Appraising Our Future

AI and AMCs

I began my career in the Real Estate Industry as a Loan Originator.? At the time I found the regulations to be rather wearisome; albeit relaxed by today’s standards.? The last time I personally went through the process as a buyer, I remember thinking the amount of redundancy was almost to the point of absurdity.? It felt a little like signing Tolstoy’s War N Peace.? Of the three hats I have worn (Loan Originator, Real Estate Agent, Appraiser), I like appraising the best.? Numbers can only argue for so long??.

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USPAP, the Uniform Standards of Appraisal Practice, is the primary authority on the ethical applications of the appraisal process.? The added Advisory Opinions give the appraiser additional clarification on a myriad of issues which may arise during various stages of an assignment. Unfortunately, not every person completing valuations today must abide by these rules and regulations.

AMCs?

AMCs or Appraisal Management Agencies have been around for a while with a rapid increase in profit and newly formed agencies seen after the implementation of the HVCC.? The Home Valuation Code of Conduct was created in response to a New York lawsuit in 2009.? AMCs were meant to act as third-party intermediaries to make sure appraisers were able to maintain their independence.? Many AMCs marketed their services to lending institutions with the benefit of having only the best and brightest appraisers on their panels.

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Like with so many ideas rooted in good intentions, profitability seems to have replaced the best interest of the public.? Last week I wrote a bit about the potential dangers of Property Collectors.? In addition to hiring unlicensed, inexperienced persons with no background checks, AMCs make their money by adding a fee to the charge of the appraisal.? This can be somewhat frustrating to a homeowner as they now find themselves paying (in some cases) 50% above what the appraiser is receiving.? On top of the exorbitant amount for little more than facilitating the order, many AMCs charge the appraiser a ‘technology’ or ‘processing’ fee.?

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There is also the matter of cutting out the appraiser all together.? If the AMCs were created for the purpose of allowing appraisers to complete the report without any undue influence from the client, then why are many AMCs hiring property collectors and staff appraisers?? That is not exactly the definition of unbiased third party.? They hire local persons, some of whom introduce themselves as the appraiser, to gather and transmit information on a property to a licensed appraiser to complete the report, who may be several states away and may or may not be familiar with the area.

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Here is why this is a potential problem.? I was recently at a riverfront condominium in Milwaukee.? Some units face the street and some water.? The location of the units in the building drive pricing more so than bed or bath count. In addition to water views, this unit was on the first floor and has an additional large private patio, which is a rather beneficial amenity.? How would an appraiser several states away have known this?? Would a property collector even know what to look for?? Based on my experience with hybrids, I am certain the answer would have been a resounding ‘no.’

AI

Like AMCs, AVMs (Automated Valuation Models) have also been around for quite some time.? Recently I have been playing around with various online AI platforms and have been pleasantly surprised at the data analysis feature of some.? Like with any software program it all comes down to the inputted information.? The AI’s output is going to vary wildly depending on how the data is chosen.? Let us look again at the condo example above.? This was a 1 bedroom, 1 bath unit with 1 car space and waterfront views. ?Feeding the AI all the data from the 53202-zip code versus using properties of competing water influences resulted in a wide variation in coefficients.? Applying a feature’s correlating coefficient to the adjustment on the grid and then reconciling the results to estimate fair market value is one methodology in an appraiser's toolkit. Which is why it is so important to have an experienced professional choosing what data is the most relevant.

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Unlike AI, appraisers are not simply analyzing hard number data, but rather human interaction with that data.? How do differences in view, location, condition, etc affect the decision of the buyer?? This has been rather difficult for computer generated algorithms to quantify.? For example, using a CSV file of data with similar water influences and asking two different platforms to analyze and provide the most probable value resulted in two vastly different numbers.? One platform stated the price of the subject would most likely be 10K less than that of the contract price while another was 86K under!?

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The data analytic tools provided by AI platforms have been a game changer.? Learning and embracing this rapidly increasing technology has enabled me to provide a more professional product to my clients.? I will caution the public to remember two things when their lender opts for alternative products instead of experience.? One – most people purchase their home with both the heart and head and two – Location, Location, Location.? Make certain your valuation expert understands the market!

If you are an agent, loan officer or homeowner with questions on the appraisal process, please feel free to contact the offices of Asap Appraisals, LLC at 262-442-2323, email us at [email protected] or visit our website at wiasapappraisals.com.

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Speaking of 53202 Condo Market

The average rate on 30-year fixed mortgages declined to 6.88 percent this week, down from 6.94 percent last week, according to Bankrate’s weekly national survey of large lenders.

There are at present 46 listings of condominium style housing in the 53202 zip code; 45% of which have offers; with medium price of $394,500, 86 days on market and medium price reduction of 6.03% from original asking price.? Medium list price per sq ft is $316.

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