I agree. But then again Zillow isn’t claiming that they are doing appraisals. Granted, people may perceive that it’s an appraisal, but the reality is, it’s a rough *estimate* based on public data.

The BIG AVM Lie

Automated Valuation Models (AVMs)

Many lenders, including Fannie Mae, Freddie Mac, Wells Fargo, Countrywide and Washington Mutual made very risky decisions several years back to utilize computer generated appraisals (known as AVMs) instead of licensed real estate appraisers.

This extraordinary “Risk taking” by lenders in the name of greed nationwide is now beginning to cause problems in the bond markets because of the extraordinary risk of backing mortgages when nobody ever even looked at the property (homes and property) being financed. The subprime market meltdown due mostly to their Liar! Liar! loans (no income verification) is yet another clear indication of Lender irresponsibility and greed.

Lenders nationwide were warned in the spring of 2004, that when they use anything less than a full, traditional appraisal in housing markets where values are soft, they could be penalized on Wall Street.

Fitch Ratings, one of the major risk-assessment firms for the global bond market, believes that anything less than what it calls “the full monty” — an on-site, exterior and interior professional appraisal — is likely to overstate the true worth of the property if it’s located in any of dozens of slowly appreciating markets around the country.

Fitch plans to impose a 10 to 15 percent “haircut,” or devaluation, of the homes backing mortgages in bond pools if they are in soft real estate markets and did not get traditional full appraisals. That rules out all the quicker and less costly valuation alternatives in wide use, including online database “automated valuation models” (AVMs), broker price opinions, desk reviews, tax assessments and drive-bys.

Bond investors — those who buy into the giant mortgage pools that fund much of the U.S. home loan market — care deeply about accurate property valuations. That’s because when borrowers default and go into foreclosure, investors lose more when the appraisal used by the lender inflated the property’s true value.

These AVMs are similar to those you pay $10-$20 for on YaHoo or at some other company sites. They were known as neural logic or “fuzzy logic” when they were used on the stock market in the mid 90’s. They failed there miserably.

Like neural logic programs of the past, AVMs which the banks are now using are also failing miserably. These computer programs begin their “appraisal” by blindly generating an appraised value for a home with very faulty data. This computer “analysis” is based on multiple regression analysis with a large amount of the most pertinent variables, including your homes actual condition, its actual verified size, and your location removed from their equation. Only after AVMs find the appraised value do they begin searching to find what they consider likely comparables.

The reason the banks are doing this is not to save you money–but to increase their own bottom line (they collect the fee). This also allows the lender to “fudge” these computer generated home valuations, because no 3rd party (like an appraiser) is now watching them. When a mortgage company is involved, our experience as state licensed appraisers is that a large percentage (not all) of loan officers will do anything it takes to “push a loan” just to collect their own commission. This is not always in your best interest! Suppose you owe much more than your home is worth, and the real estate market takes a down turn; you may soon find yourself filing bankruptcy if you had to sell your home. Relying on these AVMs to give you a value prior to selling your home could very well cost you $10,000-$100,000 in lost equity. It has happened to many people.

Read more about AVMs here: http://appraisercentral.com/AVM.htm

Just like the supermarket. When you are picking out fruit or corn for your own consumption.

You are carefully looking at each piece to insure that you are getting value and quality for your money. The longer the banana
sits there, the less value is has.

This can not be achieved electronicly! You can not compare apples with oranges.

Respectfully,

Michael A. Jones, GRI, NRBA
Member of the National REO Brokers Association