An appraisal is a judgement of value (says Webster’s Dictionary), thus a major limiting factor is the judgement of the person performing the appraisal.
This week’s news about the lawsuit against EAppraiseIt.com and the bills in Congress to set standards for appraisers nationally has brought up the questions of “Who does these appraisals?, Who benefited from the accuracy (or inaccuracy)? How were they performed? For what purpose? The answers might affect our confidence as investors, as buyers, sellers and borrowers.
The lawsuits and new bills in Congressional committees seem to be most concerned about investors in securitized mortgages (mortgage backed securites are currently out of favor with the stock market) and investors in banking institutions. They do not seem to be concerned with the ordinary homebuyer or mortgage borrower.
The Appraisal Institute, the trade organization for professional appraisers, describes itself as an organization with 22,000 members. The members appraise residential, commercial, retail, farms, office buildings, land, etc. As professionals, they earn professional fees for often complex appraisals.
Were professional appraisers used for the appraisals in the EAppraiseIT lawsuit? Or was money saved by not always demanding the full professional appraisal? What standards were used for the 262,000 appraisals in the lawsuit? What type of appraisal does your bank, online lender, mortgage broker, etc. use when evaluating the loan for your purchase?
Sometimes the lenders decide not to perform a full fledged appraisal and authorize a Broker Price Opinion instead. Several companies are in this business, utilizing a computer driven model and a licensed real estate agent (or their assistant) to determine market value. Are there safeguards in place to evaluate the qualifications of the evaluators or just the final products? Some of the answers will come to light in the lawsuits.
And then there is Zillow. It provides a “zestimate” of a home value anywhere in the United States. Although disclaimers state that their figures might be off by as much as 45%, some ignore the disclaimers. It is a well advertised consumer site, and is often visited. The main problem is that the sources of its data are sometimes outdated or inaccurate. (Although some of the same sources are used as a basis of the Broker Price Opinion, BPOs usually have a real person verifying them). As time goes on Zillow will have more updates and verifications and will improve.
In my opinion, competence counts! When you depend on information to make an important decision, in this case, financial, look to the people (or entity) that provide it when you decide how much risk is at stake. It appears that New York, investors, and our Congress are taking a better look.
