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.”