The Race To Automate Appraisal Process

[hastalavista]

I know for a fact that the original bill to form the state board failed and was delayed 2 years when the NAR proposed limiting certification to Realtor Brokers and MAIs. Only when the bill was killed by the Senate pro temp did independent appraisers get a chance to say their piece and cooler heads prevailed to point out this did not serve the function of independence that FIRREA implied. It would have limited the number of appraisers to about 300 in this state as well...assuming they all wanted to appraise. What it would have created was the sort of AMC where a few people were the "appraiser" and the people actually doing the work would be limited to a serfdom of the actual appraiser.

The Tulsa and Ozark AI chapters merged only over the objection of the Arkansas chapter who had seen its NW state members join Ozark because of the tendency of Little Rock to "gate keep" the membership from the corners of the state.

I didn't realize you were talking about 25+ years ago. I thought we were discussing current events.

 

[Terrel L. Shields]

I thought we were discussing current events.

The Ozark -Green Country merger is recent as was LR's effort to prevent the merger. Okla City I believe shares a director with Ozark -GC and they meet in Springfield & Joplin as well as Rogers, AR & Tulsa

 

[Thomas Holding]

I'm of the opinion that 80% - 85% of residential appraisals could in fact be accurately valued (within +/- 2.5%-5% of market value) using computer modeling, however that 80% number comes with a huge caveat. The data used has to be extremely accurate and it has to be complete and timely for the computer modeling to work. The other factor that is just as important is that the models used to analyze a property must be customized down to the neighborhood level in order for them to have a chance at being accurate enough. All of this data takes an incredible amount of work to collect, verify, model, and maintain, and this is the most costly component of the appraisal process. I work in the tax office of a relatively small county (60,000 parcels), and we have a full time staff of 6 appraisers to perform all of these tasks. That's just for data collection. The infrastructure required to support our data collection and retention is very costly as well. Our IT department handles that portion of the equation and I honestly don't know the amount of their resources that are contributed to the appraisal department. I almost forgot to mention the GIS department. They have a staff of 4 people working full time just to maintain our parcel data and maps. We are all salaried, have a fleet of cars, use specialized equipment and software and work very hard to get our data right. All of these resources are required just to appraise properties once every 4 years. It takes our department a full year just to analyze and value all of the 60,000 parcels and that process involves a large amount of time and effort.

There are no shortcuts, and if you take any, the accuracy of the computer valuation will go down. Currently, most AVMs use a combination of tax data and appraiser data. The tax data gets old pretty fast. It is usually only updated once a year to reflect any changes that occurred during the past tax year, assuming that the property owners notified the tax office of any changes or if the local municipality notified the tax office of any new building permits. In North Carolina, there are 100 counties, and each county has their own system. Some counties have more resources, some less. Some have highly trained staff, many don't. Oftentimes their computer systems are antiquated and their data has not been cleaned up in years or even decades which causes errors, many which are never picked up. Counties have different reval years, and they sometimes change their computer systems, which changes the data that which is used in AVM modeling. Other data users must then adjust their models to work correctly. There are just too many variables to mention and they are always changing.

The point I'm trying to make is this, It takes a huge amount of resources just to acquire accurate data to use in an AVM. If any part of the process is lacking, and bad data gets into the system, or If there is no recent data available in certain areas, then the AVM will be less reliable. Artificial Intelligence, computer modeling, or what ever you want to call it can be a useful tool, but they all require huge amounts of data to work reliably. This takes a bunch of money and manpower, and I don't believe that Google, Corelogic, Zillow, or any one of the other multitudes of companies trying to crack the push button appraisal nut will/can actually devote the resources needed to do do the job with the accuracy required that would eliminate the necessity of using a qualified appraiser. These companies might say that their product can do the job but they are not telling the whole truth.

As more and more qualified appraisers leave the profession, the most accurate and reliable source of data will grow smaller and smaller, forcing them to rely more and more on property tax data, which was never meant to be used in the way that they are trying to use it. All it will take is the next financial crash to show the limitations of their modeling. If financial institutions feel that this risk is acceptable, then who knows what is ultimately going to happen to the residential appraisal profession, I can tell you with a fair amount of certainty that the accuracy and reliability of automated appraisals will plateau in a few short years because the amount of accurate data available to feed these systems will plateau.

Oh, and I almost forgot, no computer model has been invented that can accurately and reliably value the 15 to 20% of properties that don't fit the mass model. These odd or complicated properties have to be done the old fashioned way, and that takes time, and above all, skill.

 

[Carnivore]

While all this is going on the AQB is going to lower entry level qualifications etc because we supposedly have a shortage of appraisers.

Like I said before and still do now we just are not there yet on technology and as Thomas Holding pointed out correct/accurate data and then entry into one system is a huge task. Garbage in Garbage out... but lets continue. Here are some other areas of data that will be I think a nightmare ..Infrastructure Improvements...also another area that will be tough, Changing local economies...changing trends of a buyer..the list can get bigger and bigger the more you think about it.

Its a monumental task...the only hope they have is instead of a point type value is if they go with a range of value. Which already occurs with AVM's now. And AVM's suck

Did I mention Realtors...Yep, good ones, bad ones, lazy ones, forgetful ones you can apply that to appraisers also.

Oh and one last thing. Mecklenburg County just got a New HMFIC of the School System. She has introduced this weird kind of reassignment policy. We still don't know the effects of that yet. Put that in your Supper Analytical computer program and see what it does. Especially if she does not last long and they switch it to something else. Schools can have a huge effect on Market values.

So some day this will happen...I don't doubt that...but I think I will be dead by then

 

[jay trotta]

I'm of the opinion that 80% - 85% of residential appraisals could in fact be accurately valued (within +/- 2.5%-5% of market value) using computer modeling, however that 80% number comes with a huge caveat. The data used has to be extremely accurate and it has to be complete and timely for the computer modeling to work. The other factor that is just as important is that the models used to analyze a property must be customized down to the neighborhood level in order for them to have a chance at being accurate enough. All of this data takes an incredible amount of work to collect, verify, model, and maintain, and this is the most costly component of the appraisal process. I work in the tax office of a relatively small county (60,000 parcels), and we have a full time staff of 6 appraisers to perform all of these tasks. That's just for data collection. The infrastructure required to support our data collection and retention is very costly as well. Our IT department handles that portion of the equation and I honestly don't know the amount of their resources that are contributed to the appraisal department. I almost forgot to mention the GIS department. They have a staff of 4 people working full time just to maintain our parcel data and maps. We are all salaried, have a fleet of cars, use specialized equipment and software and work very hard to get our data right. All of these resources are required just to appraise properties once every 4 years. It takes our department a full year just to analyze and value all of the 60,000 parcels and that process involves a large amount of time and effort.

There are no shortcuts, and if you take any, the accuracy of the computer valuation will go down. Currently, most AVMs use a combination of tax data and appraiser data. The tax data gets old pretty fast. It is usually only updated once a year to reflect any changes that occurred during the past tax year, assuming that the property owners notified the tax office of any changes or if the local municipality notified the tax office of any new building permits. In North Carolina, there are 100 counties, and each county has their own system. Some counties have more resources, some less. Some have highly trained staff, many don't. Oftentimes their computer systems are antiquated and their data has not been cleaned up in years or even decades which causes errors, many which are never picked up. Counties have different reval years, and they sometimes change their computer systems, which changes the data that which is used in AVM modeling. Other data users must then adjust their models to work correctly. There are just too many variables to mention and they are always changing.

The point I'm trying to make is this, It takes a huge amount of resources just to acquire accurate data to use in an AVM. If any part of the process is lacking, and bad data gets into the system, or If there is no recent data available in certain areas, then the AVM will be less reliable. Artificial Intelligence, computer modeling, or what ever you want to call it can be a useful tool, but they all require huge amounts of data to work reliably. This takes a bunch of money and manpower, and I don't believe that Google, Corelogic, Zillow, or any one of the other multitudes of companies trying to crack the push button appraisal nut will/can actually devote the resources needed to do do the job with the accuracy required that would eliminate the necessity of using a qualified appraiser. These companies might say that their product can do the job but they are not telling the whole truth.

As more and more qualified appraisers leave the profession, the most accurate and reliable source of data will grow smaller and smaller, forcing them to rely more and more on property tax data, which was never meant to be used in the way that they are trying to use it. All it will take is the next financial crash to show the limitations of their modeling. If financial institutions feel that this risk is acceptable, then who knows what is ultimately going to happen to the residential appraisal profession, I can tell you with a fair amount of certainty that the accuracy and reliability of automated appraisals will plateau in a few short years because the amount of accurate data available to feed these systems will plateau.

Oh, and I almost forgot, no computer model has been invented that can accurately and reliably value the 15 to 20% of properties that don't fit the mass model. These odd or complicated properties have to be done the old fashioned way, and that takes time, and above all, skill.

I find your points interesting and because they appear to have been "Time Tested", I have always thought and will always think, Speed does not equate to accuracy. Additionally, speed is reflective of the; Owners co operation and No complexities when you get to the property or during the discovery process, which is completed at the site and local Town Hall, an actual physical process that is required under FIRREA/FNMA and USPAP.

 

[Terrel L. Shields]

I would think+-5% to be a tighter spread than actual sales range in a given subdivision making it statistically suspect. That would almost certainly be within one std. dev. of the mean. I would think 1 SD precision to be a max with older subdivisions almost certainly even wider margins.

 

[Thomas Holding]

..... I have always thought and will always think, Speed does not equate to accuracy. Additionally, speed is reflective of the; Owners co operation and No complexities when you get to the property or during the discovery process, which is completed at the site and local Town Hall, an actual physical process that is required under FIRREA/FNMA and USPAP.

These automated wonder estimates are so great because they spit out a number in seconds. They can accomplish this feat because they they are supposedly using accurate and verified data in their model. I can promise you that these companies are not taking the time to verify much because I get taxpayers coming in all the time who are freaking out because their Zillow estimate is too low. When they call Zillow, Zillow blames the tax office and tells the homeowner to call us. We had a computer error on our webpage that displayed the total gross area of a structure instead of the total heated area, When Zillow scrapes this data off of our webpage, you can bet that it lowers the value of each property because the gross area of a structure is usually much larger than the heated square footage. None of these companies has ever called our office to even question about the differences between our data and the MLS. I don't mean to pick on Zillow all the time because I see value estimates from all of the AVM companies when taxpayers try and use them to appeal their tax values. 40% are way off the mark. 20%-25% contain outright errors that affect the value. They are skipping the most costly and time consuming part of the appraisal process which is data collection and verification.

I could perform our entire reval in a couple of months if I could eliminate the data verification step and could just use our tax data "as is". The problem is that it takes our office 6 months just to clean up the data we input into our mass appraisal model. It is an extremely long and laborious process all done manually. If I could rely entirely on an algorithm to do my reasoning for me I could save even more time. Not having to think about something sure gets rid of a lot of stress too. Unfortunately, even in tax appraisal, I can't just rely on what our mass appraisal model spits out because I know that it makes errors all the time. Those are the outlier properties. I have to review the value on every house and parcel in a neighborhood to see if it passes the smell test because if I don't, those errors will have a cascading effect on the entire neighborhood.

If there were a faster and better way to do it, I promise you that appraisal departments everywhere would be doing it. When you see a county or state tax office hire Corelogic or one of the other companies for their next reval, then it might be time to start worrying and looking for another profession. That will mean that the accuracy of these products is guaranteed to be within +/- 10% of market value. Until then, don't believe all the hype about appraisers being replaced by a computer algorithm.

These companies can get away with this because they don't really guarantee their estimated value. If they were actually worried that they could and would be sued by their customers (like appraisers can be) then they would have to disclose the weakness in their systems and the true accuracy of their estimates. Appraisals (and appraisers) and AVMs are judged by two different sets of standards by lenders. If I didn't have to worry that I might be sued or reported to the state Appraisal Board, then I would be happy to provide an AVM for a reduced fee because I could churn them out like crazy. They wouldn't be worth a crap, but why should I care if the client doesn't ?

 

[chad hampton]

One thing I've never understood is why do all of these place give (or sell) their information to companies like companies like Zillow?

 

[Michigan CG]

............. The problem is that it takes our office 6 months just to clean up the data we input into our mass appraisal model. It is an extremely long and laborious process all done manually. ..............

Thomas,

I am curious if you have access to MLS data and if so does it help you?

Assessors here are using Zillow and Realtor.com to verify condition.

 

[Thomas Holding]

One thing I've never understood is why do all of these place give (or sell) their information to companies like companies like Zillow?

Counties provide the data because it is public information. You could get it too if you just ask for it. Corelogic realized how important data was from the start, which is why they try to buy up each and every MLS out there plus M&S and now appraisal portals. Zillow can't use MLS data because CoreLogic owns it already, so they use the data from their pocket listings. Data is what all of their algorithms run on. They will monetize it in every conceivable way they can. The most valuable thing that appraisers provide is not the estimate of value, it is their data.