Federal Reserve Bank Of Philadelphia - Appraising Home Purchase Appraisals

[Eli]

Spot on Tim.

My take, put a fork in residential appraisers, they will never come together as a group. If hasn't happens yet, not gonna.

Even if they did come together, their argument would be an opinion based on feelings with zero facts going against a Fed paper with all the facts et al

Well, look at the top there. Look how AI won't even join AF. A house divided against itself will fall.

In some ways it's like cutting your nose off to spite your face.

But states are in the mix more than ever. They will call the rules in their boundaries.

 

[J Grant]

One interesting thing I didn't see. The premise is that without bias, 50% of the appraisals are expected to fall below the contract price, and 50% above the contract price. But I didn't see a test of that theory using AVMs? I'd like to know if the AVMs show the so-called expected 50-50 bell-curve? (is that in there)?

BTW, I didn't see in the paper that AVMs were suggested as a substitute for appraisals. I saw that they may be useful as a better default indicator (but that improvement seemed to be marginal).

Imo it is a preposterous assumption on the part of the author that without the bias, 50% would be above and 50% below SC price. That is a statistical concept , not a market driven conclusion. What would the % difference be without any bias in the system? Unknown, but I doubut it would be a rote 50% above and 50% below. Especially since USPAP requires an appraiser to review a SC , offering etc.

An appraisal answers a marketability question, it is not intended to answer a pure math problem .

An AVM is "better" at math, therefore if an AMV is used for purposes of statistical default analysis , it would be better at it than appraisals. If this becomes the metric of performance, then appraisals can't win.

IF AVM's and proprietary models used in wavers succeed at default risk prediction, but fail at point origin lending function, screwing up ( in plain language ) so many deals that the business is adversely impacted, there will be push back will be against these products. Their affect is unknown because they would have to be in wide use to see the impact.

I can tell you that the RVM ( AVM type product) in my Corelogic data system I ran on two purchase appraisals, both came in below the SC price. In my appraisals, I came in on one property at the SC price, and on the other, below the SC price ( but still a higher value than the RVM)

 

[J Grant]

One interesting thing I didn't see. The premise is that without bias, 50% of the appraisals are expected to fall below the contract price, and 50% above the contract price. But I didn't see a test of that theory using AVMs? I'd like to know if the AVMs show the so-called expected 50-50 bell-curve? (is that in there)?
BTW, I didn't see in the paper that AVMs were suggested as a substitute for appraisals. I saw that they may be useful as a better default indicator (but that improvement seemed to be marginal).

Tmid indicates that because an AVM is better at default indicator, (even if marginal) that their use could widen as substitutes for appraisals.

The only way for appraisers to successfully defend our product is to remind parties that an appraisal purpose is not that of a future default indicator. The purpose of an appraisal is provide information at point of loan or purchase origin for parties to make informed lender decisions.

It is noted in threads appraisers say no appraiser is "good enough" to come in a few % off a SC price, or that if a sale is at MV terms, then its sale price is market value- that confirms the price bias the article claims. And this bias is ingrained in a number of appraisers; in part because they were taught it, in part because USPAP requirement to review a contract, and in part because the business still rewards number hitting and punishes appraisers if they come in below a SC price more than occasionally.

 

[Eli]

The Propaganda Kings. And that ain't no joke. Soon as i read HVCC, it couldn't be more disingenuous.

Why ? Don't answer. The bailout and mortgage fraud says it all.

 

[Eli]

Govt takeover of appraisal practice for mortgage purposes is soon. Trust me.

LA may be the first. Nothing prohibiting them.

 

[TRESinc]

Add in reconsideration of value, the "value rebuttals", Tidewater, appraisers mocking other appraisers who come in lower than SC price etc.

It is noted from threads here, where appraisers say things such as no appraiser is "good enough" to come in a few % off a SC price, or where appraisers say that if a sale is at MV terms, then its sale price is market value- that confirms the bias the article claims. And this bias is ingrained in a number of appraisers; in part because they were taught it, in part because USPAP requirement to review SC of a property, and in part because the business still rewards number hitting and punishes appraisers if they come in below a SC price more than occasionally.

still bitter over all those threads where everyone else disagreed with you huh? it's not because of the things you listed, it's common sense. if two parties came to terms at $200,000 for a sale price and your appraisal came in at 1-2% below that you nor anyone else is precise enough to definitively state everyone else is wrong. we are all human and we all make mistakes, some people just don't like to admit it.

Govt takeover of appraisal practice for mortgage purposes is soon. Trust me.

LA may be the first. Nothing prohibiting them.

well that means without a doubt the takeover will never happen. so far the opposite of everything you predict happens so we are all good.

 

[Terrel L. Shields]

they analyzed included appraisals that came in under contract price

OK...

As a consequence of this minimum value rule, an appraisal that is below the contract
price (the agreed-upon offer price) may increase the down payment needed to stay within the
borrower’s desired LTV range.....when negative appraisals are reported, buyers
are more likely to successfully renegotiate the prices with sellers so that they pay less
​

So again, when the appraisal is below the SP, sometimes the SP is lowered to meet same. I don't see how any other outcome is possible except the majority of sales be at contract or above

 

[timd354]

Tmid indicates that because an AVM is better at default indicator, (even if marginal) that their use could widen as substitutes for appraisals.

Just to be clear, I am not the one stating that AVM's are better at predicting defaults than appraisals, but that is certainly one of the conclusions in the paper. Because of that, there is absolutely no doubt that this paper has been and will continue to be utilized to justify the expansion of PIW and other appraisal alternatives for mortgage loans. I also know that unless some group of intelligent appraisers (whether it is the through the AI or or some other group) conducts its own study and puts together an intelligent and well written rebuttal that is adequately supported by data and sound data analysis, then this particular paper is going to continue to be utilized to justify the expansion of appraisal alternatives for years.

 

[Eli]

Louisiana has some panties in a wad.

Where's my female veterans. Some veteran girls can shoot lights out. I've seen it.

 

[Eli]

I came across a rather interesting working paper recently published by the Federal Reserve Bank of Philadelphia - WORKING PAPER NO. 17-23 APPRAISING HOME PURCHASE APPRAISALS, which can be found at the following link:

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwjLtoTihJbWAhXMMyYKHQ9ZALQQFggmMAA&url=https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2017/wp17-23.pdf&usg=AFQjCNGSxv91e7E3Aem9aWmAK7SlBaVyTw
The paper's authors conclude that appraisals have an upward bias, there is confirmation bias on purchase related appraisals, and AVM's are more predictive of default than appraisals.

The paper is highly technical, but worth the read. While I don't agree with some of the conclusions and some of the methodologies utilized, I have no doubt that papers like this one have been and will continue to be utilized to justify PIW's/Appraisal Waivers and the current trend away from requiring appraisals in every mortgage loan transaction.

In order to counter the trend away from appraisals, Appraisers as a group are going to have to be able to refute the data and/or methodologies and conclusions from this other papers. Simply arguing that appraisals are better and do a better job assessing collateral risk simply because appraisers say so without any data to support their argument is not going to be a winning argument and is not going stop the trend away from requiring appraisals on every loan. This is why it important for residential appraisers to join a professional organization (such as the AI or NAIFA) and push the leadership of these organizations to fund/conduct there own studies regarding the issues raised in the Philly fed's paper.

Take that paper to Louisiana and the VA and the FTC.

Tell them everything you know relative to public trust relative to fastest and cheapest.