Blind Squirrel and Acorns

[J Grant]

Good post, Renee, and serves as a reminder why being in field every day and experience counts...one is building up a store of knowledge of costs, builder prices for features and amenities, what buyers say they want, what RE agents think things are worth, etc.

 

[ucbruin]

ucbruin -

I disagree with your comment. Realtors are in the market day in and day out. Good ones know their market. Good appraisers familiar with a market know which are the good realtors. If I only got one opinion, then the validity of the adjustment would be more questionable, which I why I asked a few. Like I said, usually, the realtors were pretty close in their opinions, which lent more credence to the adjustment I made.

If you have a different method, and you disclose that to the reader, then you are far ahead of what I see. Most of the time, the reports I read provide no evidence as to how the adjustment was quantified.

Again, I feel that you help support my point.

I agree it is better to ask an agent or anyone that the appraiser may believe is an expert in their given field when something is really questionable/odd about a property than not to make the effort. In your response you mentioned that you asked a few agents for their opinions regarding an adjustment value item. Again, what made you believe that the opinions of the agents you spoke with were accurate? Your "knowledge and experience" is what made you believe that their opinions were accurate and added "credence" to your report. And it probably did. But who really knows if the opinions of the agents you asked were credible? You have no solid data that it is, because it is just the opinions of the agent. No paired sales, no regression (who would for residential), probably no concrete historical data of any sort.

I'm a dinosaur in this business. I don't even use GPS so being told I'm "ahead" of anything appraisal related is very amusing to me.

 

[Elliott]

A 100 comment gap by the OP and he resurfaces to timd and ucbruin, never mind the comments by RK, George, Terrel, CAN, Scott and many others. I give up.

 

[ucbruin]

ucbruin -

Most of the time, the reports I read provide no evidence as to how the adjustment was quantified.

Just out of curiosity, in your example about the report you wrote and how you spoke with several RE agents to give credence for your adjustment, how did you relay this information to the reader? I'm sure you wanted to provide some type of "evidence" as to how the adjustment was quantified.

Again, I'm not attacking you, I'm just an old man with a lot of curiosity.

 

[Tim Hicks (Texas)]

The OP should come to the conclusion that the only solution is their own appraiser panel with their own assignment conditions for which they can expand and cull as necessary or the same results will always be the same.

On of my favorite stupid assignment conditions is LSI's stupid "My MLS Results" or whatever they call it. Any shady appraiser can manipulate that any way they want for their desired results, much like the 1004 MC.

 

[timd354]

It is already happening on the non-origination side of the business, where BPOs are used much more often than appraisals in default servicing. The VP of Claim Management at my company insists that BPO's are much more useful than appraisals for his purposes based on his 30 years of claims/default servicing experience in the industry. He told me that his former company used to use both appraisals and BPO's to value properties on defaulted loans until they determined that BPO's were more accurate than appraisals in estimating what the eventual sale price of a REO would be when sold by the lender/servicer. His conclusion is why obtain and appraisal when you can order three BPO's for less than the cost of a REO appraisal and those BPO's are more likely to accurately predict the eventual sale price of the REO when sold by the lender/servicer (which directly affects the amount that we may have to pay in a claim made under our MI policy). Even though I am an appraiser and reflexively favor appraisals over BPOs, I have no evidence that my claim management VP's conclusion is incorrect

You are speaking of almost a secondary use for appraisals...that of eventual risk of default. I am not sure if you work for a PMI insurance company or what your company does. However, as you say, it is a non origination side of the business.
No, actually I am not. We and other secondary market participants need property value estimates on the default servicing side of the business in order to make decisions regarding that defaulted loans and I thought that appraisers are primarily in business of providing property value estimates.
Appraisals now are used mostly on the origination side, with a different purpose (.
Appraisals are ordered for many different purposes and the intended of use of many appraisals is not mortgage originations. For many reasons, appraisers have lost out on and are missing out on a lot of business on the default servicing side of the business. Part of the reason that appraisers have lost out on this business is that there is a perception among some on that side of the business that BPO's provide a more accurate valuation when it comes to predicting what an REO will eventually sell for.
As far as valuing REO's for sale prices, if RE agents are doing the BPO's and then using them to set the list prices, of course the sale prices will closely relate, it is a closed system at that point.

These default service uses of an appraisal are not the purpose of an origination appraisal for lending purposes, which is to provide a market value opinion as well as other property information so lenders/ clients can make decisions , based on that information being relevant on effective date.

Who said that it was? The problem is that many residential appraisers cannot get away from that little box that they find themselves in (origination appraisals) and have not been willing or able to provide different appraisal products that meet different needs on a large scale. As a result, billions of $ of the valuation business has been ceded by the appraisal profession to others.

 

[timd354]

To your first point, I can tell you my experience is that most bankers for non-sale loans generally believe appraisers are misrepresenting values with a lower bias to reduce liability. Personally, I do not agree with either your logic or theirs; the appraiser expresses an opinion based on their view of the market outside the boundaries of a preconceived notion of value.
I am just telling you what most risk people I know believe. I am guessing that the "bankers" who think otherwise are on the origination/sales side of the business. I will say that the internal studies we did on this issue at my company indicate that the there is an upward appraisal bias estimated at 2-2.5% for purchase related appraisals and 3.5-4% for refinance related appraisals
To your second point regarding the development of adjustments, I agree it would be great if there were a way to efficiently develop a regression analysis on each particular criterion of adjustment; however, the ability to obtain the necessary data so that such a regression were reliable is a fantasy. To wit, how does a regression analysis account for differences in quality or condition? Functional utility? Does a quick deed sale automatically call for a sale condition adjustment because it's not a warranty deed?
Although gathering enough data in rural areas is tough, in many suburban and urban areas, there is more than enough data to perform a very robust regression analysis and it is actually extremely easy in a lot of MLS systems to download data in a a format that is useable in a spreadsheet without that much difficulty. You will never have 100% of the data that you may like, but the beauty of using a regression analysis is that by analyzing a large dataset, you can overcome the lack of certain data. For instance, say you want to estimate the value of additional sf in the GLA...if you analyze a large enough dataset, you will be able to derive a credible estimate even if you do not have data regarding the condition and quality of the homes
To your last point, and based on what I have seen so far, I agree that on a general basis, appraisers need to make sure that they are providing a clear picture of the environment in which the subject property lies, and need to provide more detailed language on how adjustments are developed. There are a number of reports I have seen where the vagueness of language makes me cringe, and the adjustments used by the appraiser might have well come from a Zoltan the Magnificent arcade machine.

The problem is that much of the time the adjustments were pulled from there rear end and that is tough thing to try to explain.

 

[J Grant]

Reach out to us with offers for the lost billions you say is out there in business we could have if only we would do...what, exactly? If people on the default servicing side think BPO's are better for their needs, then they will continue to order them. Part of the attraction may be price...BPO's ordered through AMC's pay around $25, so if appraisers are missing out on that, it's not much to miss.

Appraisers can provide a number of short form less expensive products, the problem is, nobody seems to want to order them direct, and when AMC;s add their fees on , there is so little left to distribute it is difficult to find appraisers to do that type of work for the extremely low pay.

 

[Renee Healion]

If investors determine that something else aside from appraisal allows then to manage collateral risk as well as or better than appraisals, why would they care if whatever that is not an appraisal? (whether it is an AVM, an appraiser assisted AVM, or multiple BPOs).

It is already happening on the non-origination side of the business, where BPOs are used much more often than appraisals in default servicing. The VP of Claim Management at my company insists that BPO's are much more useful than appraisals for his purposes based on his 30 years of claims/default servicing experience in the industry. He told me that his former company used to use both appraisals and BPO's to value properties on defaulted loans until they determined that BPO's were more accurate than appraisals in estimating what the eventual sale price of a REO would be when sold by the lender/servicer. His conclusion is why obtain and appraisal when you can order three BPO's for less than the cost of a REO appraisal and those BPO's are more likely to accurately predict the eventual sale price of the REO when sold by the lender/servicer (which directly affects the amount that we may have to pay in a claim made under our MI policy). Even though I am an appraiser and reflexively favor appraisals over BPOs, I have no evidence that my claim management VP's conclusion is incorrrect

It could be a couple things.

One, collusion between the agents doing BPOs. The defaulted loan property value is thrown under the bus and the info is shared so the BPOs are in a narrow range. A low value is easier to "prove" with a sale when the BPO value is rigged.

Two, the over-involvement of the lenders/AMCs in the appraiser comp selection that skews the value higher in pre-foreclosure appraisals.

 

[Scott Kibler]

Who said that it was? The problem is that many residential appraisers cannot get away from that little box that they find themselves in (origination appraisals) and have not been willing or able to provide different appraisal products that meet different needs on a large scale. As a result, billions of $ of the valuation business has been ceded by the appraisal profession to others.

Not by me. For the past 10 years the bulk of my business has been for loss mitigation. I am presently accepting new clients and do not use a pseudonym in this forum. Feel free to contact me.