AVMs… Garbage In, Garbage Out
Garbage data in means garbage results out every time!
It’s no secret that AVMs have been a thorn in the side of real estate appraisers since they first came out. Despite all their bells and whistles, these automated valuation models still rely on inaccurate public records and often come up with wildly inaccurate home values. Unfortunately, some consumers don’t realize this until it’s too late – when reality comes crashing down from a local real estate professional after they’ve already gotten their hopes up about their home value thanks to an AVM.
Yesterday, a Virginia assessor emailed us with an interesting conundrum. While gathering information on a property, he discovered it actually contained two houses with two separate addresses – one 840 square feet and 2 bedrooms, 1 bath; and another 642 square feet but uninhabitable due to a caved-in roof. Despite this discrepancy in size and condition between the two homes, automated websites such as Zillow, Redfin & Trulia were pulling from tax records to show 1482 square feet of living space with 4 bedrooms – not taking into account the cost of removing the old house or its condition!
As real estate appraisers, we know how important accurate property data is for our clients. That’s why it’s so concerning when automated websites like Zillow, Redfin and Trulia pull from tax records that don’t accurately reflect the true size of a property.
The problem is that most AVMs use public records which are notoriously unreliable for determining accurate property values. They usually just look at square footage details from tax rolls without ever seeing the property in person or taking into account any other features like age or condition of the house – factors which can drastically affect its value! It should go without saying then that anyone who understands how valuing homes works knows just how close to useless these products really are; garbage data in means garbage results out every time!
So why then is Fannie Mae making a mistake by no longer requiring a home appraisal as the default option for property valuation? They claim they want to make “the home valuation process more efficient and accurate,” but this couldn’t be further from reality.
- UWM Underwriters Subsidized by Appraisers - April 16, 2024
- AI to Counter Flawed Appraiser Bias Narrative - April 15, 2024
- ChatGPT Appraisal Error Sparks Ethics Debate - April 1, 2024
Fannie Mae is selling the public the KoolAid, any fool can tell you the moves they are making will not make the home valuation process more efficient and accurate. Getting things wrong is not efficient, faster yes, efficient no, having to do things twice to get a reasonable answer is not efficient. Only in the most generic areas they will manage to get a pretty reasonable value, any area with varied styles and values its hit and miss. The goal is obviously to get rid of appraisers, the banks love it, and so do the brokers. Now that we know all banks will be bailed out with the Feds ‘back-stop’ there’s no risk, just rewards. So sad.
Chuck Minzenberger not KoolAid, toxic pond sludge.
I think you missed the Jim Jones/Jamestown reference!
Here is another faucet of the argument discrediting the fictitious idea that avm valuations can ever substitute a real live human appraiser; States may have varied rules regarding maximum assessment amounts, which may be set to proportions, percentages, fixed amounts below actual market value, etc. With variations in rules pertaining to the many possible variants of current land uses, applying a possibly infinite array of associated minutia type rules which can substantially effect assessors publicly stated ‘assessed values’.
Colorado is trying to rescind one of the rules on this matter and impose new ones. Aka; cap rules and delayed assessment updating. Most people in mortgage lending and real estate have no idea these sorts of assessment related rules may be currently implemented in their state, or if the rules change, rescind, or new rules pertaining to assessment values are brought forth.
The tech nerds coding the avm utilities certainly don’t have a clue what’s actually happening on the ground with these properties, or with the legislative bodies which effect valuation approach principals at the local level. Neither do GSE personnel, it’s impossible to keep up with all the local rules for an entire nation, which is why the burden of compliance is passed down to the local workers whom process lending related activities. (You know, the reason why it’s important to source a local agent, and a local appraiser, why state licensing exists in the first place.) They think public assessment data is adequate. If not, send in an imposter to pretend to be an appraisal inspector for that little tiny bit of additional detail.
The people promoting the avm industry as an equivalent substitute to human appraisers are severely mis informed. Case in point; Our very own super villain Dave Bunton, and his soon to be established AVM certification program meant to replace human appraisers under what equates to a midevil principal of superstition the appraiser might be dangerous and biased, or could be a warlock, a witch, or a modern day klansman adorning a white pointy hood in between each and every in person appraisal inspection performed, sometimes even wearing that during inspections. The evolved beltway organism is the ultimate lender advocate, as he remains completely unrestrained by appraiser licensing, which he does not possess and likely never even tried to attain. How are we still ‘managed’ by someone whom apparently has lost all faith in the people he supposedly guides? We call for a vote of no confidence in Emperor Bunton.
Colorados currently proposed assessment changes.
https://leg.colorado.gov/bills/hb23-1054
National related article on the matter of state property assessment caps from a few years ago. Research Keywords; state by state assessment cap rules (I just picked a top one, there are hundreds of such articles all with different flavors from activism to simply indexing rules and tracking their changes over time.) (Scroll all the way to an end for a simple state index in this article.)
https://www.cbpp.org/research/state-budget-and-tax/state-limits-on-property-taxes-hamstring-local-services-and-should-be
“Property tax limits also have expanded racial income gaps by providing disproportionate savings to white homeowners, who are more likely than African Americans or Latinos to own expensive homes, in part because past government policies segregated people of color in lower-value areas. And limits have created other problems as well, some of them unintended.”
Well, I guess that means everyone whom supports replacing appraisers with AVM utilities are racists for promoting the white patriarchy, as AVM’s may very well rely on disproportionately unfairly derived property assessment techniques and local jurisdictional rules formed around the assessment rules, which may very well hail back one or two full centuries. Which such local assessment related regulations may have never been adequately updated and are unlikely to be given any serious reform attention anytime soon. Still, this AVM cert program reads better than catching the appraiser performing secret racist rituals in your basement when you thought we were just measuring walls and stuff. It’s always better to be on the safe side.
Two can play this game. I hope you are saving, it is TAF’s firm commitment to remove you from your ability to protect the general public from predatory lenders as a licensed appraiser, by way of implementing the PAREA and AVM certification programs. They know you sleep with a celtic cross and something must be done to rectify this situation of your inherent inseparable and insufferable white bias. Price tag for your deferment; $750k every single year, payable directly to Mr Bunton.
Professional on-site subject property tours should be required for ALL appraisals. I do litigation work. I remember one property in particular. The house sat back probably 200-300 feet from the road but was adequately visible – no obstructions. A previous appraiser did a drive by. The lender was getting the house back and had me appraise it. This house was like a Hollywood movie façade. From the road it looked okay, but walk behind the front and the house is much smaller than the front façade. it was in terrible condition, mostly unfinished, all plumbing was exposed and above the slab foundation, and on and on. The HABU was land value less the cost to raze/remove/site prepped. AVM’s were not available back then, but would love to see how automated incompetence would value this property.
In addition to viewing aerials and etc., driving by all comps should be required, as well as driving around the surrounding area. Over the decades, this has been well worth the extra effort. Examples of findings: drainage issues (even though not in floodplain or identified as wetlands); a multiple million dollar horse farm next to a very deteriorated trailer park; nearby industrial uses with odor issues (latest being the awful smell of cannibus); high voltage power lines; underground natural gas lines; frontage on a choked out lake; dangerously steep driveways; next to a clothing optional campground; odorous pig farms (I have nothing against pig farms, but a buyer may be pleased to know this factor); next to or close to an EPA Superfund site; and pictures can lie by making something look worse or better than say MLS photo(s). You are lazily shorting the lender/client/borrower by not doing this important part of the appraisal process. If you don’t do these things and more – what the heck good are you and what exactly do you do. And AVM’s, at least for my unique area are usually worthless and misleading (isn’t that an ethics violation?). What about the competency clause as it relates to AVM’s? Make AVM’s conform to USPAP and have the AVM sign off on appraisals and assume all liabilities.
Jack was refinancing his home with the VA, I made an appointment, and arrived midday. jacks house was tenant occupied and had a huge crop overgrowing the back door.
I asked a friend with the lender a very conservative S&L to harvest before I took Photos.
Another Jack was refinancing his personal home, I made an appointment and arrived meeting jack in the driveway. Nice home in an area of big lots this one had an orchard and a swimming pool. The house and pool were separated from the orchard by a 6′ high fence. Jack had warned me that his DOG in the orchard area had RABIES and was dangerous. As I was inspecting this back yard and pool area, I stepped up on a chair to see the roof and inadvertently the orchard.
The dog obviously named Mary-jane was bright green and well kept, trimmed and fertilized and six foot tall.
I began giggling so much I almost fell of the chair.
I reported Maryjane in the 1004 format and the lender didn’t seem too care. The Owner was pissed.
We ain’t the Cops.
In Los Angeles, California tax assessor offices only show the front house for old homes. I always have to ask the owner and look at Google maps to see what’s actually there so I know what to expect when I arrive. The public data is always inaccurate for all property. Some AVMs will use the MLS size if there is no public record size. Here in LA most agents lie about size on the MLS. This makes AVM values way off from true market value.
I tested some AVMs. Zillow will continue to search wider and wider until it finds recent comps based on size. They end up using comps in a totally different neighborhood like the Marin City, CA lawsuit. That was probably a reason why the second appraiser thought it might be okay to use comps miles away in the Mill Valley neighborhood which sells for twice as much as Marin City.
AVMs don’t know condition, upgrades, actual size, permitted size, layout, real bed/bath count, view, lot type, specific location in a neighborhood (next to strip club, school, industrial, power lines, water tower)… AVMs only know a possible size, possible bed/bath count, possible lot size in sf, possible age. That’s not legally enough data for a credible appraisal or valuation. The valuations could easily be off 50-100% of market value.
AVMs appraise homes in poor condition in inferior specific locations with inferior lot types…for more than market value.They appraise homes in above average condition with upgrades, views on superior lots … for less than market value. Any idiot can see the lender risk appraising properties for more than market value. Sometimes the home doesn’t even exist anymore. Great loophole for real estate scams and losses. This is not something we should be doing today in light of the real estate market and economy or we could revisit the Great Recession.
Excellent insight Mary, thank you. Mike Ford when he used to post here more often would tell us stories about how CA age of home recognition and subsequent assessors reporting worked, alongside various grandfathered allowances and such. He said in some areas they’ll leave a single wall standing, demolish the rest, build grand new structures, and still benefit from having an official assessment record or a 50 year old home, something like that.
You’ve put in so much work towards protecting the rest of us from these false accusations and impropriety floating around. Thank you so much for your dedicated efforts. Do you think there is any merit to the idea that some public interest clause could create compelling reason to unseal discovery information pertaining to the appraisers are racist accusations, for public review? These events really are effecting this entire countries regulatory structures and attitudes towards the validity of the appraisal profession, which in turn may effect every single citizen in this country in terms of their access and ability to engage the GSE’s for mortgage lending. The pursuit of the American Dream of home ownership, as the pundits often so hollowly proclaim, in between cutting back room deals with every special interest group seeking further monetization. Toss up a task force to distract the masses.
It would just seem to make more sense that for publicized cased pertaining to accusations of systemic industry wide racism which has entire population segments in a stir, stories that have headlined around the world literally, we’d get at least one solid proof point either way, eventually. It remains quite the mystery, how this racist epidemic only affects appraisers and nobody else in the sale or mortgage lending arena. The lack of such verifiable evidence seems to do more to validate the hypotheses that our own representative appraisal groups are working against us, and against the best interests of the American people at large, at the behest of predatory lending interests or some other non profit they appear to have partnered up with. Or perhaps to gain social points jumping on the virtue signaling bandwagon. Or if you feel there is a more rational conclusion, please detail. I will never be able to personally reconcile the notion that the head of our premier organization which calls the shots, The Appraisal Foundation, is not even a qualified appraiser, unrestrained by the same ethical guidelines like the rest of us. What are we missing here?
https://www.publicjustice.net/comes-sealing-court-records-presumption-public-access-requires-just-say-no/
I’m going to play ameture hour pretend legally competent here; Are the records sealed due to umbrella arrangements, and too late to dispute the confidentiality? Or perhaps someone could simply write the judge a compelling public interest reason. Like perhaps, a series of accusations of systemic appraiser racism which made headlines around the world and are currently being used to retool the entire lending industry, which will in turn deny hundreds of millions of americans the important due process which is the independent valuation opinion from a qualified licensed human appraiser, an essential check and balance in the GSE lending systems which the public has a compelling interest regarding? These appraisers are racists accusations and subsequent cases are without a doubt; cases of the public interest, clearly already in the public sphere of awareness and common conversation. Can this group or other groups like them be called in to assist? Just brainstorming. I’d better get back to work, thanks.
https://www.appraisalfoundation.org/imis/TAF/About_Us/TAF/About_Us.aspx
So AVMs in lieu of an appraisal will have a better chance of meeting the lender LTV requirements when in need of significant repair.
I am very happy that Zillow and all the other AVM’s stink. Thats what keeps us in business and most educated homeowners know the difference. Just look at the so called comps Zillow utilizes below each listing. Do those home look like the subject? Most of the time, nope.
Zillow has a broad array of helpful tools. They are also somewhat of an open source concept, relying on community feedback and community data assistance. This results in easy avenues for people to push redundant duplicate examples, double list their rentals in geotagged locations which are not really where the property lies, and even push fictitious sales examples which appear in no other online location except zillow. I had a savvy migrant dude try to use an ROV process with the lender to reconsider value based on a zillow sales example which magically appeared online the day after my appraisal was likely sent to him. I’ve used the pro tools feedback form there about half the time I dip into zillow for easy rental research, because I’m tired of reviewing the same property twice with different geo tags and subtle listing differences so some slimbag slumlord can double post his listings to get more online exposure, testing near duplicate listings to see if people may bite the hook that costs more monthly rent. There is associated straight fiction listings too in order to pump up the percieved going rate. Zillows over head bubble views and multi color coded tools are nifty to use but I’ll prefer rent dot com or those type of sites first if I have adequate access and data. You know Zillow is just scraping a lot of their data to form their apparently more robust data systems right? And they don’t always copy it correctly. Zillow’s primary shortcoming is their apparent willingness to post combined gla and compare based on combined total gla, even though there is a clear price and value difference for agla vs total gla which includes true fully below ground basements or other ancillary structure. These systems can’t even begin to deal with water shares, changing zoning, code violations, eminent domain, external obsolescence, or valid effective age estimates. You know why zillow gets more clicks than the next site; Higher numbers!
I’ve also had multiple conversations with knowledgeable realty agents about their own internal avm utility tools, of which there is an ever expanding choice set. (Because every wanna be with coding experience can make one, it’s not that difficult to scrape readily available assessors data feeds and program simple additional analysis and clever presentation peramiters in.) The sales agents provide even greater insight; Many of the avm’s are more focused on constant contact and customer retention than actual valid market numbers. Some agents have argued for their entire firm to drop some of the realty specific avm’s which tout all this high reliability, because as they stated; They grew weary of having to explain to customers why their own internal systems figures were misleading and not entirely accurate. Agents will say things like it was a tough call because we were taking in more leads, but had less over all customer retention. There are a hundred ancillary functions of an amc, all of which are considered a more important priority for the software developers in order to capture a customer and subscriber base in the first place, all of which are considered more important than the validity of the ‘value conclusion’ the avm presents. The name avm has become a misnomer in this regard. Automatic Valuation Model. But it’s really only a valuation estimate utility which primarily is more of a marketing tool than a reliable algorithm capable of adjusting and adapting to the real world moving target which is residential housing. Even Zillow folded to this approach, which is why the site is full of agent references and thousands of agents nationwide pay for zillow leads.
The geniuses at the TAF, PAVE task force, and amc industry, all working to form an ‘AVM certification program’ which will be supposedly equivalent to a human appraiser are going to be delineating non qualified stale data for the rest of their lives and will never ever actually get it right. Sometimes I wish that Jeremy Bagott would have never busted out on the scene with so much rich disclosure behind the curtain. To finally grasp all these years later why the heads of the appraisal industry do not actually care to represent the entire nation of appraisers whom are under them, because they’re not restrained by licensing and are in the pockets of big lender and special interest industries surrounding lenders, it’s pretty disappointing. Even more so that now the disclosure is clear, nobody actually does anything about it. What are all the appraisal groups actually doing other than leeching some teet in a dark corner? Where are the applied checks and balances with this much government spending abuse? I have only met a handful of appraisers whom appear to actually care about the core principals of ethic and consumer protection. The rest of them appear to be just in it for the easy ride and egotism of the position. Is it too early in the day to have a twister?
https://twitter.com/jbagott
“You know why zillow gets more clicks than the next site; Higher numbers!”
If lenders pick the AVM to use which do you think they will choose if they are not a hard money lender…the more credible…or the one with higher numbers.
I agree that I’m happy they stink from a purely selfish standpoint. I hate that they stink since they are going to be relied upon for lending decisions and the public gets hosed by it. Many times I’ll see ‘comps’ ranging from $400k-500k and the Zestimate is $750k or something way outside the range.
One key to understanding why Fannie is doing this would be to find who they will blame when the homes with appraiser waivers start to miss payments and default. In other words where their protection? With a full appraisal they can blame appraisers.
They can still blame appraisers as they get bailed out.
Tell me why there is any glimmer of faith/trust in the policies of an entity that, historically, has had numerous failed “bright ideas”, paid huge employment bonuses in the financial collapse, and a track record of mismanagement, so severe, that it has been in receivership for over 10 years?
FNMA & FHLMC have been in receivership for 15 years (2008) and have 5 more years left before it ends.
Public record characteristics in San Diego only includes the following. Square Feet, Br, Ba, Garage (no sf), lot size, pool and an effective year built (no actual year). Of note, the word pool applies to in-ground spas only, basic traditional pools, and exotic style pools (its a mystery). Additionally, there are NO photos to view. All other categories shown below and not shown are always blank in public records. See below.
Related to a local single source public records file search (say via MLS), the public and by default AVM’s don’t know the following.
PUD/Project name, HOA fees, view, zoning classification / description / compliance /, public/private utilities (included or not included in HOA fees), solar, attached or detached design, number of stories, floor location, common area features, if there is heat, if there is AC, if there is a fireplace, decks, patios, porch, balcony, other parking, basements, ADU’s, guest house, etc., etc., etc.
PROPERTY CHARACTERISTICS: BUILDING
Type Single Family Residential Condition Units
Effective Year Built 1947 Stories
BRs
3
Baths 2 F H Rooms
Total Sq. Ft.
2,354
Building Square Feet (Living Space) Building Square Feet (Other)
– CONSTRUCTION
Quality Roof Framing
Shape Roof Cover Deck
Partitions Cabinet Millwork
Common Wall Floor Finish
Foundation Interior Finish
Floor System Air Conditioning
Exterior Wall Heat Type
Structural Framing Bathroom Tile
Fireplace Plumbing Fixtures
– OTHER
Occupancy Building Data Source
Opener
PROPERTY CHARACTERISTICS: EXTRA FEATURES
Feature Size or Description Year Built Condition
Garage 2 CAR
Pool
Opener
PROPERTY CHARACTERISTICS: LOT
Land Use Single Family Residential Lot Dimensions
Block/Lot /1094 Lot Square Feet 18,300
Latitude/Longitude 32.763279°/-117.091610° Acreage 0.42
Limited garbage in, equals less reliable garbage out.
Seek the truth.
The other day I pulled a sale within the local MLS with 3,100 sq ft. Turned out to have 2,100 sq ft above and 1,000 partially finished basement.
The mls said fully finished but I could see the photos. The mls also said there was a storage building, garage, and shop. There was only a little outbuilding. (I do understand why this is done but comments explaining what is actually there would be helpful)
The tax records had nothing at all on the basement. Nothing. Only the above grade. Also had bath count wrong. I searched everywhere online and never before has the basement been mentioned in the dwelling’s 60+ years.
This is nothing new and more common than not in my area. This is why it takes me so long to write a report.
When we import information from the local MLS and tax records, if we did not investigate and verify, our reports would be trash.
I’m wondering if an AVM will be able to sort it all out.
In response to Jen;
Yeah, when it turns out you are possibly the first and only person to have done their job and reported a property accurately, over a period likely as long as you’ve been alive.
If lenders adopt an avm methodology as their preferred method, they’ll also need to take up additional duties, like hiring full time people to constantly track down assessment records to ask for their correction, verification. Yet, how would that happen without the appraiser to properly inform them and verify a discrepancy in the first place? And why haven’t lenders been pro active in assisting buyers and borrowers from getting their assessment records corrected over the past 50 or so years when appraisers clearly informed there was data variance, and lenders even grilled us for revisions and clarifications? When some low level underwriter makes a big deal about data verification or permitted improvement or whatever, but mysteriously nobody else cares that glaring omission is still present on the real properties permanent assessment record. Sort of goes right along with the ANSI mandate, purposeful obscurification of existing data just buys the lender that much more wiggle room to possibly manipulate or mis interpret data to make those loans happen. Some agent told me today, as we were talking about the cost of point buy downs and speculating how many points do these $25k concessions I’m seeing really buy down, he was saying they’re seeing point buy downs that expire after so many years. So basically, adjustable rate loans are back. I’m also getting near daily non qm solicitations; No job, stated income only, foreign national, up to 100% ltv cash outs, need maximum rental credit applied towards qualification, up to two million cash out; No Problem!
The government cares about your financial security. And other hilarious jokes you can tell yourself.
Real Estate economies run in cycles. I was hired as a helper for measuring, researching and cleaning the back room in sept 1961. That was a period of recovery from the 1959 failures. A big change was about. My new firm was on the V.A. panel and had just refused the F.H.A. fee schedule.
We researched at the assessors and recorder’s office, had in-house maps and then scheduled the inspection. once in a while the property was un-improved as a vacant lot or had a converted chicken coop, revealing that the government was not the only one fooled. Lenders are being fooled to day sixty years later and my bosses had just refused to appraise an FHA for $20.00.
We tried to measure 10 a day interview agent and write them up within the week.
Guess what their first data point is!!!
Census tract!!!!!! How racist can you get????
I have NEVER searched for data by census tract. The GSEs require us to report them!
Norton AFB was its own census tract number. The only private citizens were dogs and cats.
Things change and large agencies don’t keep up.
Appraisers use telephone numbers of connections for stability in recreational neighborhoods. We all should read the whole report.
How do we do it know with all the telephone computers??
https://www.realestatenews.com/2023/02/23/opendoor-posts-usd399m-loss-in-q4-but-sees-growth-ahead
I keep seeing Open Door losses when I’m looking at property records. If we’re able to sell, I’m calling OpenDoor for an over market value based strictly on avm’s and not appraisers. What a deal.
However, now that they’re partnering with zillow, guess who’s going to have a new motivation to provide artificially lower, rather than artificially higher housing prices… Playing the residential housing like stock markets. Drive this down, buy. Drive that up, sell. Repeat. American consumers will have no control while lenders automated ‘modernized’ programs will just steer everyone into something which benefits these partner corporations. Individual representation and actual free markets is being scooted out in favor of central control and central planners. You know, for the benefit of consumer convenience and such so they don’t get sacked with appraisal fees.