potential consequences,” explains Isaac Peck, writing for Working RE. “In addition to pressure and harassment from homeowners, agents, and Appraisal Management Companies (AMCs), appraisers also run the risk of being branded ‘deal killers’ and losing both lender and AMC clients; a high price for simply doing one’s job – performing accu- rate, unbiased appraisals.” COMPARATIVE MARKET ANALYSIS (CMA) Like other professions, apprais- ers have marked off their terri- tory. You need a license to be an appraiser. You can’t get a license without training and experience. You cannot sell an “appraisal” un- less you’re a licensed appraiser. Real estate brokers can offer a Competitive Market Analysis or a Comparative Market Analysis (known generally as CMAs in either case)

THEORYVS. REALITY Appraisers are at the center of the lending process. Lenders and borrowers hire them to prevent two forms of financial tragedy: over-lending by mortgage lend- ers and overpaying by real estate buyers. Lenders don’t want to put up more cash than they should and thus increase their risk if a proper- ty must be foreclosed. At the same time, we don’t want buyers to pay inflated home prices as a result of innocence or exuberance. Proper valuations surely benefit the lending system in general but when it comes to individual trans- actions the view is often different. First, appraisals cost money at the very moment when borrow- er funds are likely to be tight. No doubt many residential borrowers would be perfectly happy to avoid $500 or so in appraisal expenses. Second, while there’s a lot of talk about the need for accurate

appraisals, the real goal in many transactions is simply to finish the deal and get people paid. If the appraised value is less than a property’s sale price then contract terms will need to be “modified,” a polite term which means maybe the price goes down or the buyer finds more cash. Or both. If the parties cannot make adjustments then the deal can end, suddenly and unhappily, forcing everyone to start all over again. There will be no sale dollars for sellers who may have a contract to purchase a replacement property. There will be no dream house for buyers, no commission for brokers, and no fees for lenders. A whole bunch of people are likely to be very unhappy with a low appraisal, even one which is unquestionably on target. “A real estate appraiser who submits an appraisal that is un- der the contract price knows the


Will AVMs Create a World Without Appraisers?

T he real estate market has had a good run during the past few years, but for one group the sto- ry has been different. Appraisers are facing tough times. Their job numbers are in decline, business is being lost to high-tech compet- itors, management companies are BY PETER G. MILLER, STAFF WRITER

cannibalizing fees, and HUD has questioned the accuracy appraisals provide. To make matters worse, federal regulators have proposed new rules to make residential appraisals unnecessary for huge numbers of transactions. The oddity is that no one doubts

or denies the importance of in- dependent valuations. Instead, appraisers are losing out to new technologies, lower costs, and faster prep times. The need for valuations is there but that need is increasingly filled by big data and artificial intelligence (AI).

4 think realty housing news report

march 2019 5

Made with FlippingBook Online newsletter