Zaio: Everybody buckle your seat belts

[Willie]

Ken, thanks. My bad on calling you Kenneth when you go by Ken. If anything, Kenneth seems more proper, and maybe that is what I was thinking, addressing you with as much respect as I could. Also, my bad on the double botched post. I was having puter trouble this am as I was drinking coffee and on the laptop.

Thanks for your answer.

 

[Ken Verrett]

Ken

Thanks for your responses. Though I hated to see your follow up.

Interesting ZAIO is actively going after Commercial... Is the AI involved with that? This seems to becoming a real complete database. Will be interesting to see.

Man you have a lot a free time!! Golf in the afternoons. I need to work for you! I want to play golf!



Can you ellaborate more on this? Not seeing where this helps the profession.

Morning Mr. D. Sorry about that follow up. Someone else, Mr/Ms R. called me out for being sensitive. I think the follow up you mention was just that. Forgive me?

I've seen nothing to indicate that AI has any relationship with Zaio. I don't see how there would be. Ross has moved from AI to Zaio. I've spoken with him several times during his tenure with AI and several times since he's with Zaio. Never heard any hint of a connection.

Now I'm going to elaborate on your "benefit the profession" question.

Warning Mr. F! This may get lengthy!

It also exposes me as an idealist. Please remember that as a scarred Geezer, I'm also a pragmatist. The two can coexist.

Like many here, I believe the relationship between the appraisal profession and the lending industry is broken. Like many here, I believe drastic measures are needed. If they aren't taken, I believe the appraisal profession as a provider of services to the lending industry will disappear, to be replaced with some form that addresses the lender's needs better.

I don't think that the appraisal profession will disappear, only the lending industry niche, which unfortunately is the bulk of the current and traditional market. I think the current niche appraisers, evidently those like Pam, who do litigation support, feasibility analysis, etc. will be unaffected.

The relationship is broken because the the lender is not able to get the information and the service and the quality at a price they can afford and in a time frame that they need. The appraisal industry is providing the traditional services (defining tradition to include all the numerous new products that have evolved over the last ten years). Those products and services, while good steps each, have not kept up with the more rapidly changing needs of the Lending Industry.

I clearly see the disconnect, perhaps because I've been on both sides. Mr. R W may see the same thing, although he seems to be in the commerical side of the lending industry.

I recognize that Lenders are the evaluators of risk, and the level of risk specific to a given loan proposal will vary greatly from one proposal to another. When a lender decides which appraisal product is needed, it is within their right and responsibility to so choose, and that selection is based on the risk level they perceive.

I do not see the appraiser as being the gate keeper, the triage manager, controlling which products are appropriate. Not our function in the mortgage market. In a rare instance yes. That's provided for in the current system.

That's not quite the same in the niche markets which I referred to earlier. In those niches the appraiser should and does act as the triage manager, helping guide the Client to the correct package of services.

But recognize I'm speaking only of the mortgage market. Not those niches.

The lender needs an unbaised valuation of a property, needs a first cut screen to determine that the proposal is feasible, preferably when the prospective borrower is sitting at their loan desk. They then can encourage the borrower, attempt to get a commitment to the bank from that borrower, and then begin their extensive and expensive due diligence to support the early conclusions, approve and fund the loan.

Of course that's not how it works right now. Currently appraisal is back end. Very time consuming, and after much of the time and energy and hopes and expense have already been invested. The appraisal comes in too low to make the deal, time and money is lost by the lender, and the borrower is often disappointed and lost as a customer.

A true disaster. The appraiser gets the blame.

I believe this situation will not continue. I believe a change is needed and I believe a change will come. If we as an industry don't find a way to meet our Clients needs, the client will develop a solution that will exclude the mortgage appraiser from the process.

When I first looked at the Zaio Concept, I immediately saw that they viewed the market in the same way I did. The concept is designed to meet the lenders needs in a way and in a time frame that solves the dilemna that I think both sides are in. It is cornerstone of my/our decision to take the risk. I believe it is one solution to the problem we face.

It helps the profession by changing the way we and the lenders interact. It helps the profession by regaining a significant portion of the market that has been lost to us in the last five years.

It helps the lender because the product is a significant improvement, in my opinion, over the AVMs. I have hopes that it will be a significant improvement over present day 2055 Exteriors. It helps the lender by moving the appraisal process to the begining of the loan proposal due diligence, making for faster, more accurate, and more customer friendly outcomes and customer retention.

Finally, it helps the consumer. Faster response times helps the consumer to better manage his assets in support of his families needs.

I told you I'm an idealist.

 

[George Hatch]

When I was at the seminar, Brad kept repeating the work "Hit", during the presentation when the LO is looking at the pre-appraisal. If the value isn't in the 'hit" range or price of what they want, looking for, they communicate with the zoner and request to see if the data is correct for the intended "hit" price. If they figure that the data is questionable/corrupt due to limited data, then they up grade it to a full appraisal to see if it "hits" the value. I kept indicating that the lender pressure still does not go away...... "It's a comp check?", I asked, He agreed that it was......... So the scum is still not out of the picture, lender pressure is still present.

I wasn't at this presentation so I don't know what exactly was said or the context in which it was said. I will comment that the phrase "hit" is used by AVM companies in a manner different than how a lot of appraisers would hear it, i.e., "hit the number".

I've read a number of interview/press releases with the data company suits in the "AVM/AMC Buzz" newsletter that everyone gets, as well as in other publications. When these AVM guys use the phrase "hit" or "hit ratio" they are apparently referring to an internal measure of confidence or reliability or accuracy coefficient that their system comes up with, not whether the valuation itself is at least as high as their client's desired result.

In other words, if the comparable data being used present a trendline that has very little variation and the subject's attributes put it right on that trendline the reliability of that analysis would come in a lot higher than if the data is more scattered and the trendline is less reliable. One of these valuations could be said to be a "hit" if the degree of reliability - not the value conclusion itself - for that analysis fell within an acceptable margin of error.

Another way of explaining it would be to compare the degree of reliability in an appraisal that involved a tract house wherein all the comps were model matches, vs. an appraisal of a unique custom home out in the sticks. You would naturally find less variance among the data, and hence the conclusions, in the former than the latter. If an AVM were being run on the custom home it would be more common for the resulting valution to not fall within that acceptable margin of error to be considered a "hit".

So in this case, if Zaio's default output on this custom home in the sticks came back outside of the "hit" margin, most lenders wouldn't accept the value conclusion regardless of whether or not it was high enough to do their loan. The reliability of it would just be insufficient for them. So Zaio's system is set up to offer the bump up to a more comprehensive scope of work that would involve the interior inspection and additional data analysis by the appraiser.

As for the comments about it being like a comp check or whatever else, I wasn't there so I obviously couldn't say. However, I will say that any appraiser can perform a no-look or dated-look or "inspection-by-other-means" scope of work for certain assignments without running afoul of our professional standards, and that includes doing them in response to comp check requests. To that end, Zaio's product is probably just as suited for comp check requests as it is for any of its other targeted uses. Which is to say, it has the potential to conform to USPAP even if it might fall short in its current iteration.

It's possible Mr. Stinson's remarks were offered in that context (I don't know either way). If so, it would make sense because that's something an AVM purveyor would say. Not that that's a bad thing. I think most people have probably come to the conclusion by now that Zaio's software and databasing functions effectively result in a product that more closely fits the definition of an AVM-Assisted Appraisal than anything else. If that was where Mr. Stinson was coming from, I wouldn't necessarily read those remarks to be indicative of flexible ethics on their part.

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Having said all that, there remains the disconnect between the company's oft-repeated claims that pre-appraisals are the only solution to the lender pressure issue vs. the requirement in the Scope of Work Rule to communicate with the client to establish the necessary elements of the SOW for the assignment. At whatever point the client and appraiser are communicating - regardless of the mode of that communication - the client will have an opportunity to exercise their perogatives, and hence apply pressure. Whether the appraiser is isolated from that pressure is a function of management, whether that management is coming from a "software vendor" like Zaio, an appraisal policy at the bank where the appraiser works on staff, an appraisal management company, a fee shop owner or the individual fee appraiser themself. Zaio's claims of isolating their appraisers can be no more or less effective than their management's resolve to hold the line; and the same is true for every appraiser and appraisal entity that they compete with.

To that extent, Zaio's claim that pre-appraisals are the only solution is both unfounded and - in my opinion - "false, misleading and exaggerated" within the context of the Management rule in USPAP.

If I can't get away with using such claims in my advertising without coming under criticism from my peers - and I'm very confident that is the case - than neither should any other appraiser or appraisal entity.

Incidentally, I discussed this issue with Mr. Inserra a while back and at that time we had to agree to disagree. I'm not saying anything on the open forum that I haven't already discussed with him personally.

 

[Ken Verrett]

Ken, thanks. My bad on calling you Kenneth when you go by Ken. If anything, Kenneth seems more proper, and maybe that is what I was thinking, addressing you with as much respect as I could. Also, my bad on the double botched post. I was having puter trouble this am as I was drinking coffee and on the laptop.

Thanks for your answer.

No, No Mr. W! I didn't take offense at all. Call me any thing you wish...except for those derogatory adjectives I mentioned.

 

[Mr Rex]

Quote: "Finally, it helps the consumer. Faster response times helps the consumer to better manage his assets in support of his families needs."

I feel their pain. You ought to run for office with PC BS like that.

 

[jdbiggers]

Yep. That's the definition of a franchise. I've owned franchises before. No question there. So I know that from personal experience.

Yet you have inserted the word Zaio in the definition. Sorry. Not appropriate. Zaio didn't put the word there. You did. IT IS NOT A FRANCHISE.

Your saying that it is doesn't make it so. What makes it so or not is a legal construct of the actual contract. The Zaio Zone agreements are specifically crafted by attorneys NOT TO BE a franchise.

For the first part, the insertion of the word was delinieated by parenthesis, separting it from the definition, and for the second part, it doesn't matter WHAT an attorney puts into a contract. Not everything in a contract is legally enforceable, yet attorneys will put them in anyway. A franchise is a franchise, no matter WHAT the attorneys try to call it. In this case, because there is a limited term of 5 years, it is a license franchise. They probably construct the contract away from the "franchise" definition to get around certain state laws which require real property be included to protect the franchisee.

For someone who will "defend the facts," you sure are trying to overlook them.

I once had a "Contract for Purchase" written by an attorney that actually stated "this is NOT a contract for purchase nor binds either party to buy or sell," and GUESS WHO WON WHEN I TOOK THE SCHMUCK ATTORNEY TO COURT FOR BREACH!!!!

JD

 

[George Hatch]

Mr. Verrett,

With respect, the reason there's lender pressure on appraisers is because the primary mode of appraisal engagement has been through the loan originator, who's compensation is contingent on the funding of the loan. The reason the appraiser-lender relationships are in disrepair is because these loan originators have different motives than the lenders do, and their usage of appraisals has been as a marketing document to place their loan, not an underwriting aid as we assert in our appraisals. That's how appraisers end up being viewed as adversaries by the one party at the lender with whom we should find common cause - the underwriters and reviewers.

This problem has a simple fix and a band-aid such as an automated pre-appraisal system isn't it. Fixing the appraiser-lender relationship is easily done by making the lender the client, not the loan originator. Until that happens, even Zaio won't be able to honestly say their product cannot be abused; at least, no more so that your conventional fee shop or my fee shop or any bank's in-house appraisal staff or any other appraiser.

The automation and immediate gratification claim does have some merit but it hasn't been the stubborness of appraisers that has hindered that progress, but rather, lack of market demand and an unwillingness to pay the freight. It's obvious that most lenders would prefer to do without any appraisal of any kind if they could get away with it. Given their choice they'd like appraisals to be available at the desktop, but they haven't been willing to pay the fees that would make that feasible.

Feasibility is not only where it's at, but it's also what will dictate what happens after Zaio gets away with dumbing down the appraisal process to resemble the manufacture of rubber gloves. You've done your diligence and you have apparently come to the conclusion that a certain amount of volume will cover your not-insignificant overhead. But what happens when Zaio sells lenders on a workproduct that relies on dated inspections, inspections and photos provided by non-appraisers?

When I update a prior appraisal, the first thing I do is look over my report and my photos and build my mental image of the subject property. Then I perform my research, which includes sales data that I will present as my comps as well as additional data that, while not the most comparable, do contribute to my analysis. Even if I don't physically look at everything thereafter, my appraisal process includes a mental process.

Zaio's program of updating their appraisals by updating their databases omits 100% of that mental process. Even if you were to manually update a Zaio report, you'd be looking at a report that you didn't personally write or sign; you'd be looking at photos you didn't personally take; and you'd be using data that you saw on a mass inspection basis 6 months age and of which you would have no personal recollection. No appraiser I've ever met can retain relevant information on the 200 properties a day a ZA would be "pre-appraising".

So how can Zaio (or you) say that this process is the same or equal to that of a one-off appraisal assignment that you currently produce in your office? The meat of a Zaio appraisal consists of manipulating a database wherein the appraiser has no personal recollection or mental image of any of the data - incuding the subject - outside of the narrow confines of that database. With that in mind, what difference does it make if the Zone Appraiser actually did walk those properties at some time in the past? They added to the reliability of their database, sure. But by the time they get to using that database it's still just a database and their process is limited to what's in that database. Eveything outside of that database (including stuff we normally use in our one-off appraisals) is omitted. Under these circumstances, what's the difference if an appraiser is using a database they loaded themself vs. a database loaded by a third party?

By the time Zaio gets done selling the database-centric appraisal process, it's only half a step between that and deciding that third party databases would be no less reliable, and the ZAs personal mass inspection is all-but meaningless to any single assignment. One good database can then be developed by the title companies using $10/hour labor, then sold and resold without restrictions or territorial protections to every appraiser in town for $1 a pic. Heck, by the time they get done with it, the "appraisers" will be based in Bombay or Budapest. After all, if Zaio can sell the idea that an appraisal is just a number and individual analyses aren't required, then geographic competency is as open to interpretation as anything else. You'll be right back where you started, albeit $15,000/zone (purchase price+ your time) poorer.

Even if a ZAs program can get to financial viability, the seeds of it's demise are built into the system. As far as I can see, Zaio's Zone Appraisers are financing their own obsolescence.

 

[JSmith43]

It helps the lender by moving the appraisal process to the begining of the loan proposal due diligence, making for faster, more accurate, and more customer friendly outcomes and customer retention.

Ken, you should do a search of "comp check" and read some of the threads, if you want additional verification of the built-in animosity toward USAP compliant answers to such requests.

My view: A request for a comp check should be followed up with an offer to perform a desktop appraisal (USPAP compliant, of course). If the appraiser doesn't want to do them, scare the client away with the quote

 

[JSmith43]

The reason the appraiser-lender relationships are in disrepair is because these loan originators have different motives than the lenders do, and their usage of appraisals has been as a marketing document to place their loan, not an underwriting aid as we assert in our appraisals.

I seriously wonder if it just looks that way. MB's come in all flavors. One person shop, not able to table fund. If the individual is sloppy with picking appraisers, it will likely come back to haunt him if the loan goes bad. The correspondent will pull the plug on the guy, make him eat the loan. OK, some of them run off to Belise

Up the food chain, same thing happens. So called direct lenders have played with in house appraisers, approved lists, and AMC's. I believe the appraisal pressure follows the appraiser almost all the time money is on the table and the entity with money on the table has ultimate control.

I do think the direct lenders do a better job of disguising the process of influencing the appraisers, and I think the most egregious abuses come from renegade MB's. To get rid of the influence, you'd have to have the investors that buy the mortgage backed securities order the appraisals

When the risk is spread so widely via bundling and selling these mortgage backed securities, the ultimate slight of hand takes place. The really bad appraisals are scattered here and there, just like insect parts per million in breakfast cereal. It's really hard to notice them.

 

[George Hatch]

Roger,

Fair enough about the dispersion of bad actors. But let me ask you this: When it comes to holding business entities accountable for their actions, even if that mechanism is market-centric, do you think it's easier to do that with a lending institution that leaves a paper trail for everything it does, or with the 1,000 here-today-gone-tomorrow brokerages that feed it?