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Discussion in 'General Appraisal Discussion' started by monicalight, Nov 26, 2003.

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  1. monicalight

    monicalight Sophomore Member

    0
    Nov 26, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    I was glad to see this on the page! (There is more to this article but I could not attach all comments becuase of size issue)

    go to: The Big AMV Lie

    Lookout - the next time you buy or refinance your home.....


    The BIG AVM Lie

    Automated Valuation Models (AVMs)

    Many lenders, including Fannie Mae, Freddie Mac, Wells Fargo, Countrywide and Washington Mutual have recently made a very risky decision to utilize computer generated appraisals (known as AVMs) instead of licensed real estate appraisers.

    These AVMs are similar to those you pay $10-$20 for on YaHoo or at some other company sites. They were known as neural logic or "fuzzy logic" when they were used on the stock market in the mid 90's. They failed there miserably.

    Like neural logic programs of the past, AVMs which the banks are now using are also failing miserably. These computer programs begin their "appraisal" by blindly generating an appraised value for a home with very faulty data. This computer "analysis" is based on multiple regression analysis with a large amount of the most pertinent variables, including your homes actual condition, its actual verified size, and your location removed from their equation. Only after AVMs find the appraised value do they begin searching to find what they consider likely comparables.

    The reason the banks are doing this is not to save you money--but to increase their own bottom line (they collect the fee). This also allows the lender to "fudge" these computer generated home valuations, because no 3rd party (like an appraiser) is now watching them. When a mortgage company is involved, our experience as state licensed appraisers is that a large percentage (not all) of loan officers will do anything it takes to "push a loan" just to collect their own commission. This is not always in your best interest! Suppose you owe much more than your home is worth, and the real estate market takes a down. You may soon find yourself filing bankruptcy if you had to sell your home. Relying on these AVMs to give you a value prior to selling your home could very well cost you $10,000-$100,000 in lost equity. It has happened to many people.

    AVMs and LOW VALUES:
    AVMs base their value estimates without anyone ever evaluating the condition of your home or the condition of the comparable sales used to estimate your value. AVMs nearly always totally ignore the number one criteria in real estate--location. These computer programs could care less if your home is located in a much superior neighborhood--an inferior neighborhood is often separated by just one street from you. These computer programs don't care if you have an ocean front view, or even a "crack house" view. A comparable which your home is judged by these AVMs may have sold low because half its foundation was falling down a cliff. It could have sold low by $50,000 because it has urea formaldehyde in the walls--AVMs don't care. Because its within their "circle" computers figure it's equal to yours. AVMs always indiscriminately compare your neighborhood with run-down and other incompatible neighborhoods. That's because computers cannot see the difference as they incorrectly analyze data in an office hundreds or thousands of miles away from you.

    Computer generated evaluation databases are predominated by 10-15 year old county data. This data most likely does not show whether you renovated your home's interior or exterior, put in new thermal windows, finished your basement, added an in ground pool, deck or porch. Computer generated evaluations will most likely miss your new kitchen and your new bathroom also. Additionally, AVMs are not likely to measure your home correctly. And they'll probably miss that finished 3rd floor and that new $60,000 addition in the rear. In short, AVMs do oranges against apples. They'll include a finished basement as if living area (gross living area) in the comparable sale--and often they'll not do the same with your home.

    Computer generated evaluation databases will most likely not include "fresh sales" in your neighborhood, or even across the street from you. If you have waterfront property, a computer evaluation will most likely compare your home against a non-waterfront home. Should your lot spill over to another town or even another state, this AVM will most likely miss that lot portion outside of your town. Computer generated evaluations will not talk to local brokers about why a home sold so high, or so low. They will also miss a lot of good comparables that exist when a homeowner sells their own property (FSBO). If you have a lot that could be sub-divided to give you a windfall of $100,000-$100,000,000, unlike an appraiser--the bank computer will give you no "heads up" so that your "gravy" goes to the new buyer--and you are none the wiser.
    The worse thing about these computer evaluation models (AVMs) is that they are spitting out reports to homeowners who are basing their selling decisions on these. We suggest if you lose money by relying on one of these - that you contact an attorney and file suit. AVMS are often falsely advertised as "Appraisers", "Real Estate Appraisers" and "Appraisal" on internet search engines.

    WHAT CAN A HOMEOWNER DO? Tell the Mortgage Company or Bank that you insist on an appraisal by a state licensed appraiser.
     
  2. Randy Beigh

    Randy Beigh Senior Member

    0
    Jan 16, 2002
    Monica

    I don't want to get into a big fight because this subject has its very passionate pros and cons, but I think that the old adage of "don't believe anything you read and half of what you see" applies here. This is somebody's opinion, but the facts are AVM's are here to stay and appraiser's will have to find ways of making themselves viable and some of us will succeed and some of us will not. As Lee Iacocca said; "lead, follow, or get out of the way."

    You have a happy Thanksgiving.
     
  3. Residential Appraisal Ser

    Residential Appraisal Ser Sophomore Member

    0
    Jan 26, 2002
    Randy: Quote from the AVM colision that is trying to bring standards to the AMVs.

    "Banks are using AVMs on blind faith. There are no standards"
    My statement is that their should be strict guidelines as to when an AVM is used and no AVM should be used without the signoff of a licensed appraiser that is familiar with the neighborhood.

    Bill Sentner
    President
    American Guild of Appraisers. OPEIU AFL-CIO
    RESASINC@aol.com
     
  4. The Matrix

    The Matrix Senior Member

    0
    Apr 28, 2003
    Professional Status:
    Certified General Appraiser
    State:
    Colorado
    The AVM's should be held to the same standards other appraisals are held to. If they produce erroneous or misleading results there should be licensing consequences. Why should there be two sets standards?? One set for real appraisers and one set for machines, I don't get it.
     
  5. Mike Garrett RAA

    Mike Garrett RAA Elite Member

    13
    Jan 14, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    It's the golden rule David...them that gots the gold makes the rules. The lenders have been trying for three generations to do away with the appraiser!
     
  6. Pat Butler

    Pat Butler Senior Member

    7
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    David nailed the main issue. Let them take their own risks but the first time an AVM is off by 20% then IT should lose it license. All the AVM operators would be out of business in a few days. I've always said, find a house mentioned in the local paper that just burned down. Run it through an AVM and see which one notices. That pretty much sums up their value.
     
  7. Karl

    Karl Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Arizona
    Sorry! But it is MY OPINION Appraisers created AVM's. Simply by not actually doing an Appraisal. ALMOST everyone on here has vented about bad Appraisal's. & Cookie cutters, NO OFFENSE BUT when U can take your three comps from the steps of your subject & know trhat by the time the loan closes the values in the area your standing will have increased 3%. SORRY a AVM can do that JUST as WELL. We as Appraisers have had the "Good Life" for so long we THINK the banks OWE it to us to continue. In order for that to happen WE MUST PROVE to the banks that WE return MUCH more for the money than a AVM does. Therefore WE have to give more detail about a neighborhood, more Detail as to what is happening financially in OUR Geographic Area of Expertise. & REASONS why the comparables used are the BEST. In other words completely either "DELETE" or Revamp our "caned" comments, because right now I would not want to TRY to argue that there isn't as many BAD Appraisals out there, as there is BAD AVM data.
     
  8. moh malekpour

    moh malekpour Elite Member

    0
    May 25, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Randy,
    I read the article and I saw no pros about AVM there. Frankly, I haven’t seen any AVM appraisal and I have no idea how does it function. All I know, it is a computer programming that does property valuation for lenders who lend money based on that valuation. In that base, I tend to agree with the article but I like to learn more about it.
    It seems to me that you are very knowledgeable or may be a proponent of AVM. I would appreciate it if you could mention few good things (Pros) about AVM besides its low fee and quick turn around.
     
  9. Randy Beigh

    Randy Beigh Senior Member

    0
    Jan 16, 2002
    Geez. I thought my post was simply a warning that we need to be careful what we are reading.

    Now Moh and Bill S have taken what I said and blown it up.

    Bill. You have been an outspoken opponent of AVM's for years, yet you are selling AVM's though AMCO. I don't get that.

    Moh. I am neither an advocate for or an opponent of AVM's. They just don't scare me. In other words, I don't care about them. There has always been loans made without appraisals and all the AVM's do is give a cheap alternative to appraisals for those loans. So what. They will not eliminate appraising. They may change appraising and they may or may not reduce our ranks, but they won't eliminate us. The only thing we have to fear is fear itself. You can quote me on that. :p
     
  10. moh malekpour

    moh malekpour Elite Member

    0
    May 25, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Randy,
    You are fearless. That is good. But fear is one of the strongest defensive mechanisms in human being. Fear mechanism has saved human race from all kinds of dangers: war, fire, starvation, and disease. Can you imagine if you don’t have fear of accident or death or ticket, how would you drive on freeways or streets? Some fears are logical like fear of loosing job or going broke, bankrupt, disease, and other disasters. That is why everyone buys insurance. On the other hand, some fears are neurotic disorders like Xenophobia (fear of stranger) or Homophobia (fear of homosexuals) or fear of flying. These are not fear but neurotically disorders that can be cured. But in order to make a normal person who has a natural and logical fear a fearless person, you have to do a controlled psychological programming or in some case brain washing. So natural fear is a good mechanism and is our savior and is going to stay with human race and you can quote me on that.

    You said that your post was a warning to us to be careful of what we are reading. I suppose your warning was not a generalization of any reading for example reading the Bible or Constitution. Your warning was about this particular article that has created fear of loosing job or income amongst appraisers. You have every right to express your opinion but please look what you are telling us. The warning by itself is a suggestion of fear. When you warn your child to be careful not to run across street, you creating a fear in your child who has no experience of accident and injury. Now, you telling us to be fearful (warning, be careful) of what that article is saying about AVM.

    When I read that article I got the same feeling that all other posters have, threat of loosing my job. So, I tried to be objective and find out if it is a real threat or sort of illogical fear that is why I asked you, who is fearless of the AVM and telling us to be fearful of any reading that says otherwise, to give us some positive aspects of AVM. Perhas it alleviate my fear.

    If AVM is a threat to appraisers profession, then it is natural for appraisers to be concerned about it and use their fear defense mechanism and fight against it. If there were a disease or fire out there, what would you do? The first thing is you fight against it with anything you have because you are afraid of loosing your life or property. You may have to give up if you are not strong or consistent or you want fight it yourself.

    Lenders have every right to choose AVM or not even use appraisal for their loans. It is their business how to lend money as long as if they messed up; they would not ask taxpayers to pay for their mistakes.

    But don’t you think the Congress who are going to bail out lenders if they messed up because they used AVM as an alternative to real appraisal for the security of their loans should read that article and at least know what AVM really is?
     
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