| When I first got started as an independent appraiser | | | | deal with more pressure. |
| on my own, it was 1975 and it was a different world. | | | | Every residential appraiser faces reviews of his or her |
| I would arrive at my office and the phone would ring | | | | work from time to time. For one reason or another, |
| with someone calling in a request. Back then the | | | | a percentage of my reports will be examined by |
| standard "turnaround" time (the time between | | | | others. I do a lot of this work myself for various |
| receiving a request and delivery of the completed | | | | clients as part of their quality control system. As time |
| report) was 9 calendar days, which means that | | | | goes by I have gradually seen a deterioration of |
| Saturday and Sunday were included. In effect then, it | | | | quality in residential appraisal reports. Not in |
| meant 7 working days. Today, If someone were to | | | | presentation, for the various brands of report |
| call and I told them it would take 9 calendar days to | | | | software give beautiful presentations, but |
| complete the report, the caller would probably either | | | | deterioration in analysis and detail. The nuts and bolts |
| hang up or faint. In fact, most callers are hoping I will | | | | of the report. Having better than 30 years in the |
| say I can have it done by the end of the day or | | | | business it is plainly obvious to me that the routine |
| tomorrow at the latest. How have things changed | | | | rush nature of mortgage lending appraisals has had a |
| and why the rush? | | | | negative effect on appraisal quality. Too much is |
| When I began, owning a computer was impractical. | | | | being overlooked or sped through. Reports are often |
| The desktop PC hadn't been invented yet. It was still | | | | filled with small errors that should have been caught |
| a big deal to have a desktop calculator that had a | | | | by proof reading and analyses of problem situations |
| LCD readout! Computers were the domain of | | | | are often shortchanged or omitted. Residential |
| universities and large companies. It was still the | | | | appraisers are simply under too much pressure to get |
| heyday of the IBM punch card computer. Likewise, | | | | these reports done too quickly in mortgage lending. |
| when someone signed a contract to buy a home, | | | | Of course, there is the greed factor present in every |
| they went in person to a lending office to apply for a | | | | job or profession, that motivates some people to do |
| mortgage. The time to complete the application | | | | sloppy or dishonest work as well as the desire to |
| process and issue a mortgage note was anywhere | | | | compete, but I believe that time pressure is the |
| from several weeks to several months. Much of the | | | | primary culprit in deteriorating quality. |
| time was spent getting forms such as employment | | | | In the ever-increasing desire to complete real estate |
| verifications and credit reports sent and received | | | | transactions in a flash, lenders have been attempting |
| back by mail. Back then, as now, an appraisal was | | | | to make use of software appraisal solutions such as |
| not ordered until the borrower was approved for the | | | | the AVM or Automated Valuation Model. These are |
| mortgage, however, it still took at least a couple of | | | | basically computer programs that perform an analysis |
| weeks after mortgage approval before closing could | | | | of public and private records to provide an "appraisal" |
| take place. There was therefore not such a rush for | | | | of a home. These AVM products have come |
| an appraisal as there is today. | | | | increasingly into use as a replacement for the |
| These days, a mortgage can often be approved in a | | | | traditional human appraiser, considered much too slow |
| matter of minutes. Most of the infor5mation that is | | | | for today's market reality. Being a human appraiser I |
| needed to qualify and approve a borrower is online | | | | am naturally inclined to be biased against being |
| and many of the more "burdensome" information | | | | replaced by a software program, but I am willing to |
| needs have been "streamlined" away. It is now | | | | put these programs to the test to see if they are as |
| routine for me to receive an appraisal request where | | | | reliable and useful as claimed. In writing this article I |
| the borrower signed the sale contract a few days | | | | used an AVM operated by a large corporation and |
| ago and they are wanting to close within a week of | | | | offered by a major banking institution to "appraise" a |
| signing. Most of the speedup can be attributed to the | | | | home for which I recently completed an appraisal. |
| proliferation of computers and the internet. | | | | The idea was to see how the two compared. |
| In the days before computers were in use for | | | | The home in question is located in a suburban |
| appraisal, we typed our reports on a typewriter. | | | | neighborhood that contains a reasonable amount of |
| Computer forms processing software eliminated the | | | | sales data in the local MLS. If anyone were to do an |
| typewriter. Various software evolved to make the | | | | appraisal or a Competitive Market Analysis, there |
| processing of the forms appraisers use lightning fast. | | | | would be sufficient recent data to do an accurate |
| For many years though, the biggest remaining | | | | analysis. I was able to find 3 recent sales of highly |
| problems were in the use of photographs and | | | | similar homes that provided a range of value from |
| delivery of the finished report. The advent of digital | | | | about $150,000 to $160,000. The home was under |
| photography finally eliminated the need to take | | | | contract for $156,990. The above mentioned AVM |
| traditional paper photos and paste them onto | | | | provided a value range from $130,000 to $261,000. |
| "picture" pages. Then the widespread use of email | | | | The "value range" provided by the AVM was so wide |
| and electronic signatures eliminated the need to hand | | | | and so nebulous as to be of no use whatsoever. If a |
| deliver or mail reports. It is now literally possible to | | | | human appraiser issued a report with a range of |
| receive a request for an appraisal and have the | | | | value that wide, his or her report would be discarded |
| completed report in someone's email box within a | | | | immediately, for it would be obvious that something |
| few hours. | | | | was terribly wrong. Yet those same types of AVM |
| For many people, the amazing transformation of the | | | | ranges are being used to "justify" or "support" |
| appraisal process has been a blessing. For others it | | | | contract selling prices and thereby mortgage loans all |
| has been a curse. It is a blessing for commissioned | | | | over the nation. |
| salespeople in brokerage and lending because it | | | | What does this mean? It means that someone from |
| means they get their commissions faster. It is a | | | | out of town, not knowing any better, could possibly |
| blessing for the seller or buyer under pressure to | | | | purchase that home and get as much as 95% (or |
| complete a transaction in a hurry. It is a blessing for | | | | more) financing on as much as a $261,000 sale price. |
| the appraiser who is willing and capable of doing | | | | For a $156,990 home. Don't think it cannot happen |
| appraisals in high volume. But it is a curse in some | | | | out there because it happens far too often. It isn't |
| ways for the lending industry and for the highly | | | | hard to imagine what will happen later if that loan |
| detail-oriented and conscientious appraiser simply | | | | goes into default and the home is foreclosed. An |
| because of the intense pressure to complete jobs as | | | | AVM can have its uses, however, in my estimation it |
| fast as possible. | | | | is generally a poor substitute for the human appraisal. |
| Some types of residential appraisals are easier to | | | | Much has been written about lender "pressure" for |
| complete than others. The appraisal of a small home | | | | appraisers to appraise a home at or above a given |
| in a "cookie cutter" neighborhood where plenty of | | | | price. But I believe that not nearly enough has been |
| market data is available is relatively easy. But anyone | | | | written about lenders and others pressuring |
| who believes that this is the normal scenario is | | | | appraisers to complete reports too quickly. People |
| mistaken. Every home is different and so is every | | | | need time to think about what they are doing. I also |
| neighborhood. Most of the work that I do is quite | | | | believe that not nearly enough has been discussed |
| varied and requires enough time to be able to think | | | | about the merits of super fast sales and lending |
| about the situation and perform a decent analysis. | | | | practices. Again, people including buyers and |
| This can be difficult when one has people constantly | | | | borrowers need a little time to think about what they |
| calling in a panic to get the completed report. So it's a | | | | are doing. |
| mixed blessing in that I will make more money but | | | | |