FHFA Request opinions from Lenders & others on what the new version of an appraisal will be.

[Jim Scholl]

Given the current threats to the appraisal profession, what in your opinion would be good for appraisers? Do you just want to keep the status quo? Or, what changes would you support?

Danny, I am happy to give you my thoughts of what would be good for appraisers. But first I think its important to hear about yours and Freddie Mac's. Currently Freddie Mac and others seem to be heading towards a bifurcated future for appraising. That is one reason I posted the link at the top of this post. As regulators Freddie Mac and Fannie Mae can make that happen. Currently the alternatives to appraisals don't require original comp photos. Now, neither do Freddie or Fannie. This certainly would make it easier to switch appraisers to a bifurcated future. What is your opinion about bifurcated appraisals?

 

[Terrel L. Shields]

What is your opinion about bifurcated appraisals?

The bottom line is that if you out-source half the appraisal process, we will need half the appraisers we have. No ifs, no ands, no buts. Yet with half the work you have basically doubled the liability because regardless those who say you cannot be held liable for work someone else does, I say you WILL be held liable for that work and will continue to be held to it so long as the word "confirm" can be found in the selling guide and USPAP. Is anyone really naïve enough to believe they will pay appraisers for for setting in cubicles all day and crunching the numbers deeply as a simple math exercise? And reward them with higher pay? Of course not. Same pay, reduced by 50% and liability that might be from the bozo who "inspects" the property. Does anyone think if times are tough, some newbie starving RE agent isn't going to be happy to do inspections for $50?

All this "stream-lining" does is chip away at a process of deliberate evaluation of a property so that it becomes little more than a rubber stamp and will be touted as great so long as the market continues upon the path it is. Like in 2008, the bell curve becomes a cruel joke. The outliers beyond one standard deviation from the "norm" which were supposedly never going to be exceeded fall into the ludic fallacy problem. Elegant games with computers do not dictate events in the future. Your future is a fat tail event. You won't predict it.

Frankly, if we are going to castrate the appraisal process, why not drop it altogether? Just make it law that if banks lend inappropriately that the CEO and all bonus driven employees in management are to be mandatorily sent to prison for 10 years and banned from finance for life. The banks in trouble are to be seized and sold off. Let's put some skin in the game.

 

[DWiley]

Danny, I am happy to give you my thoughts of what would be good for appraisers. But first I think its important to hear about yours and Freddie Mac's. Currently Freddie Mac and others seem to be heading towards a bifurcated future for appraising. That is one reason I posted the link at the top of this post. As regulators Freddie Mac and Fannie Mae can make that happen. Currently the alternatives to appraisals don't require original comp photos. Now, neither do Freddie or Fannie. This certainly would make it easier to switch appraisers to a bifurcated future. What is your opinion about bifurcated appraisals?

I have two views. First, they are a completely legit service that some companies have been offering a very long time. They are particularly well suited for certain uses. At my last comapny we did a lot of them, and had been for over 15 years. They are not the radical new concept that some think

Are they well suited for GSE use? I don’t know. That is why they are being tested. Some seem to see a “push” for them, but all I have seen is testing. When the testing is complete it will be the data that drives what the GSEs do. And for the GSEs the key data will be the risk management results, not turn times or fees

 

[RCA]

FHFA Request opinions from Lenders & others on what the new version of an appraisal will be. Click on the link then look at the number of respondents who are pushing bifurcated / hybrid appraisals.

Public Input | FEDERAL HOUSING FINANCE AGENCY

Instructions on use of the form: To submit your input on an open topic, please select a topic upon which you wish to comment from the table below.

www.fhfa.gov

If you read Zillows submission, you will see that they are promoting photographing the entire house with equipment that can create exact (95% accurate) CAD floor plans. Now, 95% accuracy is actually not that accurate - but certainly it will improve with time.

And that leads us into to the first thing that is wrong with most appraisals: They don't have acceptable interior floor plans. In fact, a lot of them are rubbish on the exterior as well. You need to show wall thickness, exterior measurements = interior measurements + wall thickness. And, that gives us verification that the measurements are indeed correct. Also you need to show the location of cabinets and appliances, to analyze functional utility.

And that leads us to predict what is going to happen. Traditional appraisals will vanish. They are, by and large simply not providing the information demanded by decision makers.

We will get a bifurcation - but between cheaper approximate appraisals and more expensive but more accurate appraisals. You just have to decide what side of the fence you want to be on.

What I do see though, is where the future appraiser [software engineer + data miner + statistics analyst + GIS analyst + demographics analyst + ....] will create the regression models and systems to be used for the lower level approximate appraisal methods.

The reality is the market will more and more demand:

1. Total information about the subject property:
a. Accurate floorplans that can be used to analyze functional utility problems [ which abound ].
b. Condition information that can be used to predict initial repair costs and scheduled maintenance costs, such as water, insulation, infestation problems.
c. Relative Quality, Appeal, Functional Utility, View measures that can be used for an accurate appraisal.
d. I.e. the inspecting appraiser will also become a home inspector.

2. Potential improvements that can be made to the property and their likely ROI.

3. Accurate Market Value for the effective date of the appraisal, where 9-12 sales comps are adjusted to within 1% of their average adjusted value.

4. Range predictions over the foreseeable future, say 8 years, under various scenarios. There needs to be a standard for this.

5. And last, but not least, more objective methods, where the errors introduced by the appraisers subjective judgement are minimized, per the IVS standard. The IVCA (Intangible Value Containment Approach) does this, but requires expertise in MARS type regression using R-Earth, MiniTab's SPM/MARS or some other version of MARS.

 

[Joe Flacco]

If they use AVM's for purchase mortgages, that means that buyers could be certain exactly how much they can borrow on a house before they make an offer. From a consumer process point of view that is how it should be. It would eliminate a lot of frustration with appraisals and the mortgage process in general. The fact that the appraisal comes last in the process just puts us in a unfavorable position.

 

[Joe Flacco]

One of the main problems with residential appraisals today is the lack of consistency. Most of the problems we have is due to the structure of the profession with everyone being self employed.

 

[RCA]

Consist

One of the main problems with residential appraisals today is the lack of consistency. Most of the problems we have is due to the structure of the profession with everyone being self employed.

Assuming you mean consistence between appraisers, that is correct. However, consistency for the sake of consistency is worthless, if the standard for consistency is flawed. And it is severely flawed.

 

[Joe Flacco]

Consist


Assuming you mean consistence between appraisers, that is correct. However, consistency for the sake of consistency is worthless, if the standard for consistency is flawed. And it is severely flawed.

There are no standards for consistency with anything appraisal.

 

[RCA]

The market has been used to sub-standard appraisals and so they have become the norm: Funky floor plans with only the names of rooms written in, exterior only measurements that always seem to result in the exact same GLA as the tax assessor values, no explanations for anomalies. - Now that users are starting to get something better - and something worse, they will start demanding more of what they want.

The story here is simply that appraisal as a profession is changing - just like a lot of other professions.

Less expensive homes that fit the norm may do just fine with AVMs for many loans. Expensive Custom Luxury homes, which tend to meet specific functional requirements will often require more work. Again, if there is a lot of equity in the home, i.e. a low LTV, then the appraisal is simply not that important.

 

[Jim Scholl]

The market has been used to sub-standard appraisals and so they have become the norm: Funky floor plans with only the names of rooms written in, exterior only measurements that always seem to result in the exact same GLA as the tax assessor values, no explanations for anomalies. - Now that users are starting to get something better - and something worse, they will start demanding more of what they want.

The story here is simply that appraisal as a profession is changing - just like a lot of other professions.

Less expensive homes that fit the norm may do just fine with AVMs for many loans. Expensive Custom Luxury homes, which tend to meet specific functional requirements will often require more work. Again, if there is a lot of equity in the home, i.e. a low LTV, then the appraisal is simply not that important.

Sounds like you sell or want to sell automated appraisals, correct?