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Chief Appraiser Blog |
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Recent PostsArchivesCategories« Happy New Year! | Home | My New Blog » Getting Along With The AVMBy Bill Waltenbaugh, SRA | January 28, 2010 Last week’s “For What It’s Worth” addressed the new year and the multitude of changes the appraisal profession has seen and will see in the future. A few years ago a somewhat hokey book called Who Moved My Cheese by Spencer Johnson, M.D. was very popular. I say hokey because the book used four fictional characters, two mice and two miniature humans, to illustrate how people deal with change differently. Some move quickly, some drag their feet, and others fight, kicking and screaming, the entire way. I mention this book because when you introduce the conversation of AVMs among appraisers, it produces similar reactions. The reality is, the use of AVMs are here to stay. They make up a significant portion of the valuation space and, like it or not, most of your mortgage related assignments are checked against a lender ordered AVM. So what are appraisers to do with AVMs? Let me start by saying I fully believe the AVM will never replace the expertise of the local knowledgeable appraiser. It is difficult to replace the true, boots on the ground, market expert with hard data and unemotional models. The question is, how should appraisers prepare to work with, and along side, the Automated Valuation Model? These days, part of producing a report that satisfies the needs of the mortgage client involves being proactive and answering the questions a lender might have after they compare your report to an AVM. Is the quality of the subject above or below what is customary? Does the subject have or lack a significant amenity that differs from the norm? Maybe the view is different from the standard. These factors and more are difficult for a national AVM to account for in their modeling. Thoroughly answering these questions with comment and market data, can significantly cut back on those annoying inquiries on reports completed days ago. Soon, AppraiserLoft will be piloting a new approach that will allow the appraiser to better address these concerns. This process will allow the appraiser to order an AVM at the beginning of the assignment. This way, the AVM becomes a part of the appraisal process and is addressed in the reconciliation section of the report. It also provides a proactive opportunity to comment on some of the possible factors noted above. If you are interested in accepting these orders, there are a few things we recommend you do to prepare for this exciting new product. First, you will want to read and have a good understanding of USPAP’s AO-18. This advisory opinion addresses what an appraiser should know about an AVM before it is incorporated and used in an assignment. Second, taking a course in advanced statistics and valuation modeling will provide a good foundation for understanding how AVMs work. AppraiserLoft will soon be seeking appraisers who meet these requirements to develop a first tier panel for placing these orders. Appraisers need to stop worrying about being replaced by AVMs. Preparation and understanding is key. “Pressure comes when someone calls on you to perform a task for which you are unprepared.” — Tony LaRussa, Manager of the St. Louis Cardinals. The AVM isn’t going away. I suggest we learn to understand the strengths and weaknesses of AVMs. It is another tool for the educated valuation expert – the appraiser. Topics: AVM, For What it's Worth | 3 Comments » 3 Responses to “Getting Along With The AVM”Comments |
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February 2nd, 2010 at 12:07 pm
I am in a non-disclosure state. The information available from the normal National sources is boges for my community. I have over the years tested the sales from various pretenders and found them to be properties that were refinanced, properties that were sold but at a different price than in the report, and properties that were deeded from a family member to another without a arms length transaction involved. Therefore, the concept of having an AVM without correct local data is a farce. The AVM works very well with good data and like all computer programs garbage in results in garbage out. In this case some appraiser is to hang his hat and license on the results. In Texas, I think not. There is a hi-bread that I have been working with called a Collateral Valuation Report which allows the use of my data bank for sales. This does appear to produce creditable results. For this reason, I will say that the AVM when controled by the profesional appraiser using data on which the appraiser would use for regular reports, can be an extra tool.
February 2nd, 2010 at 12:51 pm
I totally agree with George, I am not located in a non-disclosure state but the data in the my county is very unreliable. If there is a bonus room , finished basement area, ect.. this is not typically reflected in the data. Typically, new construction sqaure footage data is taken from information provided the buiding permit which is almost alway incorrect. So the saying “garbage in – garbage out” fits the data model. I’m sure that there are some credible AVM’s out there but I would say it’s the exception not the rule.
February 2nd, 2010 at 5:59 pm
Another issue is that even with plenty of data available, most AVMs include REO and Short Sales without any analysis as to whether there are two markets operating in a neighborhood. If the subject is a owner occupied home in top condition, it should be compared to sales of homes from this group. Its not accurate to include sales from the REO/Short group which is appealing to a completely different buyer and market.