Big Banks & the Fleecing of the Appraisal Industry

Big Banks are tricking appraisers into providing the very information they perceive they need to put appraisers out of business. There are countless new programs coming out and made available to appraisers, so they can fine-tune the formulas and help to make the programs better. These programs attempt to provide support or what banks like to call “Proof” of appraisal adjustments. Once appraisers figure out the best methods possible for doing this (although there are no exact formulas for a system that doesn’t provide exact adjustments, ever), then bankers think they will have just enoughdata to make their case for technology over traditional appraisals.

It’s a brilliant plan and they are getting away with it daily as appraisers, so anxious to stay in the process, play it anyway the big banks require. It’s the Golden Rule in play and once again, appraisers get the short end of the totem pole.

If you think about who is providing the majority of these new forms and programs designed to help support adjustments, many are owned by companies who also just happen to own automated valuation companies. Convenient right? It’s all smoke and mirrors, again, and the big banks convince government regulators, and they try to pass it on down the line, all the way to consumers. “Trust us and trust our technology. We’ve got your best interests at heart.” Said the wolves to the sheep.

The two biggest myths of our industry are that AVMs can provide accurate and consistent home valuations. Impossible task, regardless of technology. It’s easy to prove if you really want to see the answer. And second, that every appraisal adjustment can be “proven” by statistics. Again, impossible task. It’s like thinking we can replace all surgeons with technology. Some decisions have to be based on experience and cannot be performed by a computer or technology. It requires experience, guided by wisdom. There are some fields where a human brain is required to make subjective decisions and appraisal is one of those industries. That’s why appraisers are required to have so much education and training. It is not a math only business. You have to learn trends and patterns, and what “comparable” actually means. That’s the biggest problems with Realtors®, lenders, and AVMs. They don’t understand what homes are truly “comparable” sales and often end up being guided by the highest priced sales and owner’s opinions, rather than based on fair market data. AVMs select comparables based more on proximity rather than comparability and a computer may take forty sales in a certain area and average all the information. That is NOT the way to price real estate and it cheats consumers into lower or higher values. Appraisal is an art not a science and no computer can ever replace the human brain. No matter how many new programs or algorithms they come up with, it’s a task that has been tried for decades and failed miserably. You can’t make orange juice with lemons. Technology and real estate data just don’t mix.

Big banks want us to trust one of their employees to judge a home’s fair value. No training, no oversight, and talk about bias! Whatever value the bank wants is what they get. Where’s the danger in that? It’s time to let appraisers do their jobs and stop letting big banks try to eliminate appraisers from the mortgage lending process. The AVM and technology revolution is a scam with only one possible outcome. And, that outcome is only good for one group, and it’s NOT consumers.

Fannie Mae – Here’s Your Waiver – Here’s Your Sign

Swim at your own risk. No life-guard on duty. That’s what Fannie Mae is telling consumers. This runaway train called Big Data looks like it will only be stopped by the next mortgage crisis and big banking bailout. How many billions of taxpayer money will it take, while a few scape goat bankers will pay small fines and then laugh all the way to the bank.

Fannie Mae introduced the Uniform Data Set (UAD) which started the mass collection of appraisal files. This information, which is basically each appraiser’s professional opinion, is taken without their consent and without them having the ability to even see this data, and it is now being used against them to take work right out from under them. Have we really learned nothing from the past?

As someone who has studied the topics of public records, MLS, AVMs, and big data for the last fifteen years, I can confidently state that automated real estate valuations are horrible. Sure, they are fun to look at, but for providing accurate and consistent real estate prices, they are full of errors. Some advertise an eight percent margin of error and I read that and have to laugh. That may be true in a few select markets where there is massive amounts of data, but for the majority of America, a true accuracy rate is much more likely between 25-40% in error. And, in both directions. They are just as likely to be too high as too low. For anyone that understands the valuation process, they know that computers have an impossible task, most often with questionable data.

Big data works in fields that have perfect data, and real estate is NOT a business with perfect data. It takes a subjective, human mind with local knowledge, and no computer can ever understand how a house smells or feels, or the layout or neighbourhood, etc., etc..

Commercial real estate valuations are even more complicated. It’s simply mission impossible for a computer program to analyse data that is subjective in nature. And now, they also want to try Hybrid appraisals where the appraiser never sees the property. It’s like a doctor having a nurse trainee and letting them perform the patient exam. Then the doctor reads their notes and writes the prescriptions. It’s a system designed for failure!  

Fannie Mae says they want to reduce the costs of appraisals. That comes from big banks talking in the background. Yes, this has to do with money, but certainly not saving consumers money. If you take away all the smoke and mirrors, it’s all about big banking profits. If they truly wanted to save home buyers money, they could use the tax assessments that are available for free. And, at least they have seen the house in person. Tax assessments are just as accurate as automated valuations, but they are free (not really, that’s your tax dollars at work). But, big banking will never go for that because they can’t make any money that way and, make no mistake, this is all about the money.

Banks get to select the appraiser and consumers have no say in the process. The only protection home buyers have is the government that mandates appraisals. Take that away and home buyers are left to swim with the sharks. The only reason Fannie Mae wants to do this is because big banking lobbyist have convinced them this is in the best interest of the consumers. I call BS! It’s like putting the wolf in the hen house and saying “be nice now.”