error enough to alter home values and it’s an equal opportunity offender – values can be too low or too high. And, it’s wrong enough to dramatically change home values, ranging anywhere from as low at 10% to as much as 60% (and even more in some cases). That margin of error is just too high to ignore. Until someone comes up with a way to improve this square footage information, the one number that serves as the currency of real estate, all the big data in the world will never price real estate fairly or consistently. It may work in 10-20% of markets across the country, but in every other market the valuations can be a joke. Ask local bank managers about the quality of online real estate valuations. Ask appraisers. It’s no secret. However, the local people dealing with consumers don’t have to deal with stockholders and corporate boards, who are only concerned with raising profits. This massive online valuation push has nothing to do with improvements in technology, it only has to do with timing. Big Banks see this as their best opportunity to force feed the idea of better, faster, and cheaper valuations at a time when appraisal problems have been in the news.

This is not even a new discussion, even though many would like you to believe it is. They will argue we have all these great new data tools at our disposal we didn’t have even ten years ago. And, armed with this new data and technology, home valuations are easier and more credible than ever. That’s simply not true. The entire appraisal industry assault that started with the HVCC is all about the money. It’s nothing more than the Golden Rule at work. The banks have all the money and are doing a great job convincing Fannie Mae and Freddie Mac that online valuations are the way of the future. They argue they will do a better job and do it cheaper. Even if they allow appraisers to only work on the comparable selection and valuation process, they would have real estate agents or anyone else but an appraiser perform the onsite home inspection. If you take away the inspection process from the appraiser, you place an untrained person in charge of one of the most important parts of the process. Computer valuation or untrained inspection with limited appraiser participation, I argue the whole program is nothing more than smoke and mirrors and the ultimate loser will be the American home buyer, and the mortgage investor who relies on these unreliable systems.

This is not rocket science. For all their specialized mathematics, the most weight in each valuation comes down to price-per-square-foot, using inaccurate square footage details. When the largest part of the valuation process comes down to only two numbers – the sales price and the square footage – and one of those numbers is wrong (the square footage) – then every value created using this formula will also be wrong. It’s not that complicated. I say show us your formulas used to create these “better” values, but no one wants to share. Behind the scenes, we hear it again and again, it still comes down to the price-per-square-foot in the vast majority of residential valuations.

Write this down. If online valuations replace living, thinking appraisers, the results will be an onslaught of unreliable mortgage loans based on a faulty data system. Home buyers will think they have a 10% equity situation only to learn they actually have two or three. Or, a mortgage loan for $250,000 will discover the house is actually worth $210,000 when they decide to sell. Who will pick up the tab? Not the big banks that knew all this going in. It will be the taxpayers who will pay the price, twice.

The evidence is easy to see with just a little investigation. Appraisers, find ten home sales that went through the MLS where you did the appraisal and compare their online valuations (and their tax valuations). Get ten of your peers to try that in ten different markets. Two patterns emerge. First, the square footage numbers in the appraisals are different from those in tax records (and likely MLS); and second, the values don’t come close to matching. There is over and under pricing with percentage errors all over the place. Don’t trust my theory? Try it for yourself.

Real estate appraisers need more training to make their reports better and they do need to learn more about the latest tools at their disposal. They also need to do more research and analysis than ever, not less. Appraisers are charged with protecting people’s single, largest, lifetime investment, and the place they will call home. And yes, the price of an appraisal might even go up a little. Consumers never complained about appraisal prices, only banks who wanted the money for themselves by using automated valuations they control. Think anyone is clamouring for doctors to lower their fees? How about new car prices — is anyone working hard to lower car prices? People want quality care and products and the price is the price. However, the “price” of this fiasco may be the downfall of the American real estate market.

 

Feisty Senior Citizen Highlights Appraisal Problems

Last week I called a borrower to schedule the appraisal appointment. She asked me some very odd questions; “Are you a licensed appraiser? What is your license number? How can I verify this information?” Well I had never been asked any of these questions in my entire career, but I answered as there really wasn’t anything I was hiding.

It was 19 degrees outside when I arrived at the property and this senior citizen, not more than 4 feet 10 inches tall, was sitting on the porch. I proceeded up the porch and introduced myself, handed her a business card and put out my hand as I always do. She did not shake my hand, but instead she asked if I had identification. I showed her my driver’s license. Then she asked, “what about a copy of your license?” Well after a struggle to get the thing out of my wallet, I showed her my wallet license card. At this point, she said, ok let’s go inside where it is warm.

Once in the house, she apologized for her bluntness. She then explained she had a bad experience with another lender. She proceeded to tell me; “They sent someone to my house to look at the property. I let this person go through my home, into my bedroom and everything. They even took pictures.”

I stated that we are to observe all areas of the home, take photographs of every room and that was normal.

She replied.

“I know what an appraiser does. I retired from the banking industry after 45 years. The person they sent to my home was not an appraiser. He called himself a property inspector. He explained he did not appraise the property and was there to make notes and take pictures. He did not work for the appraiser and did not even know who the appraiser was or what the process of appraising entailed. This person was a stranger in my home and had no credentials, license or professional affiliation. As an elderly single woman, who lives alone, a fear came over me and I told him to leave.”

We talked a bit and I explained about hybrid appraisals and how appraisal management companies and lenders were pushing these products thinking it will reduce the turn-around time to get an appraisal.

Her response:

”That is the most asinine thing I have ever heard. The property observation is the most important part of an appraisal. It is what the appraiser uses as the foundation of the report. It is the information that comparables are selected from. Who in their right would think this is a smart thing? This has fraud written all over it.”

I asked her more about her background. In her 45 year career, she started as a Teller and worked her way up to Regional Manager, then Corporate Trainer. She retired as the Senior Vice President of Compliance.
This feisty 4’ 10” senior citizen kicked the property inspector, hybrid appraisal and lender to the curb…
By TJ Everett, Certified Real Estate Appraiser

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I just found this article and must say, it made my day! It also brings up several great points.

First, has anyone heard the uproar from consumers demanding that appraisal fees be reduced?

Total myth. The only people clamouring for less expensive appraisals are the very ones who seek to profit from replacing them with their valuation services.

Second, why do we hear so much about appraisers being the reason closing a loan takes so long and who do we hear that from?

Exactly, the same people who are the real reason loans take so long to close. Most lenders take a mortgage application and usually collect an appraisal fee at the same time. However, they do NOT order the appraisal for another two to three weeks, and then give it to an AMC that will waste more time trying to find the cheapest and fastest appraiser. No one cares about getting it done by the most qualified, local appraiser, only the fastest and cheapest. All the time telling consumers the loan is being held up by the appraiser.

Just imagine if the lender actually ordered the appraisal the same day they received payment? This would eliminate two to three weeks from the process and the talk of appraiser delays would magically go away.

Big banks don’t want appraiser problems to go away. They just want appraisers to go away. Those pesky appraisers that try to do honest, quality work, are just a bother for lenders and there’s just too much potential profits to be made from automated valuations that cost nearly nothing to produce, and are worth just about the same amount.

Wouldn’t it be nice if we could get some logic back in the appraisal industry? Overall, appraisers do a very good job and are consumers best chance at keeping home values realistic. It’s time for appraisers to move off the lender’s radar and let them find a new profit scheme to work on. We’ve served our time, let us go back to work.

Realtors® Giving Too Much Power to RPR®

“Since then, we’ve become RPR’s biggest fans. It has helped grow our business because it has given us more credibility.” A recent article talks about the benefits of using the Realtor® edition of online home valuations. This growing trend is frightening for home owners as more and more agents rely on computers to price real instead; instead of using their time, skill, and research to calculate home values the right way. When it comes to determining the price of most people’s single, largest, lifetime investment, shorts cuts are NOT a good idea. Money matters, and getting a suggested listing price based on a computer and not a licensed professional’s skill, is the new trend and it is very bad for consumers.

“That first phone call is critical, I’ll immediately pull up RPR on my tablet and start researching the seller’s home while asking questions at the same time. I quizz the seller to confirm the home’s basic facts such as number of bedrooms, baths, square footage, etc.

Stop the presses! This is a licensed real estate professional, responsible for pricing people’s homes and financial futures, that proudly announces to the world that she accepts whatever information she can find online, or better yet, that the seller provides her. Just WOW! The square footage totals agents rely on are one of the most important items when it comes to pricing a home. Tax records are notoriously inaccurate, and how are the owners supposed to know what size their house is? Most know what is in tax records. The “Official Record” for square footage is a myth started by an agent that didn’t want to be responsible for measuring a house. I actually don’t think agents should measure houses. They can’t be experts at everything. However, finding the correct square footage is a vital part of pricing the house and providing that data has always been part of the real estate agent’s duties. Ask 100 home owners where their agent gets their square footage total and they will tell you – that’s part of the agent’s job.

gents say square footage is not that important and so they can use tax records to get close enough. On the one hand, they say square footage is not that big of a deal. But, then you look at every CMA they create and there you have it – a price-per-square-foot formula used to price the home. You just can’t have it both ways. It’s either important or it’s not. The fact is – if you change the square footage total used in the price-per-square-foot formula, you change the listing price. Often, by tens of thousands and much more. It absolutely changes home values and this is not just a number, it’s real money from real home buyers and sellers.

If Realtors® want to use RPR, more power to them. The graphs are wonderful. But, if you (or your computer) is going to use a price-per-square-foot formula – then have each listing measured BEFORE you give the owners a suggested listing price. If you don’t, you’re cheating consumers every day. Not an opinion, a fact of the real estate business. Size does matter!

Fannie and Freddie, Still Stealing Data

No matter how you sugar coat it, Fannie Mae and Freddie Mac have been stealing data from independent appraisers for years. The information gathered by licensed appraisers and delivered to their clients, is sold to one of these two GSE’s, who then store all the data under the auspices of appraisal quality review. Appraisers are not even allowed to see the info because it’s only for the lenders who hire the appraisers in the first place.

Now armed with years of appraisal data (which I firmly believe is gathered illegally and an entire industry is virtually blackmailed into having no control over the data they create/own?), now this data is being used to put the very people out of work who provided the data in the first place.

Fannie and Freddie are upping the stakes as they increase their appraisal waiver programs to allow the use of more automated valuations (they say only 50,000 less appraisals next year), whenever they have a previous appraisal report in their database. In one place they state the program is a no cost service to consumers and in another, this no-cost service can be provided for only a $50.00 fee. Hmm… So, they get to use the appraiser’s report twice for only one fee? Think about this – appraisers get paid for their opinions of value – not for the individual data they collect in the process of determining that opinion of value. The GSE’s are using appraiser’s own data to take work directly away from them.

There’s something downright Un-American about this whole system and the appraisal industry has been punished long enough for sins they never committed. Big Banks started the problems and, once again, the system is being driven by the “Golden Rule.” As for Big Data, it will never accurately price real estate. It simply isn’t possible using the information in public records. I am hopeful the new administration will stop the bleeding and restore some integrity to the appraisal regulation industry. No industry in history has been subjected to the turmoil imposed on the appraisal industry, that all started with the HVCC and went downhill from there. It’s time to bring back sanity to the mortgage lending process.

 

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!

The Most Overlooked Reason for Low Appraisals?

Bad Agents. That’s right – bad real estate agents. Too many who don’t understand how to properly price real estate or those who allow the seller to guide the value. It never makes the lists going around when written by Realtors or lenders and is overlooked so often, most people never even consider the possibility. Unfortunately, it is the case far more often than is the case for a simply bad appraiser. If a home is overpriced, it never has a chance of making it through the appraisal process. It doesn’t matter which appraiser does the job, you can’t just make up numbers, although many agents seem to do just that. That price just “felt right.” Real estate agents are supposed to be trained in how to price real estate, just like they are supposed to be trained in how to measure a house. They use the over-simplified formula of price-per-square-foot. The problem is they take the sqft details from public records who never go inside any house, and the sqft information is wrong more often than it is right. The myth of tax departments having the “Official Record” of square footage is simply false. There’s no such thing. Maybe it’s only 80, 90, or in too many cases between 200-500 sqft off. With the prices of real estate these days we are talking about huge differences. I have a ton of examples where a home is overpriced between $60-90,000 based on nothing more than using the wrong sqft data. When they take the accurate sqft info, and then input that information into their all powerful PPSf formula, guess what – the value comes in pretty darn close to the appraisals.

 But, the public never hears about that part. There is an unwritten rule in the real estate industry – we don’t talk about square footage. But maybe they should, because they cheat homeowners out of time and money every day, all across the country. Yes, size does matter. Ask your agent if they measured your house and why it matters…

 Appraisers are still getting a bad rap when it should be a little better known that starting with a fair value gives you a much better chance of not having to worry about the appraisal process. If the value is done fairly, you’ll never have a problem with an appraisal. Imagine that!

 Whether the culprit is using bad square footage data or one of a dozen other problems with the real estate education process, sooner or later someone needs to scream REAL ESTATE REFORM! Not appraisal reform, real estate agent reform. The problem starts far too often at the beginning of the process, not at the end. Every valuation, at least in part, is based on personal opinion. Appraisers have to use facts to prove their opinion – agents do not. That is a problem waiting to happen. Maybe agents should have to provide lenders with the process they used to price every home. That would be interesting!

  

When Brokers use the Square Footage Numbers in Tax Records

Here’s one example of the real money difference when a broker reports a square footage total taken directly from the local tax records; rather than from a sketch in their work file or by obtaining the accurate number from an appraisal completed for the property. Each listing Agent is responsible for ensuring the finished living area is reported correctly. Even though we all know the Realtor® Code of Ethics talks about protecting clients, this unnecessary error happens every day all across the country. It costs real buyers and sellers real money.

Example #1

6 Sandpiper Dr. Whispering Pines, NC

Finished Square Footage report in MLS        = 1,780

Square Footage Total listed in Tax Records = 1,780

Square Footage Total reported in the appraisal = 1,863

Sold Price = $209,500

Price-Per-SqFt per MLS = $117.70

Price-Per-SqFt per Appraisal = $112.45

Difference of $5.25 per-sqft

 

Based on a similar home with 1,800 sqft of finished living area, potential difference in listing price:

 1,800 x $117.70 = $211,860

1,800 x $112.45 = $202,410

Difference of $9,450.00

 

This is a basic, rectangular home that was easy to measure. The next agent (or appraiser) that uses this home as a comparable sale will have their calculations misguided by apx. $10,000. It’s not just a small clerical error. These intentional mistakes turn into real dollars, and for something as simple as the accurate finished square footage details. This is only a small difference in a non-complex property and it could easily equate to almost ten grand. That’s real money coming out of someone’s pocket. It also influences appraisals and CMAs every time this sale is used as a comp. In this case, the next homes will be overpriced, based on the misinformation of this one sale. If this happens in numerous sales, it can alter appraisals and CMAs for many transactions in the future. Too many times, low appraisals can be tracked back to nothing more than inaccurate square footage numbers (but appraisers still get the blame). There is a great deal of power in the square footage numbers brokers report to the MLS. Even if it’s only $5-6,000. Don’t think that’s a big deal? Get out your checkbook! We work with people’s single, largest, lifetime investments and their financial futures. They deserve better! It’s time for Realtor® reform!!!

 

 

 

 

 

Dismantling the Appraisal System?

Dismantling the Appraisal System. Really? Appraisers are the only ones who care about a home’s true value anymore. What a sad state of affairs for the home-buying public. The bankers and GSE’s only care about getting deals done. That mentality got us into the last housing crisis. Now there’s all this talk about doing away with appraisers and letting automated valuations take over the system for all loans up to $500K. The day that happens, you can start the countdown to the meltdown!

I have studied AVMs and public records for almost 15 years now. Automated valuation products rely on public records and they never visit any property. That’s a recipe for disaster! First, the square footage details contained in public records are wrong more often than they are right. And, not by a few square feet, but enough of a difference to change property values. AVM’s rely on the mystical, all-powerful “price-per-square-foot” formula. If those sqft numbers are off, even by 10% (and many times they are off 4-500%), it flat out changes values and cheats consumers out of money. I have collected lots of examples over the years so no opinion here, just the facts.

The appraisal system would not delay any closing if the lenders would order the appraisal at the time the contract is signed. Why is it they wait until the last week, or last few days, and then order the appraisal? Perhaps because if they need someone to blame a delay on, the appraiser makes the perfect scapegoat. It’s a crazy system! Order the appraisal at the start of the transaction and it’ll be completed in plenty of time. Then, if there are any delays, look to the bankers.

The motivation behind all this talk of appraiser reform comes down to the most powerful motivation around – MONEY! If there was no chance of anyone else profiting from the appraisal portion of a loan, all this talk would disappear overnight. It simply comes down to trying to find new ways to make a profit and with all this talk of appraisal reform, lenders see appraisers as an easy target. But, if you want to learn the truth, all you have to do is talk to the local lenders, the people that meet and deal with consumers and the AVM products being used in place of appraisals. They are quick to tell you most AVM’s are not worth the paper they are printed on. That’s a huge statement and guess what – it’s the absolute truth! Why is it the GSEs want to use them more? It simply comes down to more profits. Now, they can charge for the appraisal fees and if they don’t get the value they need from one AVM, there will be lots to choose from, all competing to take over the new appraisal windfall, and all without any training or education about the real estate system. A computer simply cannot replace a skilled appraiser.

So, if they truly want to move forward with more appraisal reforms, I say go right ahead. But don’t try and blame it on appraisers for causing problems in the mortgage lending process. Appraisers are the last line of defense for the American homebuyer and if they leave the process it will leave the foxes in charge of the henhouse. After all, we know big banks have consumer’s best interests at heart, right! If the government officials decide that automated valuations are reliable enough to loan hundreds of thousands of dollars, then I say “here’s your sign.”

Consumers Beware!!! Big banks will continue to grow bigger and make more profits while consumers lose money when they buy or sell or refinance. Please stop this now!

WASHINGTON – “When it comes to the regulatory regime surrounding appraisals, it seems we’re stuck in 1989.” said Subcommittee Chairman Blaine Luetkemeyer (R-MO).  “Ultimately, our nation’s appraisal system is unnecessarily complicated and outdated. That complexity impacts homeowners and is, in part, responsible for delayed closings and increased consumer costs.”

Read that last line. Wow! Increased costs in the appraisal industry comes from appraisal management companies, who I believe add no benefit to the lending process. Ged rid of AMCs and the appraisal fees will decrease. Give them a larger role and add AVM’s in the mix, and I guarantee a new mortgage meltdown. Right that down! If this change is made, it cannot be undone. Stop AVM’s in mortgage lending NOW!!!

The Automated Revolution

by Hamp Thomas on 07/07/16

The appraisers we need to keep consumers protected are the very ones being driven out of the business. They are being forced out by big banks and AMCs (who much too often provide zero benefits to consumers). Everyone seems to have forgotten that these services (provided by AMCs) used to be part of the bank’s responsibility for every loan.  It was just the cost of doing business. Then came the AMCs and banks’ profits had to go up. After all, they lost a whole department. Now they pass the expenses along, mostly on the backs of appraisers, who haven’t had a raise in over a decade. They have had fees lowered due to AMCs taking part of their fees (which are still undisclosed in settlement statements). Appraisers also have not had an increase in fees, but have had their work load more than doubled. Think about that, twice the work for less money. No other business would have been allowed to follow that path, yet it’s exactly what is happening to appraisers.

With bank profits up already since the invent of AMCs, now this has become “normal business” so banks need more. Along comes the automated valuation revolution. Now banks want to push the use of AVMs with more and more loans, which gives them even greater profits. This is not rocket science and it’s nothing more than the Golden Rule at work (the one with the gold makes the rules).

With Zillow® and RPR® pushing online valuations to consumers and agents, and banks pushing the same, it is all very bad for consumers. The hard, cold facts are – AVM’s are not accurate. But, they are a money making machine that is driving this revolution, and no one in the government seems to care about protecting home buyers from these valuation imposters. All these automated valuations are based on inaccurate sqft details listed in tax records (and flooding the MLS as agents have stopped measuring homes). Local tax values are typically more accurate than AVM’s, but there’s no profit in that.

So consumers will suffer once again, and so will the companies and people who invest their money in mortgage securities. It’s simply a matter of when, not if, another mortgage meltdown strikes. Someone needs to pay attention to the ‘big picture” here. In the next 10 years, if something doesn’t stop this current trend, we will be too far gone to correct. Write this down and mark my words –  appraisers (as we knew them) will be all but gone within the next ten years. I believe less than 20% of all loans will require a traditional appraisal if we continue on this current course. With the appraisers we need to train the next generation all gone (which is what big banks have wanted all along), it gives them total control over the loan process and no oversight. Appraisers are trained to be fair and lookout for consumers and mortgage investors. Everyone else has a motive in the process and is rewarded much greater than the lowly appraiser who got the brunt of criticism over the last mortgage crisis, when it’s beyond crystal clear that big banks were the problem so much greater than appraisers ever were. Big banking fines and penalties are still making news but no one cares. It certainly hasn’t impacted their profit statements.

These changes will take a heavy toll on the real estate industry. True equity values may be dependent on which AVM the banks use. And, they will have several at their disposal. People who are not trained in real estate values will be in charge of loans and collateral security. It’s like turning the hospital over to the pharmacists. They may be very good at their job, but they have no business treating patients and giving out medical advice. We need doctors, and we need appraisers. The train is rolling full steam ahead and appears unstoppable.

The next generation is doomed if all real estate pricing is dependent on home values created through online valuation services, most of which are not worth the paper they are printed on. It’s an ugly truth. Buyers beware…

The RPR® Epidemic

by Hamp Thomas on 07/07/16

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.