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Are AVM's an Appraisal?

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George W Dodd

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Jul 9, 2002
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Certified Residential Appraiser
State
Virginia
Thoughts for the day:

Are AVM's an appraisal, and if so, must it conform to USPAP?

If the AVM provides a value for Real Property doesn't it?
 

Jo Ann Meyer Stratton

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Jan 16, 2002
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Certified Residential Appraiser
State
Arizona
Thats why USPAP got changed. An appraiser offers an opinion of value (human). An AVM estimates value (machinery). A piece of machinery isn't capable of being in compliance with USPAP.
 

Austin

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Certified General Appraiser
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Virginia
Speaking as one that has spent a lot of time; too much time actually, experimenting with regression analysis, I say unequivocally AVM is not an appraisal. I can also say the same thing about the present accepted appraisal methods. The reason is simple and that is that the models are based on a given set of value determining factor assumptions with no regard to the sequence of adjustments. You can’t begin a valuation model (the present accepted appraisal methods are a valuation model) based on the assumption that you already know everything that affects price because the sequence of adjustments comes from the market and if you don’t do them in the proper order the model or modeler will assign them value influence even though none exists resulting in an incorrect result.
AVM’s fool people because if you try them in cookie cutter subdivisions they appear to work like a charm under ideal conditions. Problem is, with this type property averaging the last three sales works like a charm also under the right conditions. If you are going to accept a model and rely on it, it has to work all the time in all situations to have any reliability. I am convinced that AVM’s will cost the banking industry a fortune and equally convinced that they will die or try it. My only objection is that when it fails you know who is going to absorb the loss. Or so it would seem to me. Wouldn’t you agree?
 

George W Dodd

Thread Starter
Senior Member
Joined
Jul 9, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
I do tend to agree with you Austin.

Is the public being led to believe that an AVM can tell them the value of their home?

What if the general public relies on the value received from an AVM, only later to find out after purchase that it is way off? Who has the liability then?
 

jtrotta

Senior Member
Joined
Jan 16, 2002
whomever provided the results 8O

mindless minds think alike :lol:

to my amazement, Austin I will agree with you in part; a real appraisal is a value range from my recolection, putting a pinpoint figure is only professed to be true by those who write the guidelines & regulations. No one I've met; past; present or future is that good. Thats why the figure you arrive at is only pertinent to the day & time your on site. Take that ta court wit cha :!:

8)
 

Julio E. Sune Jr. (FL)

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Jan 16, 2002
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Certified Residential Appraiser
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Florida
Many lenders really believe that the AVM (Automated Valuation Model) will completely replace the real estate appraiser. To that I say a computer is just a tool, you need to know what to measure and how to measure. If loan underwriting standards are compromised by just doing things by computer—you put garbage in and you get garbage out—the end result is a big mess if there is a turnaround in the economy. Lenders could get stuck repossessing a residential property that is worth less than the amount it was loaned on.
 

Ross (CO)

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Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
As much as I would like to see a UFO too, so would I like to see an AVM ! Have any of you see seen one ? What do they look like ? I assume they are only paper, some brief text and some numbers ? No map, no structure sketch or floorplan, no photos of any kind of the subject property, its yard, its surroundings or any other comparative property, right ? Are they 2 pages long ?, three ? Is there any place on-line where one can view one, as in a sample of such a product from a company who performs the process and wants to "sell" their product via an on-line presentation ? I have never seen one yet, nor has any neighbor or acquaintance ever offered to show me one they received.....since they know I appraise and may want to ask me what I thought about "this thing" they have. Does the borrowing public get presented with their copy of the valuation tool as the loan is concluded and everybody swaps checks around the big oak table on closing day ? I'll still bet that in most situations a h/o does not care what tool was employed to get the magic number to grant them (the loan) what they wanted at the time. If the AVM's value is excessive, and something occurs in the future to bring that loan into default and the flaws of that particular AVM are uncovered do homeowners have an avenue of recourse ? Who do they sue ? Can they sue the lender agents who structured their final deal ? Is there small print in the closing papers which absolves the lender of such happening ? There have to be recent and present-day situations where AVM's have surfaced as failures. Does anyone of us know of any ? I know I have posed far more questions than is fair. Got to go eat breakfast now. Thanks for wading through my interogatories !
 

Austin

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Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Ross: There use to be and may still be an on-line AVM at: www.valuecheck.com/. It was there a year or so ago. I have had two experiences with AVM, one being value check just mentioned. I entered the data on the house I was raised in and my parents sold in 1971. In 1950, my parents purchased the house for $12,500 and lived there until 1970, and sold it for $17,500. Next owner lived there about six years and sold it for $35,000. The neighborhood average is around $45,000 now and the house is average for the area. I entered the data and the AVM came up with a price estimate of $96,000 or 200% above market. How did this happen? The AVM algorithm took the last two sales and calculated the compound rate of change over a high inflation period and came up with a compound rate, then took the last sale price and fast forwarded it to a present price estimate.
Then the tax assessor axed my opinion on something he ran into. He was inspecting a home and the homeowner axed him why his assessment was so far below what he paid for his home. The taxman axed what he paid for his home. The owner said $55,000. The neighborhood average is around $25,000 and declining. The taxman axed him who sold him the house. The owner replied that he bought it from a woman that worked at a local bank and she got him a loan at her bank. The taxman axed who did the appraisal and the owner replied: “She got it off the Internet.”
AVM is basically a one-page printout.
 

Jim McGrath

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Jan 25, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Many lenders really believe that the AVM (Automated Valuation Model) will completely replace the real estate appraiser. To that I say a computer is just a tool, you need to know what to measure and how to measure. If loan underwriting standards are compromised by just doing things by computer—you put garbage in and you get garbage out—the end result is a big mess if there is a turnaround in the economy. Lenders could get stuck repossessing a residential property that is worth less than the amount it was loaned on.

Julio, this is where the numbers hitters will be the salvation of appraisers.

When the AVMs start extracting data from an appraisal to supplement the AVM information, values will soar. Based on the number of inflated appraisals I review, when this info is added to the AVM process, we will be seeing a huge increase in property values, which will multiplied with each new session as these inflated values are again inflated to meet the lo requests.

Shortly, the homeowners will owe so much more than they pay, they will default, banks will foreclose, and not be able to sell the overpriced properties.

And then;
The new S&L crisis will begin and real appraisals will be again in vogue to find the true value. At that time there may be only a few legimate appraisers left. But we will be able to get any fee we want, because there are only a few that seem to know how to truly appraise a property.

Jim
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
AVM aren't appraisals because some people with
money got it exempted from USPAP through our
'you get what you pay for' legislative system.

Take a lobby like realtors or physicians, they are
very strong, and they call the shots.

The AVM that will take over will be the one that is
soft on neighborhoods, just like our own 'number
hitters.' I always laugh when I see reports that
made the number cause they used better neighborhoods
to comp the subject.

Because some people want to
have the number work, they'll believe in anything or
anybody who gives them that number....just like
Worldcom, Global Crossing, and Enron. AVMs will
be relied on cause they're new and not proven, when
they fail misserably they will be discarded, but the
market will have to learn that lesson the hard way.

elliott
 
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