Big Banks & the Fleecing of the Appraisal Industryby Hamp Thomas on 12/17/18
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 enough data 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.