Traditional Appraisals Important in Determining Home Value

Written by: Phoebe Chongchua / Realty Times

The advancement of technology is meant to ease the burden of everyday living by making things more efficient, accurate and less expensive but when it comes to determining the value of real estate, can technology really be better---or, take the place of a certified appraiser?

In a prepared statement by the Nation’s Professional Appraisal Organizations (the American Society of Appraisers; the Appraisal Institute; the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers-- which represent 35,000 real property appraisers in the U.S.), contend that using only computer-generated Automated Valuation Models (AVM) to determine the value of homes can lead to trouble.

“Inadequate home valuation requirements leave taxpayers exposed to unnecessary losses and homeowners vulnerable to improper exclusion from Treasury’s loan modification plan,” the release states.

It further states, “Our organizations applaud the fact that the plan will allow millions of families to remain in their homes. However, we are deeply troubled that the Treasury Department’s $75 billion government-guaranteed modification program fails to protect taxpayers from avoidable losses when reworked loans default in the future, as some of them inevitably will; and fails to protect homeowners from mistakenly being declared ineligible for modification because they are told, erroneously, that the current market values of their homes do not meet plan underwriting criteria.”

According to the released statement, the reason some may not meet the underwriting criteria is because of the way the valuation of the homes is determined by the use of AVMs or Broker Price Opinions. “For reasons we find inexplicable, Treasury’s plan ignores this invaluable “safety and soundness” human resource and, instead, relies on computer-generated values and the opinions of real estate agents who are not subject to nationally accepted appraisal qualifications and standards to safeguard taxpayers and determine whether homeowners are or are not eligible to decrease their mortgage burden.”

To be most effective and accurate, Michael H. Evans of Evans Appraisal and also a member of the American Society of Appraisers says that certified and designated expert appraisers must be used. “It’s kind of a black box,” says Evans about the information that comes from AVMs. “Unless that valuation is done by an appraiser who understands the data and interprets it, we don’t know if it’s accurate or inaccurate,” says Evans.

The appraisal industry is making an effort to ensure that its voice is heard. Earlier this month industry members testified before congress about what it perceives to be structural weaknesses with regulations in the mortgage industry. Evans says, especially now, relying on AVMs is risky, “In a down market it’s really hard for the AVM to analyze listing data or understand that concessions were made on a particular sale and how much they were,” says Evans.

“An AVM can be an excellent tool in the hands of a professional, the problem is the people who are putting that data in are not appraisers, nor are they looking at the data and interpreting it and saying ‘Yes, that’s okay, that makes sense or no, I need to get something better than that,” he added.

Evans says using a certified and designated appraiser provides you with a report and someone who is responsible for the information in it. “The appraiser is tied by his appraisal to the transaction, pretty much, for the life of the loan. If we do something wrong you can come get us for the life of the loan—we’re tied to it,” says Evans.

But part of the attractiveness of AVMs is that they’re cheaper. A traditional appraisal costs approximately $250 - $300 to pay for several hours of evaluation done by a certified appraiser whereas an AVM can cut the cost to about $50 - $100 for a typical single-family home.

The National Association of Realtors supports the call to protect consumers and is recommending that lenders be required to inform borrowers about how their property value was determined as well as provide them with a copy of the appraisal for no additional cost. The National Association of Realtor, President Charles McMillan, had this to say to the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit, "Realtors believe that a strong and independent appraisal industry is vital to restoring faith in the mortgage origination process.”

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