Check This Out (AVM)

[Stephen J. Vertin MAI]

I found this in the news paper. This is interesting.


TORONTO, March 5 /PRNewswire-FirstCall/ - Basis100 Inc. (BAS:TSE), an e- commerce technology solutions provider for the financial services industry, today announced that the IRS has adopted Basis100's PASS product for assistance in determining an individual's equity in their real property. The PASS product will be used primarily when a taxpayer is requesting an "Offer in Compromise" for outstanding tax balances.

While the "Offer in Compromise" program is not a new program, this process will be much faster and more efficient for both the IRS and the individuals involved. Prior to adopting PASS as its home valuator, the taxpayer was often burdened with having to seek out an independent appraisal. This process would normally take several days, as compared to 5 seconds for the PASS report.

Basis100 has been providing valuation technology to the IRS since March of 2000 in a pilot program. The IRS identified measurable timesavings by utilizing AVM technology and determined that automated valuations could replace traditional appraisals in most cases. The IRS subsequently requested competitive proposals from companies to provide the technology on an ongoing contractual basis.

"Our strategy is to provide technology solutions that can scale to just about any application," said Joseph Murin, COO, Basis100. "The IRS contract is evidence of this and more importantly, we now have a large government body outwardly validating automated home valuations, which will go a long way towards influencing overall industry adoption of AVMs."

The IRS will receive an accurate valuation from the Basis100 web-centric valuation solutions which include a property's estimated highest and lowest reasonable value, the two most recent sale dates and prices, the last assessed value on the home and comparable sales information for three additional neighborhood properties. Provided the valuation is deemed acceptable by the IRS review, a traditional appraisal will not be necessary and the IRS can continue with the processing of the Offer in Compromise application.

This is a one-year contract with four one-year option periods to be exercised at the discretion of the IRS.

About Basis100

Basis100 Inc. is a global technology solutions provider, which enables businesses to build, distribute, buy and sell products and services in more efficient and innovate ways. Basis100's lines of business include: Lending Solutions for consumer credit, mortgage origination and processing; Data Warehousing and Analytic Solutions for automated property valuations, property data-warehousing and analytics support; and Capital Markets Solutions for fixed income and equities trading, and settlement and clearing. Our solutions are installed in over 36 countries and 5 continents around the world. For more information about Basis100, please visit www.Basis100.com.

 

[Tom Hildebrandt]

Steve

What next, perhaps automated valuation models to estimate your income tax. No more need for tax accountants.

Intriguing that the AVM can determine comparables. That implies some sort of judgement built into the program. I guess it is possible.

Best Regards

Tom Hildebrandt GAA

 

[Ben Vukicevich SRA]

Tom,

I love these fancy AVM's.

I used to work for an S&L that was bought out by a larger bank. They had the most sophisticated AVM going for their home equity loans.

The processor (the recognized&experienced evaluator according to FIRREA regs) would take the assessed value of the property divide it by the county tax board published equalization ratio for that municipality and voila, there's the value of the property. This worked for loans under the Deminimus. If they could make the equity loan, they would based on that complicated calculation. I did admire them though, they would send someone out to take a photo of the property to insure it was there. Now that's an AVM.

Back-up plan:If they couldn't make the loan based on the calculation, they'd order a ride-by appraisal.

I did try the FreddieMac AVM and as someone suggested in an old post, I inputted the prior sale price of my property at $1,000,000. My estimated market value, using no neighborhood comparable sales over $135,000-including a land sale at $38,000, was $1,061,000. My home is worth probably $160,000. So Freddie didn't even question the fact that the net and gross adjustments were way out of line and that the property would be an over-improvement if the highest sale analyzed was $135,000. It also missed the sale of the home directly across the street from mine at $155,000.

Hmm, I could use a cash out refi based on that $1,061,000. I hear the islands are nice this time of year........

Ben

 

[Dale Smalley]

We used this system last year for a test. It sounds great right out of the box. Just type in the address and within a few seconds a value. A good value a bad value whatever the computer thinks. Works ok in the cookie cutter nieghborhoods of similar houses. Use it only as a last resort. They do have another AVM type product that lets you select 6 comps from a list of about 25. You can set the $ adjustments for GLA, time and lot sizes. Try the colleteral tech option.

No reason to explain the many reasons why AVMs dont work here. We all know. The problem is when it gets into the wrong hands and is disguised as an appraisal. Here is a good example of how a moron can abuse the system. I got a appraisal where everthing is as usual (avg) and then verified with a local broker that states the area is a high crime with many board ups with one across the street. When I mentioned this to seller he says dont worry about it I HAVE AN AVM.

Helloooo McFly an AVM in the hands of the IRS :!: :!: are they crazy.

 

[Anonymous]

Steve, far out !

This sounds a lot like the gizmo that was created for credit purposes. You go into a store, they punch in some info, and 3 minutes later your "Credit worthiness" is Go or no Go. They assign points to different aspects, time on job, age, income, debts, etc. and a computer says youre OK or not.

I think years ago, I showed (Sen. Dixon) how it would not work, if Sen. Alan Dixon retired, and had no job, or six months on a new job. There's no human consideration for Character and other items that need "Real judgement".

Thats one reason I am very suspect of the reliability of AVMs. FNMA says they are now going to have the Lenders (inflaters) choose a review appraiser, to insure the original appraisal was good. Say what ?? Is that the Fox picking out the next guard for the chicken house ? I just saw a FNMA appraisal, by a licensed not certified Res. appraiser, with NO supervisor. It was for $190,000. I did an appraisal for someone else, and the subject came out to 165,000 with 4 dead bang, same model comps, in the same neighborhood. Where were FMNA appraiser's comps from ? Different styles, high prices, about 2 miles away.

Why cant we get our message across to Congress ?

 

[Stephen J. Vertin MAI]

Tom:

In 2000 I became interested in AVM's. I had 2 years of business statistics and was going to take a course in applied appraisal statistics at St. Thomas University in St. Paul. However, after speaking to Dr. Kelley Pace at Louisiana State University I decided the process was being taken over by people far smarter than I.

It seems Dr. Pace wrote a Spatial Statistics Software better than the typical appraiser in data rich areas. How can one compete in an environment where one's regulated by USPAP and the others free to spit out unregulated numbers in 5 seconds? I know the arguments against AVM's; however, to the consumer its a no brainer. Some recent AVM's are faster, cheaper and better and they are being marketed by more powerful groups than individual appraisers.

Furthermore, USPAP is becoming a determent rather than a benefit. If you have been following what is going on in the financial world the US is being forced to seriously consider fair value of most Fortune 500 companies. If the change comes it could mean a shot in the arm for commercial appraisal. However, there needs to be standardize definitions and terminology. USPAP does not cut it and without said change accountants will most likely be taking most of this business. The reason is our industry has been roped down in a quagmire of regulations, that in theory promote change but in practice promotes demise. This brings up the enforcement issue. As you have pointed out, in many states they do not even follow their own rules. Furthermore, the reciprocity issue is still a nightmare and will probably take a law suite in every state in the nation to straighten out. Large companies seek continuity, and that is hard to produce when each state has its own version of USPAP. This is a serous road block on Wall Street (see August 2000 issue of Midwest Real Estate).

Some say, the appraiser brought it on him/herself. It is my opinion the appraiser has not had control of the situation since FIRREA when the US government gave the keys to the banking industry and named it USPAP. What other area of life do you know where only one party in the act of a crime is culpable. Meaning as a loan officer I can do or say most anything to sway your opinion but once you have swayed you can be fined or have your licence taken. Even John's are arrested for soliciting prostitutes.

I have been publicly saying for the last 2 to 3 years, if we do not unite, in some form or fashion, and address some of these issues we are history.


Steve Vertin

 

[bradellis]

Stephen,

I have been aware of the AVM products for abut 5 years now. I have said repeatedly that they are useful for some things, like blind portfolio valuations, and the instances where you have very high homogeneity in the properties- i.e. a subdivision with only a few models and of relatively recent construction.

They do not work in most situations. Note I said "most". First, you will only get anything at all in about half the instances with the public services. Fannie and Freddie may do better, but only by using their own databases along with these. Still, getting a number only half the time- and we all know that many will be way off anyway- is less than reliable.

What I am waiting for is the dumb consumer who markets hjis property as a FSBO using the number suggested by the AVM, losing 10's of thousands of dollars, and then suing the AVM provider. THAT will make my day. Sure, I know there are disclaimers, but they do not alwasy work.

Now, there ARE things that can be done, but it would take a concerted effort by all the associations. Consolidation/cooperation is long overdue.

Tell you what- you convience the MAIs and I'll convince the NAIFA board to do whatever we have to do to get consolidation underway. We are ready.

Brad Ellis, IFA,RAA
National Director, NAIFA

 

[xmrdfghap]

<span style='color:brown'>Stephen, Although the IRS holds a lot of discretionary power, ALL their decisions and estimates are, at the end, subject to tax court appeal. I would like to see the "testimony" of the AVM when called upon to defend their value of a property when confronted with a data rich opinion by a qualified and professional appraiser. I am betting that the IRS will seek to compromise long before they go to court.........their estimates will collapse when confronted with a good report, and when that happens a few times the IRS will seek some other "better" modeling system.......they may even return to hiring appraisers. In the meantime, get ready to do some litigation work.</span>

 

[Ruth Langkawel]

Two quick examples from this week.

1. I do my pre-inspection research, and pull comps based upon tax database description of the 2 year old home for an appraisal. Value looks reasonable, but because I'm not a beginner, I take a one line report on all sales in the neighborhood, in case there have been dramatic improvements - or the Assessor shuffled reports while typing into the database.

Long story short - database says ranch with full basement. I find, no basement. This family neighborhood prizes basements - value difference is about 25%

2. I'm doing a retrospective Limited Appraisal, Restricted Use Report for a settlement hearing on Friday. It seems that the City tore down the wrong house in the Spring of 2000. My client is the owner of the house that was mistakenly torn down. He's an investor, and there was a six month period between his purchase of the property, and having a crew free to do the remodel. He has no photos, and only can tell me that it had 2 bedrooms and 1 bath. So I go to the online tax database, and VOILA! They even increased the SEV in 2001!

Vacant residential lots can't be given away in this inner city neighborhood. Anyone want to use the AVM to back a loan on this one? :lol: :lol: :lol:


I'm not too worried. A few hundred stupid loans backfiring, and we'll be back in business. Meanwhile, I can't wait for the ice to melt of my lake. 8)

 

[Stephen J. Vertin MAI]

This software works off demographic information coupled with satellite photographs. The software determines what surrounds the subject and its effects on value. Furthermore, it can tell from income information whether the neighborhood changes. In some areas public information or even private source can be used, i.e., Sidwell and Sandborn Maps provide site and building sizes. Tapping into local MLS would make this program a very powerful tool in major Cities. I know what the arguments are against AVM's. All of which will be eliminated as data becomes more accurate and readily available. Can AVM's be abused? Of course they can. Can they be manipulated? Absolutely. I agree with all of you saying AVM's are inferior to a good appraisal in many cases. However, are they regulated? No.

We are all appraisers and understand supply and demand. If the market perceives these things as a viable alternative at lower cost, demand will increase. It is simply Adam Smith's invisible hand. The point is not whether they are better or worse. It is immaterial. The point is there is a unregulated force in the market that does the same thing as we do. From the jump it has an unfair competitive advantage. It does not take 3 to 5 days and it is cheaper. The lending industry wants reduced cost and quicker turn time. This product provides it. What do you think will stop lenders from using this tool? It benefits good lenders who want unbiased opinions because it eliminates the human component. It benefits bad lenders because data can be manipulated. Furthermore, it is unregulated. Pray tell what is the down side to lenders who use this?

I guess it could be argued the down side is inaccurate values. However, according to many on the forum ½ the appraisers out there ain't sh*t to start with. So there has got to be a barrel of crappy appraisals anyway. That is another thing, we talk about each other like dogs. It was not like that when there were fewer appraisers. If we do not respect each other how do you expect others outside the profession to respect us? But that is a side issue.

FannieMae recently claimed in their press release a high percentage of appraised values come in at sales price. Because of this they concluded if statistical modeling supports sale price, its a done deal. Their press release received national exposure. It negated to mention FannieMae is the end lender and may never see appraisals that do not meet borrowers or lenders expectations. How could they? These deals never make their plate. So the large percentage they refer to is bull crap. Don't you think someone at FannieMae is smart enough to know this? Of course they are. It appears a public relations effort to reduce the need for USPAP compliant appraisals which they did.
Brad, AI is well aware of this need. They have mentioned this subject and the need for some united front on the part of appraisers to deal with these issues in several of their publications as of late. Most of these articles are in the members only section, but none the less it is being discussed. This is one of the major reasons they changed the demonstration report requirements. It was the biggest obstacle towards the MAI. The organization is trying to bring in as many as possible. However, it is meeting with resistance from members. Some believe if you lower requirements it waters down the designation. Personally I think the NAIFA recent offer to discount cross membership is a wonderful offer from the organization. I know very little about them but it is a start. I wish AI would do something like it. We have got to be the most under represented segment of the banking/real estate industry in Washington and our overall current position directly reflects it.