VALUE ADDED As a Practical Matter, Can Appraisers Compete With Automated Valuation Models?
Guest Post: The author, Edd Gillespie, is a Certified General Appraiser from Pueblo, CO that specializes in litigation support, 1031 exchanges, estate appraisals, and commercial mortgage work.
Does USPAP Standards Rule SR 1-4 Actually Define Appraising? USPAP Standards Rule SR 1-4 lays out the required process to develop the appraisal. “In developing a real property appraisal, an appraiser MUST collect, verify, and analyze ALL information necessary for credible assignment results.”
Last week the Fifth Circuit Court of Appeals breathed life back into HAROLD H. HUGGINS v. FNC, Inc. [Download OPINION_FNC_Case-Opinion_24Feb2011] where the issue is about FNC, Inc. opening appraisal reports delivered via FNC’s AppraisalPort and then incorporating the data and conclusions into FNC’s National Collateral Database. The objective being to compete with appraisers. The appraisers’ attorney highlighted what it is that appraisers bring to the process of appraising that Automated Valuation Models (AVM) do not. He said appraisers bring “… experience and judgment to bear on providing services no database can replicate: inspecting the premises, reporting on recent renovations, identifying damage, and verifying the continued accuracy of existing information.” I think he nailed the very essence of USPAP compliant appraising that AVMs will never duplicate.
The attorney’s comment had currency with the court, but where does what he said fit into USPAP? To comply with USPAP Standards Rule SR 1-4 real property appraisers “…MUST collect, verify, and analyze ALL information necessary…”
Three of the things the attorney told the court has to do with collecting information, “inspecting the premises, reporting on recent renovations, identifying damage.”
Appraisers say they are often criticized by home owners for not spending enough time in inspection, and residential appraisers often respond that they are NOT home inspectors. But, if the information that could be collected in an in-depth inspection is relevant to value, then where is an appraiser going to get it if he or she doesn’t get it through personal inspection?
The HUGGINS attorney also said the appraiser’s significance is in, “…verifying the continued accuracy of existing information.” Even though USPAP recognizes quality, credibility and misleading in appraising it gives us no instruction about the process of verification.
Some appraisers report that verification can be accomplished efficiently by comparing the information contained in different data bases, for example; the public record and MLS or Realist and Realquest. But, can’t an AVM easily be programmed to compare data bases and be in compliance to some extent with USPAP?
On the other end of the spectrum are appraisers who maintain that verification should come from a person who is personally familiar with the property and transaction. This depth of verification has logistical obstacles and objectivity issues, but assuming some of those can be overcome it is a technique that AVMs will never use and remain fast and inexpensive.
An appraiser who does not have a complete picture of condition or is analyzing unverified information is in exactly the same position as an AVM. Neither the AVM nor the appraiser who skips inspection or verification advertises their shortcomings, but the AVM doesn’t have to be USPAP compliant and the appraiser does.
What do YOU think?!
- Should appraisers who can’t afford to be USPAP compliant quit appraising?
- Should AVMs and other “valuation” products be USPAP compliant?
- How can appraisers do what they are required to do by USPAP and compete with the speed and price of AVMs?
- Why should clients pay more for an appraisal than for an AVM that does the same thing?
- What do you think the difference is between what an AVM does and residential appraisers who compete with them are doing?
- Do you agree that an USPAP compliant appraisal requires in depth property inspection If you completed the in-depth inspection and verification implied by the HUGGINS attorney, how much time would it consume and what would you charge?
- Should USPAP be amended to eliminate the stringent requirements of USPAP Standards Rule SR 1-4?
- Should appraisal inspections be on a par with those of a home inspector? Should appraisers be better trained to collect and verify necessary information?
Prior Article - Similar Topic: You Want It WHEN!? - How Long Does it Take To Complete An Appraisal?