20 Minute AI Appraisals Are Coming

[George Hatch]

AVMs already skip HBU on properties with an existing use, same as most non-CG appraisers have been doing.

The new UAD is actually going to change that. Appraisers will teach themselves to do the analysis whether they want to or not. Once they learn they won't forget how to do it, either.

 

[glenn walker]

That's a nice new format to keep the residential guys in the right lane. Should have been done years ago.

 

[Non Sequitur]

That's a nice new format to keep the residential guys in the right lane. Should have been done years ago.

And those 4 checkboxes are soooooo much better than the one check box now. Imagine the billions in losses the GSEs will be shielded from with the new format.

 

[George Hatch]

HBU for an existing SFR is almost never a problem or a risk to the lender. Almost never. With that said, most conventional SFR lenders don't do land loans, which is what a "sold for land value" property becomes if they encumber it with an SFR loan.

Appraiser appraises a property with an SFR on it as an SFR because the assignment was ordered that way. Even if their value is "low" in relation to the MV they are still exposed to a complaint. Lender can say

"we would never have made a 95% loan at SFR terms on that property if we had known it's HBU was to redevelop as a multi-family or remodel as an office or contractor yard" or some such and the appraiser has no defense because they made an error. In this example, it's not the value. Its some other property attribute which disqualifies it for that particular program.

I would say that MOST of the technical questions we get on this forum involving SFR properties are HBU-related.

 

[glenn walker]

The safest loan is one secured by a higher and better use property. Lol

 

[George Hatch]

Alls I'm saying is that a lender could assert a plausible deniability argument (in bad faith) in such a scenario and the appraiser has no defense. It would be an unforced error.

How many times has an appraiser come here saying "it's being used as a car lot (or a law office or its on 40ac) but they ordered it as an SFR"?

Sometimes the property might still be usable as an SFR and might still be worth more as an SFR but that doesn't mean the appraiser is right to just blow off the HBU issue. Besides, it's not THAT hard to actually do the analysis. It's like anything else, the first couple times someone goes through it they'll be slow but 2 weeks later they'll find their groove and it will be just another routine for them.

Checking the SR2 boxes is easy enough. But upon occasion it can take more time and effort on the SR1 side to get to that point.

 

[glenn walker]

Why can't AI use every free home value site on the internet to give you several values, and for free. Home owners don't care how, if they like the value being us or avm doing it. AI lending, 1 step shopping done in 5 minutes. Alexa can ask you the questions needed.

And i don't disagree with you at all J Grant. I post sometimes to rattle our coffins. Subliminally kinda, we are already dead.

That's coming it's called Zillow Enhanced AI Version. $15.00 and value done in under 5 minutes. Lol

 

[Mark K]

Alls I'm saying is that a lender could assert a plausible deniability argument (in bad faith) in such a scenario and the appraiser has no defense. It would be an unforced error.

And a CR could be in trouble if he called an SFR as commercial. It comes back to the age old question...."can a CR do (is allowed to do) a HBU analysis on a transitional property and ultimately call it commercial". Do you need a CG to do a commercial HBU determination of a transitional property?

 

[George Hatch]

As I recall the actual HBU itself is the dividing line as far as the scope of practice for the licensing. The occupancy is just the occupancy.

I have always thought a CR could appraise an SFR (used as an office or whatever) as an SFR if the property was actually worth more in the market to the SFR buyers. But to get there the appraiser would need to find the non-res properties that were otherwise similar in order to make that comparison. One question that would come up would be if the local jurisdiction would allow a return to SFR occupancy. Not necessarily routine for the avg SFR appraiser but with some effort it should be doable.

There are some SFRs out there on parcels zoned for commercial or office. Or even industrial. In many areas all or almost all of them are worth more in that existing SFR use than as conversion bait or "sold for land value" for redevelopment as a different use.

With that said, in the urban/suburban areas many of my comps for a land appraisal will have an existing use on them at the time of sale. No contributory value when compared to the underlying land value.

 

[George Hatch]

And now we're getting into ADUs.

123 Daisy Street has a 5000sf lot and a 1200sf home on it.
345 Daisy Street has a 5000sf lot and a 1200sf home on it.

Both parcels have SFR zoning which allow for an ADU, but the configuration and orientation of the house on 123 leaves room for an ADU whereas 345 doesn't have enough room or setbacks for an ADU. They're otherwise similar but *potentially* have different values in the market due to the difference in ADU potential. "Land value" related, if you will.

For each property the existing 1200sf SFR is
legally permissible
physically possible
financially feasible,
But for one of them that one SFR is the maximally profitable use while for the other it isn't (can add ADU).

So that's an example where an appraiser could theoretically get the value wrong as this ADU trend takes off. I'm starting to see listings where they're commenting about the potential to add an ADU so I'm guessing that sooner or later appraisers are going to get jerked around by their borrowers or brokers or automated review algorithm for not taking that element under consideration. It's possible. In theory.