Mary Cummins, Real Estate Appraiser, Real Estate Appraisal, Los Angeles, California, Mary Cummins.

Mary Cummins is a real estate appraiser in Los Angeles, California with 38+ years of experience. Cummins provides real estate appraisals for banks, lenders, mortgage brokers, Appraisal Management Companies (AMCs), lawyers, Courts, factors and private parties for lending, lawsuits, probate, estate planning, divorce and all types of litigation. Cummins provides 1004, 1073, 1025 and other form reports, narrative reports and historical appraisals besides real estate research and appraisal advice.

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Saturday, June 28, 2025

HUD Slashes Appraisal Requirements by Mary Cummins Real Estate Appraiser

June 27, 2025 HUD Secretary Scott Turner released the below press release entitled "HUD Slashes Red Tape to Homeownership Financing Costs." Some of that red tape is related to home appraisals which made some appraisers happy. The press release linked below links to the June 27, 2025 Mortgage Letter which details the rescission of the appraisal requirements, i.e. "Rescission of Outdated and Costly FHA Appraisal Protocols." Some of these changes would disrupt the home loan markets. Below are a few of the changes.

This was crossed out. ~~(I) Economic Life/Section 223(e)The Mortgagee must confirm that the term of the Mortgage is less than or equal to the~~ ~~remaining economic life of the Property.~~ Appraiser not longer has to include economic remaining life. This could be an issue if the loan is 30 years but remaining economic life of property is less than 30 years. This happens with some older homes in average condition not to mention older mobile homes. Older mobile homes generally can't get loans for this reason. I could see people walking from loans when they're underwater just like during the Great Recession.

FHA Minimum Photograph Requirements.

Only front and rear photos are needed. No more angled photos to show all four sides. Sometimes you really need to see all four sides. People generally don't repair the sides as much as the front. I always include photos of the sides whether they ask for them or not. It takes maybe five more seconds.

The street scene no longer has to include a portion of the subject. Then the street scene could be from anywhere and not subject's street. It doesn't take any extra time or effort to include a tiny portion of the subject on the side of the street scene. This doesn't save any time.

Attic and crawl space photos no longer needed. Sure hope someone inspects the attic and crawl space which can hide a lot of expensive damage and problems such as water damage, mold, roof issues, previous fires, original pipes, foundation issues... I've been in attics where I saw holes going to the outside, sagging roof supports, lack of insulation, burn marks, mold, mildew...that weren't caught in any inspection. While it's a hassle carrying a ladder to look in the attic I think it could be important. A head and shoulder view is all that's needed so you could use a stick to prop up panel and use selfie stick to take the photo. If it's no longer needed, I'm sure they'll reduce appraiser fee so while it may be less work, there will probably be less pay.

Photos of common areas of 2-4 units no longer have to be included. Photos of condo common areas also no longer needed. I've seen a lot of 2-4 units and condos with major deferred maintenance in the common areas. This could have a large effect on value especially considering the recent major condo issues with huge special assessments, inadequate insurance and zero replacement budgets. It only takes a few minutes to take common area photos.

Appraiser no longer has to comment on upward or downward future market trends in detail. This will be horrible if we head into another real estate recession like the Great Recession. The 1004MC form, also known as the Market Conditions Addendum, was introduced by Fannie Mae in November 2008 and became a requirement for all one- to four-unit property appraisals delivered to Fannie Mae and Freddie Mac starting April 1, 2009. It was created in response to the 2008 housing crisis to standardize the analysis and reporting of market conditions by appraisers. As it is it's not mandatory with many loans. I still use it to figure out general time adjustments besides AI.

This was crossed out. ~~Additional Appraisal Requirements for 223(e) Mortgages (09/14/2015)~~ "223(e)" refers to a section of the National Housing Act that allows for the insurance of mortgages in older, declining urban areas where there is a need for affordable housing. This section specifically facilitates the purchase, repair, rehabilitation, or construction of properties in these designated areas." Many can't get these loans for good reason. The cost to repair the home is more than the final value of the home. It's not a good investment for the government. The borrowers could end up under water and walk then we have another real estate recession. This has happened before.

This next part could be very problematic as it could allow construction in some flood zones. This will be a huge issue as the government unwinds FEMA and climate change increases. This is a big issue in Florida, Texas, the south. It has to do with building above the high tide line which has been rising for years. People shouldn't build in those areas because they will lose their home in the next storm and now FEMA won't even help them. Many areas in Florida are at risk of losing their roads and highways to sea level rise and storms.

"Rescinded the Federal Flood Risk Management Standard (FFRMS) for New Construction Eligibility. Rescinding the FFRMS restores the previous established policy, thus removing what would have been limits on the land available for development and eliminating increases in the cost of construction for FHA-insured single-family properties, which would have exacerbated the insufficient supply of affordable housing for the next generation of homebuyers."

Here's another troubling change. "Rescinded the Mandatory Pre-Endorsement Inspection Requirements for Properties Located in Presidentially-Declared Major Disaster Areas. Modifying FHA disaster inspection requirements aligns FHA’s policies with industry standards and allows lenders the discretion to assess property condition and determine appropriate risk-based actions prior to endorsement. This update reduces costly and unnecessary delays and will improve the bandwidth of home property inspectors that are often overwhelmed following a natural disaster."

I remember the 1994 earthquake in LA. I had inspections scheduled but no phone to contact clients to see if I should change the appts. My first two appointments were totaled by the earthquake. I later had to do reinspections for properties in the middle of financing to make sure they weren't damaged. Most were damaged. Not only that but values plummeted after the earthquake. Why would the government want to give the same loan amount to a property which is probably greatly devalued or worth almost nothing? The government has to bail out the loans and banks.

From the same press release, "During the first Trump Administration, HUD made targeted technology investments through FHA Catalyst that have substantially improved FHA’s collateral valuation analytics. As a result, FHA is now able to extend the benefit of these investments to borrowers, lenders, and taxpayers in the form of streamlined appraisal procedures, lower costs, and quicker turn times."

FHA Catalyst and AVMs: The FHA Catalyst system, which HUD has invested in, is a platform designed to modernize the FHA program by facilitating the electronic submission and processing of appraisals. It has also improved FHA's collateral valuation analytics, which suggests a role for AVMs within the FHA program.

The increased use of AVMs could be problematic as we all know how deeply flawed AVMs can be. The borrowers who will agree to an AVM value will have older homes in less than average condition without upgrades, views and in less than desirable locations in a neighborhood. These homes would receive a higher AVM value than market value by a live appraiser. Borrowers with fully upgraded, remodeled home on prime lots with prime views would get a lower AVM value and probably get a loan elsewhere. This means most AVM loans could be under collateralized. The resultant loans would be riskier for the government and investors not to mention the stock market.

I see some red flag issues with these recent HUD changes. They will reduce the confidence in real estate appraisal valuations, home loans and the real estate market in general. It will also upset asset backed securities markets and the stock market. Lenders, banks will make a lot more money at the expense of the homeowner and US tax payer. Similar loosening of regulations and changes were made before the Great Recession which is what caused the Great Recession. History has a tendency to repeat itself. We don't seem to learn.

While HUD can make administrative changes on its own sometimes they need the approval of Congress to make major changes in housing programs and funding. Maybe there should be some oversight on these changes such as the Finance Committee. In this new era of the government making executive orders without any approvals, oversight or even investigation this will probably stand as is.

"HUD Slashes Red Tape to Cut Homeownership Financing Costs

FHA eliminates 12 costly and burdensome policies in sweeping rollback"

https://www.hud.gov/news/hud-no-25-086

"Rescission of Outdated and Costly FHA Appraisal Protocols"
https://www.hud.gov/sites/dfiles/OCHCO/documents/2025-18hsgml.pdf

Marhttps://www.hud.gov/sites/dfiles/OCHCO/documents/2025-18hsgml.pdfy Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.

Mary Cummins, Mary K. Cummins, Mary Katherine Cummins, Mary, Cummins, #marycummins #animaladvocates #losangeles #california #wildlife #wildliferehabilitation #wildliferehabilitator #realestate #realestateappraiser #realestateappraisal #lawsuit real estate, appraiser, appraisal, instructor, teacher, Los Angeles, Santa Monica, Beverly Hills, Pasadena, Brentwood, Bel Air, California, licensed, permitted, certified, single family, condo, condominium, pud, hud, fannie mae, freddie mac, fha, uspap, certified, residential, certified resident, apartment building, multi-family, commercial, industrial, expert witness, civil, criminal, orea, dre, brea insurance, bonded, experienced, bilingual, spanish, english, form, 1004, 2055, 1073, land, raw, acreage, vacant, insurance, cost, income approach, market analysis, comparative, theory, appraisal theory, cost approach, sales, matched pairs, plot, plat, map, diagram, photo, photographs, photography, rear, front, street, subject, comparable, sold, listed, active, pending, expired, cancelled, listing, mls, multiple listing service, claw, themls, historical appraisal, facebook, linkedin

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Mary Cummins

Mary Cummins of Cummins Real Estate Services has been in real estate since 1983, over 35 years. She is licensed by the Bureau of Real Estate Appraisers. Mary Cummins was an agent and broker licensed with the California Department of Real Estate selling residential income, commercial buildings, raw land and homes for Merrill Lynch Realty in Beverly Hills and Westside Properties in Los Angeles before concentrating on appraisals. Mary Cummins currently provides real estate appraisals, expert witness testimony, historical research, legal real estate research for mortgage brokers, banks, lawyers, factors, insurance companies, financial consultants and private individuals. Mary Cummins was born and raised in Southern California. Cummins attended Beverly Hills Good Shepherd Catholic School and Beverly Hills High School. Besides being on the Dean's list, Mary Cummins was a top ten national swimmer and competed on the men's water polo team. Mary Cummins began college at the age of 15 attending the University of Southern California on scholarship, majoring in Psychology/Sociology. http://www.animaladvocates.us http://www.facebook.com/AnimalAdvocatesUSA

Saturday, June 7, 2025

How HUD Ended up Funding and Working for Private Nonprofit NFHA by Jeremy Bagott, Mary Cummins

Jeremy Bagott just wrote a great article about HUD, Zixta Martinez, the false narrative of the "racist appraiser" and the home loan industry. The article neatly assembles all the pieces of the racist agenda of Marcia Fudge and the National Fair Housing Alliance (NFHA). Fudge was clearly racist against non blacks, Latinos based on her many public statements which I've shared here. Fudge falsely stated all appraisers are racist white men who intentionally devalue the homes of blacks, Latinos reducing their wealth by $156B. Fudge used HUD funds to support NFHA who has the same racist agenda. Fudge also hired NFHA employees to work at HUD. The home loan industry took advantage of the false narrative to convince HUD that non appraiser valuations such as AVMs, value acceptance should be allowed and standard so they could make more money and control the values. All these entities worked together for their own agendas of racism and/or money.

"VENTURA, Calif. (June 6, 2025) – Hanlon’s Razor is a rule of thumb that encourages people to consider incompetence over malice to explain the actions of others. It states: “Never attribute to malice that which is adequately explained by stupidity.” The charitable spirit of Hanlon’s Razor is strained to the limit in the case of Zixta Q. Martinez.

Who is Zixta Q. Martinez? She is the deputy director of the now-skeletal Consumer Financial Protection Bureau. She was placed on administrative leave in February. Her job reportedly pays her $259,500 per year. But as wasteful as it sounds, paying her not to work is preferable to having her at her desk and engaged in divisive mischief. Her banishment couldn’t have come soon enough. She now needs to be cashiered. We can only hope she never again sees the inside of a government office.

The University of Texas-trained lawyer and activist Martinez is also chair of an obscure federal committee tasked with overseeing the way states license real property appraisers in federally backed mortgages.

While on the job, Martinez self-promoted and peddled a poisonous canard known as “appraiser bias.” The DEI-influenced theory holds that an appraiser of one racial group cannot properly appraise real estate owned by someone of a different racial group. The nation’s 70,000 state-licensed appraisers are a key check on the banks, nonbank lenders, homebuilders and Realtors. Conveniently, the housing lobby has attempted to cash in on this peculiar madness of our times, as they would like to be rid of appraisers. It has resulted in a weird partnership of convenience in which members of the housing lobby have joined hands with militants, like Martinez, who harbor contempt for free markets.

Together they have been working to delegitimize and sideline appraisers in federally backed transactions. These odd bedfellows promote the falsehood that appraisers, rather than socio-economic factors, are responsible for America’s racial wealth gap. This scapegoating is about shooting the messenger. It makes a mockery of actual efforts to narrow the racial wealth gap."

Rest of the article is here.

https://mailchi.mp/e175acd7f69f/not-gone-not-forgotten-who-is-zixta-q-martinez-10899579

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.

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Mary Cummins

Saturday, April 5, 2025

AEI Finds Waiver Bias in GSE Appraisals by Mary Cummins Real Estate Appraiser

Interesting new study out by American Enterprise Institute (AEI) shows appraisal waivers have more bias than human appraisers. They are more likely to hit the needed loan to value (LTV) target to qualify for lower refinance rates and approvals.

"Evidence of Potential Gaming of Appraisal Waivers: Waivers Demonstrate More Anchoring than Human Appraisals. It is well known that LTVs are heavily anchored to certain percentages. Anchoring is the use of a value that ones knows in order to make a decision or value estimate. In the case of refis, these anchor points interact with the applicant’s perception of home value and the refinance amount and any cash proposed to be extracted from the home."

Appraisers don't know the LTV target or needed refinance value. The borrower who estimates the value of their own home obviously does. The borrower with help from the lender submits an estimate of value when using appraisal waivers. Looks like confirmation bias to me. I think these waiver robots need to take a mandatory CE class on bias just like appraisers. That will surely fix the problem ;-)

Read the full study here. Lots of great stats and charts like the one above.

https://www.aei.org/research-products/report/prevalence-of-gse-appraisal-waivers/

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Mary Cummins

Friday, November 15, 2024

AVMs Are Not Accurate in Los Angeles County Because Not All Building Square Footage is Public by Mary Cummins Real Estate Appraiser

I was in a webinar last week with Jeff Prang the Los Angeles Property Assessor. https://mary--cummins.blogspot.com/2024/11/assessor-jeff-prang-speaks-at-appraisal.html I'm so happy that someone asked the following question.

7. Why aren't guest houses, pool houses in the assessor records?

Jeff Prang: "They are but they're not public or online. You have to go to the office to see them. You can look at the pictometry view in the assessor site to see the outline of buildings. We have records for patios, balconies, guest houses, pool houses."

My comment: In my experience they generally only show the first building on a property. Generally second units or homes that are added later are not in the records. I do see them sometimes by MLS sources that include size of all buildings on the site but not always. This is so important especially for 2-4 units, two homes on a lot or SFR with ADU/guest house. Many have assumed the buildings weren't permitted or legal for this reason. This means AVMs are extremely inaccurate for these properties with one building in front and say extra units, ADU, guest house in rear. You may only see 1/3 or 1/4 of the true size. An AVM would assume that only the front home exists and value it based on that size alone.

This is of course just one reason why AVMs are inaccurate. I've written a couple of articles about the problems with AVMs in this blog. Main issue is they don't know condition, whether it exists or not, true size, number legal permitted beds/baths, upgrades, amenities, lot type, specific location in a neighborhood, view... These factors can make an AVM vary from true market value by 100%. I've seen Zillow AVM values when the property burned down years ago. I've also seen Zillow values for an old home which was demolished and replaced with a new larger home or units. Public records don't get updated until a while after new construction and Certificate of Occupancy permit. Building and Safety has to send the permits to the county assessor who then adds it to the database.

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Mary Cummins

Tuesday, October 29, 2024

FHFA Allows Alternative Valuations with Higher LTV Ratios by Mary Cummins Real Estate Appraiser Los Angeles California

mary cummins, real estate appraiser, los angeles, california, real estate appraisal, fhfa, ltv, avm, appraisal, real estate,low income, poc, great recession, foreclosure

The Federal Housing Finance Agency FHFA has expanded the eligibility for alternative appraisal methods on purchase loans by increasing the allowable maximum loan-to-value (LTV) requirements. The maximum LTV ratios will increase from 80% to 90% for appraisal waivers and from 80% to 97% for inspection-based appraisal waivers.

“To be clear, the expanded eligibility of appraisal waivers does not constitute an expansion of a credit box, but rather it will allow more first-time home buyers, and particularly low- and moderate-income first-time homebuyers, to recognize the benefits associated with appraisal waivers,” Naa Awaa Tagoe, deputy director of the division of housing mission and goals at the FHFA, said on stage."

More purchase loans will not utilize a regular inspection appraisal by a licensed real estate appraiser. They will be using non-licensed non-appraiser property inspectors and AVMs Automated Valuation Methods similar to Zillow. This means lenders can use their AVMs, in house approval departments to get higher values so they can approve more loans so they can make more money. These loans will be riskier to new buyers, investors and the government. The housing industry players have been directly lobbying the government to do this for years now under the guise of helping lower income "save money" and fighting nonexistent "appraiser bias."

Never forget the Great Recession. Real estate prices were booming and fewer lower to mid-income, first time buyers could afford to buy a home. The people complained it was discrimination against lower income and POC. There is a correlation between lower income and POC. The correlation is based on socioeconomic factors and not race. There are also plenty of lower income non POC.

The government stepped in to "help" by lowering credit and loan requirements. More lower income first time buyers were then able to buy a home at the peak of the market for almost no money down. They had very little to no savings and were spending most of their income on home expenses. They were set up for failure by the government while lenders made lots of money. Lenders support relaxing requirements so more will qualify so they can make more money. Lenders lobby the government to reduce requirements while saying they just want to help poor people. This actually helps wealthy people at the expense of poor people just like payday loans.

The real estate bubble of course burst and those people ended up underwater. Low teaser rate loans adjusted, some had financial emergencies and they couldn't pay their sky high mortgage, insurance, property taxes and property maintenance. It was cheaper to rent than own. The real estate market collapsed and people lost their homes in foreclosure. They lost more than just the cost of the home due to associated costs and fees. The psychological effect on the families was devastating. Oddly enough the people and government blamed appraisers even though it was the fault of the government and the bubble bust real estate market driven by buyer demand. Appraisers just report the market. We don't set it.

Today we're in a similar though slightly different situation. We're in another real estate upswing caused by previous lower interest rates and severely restricted supply due to rate lock. Everyone wants to buy a home that will appreciate 50% like they have in the last few years. They are again complaining to the government that it's discrimination against lower income and POC because they can't afford to buy a home today.

People are blaming the government for the wealth gap which they say is mainly caused by the home ownership gap. The wealth gap is mainly caused by the income gap. Owning a home alone is not the cause of the wealth gap. You need to be able to first afford to buy and own a home by having higher income, more savings and good credit. Higher income, savings, good credit must come first otherwise you just saddle yourself with debt and higher monthly costs you can't afford. You'll lose your home if you have one financial emergency.

Government did the same thing with student loans. "If you get a college degree, you'll make more money. Here are loans so you can afford to go to college." You'll also end up with $100,000 high interest debt which make it impossible to pay bills, have children, start a business or save to own a home. The correlation between having a degree and higher income is related to first being able to afford to pay for and go to college. It's not the degree itself as many people have realized. Same with owning a home.

The government again responds by lowering loan requirements. Now you can put almost nothing down and get stuck with hefty mortgage payments, rising insurance costs, high property maintenance costs and rising property taxes at the top of the market. Property taxes, insurance increase as property value increases. Insurance costs are through the roof today due to natural disasters exacerbated by climate change. The appraisal waivers and use of value acceptance, AVMs make the loans even riskier for buyers and investors. It's even riskier today as we are at the peak of the market. Two to five years ago and it would have made a little sense. The government always reduces regulations at the peak of the market because of lack of affordability and politics.

AVMs will over value lower priced properties which are generally in inferior condition, inferior locations, smaller than average, have deferred maintenance, include buyer concessions for repairs/costs... These are the properties lower income people are buying because they can afford them because they cost less. The government is again setting these people up for failure. They always do this at the peak of the market.

I was screaming from the rooftops about this issue before the Great Recession. I'm now screaming from the mountain tops. Nothing will change. The government is hurting the people they claim they want to help.The election year campaign promises to get votes is making it worse. You know they will again blame real estate appraisers for a downswing even though we didn't appraise the properties that are most likely to be foreclosed. It's déjà vu all over again.

https://www.fhfa.gov/news/news-release/fhfa-announces-updates-to-enterprise-policies-on-appraisals-loan-repurchase-alternatives-and-pricing-notifications

November 1 Jeremy Bagott just wrote a good piece on this.

https://mailchi.mp/257006d81c5f/days-from-election-agencies-make-good-on-final-sop-to-housing-lobby-10896727

https://www.housingwire.com/articles/fhfa-to-allow-alternative-appraisal-methods-on-purchases-up-to-97-ltv/

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Mary Cummins

Thursday, August 3, 2023

AEI Response to PAVE Task Force AVM. Appraisers Are Not Racists and Don't Lowball Blacks, Latinos, comments by Mary Cummins

UPDATE 11/03/2023AEI proves once again that HUD, US Government lied about appraisers allegedly low-balling people of color. This is exactly what appraisers have been saying all along. "We find that seemingly large differences in the share of under-valuations–appraisals where the appraised value is below the contract price– received by people of color are almost entirely or entirely due to differences in geographies where people, regardless of race or ethnicity, reside. When comparing appraisals for people of color to those for non-Hispanic white people within the same census tract, we find that there are no or minimal differences.

This analysis suggests that commonalities in people’s experiences in buying a home (e.g. first-time home buyer status) or local market conditions (e.g. the presence of a market frenzy or seller concessions) are far more important than differences in people’s race or ethnicity when it comes to determining who receives an under-valuation and who does not. This suggests that studies by FHFA, Brookings, or Freddie Mac with their singular focus on appraiser racial bias have misdiagnosed the issue." #AEI #americanenterpriseinstitute #marycummins #realestateappraiser #realestateappraisal #HUD https://www.aei.org/research-products/report/confirming-alternative-explanations-for-appraisal-under-valuations-new-evidence-from-appraisal-level-data/

ORIGINAL: American Enterprise Institute (AEI) made some important independently researched statements in their comment letter about the PAVE Task Force, AVMs and real estate appraisers. It shows with verified facts the flaws in the research cited by PAVE. The research cited by PAVE was poorly done by the Urban Institute, Andre Perry then twisted to meet the agenda of UI, Perry. I have no issues with promoting the interests of black people. I'm Latino and promote the interests of Latinos, Blacks, Asians, women, lower income, homeless... I do have a problem with people falsifying research to promote an agenda with racist lies which hurt innocent people. Below are a few important issues raised in AEI's comment letter to the PAVE Task Force.

1. AEI stated First Time Buyers (FTBs) tend to overpay for properties. There are also more seller concessions. This would explain appraisals being at market value which is lower than contract price. I see this all the time because I appraise in these areas. It's not the result of biased, racist appraisers.

Urban Institute, HUD, PAVE stated that "racist old white male" appraisers were intentionally low balling blacks and Latinos. Their "proof" was a difference in contract price and appraisal values in census tract areas with more Blacks, Latinos. I'd commented at the time it was probably because there is a correlation between race and income. Whites make more money than blacks, Latinos. People who make more money have more money and buy more expensive homes in more expensive areas. Areas which are predominantly black, Latino are lower income areas with many first time buyers.

"The presence of first-time homebuyers (FTBs) or the use of seller concessions could affect the sale price relative to the AVM. Our analysis in “Exploring Alternative Explanations for Appraisal UnderValuation” shows a significantly higher share of FTBs in tracts with lower levels of non-Hispanic White residents. This is significant because the literature shows that FTBs tend to overbid for a home by approximately $3,000, or about 1% of the contract price for the average home compared to repeat buyers and that they use a higher share of seller concessions, which can amount to 2.01-3% of the property price."

2. The letter noted that homes in lower priced areas that are more likely to be predominantly black, Latino are generally in lower rated condition which would be C4, C5 rating as opposed to C3 and above. I see this every day in my inspections of these areas. Again, it has to do with money. The more money you have, the more you will spend to properly maintain and upgrade your home.

"Even though the paper controls for home quality as measured by an exterior condition rating, we found in other work that exterior condition ratings can be quite different from interior condition ones. We also found that home interior quality can be a significant factor in the difference between an AVM and a home’s sale price and that for a small number of properties with extreme conditions that difference was significant."

3. The letter also again stated that AEI found no effect of race on appraisal value.

"We have pointed out serious flaws in numerous studies that purport to show widespread appraiser bias or systemic devaluations of neighborhoods." https://www.aei.org/research-products/report/exploring-alternative-explanations-for-appraisal-under-valuation/

They suggest "To better measure and document appraiser racial bias, we once again propose reviewing every appraiser for racial bias and deliberate inaccuracies based on a comprehensive review of their past refinance appraisals. To that end, we have demonstrated a working methodology in “A Blueprint for Mass Screening Appraisers for Racial Bias and Inaccuracy Based on an Atlanta, GA Study” that could be implemented today by either FHFA, Fannie Mae, or Freddie Mac.Ultimately, the goal of public policy should be to identify biased and inaccurate appraisers and to prosecute the former and to educate and retrain the latter."

I fully support this. Please, fairly audit everyone's appraisals. I'd be the first to take racist appraisers out behind the woodshed. Take away their license, charge them with actual crimes and send them to prison. Stop blaming every appraiser for racism and bias. What really irks me is that these people are claiming racism and bias when they are doing exactly that to real estate appraisers. If you're against racism, bias, you should be against ALL racism or bias against everyone or else you're a hypocrite.

https://www.aei.org/research-products/report/a-response-to-the-recommendations-of-the-pave-working-group/

https://www.aei.org/wp-content/uploads/2023/08/A-Response-to-the-Recommendations-of-the-PAVE-Working-Group-FINAL-1.pdf?x91208

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Mary Cummins

Sunday, June 25, 2023

Quality Control Standards for Automated Valuation Models, AVMs, Comment by Mary Cummins

RIN-2590-AA62, fannie mae, freddie mac,mary cummins,real estate appraiser, appraisal,avm, automated valuation method, dodd frank act,1125,los angeles,california

Type:Notice of Proposed Rulemaking

Number:RIN-2590-AA62

Group:Fannie Mae; Freddie Mac

Comment: Quality Control Standards for Automated Valuation Models

Comment: Quality Control Standards for Automated Valuation Models RIN-2590-AA62

This is a comment letter about the proposed change in the Dodd Frank Act section 1125.

I'm a certified and licensed real estate appraiser with over 40 years of experience. Automated Valuation Models (AVMs) should NOT be used by mortgage originators and secondary market issuers in determining the collateral worth of a mortgage secured by a consumer’s principal residence or any real property. The main reasons are because they are not reliable indicators of market value, the data can be manipulated and there are conflicts of interest.

AVMs are not accurate because the AVM never sees the actual property and doesn't know all its attributes. The actual size, effective age, condition, amenities, view, lot type, specific location in a neighborhood ... are not known or considered. These factors can affect the value by up to 100%. There is no quality control that can account for vital missing data which can only be known by a live licensed appraiser. AVMs are GIGO, i.e., Garbage In Garbage Out. In this case there just isn't enough data going into the valuation to make it accurate.

Dodd-Frank Act added section 1125 to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA); that section requires that AVMs meet quality control standards designed to: (1) ensure a high level of confidence in the estimates produced by automated valuation models; (2) protect against the manipulation of data; (3) seek to avoid conflicts of interest; (4) require random sample testing and reviews; and (5) account for any other such factor that the agencies determine to be appropriate. This letter is a comment on the change in section 1125.

AVMs don't ensure a high level of confidence in the home value estimates produced. They don't protect against the manipulation of data. There is a conflict of interest. AVMs currently can only consider address, tax size, tax bed/bath count, original tax age, pool/no pool and site size at most. Sometimes not all of this information is available. AVMs don't know if the property still exists or was burned down and demolished last year. AVMs don't know if it's in original 100 year condition with deferred maintenance or if the property was fully renovated, upgraded and expanded. AVMs don't know if the property is next to a water tower, power line, dump site or major freeway.

AVMs are even less accurate if the property is older, over/under improved, fair C5 or very good C1 condition, has a view or no view, is in an area with few recent sales or varies from the average home. Even the AVMs owners such as CoreLogic, Zillow,... state the AVMs are flawed and no substitute for a real estate appraisal by a licensed appraiser. Below is the disclaimer of Zillow.

"The Zestimate® home valuation model is Zillow’s estimate of a home’s market value. A Zestimate incorporates public, MLS and user-submitted data into Zillow’s proprietary formula, also taking into account home facts, location and market trends. It is not an appraisal and can’t be used in place of an appraisal."

As a real estate appraiser with over 40 years of experience I look at the different AVM values after I have finished an appraisal just for comparison. I can definitely state that AVMs are not a reliable indicator of value. I've seen AVMs state $2,000,000 value when the home just sold for $35,000,000 and appraised at $34,500,000. I've also seen AVMs state $1,500,000 value when the home just appraised at $500,000. The only time I've seen AVMs be close to accurate is when they are for average newer tract homes in average condition near median neighborhood values in an area with a sufficient number of recent sales. Even then they don't match actual market value.

Here is but one example. There are two identical homes on the same block in a development built in 1950. One is in original condition with deferred maintenance and no view. The other has been fully renovated, upgraded with an addition and has an ocean view. The difference in value would easily be 50% using an experienced appraiser. For a good measurement system, the accuracy error should be within 5%. AVMs are not accurate. There is no confidence in their valuations.

The data used in the AVMs can be easily manipulated. Zillow and other AVMs allow the homeowner, anyone, disgruntled ex tenant to edit the data for a property. If you edit the size, condition or other characteristics of the home, you can drastically change the value. The data can also be manipulated by Multiple Listing Service (MLS) data. Some AVMs consider MLS size, bed/bath count, view... As a real estate appraiser and past broker I can definitely state that MLS data is not accurate. Agents want to sell homes so they make them appear larger and newer. They Photoshop out power lines, water towers, freeways from the photos. They digitally stage them with pools, new lawns, new kitchens...which don't exist.

The AVM doesn't see the home or view so it values them the same if they are the same size in the same area. The person who owns the home in original condition will be happy because it will appraise over market value. The person who owns the upgraded home with the ocean view will not be happy because now they have to apply for a different loan with a full appraisal in order to get a higher loan or lower rate. I've been in this exact situation many times. The owner ends up paying two "appraisal" fees even though the first was just an AVM. They also waste time.

The ability to manipulate the data creates huge conflicts of interest. Sellers, agents want to sell home for the highest price. AMCs, Lenders want the highest value so they can easily make the loan to make money. Zillow is both an AVM and seller, agent. CoreLogic sells AVM data to Lenders and others. They want to make the deal to make money. The independent real estate appraiser only cares about actual market value. They don't make money on the transaction besides a small appraisal fee which is paid if they hit the value desired by the borrower or not.

Have we learned nothing from the Zillow fiasco? "The evidence is there for anyone wishing to look. In a disastrous bet made by Zillow – one in which the company staked its future on investing in residential real estate based on its own algorithms – the company lost $32 billion in market capitalization from February to November 2021. What did Zillow learn about its “Zestimates” when its own money was at stake?" (https://appraisersblogs.com/dazzled-by-wizardry-federal-mortgage-regulators-ignore-zillow-debacle )

I've studied AVMs in depth as have others. There is a lot of research already done on the inaccuracy of AVMs. Here's an article I wrote about AVMs which cites some of that research. https://mary--cummins.blogspot.com/2022/03/what-is-avm-automated-valuation-method.html

The Dodd Frank Act is the result of the 2008 Great Recession and Financial Crisis. The purpose was to protect consumers, banking and our economy so that would never happen again. The public will lose trust in the real estate industry, mortgage market and mortgage backed investments. This will negatively affect the real estate industry, banking industry, stock market and our economy. Please, do not use AVMs to value property which will be collateralized by loans.

Sincerely,

Mary Cummins
California Certified Real Estate Appraiser

My letter finally showed up in the comments

https://www.mortgagetranslations.gov/sites/default/files/rulemaking_comments/Attachments/16263/Mary%20Cummins%20letter%20AVM%20Comment%2006252023.pdf

DISCLAIMER: https://mary--cummins.blogspot.com/p/disclaimer-privacy-policy-for-blogs-by.html

Mary Cummins

Wednesday, March 9, 2022

Some Lenders promoting false "racist appraiser" narrative to optimize profits via AVMs, by Mary Cummins real estate appraiser

mary cummins, real estate appraiser, los angeles, califoria, lender, amc, avm, hybrid appraisal, racism, bias, discrimination, bettermortgage, urban league, andre perry, house canary, zillow

Like most businesses lenders want to optimize their profits. One way to make more money besides charging more is to pay less in costs and fees. One way for the lender to do that is to pay the appraiser less or just get rid of them and use a free or very inexpensive Automated Valuation Method (AVM).

I personally don't care if a lender or borrower wants to use an AVM. There is enough business out there for appraisers because not all appraisals are for loans and not all government insured loans allow AVMs. They generally don't allow them in higher risk situations such as high loan to value (LTV) ratio, cash out, lower credit score ...

My only issue with the use of AVMs instead of a full inspection appraisal has to do with the borrower. The borrower could get a lower value, resulting smaller loan and pay more for that loan due to higher LTV ratio i.e. risk, if the property is better than average for the neighborhood. AVMs are biased against properties that are anything other than average in every respect.

AVMs assume average condition, location, view, quality... (Ref 1). If you're buying a better than average home for the area, higher quality, fully remodeled, in a better location in the neighborhood with a great view, the value will come in lower than true market value with an AVM. If you're buying a home priced less than most in the area in fair condition with no view or upgrades, an AVM will give you a higher value and a higher loan amount. You could end up upside down with no equity if you accept a higher loan.

My issue is with lenders and others who are using and promoting the false "racist white appraiser" narrative to market themselves and AVMs as less biased just to increase their profits. They are glomming onto misleading data and false media articles to use for their marketing purposes at the expense of the borrower and the reputation of appraisers. Yes, racist appraisers exist but not all valuations are based on racism and bias. Below are some quotes used by lenders and others to promote this false narrative.

House Canary. "HouseCanary hopes its tech can help solve appraisal bias."

https://www.housingwire.com/articles/housecanary-hopes-its-tech-can-help-solve-appraisal-bias-can-it/

Their true agenda shines through in the article, "While a typical appraisal could cost $400 to $500 and take several weeks, HouseCanary says it can perform a “condition-informed evaluation” within one to four days, for $100." Who cares if it costs the lender less. The lender doesn't pass on these savings to the borrower. The lender will charge any fee they think they can get. I've had borrowers contact me and ask why their appraisal was $1,100. I only got paid $350. They also asked about the $300 charge for a review appraisal. There was no review appraisal. I've bought and sold properties. I've found plenty of junk fees that would have gone to the lender. Even if a lender tells you there are no points, appraisal fees, you are paying it in the rate. Nothing is free except maybe the AVM at least for the lender.

An inaccuracy in the article, "There’s nothing about an appraiser that’s better than someone you’ve literally trained (to inspect, measure, take photos of a home) for a few days."

Appraisers bring years of experience to the table. I've appraised over 20,000 properties and have taken over 1,350 hours of education. We can see major defects and other things which would negatively affect value. Someone with only a few days of training will miss a cracked foundation, water damage in the basement or attic, uneven floors, tilting walls, mold, unpermitted addition, additions not done to code, additions that don't meet basic health and safety code for the city, county, state; missing safety features, area which is not ANSI legal gross living area GLA, evidence of a meth house, manufactured house verses stick built, effect of nearby power station, industrial properties, within 500 feet of a freeway, flight path, a skim coated floor to cover uneven floors, evidence of asbestos... A licensed appraiser would probably call for inspection by a licensed expert for major issues if they saw it. This could save a buyer hundreds of thousands of dollars down the line if they read a full inspection appraisal report. There's no inspection report to read in an AVM. If you had a hybrid appraisal with a non-appraiser inspecting it, you don't get an inspection report that could tell you more about the true condition. The appraiser hasn't seen the property, comparables or exact neighborhood in a hybrid appraisal.

Appraisers can also see items which add to value such as degree of view (180 degree ocean view, peek-a-boo canyon/tree view, view of the side of an apartment building), specific location in a tract development (on a hill, cul-de-sac, busy corner, near industrial), quality of construction, specific types of very good materials...

A typical appraisal generally doesn't take several weeks unless you're in some rural areas. This is another misnomer used to argue for cheaper AVMs. An AVM would still be faster unless you ordered a rush appraisal to be completed in 24-48 hours. A hybrid appraisal takes the same amount of time as a full appraisal. A wait of a few days for a full appraisal would be worth it to the buyer, borrower.

BetterMortgage. Better Mortgage uses race to sell loans and promote themselves as "diverse." "Several studies have shown that people tend to subconsciously associate with their own race more positively, and 96.5% of all real estate appraisers are white. Between 2015 and 2020, appraisal gaps came up at a rate of 15.4% for Latino-majority neighborhoods, and 12.5% in areas with a majority of Black homeowners.

If an appraiser’s evaluation feels off, don’t be afraid to get a second appraisal. It also helps to work with companies that are committed to diversifying their team. Starting next month, Better will be hiring and training a pipeline of 120 in-house appraisers who are representative of the communities they serve."

The numbers above came from a Freddie Mac study that compared appraisal values to ~~AVMs~~ appraised values and the contract price. (It was Fannie Mae who compared to their AVMs). In some areas the appraisal values were lower than Freddie Mac's own AVMs and contracts and in other areas they were higher. The Freddie Mac study stated they don't know the cause of the differences. "First, our analysis has not yet determined the full root cause of the gap." Danny Wiley of Freddie Mac stated "We have not reached any conclusion for cause of the gaps or correlation." The gap could have many causes such as revitalizing areas and condition. AVMs assume average condition, average everything. Perhaps the homes appraised by appraisers over AVM values were in better condition than average, better than average location, better than average view, upgrades...

BetterMortgage never hired or trained those diverse appraisers. They instead soon after the press release fired 900 people then 3,000 more. It was all talk to drum up business and investors.

https://better.com/content/what-you-should-know-about-home-appraisals/

Urban League. Urban League is not a lender but they have been promoting the same false narratives and the misleading paper because it supports their beliefs. Racism and bias exist but not all appraisers, appraisals are biased. "AVMs could correct for racial bias from appraisers evaluating homes and the conditions in majority-Black neighborhoods." "Automated valuation models, or AVMs, hold great promise for reducing the costs of and increasing the accuracy of home valuations. They allow financial institutions to estimate a home’s value with a reduced role for human opinion. By limiting the human element, estimating a home’s value should become less expensive and more accurate." "Many housing experts believed that widespread appraisal bias contributed to the housing crisis. In-person appraisals are susceptible to charges of racial discrimination and human bias."

Appraisal bias had nothing to do with the great recession. The great recession had to do with deregulation and a market bubble. Lenders offered no doc high risk loans to anyone and everyone. Some had low teaser rates which adjusted to high mortgage payments which people could not afford. After the bubble burst, values dumped and people let their homes go back to the bank. Appraisers get blamed for every financial crisis from the S&L crisis, great recession and now appraisal gaps. These issues have never been the fault of the appraiser. Appraisers don't make values. We merely report them as the messenger. We are just the usual scapegoat.

https://www.urban.org/sites/default/files/publication/103429/how-automated-valuation-models-can-disproportionately-affect-majority-black-neighborhoods_1.pdf

One important issue here is the alleged research upon which the "racist appraiser" narrative is based. It's just a personal paper written by Andre Perry. It was not published or peer reviewed independent research. The false summary of this paper is that most black owned homes are "appraised" for less than white owned homes by an average of $46,000 each. Appraisers and appraisals have allegedly "devalued," "stolen money" from black homeowners which is totally false.

This data was based on AVMs and not valuations by appraisers. There were no appraisers involved in the research yet people are stating this proves appraisers are racist. On top of this the data came from failed inaccurate Zillow. Everyone knows the "a" in "Zillow" stands for accuracy. Zillow is probably the least accurate AVM out there. The data actually just shows that people with less money buy and own homes which cost and are worth less than people with more money. They buy what they can afford. They never adjusted for home location or income, net worth of homeowner in the data. Research has shown that whites make and have more money than black people, POC. Income equality is the real issue which must be solved not appraisers and home valuations. Whites also buy more expensive cars. Did appraisers and Kelly Blue Book's online AVM "steal" money from cars owned by POC? No. They buy less expensive cars to begin with.

Today's political climate has clearly changed. "The country is in a time of racial reckoning, heightened by a summer of protests against systemic racism and police brutality following the death of George Floyd in police custody." Floyd's death "sparked the largest racial justice protests in the United States since the Civil Rights Movement." "According to data from various sources, the Black Lives Matter movement is now the largest movement in US history." While racism exists and must be banished from our nation the pendulum has now swung to the extreme side. In this new light anything and everything is automatically "racist" today before even looking at the facts. Some have even been weaponizing race and other issues for their own agenda.

The other misleading information about alleged "racist appraisers" comes from false media articles. One major one which finally made it to the courts is Austin v Miller. In this widely publicized media article and lawsuit the Plaintiffs argue that using similar homes which have sold in the same neighborhood as their home to value their home is "racist" and "biased." Austins wanted the appraiser to use comps "in the whiter areas" over a mile away instead of the "black area." These are exact quotes from the lawsuit linked above. Per law and the appraisal itself values are based on similar sales in the same neighborhood. The appraiser was not biased.

Here are a couple of other false and misleading case, Carlette Duffy in Indianapolis, Indiana and Cora Robinson in Oakland, California. Based on my research the second appraisals were incorrect and higher than market value. They used comps from superior areas much farther away from the subject.

Every appraisal value you don't like is not the result of a racist appraiser intentionally low balling you because of your race, color, ethnicity... Full inspection appraisals are not inherently racist or biased. AVMs are not racist but they are biased against any home other than an average home. Median and average home sold prices are built into the AVM formula, the algorithm.

Racism is very real. Some people are absolutely racist and express that in their behavior. We all must fight racism. Wasting time on a non-racist issues takes away from real issues of racism and bias. Using the false "racist biased appraiser" narrative to promote AVMs, hybrids to make money at the expense of other people is wrong.

I read the below article published the day after I wrote this article. People are noticing the anti-appraiser agenda. Jeremy Bagott of Appraiser Blogs, Certified General Real Estate Appraiser at Bender Rosenthal Inc., former newspaper man.

https://appraisersblogs.com/anti-appraiser-agenda-follow-the-money

References

Ref 1 Corelogic, "AVMs assume all properties are in similar average market value.condition. They cannot adjust values down for disrepair or damage. Similarly, they cannot adjust values up for good upkeep or cosmetic upgrades, such as new carpet or paint. The AVM has no knowledge of the condition of a particular property."

https://www.corelogic.com/wp-content/uploads/sites/4/downloadable-docs/about-automated-valuation-models.pdf

Mary Cummins

Thursday, March 3, 2022

What is an Automated Valuation Model AVM? The Good, the Bad and the Ugly, by Mary Cummins Real Estate Appraiser

automated valuation method, avm, appraisal, mary cummins, los angeles, california, real estate appraisal, appraiser, zillow, redfn, trulia, realtor, realist, realavm, fha, corelogic

automated valuation model, automated valuation method, robot appraisal, algorithm, math formula, avm, appraisal, mary cummins, los angeles, california, real estate appraisal, appraiser, zillow, redfn, trulia, realtor, realist, realavm, fha, corelogic

Automated valuation models (AVMs) are statistically based computer programs that use real estate information such as comparable sales, property characteristics, and price trends to provide a current estimate of market value for a specific property.

Most people are familiar with Zillow and Zillow's Zestimate of home value. Zillow themselves have stated the Zestimates are not an appraisal. Below is their main disclaimer.

Real estate appraisers have always said "the 'a' in 'Zillow' is for 'accuracy.'" In light of Zillow's recent ibuyer program failure everyone now realizes they are not accurate. So what is the problem with AVMs?

The main issue with AVMs is the quality of the data. We all know Garbage In, Garbage Out or GIGO. Zillow and other AVMs such as Trulia, RedFn, RealAVM, Realtor, CoreLogic use a proprietary formula and public data to make their estimates. They also allow the public to edit their data and use false MLS data from real estate agents. They do not actually look at the home. They don't know the condition. Is it a full high quality remodel or ready to be demolished. They assume average condition. They don't know the amenities, upgrades, view (ocean, lake, freeway, back of an industrial building), additions, neighborhood boundaries (Bel Air proper or the flats of Los Angeles), exact location/neighborhood (on the ocean, a lake, in a gated community, built on an old landfill, next to the freeway and industrial properties)...and many other very important factors. They assume all properties in area have the same view and specific location. They don't even know if the home actually exists or burned down last year.

This of course makes their estimates vary widely and results in an inaccurate and biased valuation. Zillow's own research has shown that their accuracy is not as good in areas with little public data. Not all Tax Assessors, Building and Safety, MLS list data or more important recent accurate data online publicly. Some states don't report sales prices publicly. This goes back to GIGO.

I have found and Zillow has admitted publicly that their accuracy is lower in the extremes. Homes which fall on the lower and higher end of the price ranges for areas tend to have less accurate estimates. Zillow also admitted that they are less accurate in areas with older homes. There is no way for a computer program to tell if a home has been fully remodeled or needs to be demolished. This makes it less accurate in areas which are revitalizing. Some call revitalization "gentrification."

Inaccurate valuations are bad for everyone. If you're a homeowner and the bank offers to waive the appraisal in exchange for using an AVMs, this can cause problems. If you upgraded your property, you probably won't be getting added value for all your upgrades especially if most homes in the area aren't upgraded. If your home has one of the best views in the area or the largest lot, the AVM won't see that value either. You will get a lower valuation. The rate you pay for the loan is based on the loan to value LTV ratio. The higher the appraised value, the lower the LTV and the less risk for the bank. The less risk, the lower the cost of the loan, the lower the rate, the less likely you are to have to pay mortgage insurance. If you're looking to get some cash out, you would get less cash out of the deal with a lower valuation. Using the AVM just puts $350-$500 more money into the hands of the lender. It doesn't save YOU any money no matter what they say.

Now if you have the worst house in the neighborhood in bad condition, an AVM would be to your benefit. They will most likely over value it. If you are buying said home, you might incorrectly over pay for the home assuming it's worth more. This is why investors should never rely on AVMs. An appraisal by a licensed appraiser is like $350 insurance. You will get an unbiased independent full valuation of the property. $350 is a lot better than paying $100,000 more than what it's really worth.

I'll quickly go into how appraisers valuate homes so you can understand the basic AVM algorithm a little. This is a basic simplified search. We generally search for sales and listings as similar to the subject as possible. We use the computer to search for sales, listings within a 1/2 mile radius from the subject that have sold within the last 90 days which are +/- 15% difference in gross living area. We then choose the best comps based on location, size, bed/bath count, view, condition, amenities... Sometimes there are no recent sold comps so we have to go back a year or so and adjust for appreciation/depreciation over time.

This is where having someone who has inspected and actually viewed the subject property is so important. This is also why it's so important to have an appraiser with years of experience who knows the area very well. A math formula can't see the condition, view, real bed/bath count, upgrades, amenities, specific location in a neighborhood... They generally only see tax roll and MLS size, bed/bath count, number of garages, pool. Those are very rarely accurate. Tax roll is generally the original size. Real estate agents lie in MLS ads about everything. You won't know the real full bedroom and full bathroom count of the subject or comps without an appraiser.

The appraiser also views the sold and listed comparables. Are they tear downs selling for land value or totally remodeled with new additions that don't yet show up on the tax roll? Does the subject have an ocean view but sold comparables face a loud ugly freeway? Is it a full bedroom with it's own door or a walk through bedroom or just a den? Is it a half bath, full bath or just a toilet in the basement? These are very important factors which can make the value differ by up to 100%. The AVM will never know all of those things about a property. This is why they are not accurate.

Recently I saw a property with AVMs that varied from $750K to $1.9M. Zillow, Trulia, RedFn came in way too high at about the same price. Realtor, CoreLogic RealAVM came in at market based on my own valuation after looking at the property. I realized the problem with the values when I saw the comps that Zillow, Trulia, RedFn showed for the subject. They were using comps from 1.5 miles away in a neighborhood that sells for twice as much as subject's neighborhood. That neighborhood sells for so much more because the homes are very high quality, they have the best school system in the state, lots of local shopping and a low crime rate. This was a Beverly Hills versus Watts comparison. Clearly Zillow, Trulia, RedFn algorithms are wrong. They cannot define a comparable neighborhood.

The issue had to do with the size of the subject and recent sales. It was larger than most homes that had sold recently. The homes directly around subject were all the same size built at the same time but they hadn't sold recently. Instead of going back in time to find an older sale of a similar size and time adjusting for appreciation, Zillow kept widening the search until it found comps of a similar size that had sold recently. That was a huge mistake. An appraiser would never base their value on homes from a totally different neighborhood which generally sells for twice as much. Remember, the three main indicators of value are location, location, location. This is why AVMs are so inaccurate and should not be used for valuations.

AVMs are just an algorithm based on a math formula. Some of the math formulas like Zillow are deeply flawed. They don't know neighborhood boundaries or the true characteristics of the properties. A math formula is only as good as the data used in the calculations. Because the AVM is not a live experienced licensed appraiser who has actually inspected the property and neighborhood the resulting value will never be accurate.

Please, do not rely on AVM valuations for real property values. If you are refinancing your home and your home is upgraded or has superior features than most homes in your area, you will be better off requesting a full appraisal. The lender will be paying for the appraisal so it costs you nothing. The lender just wants to save a few dollars for themselves by going with the free AVM. If your home is almost a tear down, use the AVM ;-)

References

List of different AVMs

Freddie Mac: Home Value Explorer® (HVE®)
Zillow: Zestimate
Realtor.com: Collateral Analytics, CoreLogic Total Home Value for Marketing, Quantarium
Redfn: Redfin Estimate
Trulia: Trulia Estimates
RealAVM™ is a CoreLogic® product
Fannie Mae: AVM 1 (data assessment/ integrity checks, comparable selection, comparable adjustment, and reconciliation), AVM 2

CoreLogic actually has a few patents related to their AVMs as does Zillow. Here is the patent for their main AVM model. The description is very interesting. It deals with the issues of geographical neighborhoods and number of sales during set time periods, i.e. spatial and temporal distinctions. This is why they're more accurate than Zillow and had the correct AVM for the Marin, California property noted above. They have a better spatiotemporal understanding of the nature of real estate. They even stated that a "property value given by an appraiser can vary, sometimes erratically, depending on the comparable properties chosen in performing the appraisal." They stated sometimes there are no sales during the short range of time used by appraisers. This is why it's better to go back in time and time adjust if there are no sales rather than widen the geographical search area. The location factor carries a lot more value weight.

https://patents.justia.com/patent/20130144798

Here's one Zillow patent which goes into their algorithm, math formula. They're clearly mainly relying on median and average calculations.

https://patents.justia.com/patent/8676680

Great article on the issues and problems with AVMs. They're not standardized especially their reported confidence scores, Forecast Standard Deviation FSD and error rates.

https://vegaeconomics.com/webfiles/Principles%20for%20Calculating%20AVM%20Performance%20Metrics.pdf

Mary Cummins

Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California

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