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.

Showing posts with label avm. Show all posts

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

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.

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

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

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

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

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

Friday, October 29, 2021

Sellers, Buyers set home values NOT Appraisers - by Mary Cummins Real Estate Appraiser

Sellers, Buyers set Property Values NOT Real Estate Appraisers, Mary Cummins, Los Angeles, California, real estate appraiser, real estate appraisal

UPDATE: I tweeted my article to Andre Perry. After he made a few ridiculous replies which only showed how much he doesn't know about appraisers and appraising he blocked me. Thank god I just swallowed my sip of iced tea or I would have spit it all over my computer monitor laughing :-D This guy can dish out bad statistics, bullshit and racism but can't take simple facts.

FTR Andre Perry has stated many times that Appraisers are racist and biased. Here are some quotes. He stated this as a fact when it's not. From written testimony from U.S. House of Representatives Committee on Financial Services. "And we’ve witnessed viral news stories revealing how appraisers value Black and white homeowners differently." He's one of the main people spreading those false media articles about alleged bias which I researched and about which I wrote articles.

"We don't want to lay the complete blame on the loss of home values on appraisers," said Perry. "They are certainly an important trigger but the same attitudes that appraisers have, so do [some] lenders, real estate agents and other people in various markets." Many more citations below.

Andre Perry, Brookings Institute, Know your price, valuing black lives and property in america's black cities, andrew m perry, andre montel perry, @andreperryedu #andreperry, brookings, book, racism, bias, real estate, appraisal, avms, research, paper, black, white, race

In the intro of his book Andre admits to having anger management issues with people with whom he disagrees. He said he "verbally assaults" people. He stated "My life "which has been beleaguered with unpredictable outbreaks of rage, largely stemming from reminders of past feelings of vulnerability and worthlessness. Minor disagreements with lovers, friends, colleagues, and strangers often turned into blowout arguments, for reasons unknown to them." The intro of his book also shows that his main focus in life seems to be that white people have done him and black people very wrong basically destroying everyone's lives, family and specifically their money. He stated his father died in prison and his mother abandoned him and his brothers with the local baby sitter. It does sound like a tough life that has affected his view of life and others. He stated his goal in life is to show that the main problem in this world is white people. Read the intro to his book and come to his own conclusion. The intro is online and free.

ORIGINAL: Everyone knows the "fair market value (of a house) is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." This is the basis of our world economy and free market society. Everyone agrees with this except hate monger Andre Perry who blames lower property values on "racist white appraisers."

Andre Perry just wrote another crazy article about racism and real estate. Someone needs to contact the editor at the Brookings Institute about allowing flawed statistics, misleading research and the promotion of racist hate mongering in their name.

Andre Perry has never let facts and data stand in the way between reality and the racist narrative he's created and actively promotes. He believes everyone in the US is responsible for home values in areas which are mainly "black," i.e. over 50% black per his own criteria, being lower than areas that are mainly "white," i.e. 1% or less "black." He actually only compared a few extremely different areas. This article proves that Perry's paper is based on extremely misleading data selection and biased comparisons which were then used to invent a false and misleading racist narrative. Note that his paper has never been peer reviewed or published in a journal article. It would never pass peer review. A "refereed (peer-reviewed) journal is reviewed by expert reviewers as a quality-control measure." I just checked Perry's resume and he has no peer reviewed articles or papers on his false racism in appraising theory.

In the article Andre Perry wrote "Lower home prices in Black neighborhoods reflect how much we value their residents." Nope. Home prices reflect the price agreed upon by a willing seller and buyer. It has nothing to do with the value of residents. The Appraiser also has nothing to do with the home price or value. A seller could sell his home for $100,000. If the buyer pays cash, there's no appraiser or appraisal. Seller and buyer set the price which is later publicly shared by Zillow, RedFn and MLS. Those sales set the market price for similar homes. Seller and buyer alone control that price and value

Now if the buyer wants a home loan, he'll probably need a real estate appraisal. The purpose of the appraisal is so the bank knows there's enough equity in the home to pay off the loan in case the borrower defaults on the loan. I could appraise that home for $10,000,000,000,000,000,000,000,000,000,000,000,000 and the sale price stays the exact same at $100,000. The home still sells for $100,000. THE APPRAISER AND APPRAISAL DON'T AFFECT THE PRICE OR VALUE! This proves that Andre Perry does not understand the concepts of value, price, real estate, economic principles, basic math...or common sense. His "paper" includes almost every single major statistical error possible. Why does anyone believe this guy or that meaningless paper? It has less merit than an op-ed.

If Perry wants to blame someone for lower home values in some black areas he needs to blame the buyers of those homes which are mainly black per his "research." He should tell those greedy (sarcasm) buyers to pay $1,000,000 for that $100,000 home if they "value their residents." "Don't be a cheap bastard! Pay the seller more than what that home is worth! Do it for the good of the community!" (sarcasm) You sell a few homes for $1,000,000, they're all worth $1,000,000, right? Sadly, no.

FTR I attended the 2019 meeting Perry mentioned in his article. That was the first time I encountered Andre Perry and his lack of real estate, economics or statistics knowledge.

From Perry's article. Notice he speaks about himself in the third person. Who does that? He doesn't even know that the Appraisal Institute is just a private org that doesn't certify or regulate the appraisal profession. I added what is in parenthesis.

"In 2019, one of this blog’s authors (Andre Perry) testified in Congress along with representatives from the Appraisal Institute and the Appraisal Foundation, two organizations that help certify and regulate appraisal professionals. When Rep. Al Green of Texas asked the panel to raise our hand if we believe “discrimination plays a role in the devaluation of property in neighborhoods that are predominated with minorities,” I was the only one who raised a hand."

I decided to go find this video to refresh my memory as I was working while listening, watching the original hearing. Andre Perry is a liar. See the video below. The guy directly behind him also raised his hand so 2/26 people. He was not the only one. Perry also lied about the question. This is the real question, "Do you believe that invidious discrimination, invidious is harmful, (full definition: Treating a class of persons unequally in a manner that is malicious, hostile, or damaging; unfairly, unjustly discriminating) plays a role in the devaluation of property in neighborhoods that are predominated with minorities but more specifically black people? If you do believe this, raise your hand. If you think black people are being discriminated when their property is being appraised, would you kindly raise your hand." Andre Perry raised his hand. This shows he is specifically talking about appraisers appraising properties and not AVMs here. AVMs are not appraisals. This is why Appraisers are upset. He accused us of invidious discrimination besides bringing up and widely sharing anecdotal media articles about alleged discrimination by appraisers.

All the real estate experts with many years of experience and multiple degrees in real estate did not and do not agree with Andre Perry. This shows that Perry does not know what he's talking about. I also would not have raised my hand. The property in question is not, was not devalued. There is no discrimination in property valuation because it's based on a math formula. Most Appraisers never see the buyer, seller or know their race. It's just an address to us. The robot appraisals don't see anyone or anything, not even the property. Andre Perry's paper is based on robot appraisals and prices agreed upon by sellers and buyers. Appraisers had nothing to do with the data he used. I'm not saying racism doesn't exist. It does. It's just not an influence in real estate appraisal especially robot real estate valuations like Zillow.

Perry states that homes in black areas are worth $48,000 less than in "similar" white areas. Then what explains the differences among the values in white areas? It can't be discrimination against black people because they're white. Same thing happens in brown areas. What explains the lower value of a white owned home in a black area? Again, the owner is white and not black. Will all the white and brown people with lower home valued be compensated by any new government initiatives or reparations for low valued homes? Perry has been talking about using his $48,000 figure as a measure of reparations for black people. What about the rest of us suffering from low priced homes? I don't even own a home. Will all people who don't own homes, even homeless people also be getting a check?

In the article Perry talks about the Indiana and Florida media articles about alleged racism in real estate appraisals. Recently he said those were just media articles and we don't know if it was racism or not. He even said recently he's never said appraisers were racist and he doesn't feel they are. Now he's back to promoting the idea of racist appraisers again! This guy will say whatever the audience in front of him wants to hear. He doesn't even know his own truth. He's that insecure.

His recent article is about the "Brookings and Ashoka Collaborative Innovation Challenge." They're offering money which he will most likely reward to a like minded friend who promotes his racism. Stuart Yasgur the VP & Global Leadership Group Member represents Ashoka #stuartyasgur . The prize is supposed to go to the person who solves the problem of homes in specific black areas being worth less than homes in specific white areas. I may send in a solution to the problem. My solution is that the problem as defined by Andre Perry doesn't exist. He created it. I solved it. Poof, it's gone. Where's my check?

#andreperryedu #stuartyasgur #brookingsinstitute #ashoka #racism #hatemonger #marycummins #realestateappraiser #realestateappraisal #brookings #race #bias #appraisal

Mary Cummins

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

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

Sunday, June 25, 2023

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

Wednesday, March 9, 2022

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

Thursday, March 3, 2022

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

Friday, October 29, 2021

Sellers, Buyers set home values NOT Appraisers - by Mary Cummins Real Estate Appraiser