http://www.realestateappraisertips.com/ - Dave Towne Responds To NAR’s Move To Replace Real Estate Appraisers With “RVM’s”
On December 31, 2009, I published, “Home Appraisers: NAR Trying To Replace Appraisers With Realtor RVMs…Why Are We Paying NAR Dues Again?” In that post, it was stated that NAR is trying to replace home appraisers:
“AVM (Automated Valuation Model) is the term widely used to describe providing property valuation by using a mathematical algorithm based on the data. In real estate AVMs calculate the value of a specific property by analyzing the value of comparable properties sold and registered. The newly announced RVM (Realtor® Valuation Model) follows the same mathematical analysis but hopes to aggregate the information available from 700+ MLS’ (Multiple Listing Service) across the country. The NAR, the driver behind the RVM, hopes that this model will become the default valuation method for all financial institutions nationwide. If achieved, this will be a major industry game changer.”
Now, Dave Towne, Washington Residential Appraiser, Responds:
“But here’s my take on the situation (you can post this if you want):
BPO’s, AVM’s, and potentially a new product called a RVM, have taken millions of dollars out of appraisers pockets. It’s devastating, but did not need to happen.
I have not studied the exact differences between a RVM and a BPO. But they are ‘unregulated’ products, and thus have the potential for major abuse, and little repercussions. Both can be done by licensed real estate salespeople. Both rely on MLS data. I suppose the RVM might couple other sources of data to the MLS info, while the BPO may not. The RVM might generate a value, or value range by its own software processes, where the BPO may rely only on an agent determining and recording the value. I have seen a BPO document, and I have done reports using an AAVM (Appraiser Assisted Valuation Model) software, and frankly there is not very much difference between the two.
Where I get concerned is the potential violation of state laws and federal lending regulations when RVM’s, AVM’s and BPO’s are used in a mortgage loan process. It would be wise for any appraiser concerned about this process to first study state law to see what process is permitted, or better, which is not permitted when a lender is making a decision about writing a mortgage loan on a property. Then, federal lending guidelines must be examined. If an actual appraisal is required, but the BPO, AVM or RMV is used instead, then the lender is at fault and should be prosecuted.
Having said all that, it’s also important to realize that over the years appraisers have been their own worst enemies in their conduct with lenders. For decades appraisers have been stubborn about offering alternative valuation products and have been resistant to change. Appraisers have demanded that only the standard full appraisal should be used in ALL cases.
The reality is lenders don’t always need or want a full blown walk through ‘expensive’ appraisal done, from which to make a lending decision. Or they may just need an evaluation, which can be used on properties valued below the de minimus $250K value. As a result of appraiser behavior not wishing to solve the lender problem, lenders have developed alternative products to meet their needs. Thus BPO’s, AVM’s and now potentially the RVM. Appraisers have to learn how to help solve problems, rather than fighting the inevitable.
There has been some publicity by appraisers and appraiser organizations challenging the use of BPO’s for lending purposes. But it’s like trying to steer an iceberg with a single person row boat. Lenders are the iceberg, and appraisers are paddling furiously but not making much headway.
One software company has introduced a new product they think will compete with BPO’s. It’s similar to the RVM. The advantage is it’s a USPAP compliant product signed by a licensed appraiser with proper certifications attached, which make regulators very happy. BPO’s, AVM’s, etc., are not USPAP compliant. This product couples AVM technology with appraiser interaction. The disadvantage is the training cost and time to become ‘approved’ to use the product. And critical appraiser mass has not yet been achieved to persuade many lenders to use the product.
I have developed a USPAP compliant limited Scope of Work Restricted Use appraisal report that can compete with a BPO when the lender just needs an appraiser’s evaluation of a property and they are comfortable with the necessary Extraordinary Assumptions. This report is built around a form available in the alamode forms package. Other vendors may have a similar form. This service/product is a bit more expensive than a cheap BPO, but not as expensive as a 2055 Exterior-only, due to the reliance upon MLS photos for comps and other shortcuts not included in this Restricted Use report that would be in a ‘standard’ report. Regulators prefer lenders use ‘regulated’ appraisals rather than unregulated methods. So this Restricted Use report can compete in the marketplace as long as the appraiser is willing to add it to their offered services and tell lenders about it.
I hate to be critical of my peers, but appraisers have got to learn to be problem solvers instead of ‘old sticks in the mud.’ Appraisers are tromped on by the likes of the MBA, NAR, NAMB and other advocacy organizations surrounding the mortgage lending process. Appraisers have to learn to band together just like the Realtors and Mortgage Brokers instead of being so fiercely independent. Until they do, there is no real benefit to complaining as a single individual. Remember the rowboat analogy? A tug boat will move the iceberg. Appraiser organizations exist, but only a minority of appraisers belong. If more joined, more advocacy on our behalf can be done. We would/will have a stronger voice. Appraiser organizations represent the tug boat. Engine size and efficiency increases with more members.
The last time a good joint effort worked was the ‘petition’ signed by over 8,000 appraisers demanding more appraiser independence and less value pressure and influence by others in the lending process. Then when the HVCC was implemented, and did exactly that, many of the same appraisers said “hold it, you’ve wrecked my business.” If half of the signers who are not appraiser association members were members in the first place, the HVCC may not have become necessary. For the lack of spending $250-400 dues annually, 50% or more business went away.
So the bottom line is this: don’t be afraid to compete with a lesser product by providing a better product. Use your knowledge and skills to help lenders achieve what they want and need by advocating a service they will want you to furnish. And join an appraiser organization to ensure you have a stronger voice in the industry.
Dave Towne”
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The way I read it, RVM = AVM.
Nothing to see here, folks, move along. The regression analysis – and all the weaknesses thereof – remains the same. Only the label is different.
The Realtors are going to have the same problem with their AVM that all the other AVM vendors have, and that is the difficulty in qualifying the data in their database and figuring out how to account for the effect of the different covariables.
An AVM works great for situations where the data is all homogenous and there aren’t a lot of variables. Heck, in a situation like that any type of valuation method works great. We should deem those situations “so easy, even an AVM can do it”. It’s when the valuation gets more complicated that the utility of the AVMs and other wannabe appraisals drops like a rock. Everyone knows this, including the suits at TAVMA.
The only way the MLS data can add to the utility of their rebranded AVM is if they add more information to those listings and do so in a manner that is exportable. Not only do they have to add the extra fields, they have to persuade their members to fill them out accurately. Good luck with that.
The rub for them is that appraisers are every bit as capable of exploiting an improved database as any AVM; Really, appraisers are better able to exploit those improvements by virtue of our increased training and experience in that particular discipline.
As appraisers we should be spending less time and effort trying to undermine the intrusion of realty agents and AVMs into the valuation-for-hire market and more effort on pointing out to them what their obligations are when performing those activities.
NARs own code of Ethics includes the following requirement for their Realtor members:
“Article 11
The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.” (NAR: Real Estate Resources: 2010 Code of Ethics and Standards of Practice).
NAR specifically mentions appraisal practice as one area where Realtor members are supposed to comply with applicable standards.
Now some Realtors will undoubtably point to the term “BPO” as being different than “Appraisa” but in our professional standards the term “Appraisal” and “Appraiser” are defined by the activities being performed and the expectations of the users, NOT by the nomenclature being used or whether the individual holds a license or certification to appraise from the state.
Our own professional standards are equally restrictive about what we can and cannot do as appraisers. As appraisers we are NEVER allowed to function as an advocate or an agent of our client. This is a boundary that appraisers, unlike most of the BPO-for-hire providers, scrupulously respect.
What this means at ground level is that NARs own Code of Ethics technically requires their members to conform to USPAP when performing BPOs in assignments wherein they are asserting and their client is expecting “an opinion of value” (aka “Appraisal”) and is expecting these agents and brokers to “perform that sevice competently and in a manner that is independent, objective and impartial (aka “Appraiser”)”. Licensing has nothing to do with these definitions or the status of these standards as representing the minimum level of conduct and performance for someone who is acting as an appraiser.
USPAP is THE standard for professional appraisal practice and has been recognized as such by Congress., so there is no alternative appraisal standard for NAR members to reference.
My point is this: If brokers want to perform appraisals masquerading as BPOs they should at least make an effort to comply with their own Code of Ethics, which in turn requires them to adhere to our standards when engaged in this type of assignment.
The elephant in the room is this: It’s one thing for a broker acting as an advocate for their client to submit their price opinion in order to solicit a listing or for other obvious brokerage purposes. It’s another thing entirely for them to offer an opinion of value in an assignment where they are acting as an appraiser by asserting their impartiality and objectivity and where there are effectively no expectations for brokerage services to follow.
BPOs-as-appraisals should, at a minimum, include the appropriate disclosures for their scope of work and the applicable assumptions and limitations, not to mention the requisite certifications. It is the lack of such disclosures that has led to confusion in the market and the common misperceptions among some of the users that BPOs are similar in scope of work and reliability as a 1004-style appraisal when in fact they are usually not even close. In effect, it is the falsehood by omission that creates an unfair advantage in the market for these BPO purveyors.
My bottom line is this: there’s nothing an AVM provider or a BPO provider can do on a SOW that an appraiser can’t also do, assuming the resulting work product is still appropriate for the intended use.
Appraisers should not be overly concerned about having more competition for providing valuation services because we’ve always operated in a very competitive market. What appraisers SHOULD be concerned about is the lack of level playing field that currently exists as a result of people acting as appraisers and providing what amounts to appraisals but without bothering to understand or comply with the relevant standards that are applicable to that work.
It’s the lack of the level playing field that is doing the damage to both the business interests of appraisers (itself a minor consideration overall) as well as the interests and well being of the users of those services (which is the major consideration).
As far as appraisers are concerned, the same holds true for the purveyors of AVMs (and RVMs, for that matter).
We should reserve the right to call on NAR members to adhere to their own Code of Ethics and to point it out on those occasions when they are acting unprofessionally in accordance with those standards.