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

Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California
WEBSITE       RESUME       CONTACT       FACEBOOK        LINKEDIN       
Showing posts with label zillow. Show all posts
Showing posts with label zillow. Show all posts

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
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 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

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.

"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."

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 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