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No Thanks, I’ll Stick with an Appraiser

Home valuation sites are the rage among homeowners, buyers, and sellers. Instead of hiring an appraiser to look at a house and write up a well educated estimate of its true market value, you can go online, type in the address, and find out the market value yourself instantly and best of all for free. Why pay an appraiser several hundred bucks?

Now, I like technology as much as the next person, and I believe in handing over more power to the people, but this is just another instance in which we are taking the human gatekeepers out of real estate transactions and leaving the system wide open to abuse. We are literally turning the buying process into a free-for-all, in which he who pushes the buttons on the keyboard defines the value of a home. We may as well install money machines in everyone’s home that print $20 bills.

With these home valuation sites, whenever a transaction is recorded, the data is automatically transferred to the home valuation system, where sellers and buyers can immediately access the information. While that’s not so bad in and of itself, it can intensify the negative effects of real estate and mortgage fraud. If, for example, a property’s value is artificially inflated as a part of a flipping scam, that property’s inflated value appears immediately online. People selling homes in the same area see the numbers and instantly jack up their asking prices. Buyers see property values rising and are willing to pay more. A con artist who knows how to play the game, can pull the strings on the system like a puppeteer, inflating and deflating the market at will.

Now, you might argue that given the proper incentive, appraisers have been known to fudge the numbers, too. You might also argue that these valuation models are even more honest–after all, can’t a computer automatically check whether a property’s value is out of sync with the prices of similar properties in the same area? In theory, yes, but in practice, these valuations are significantly less reliable than what competent, certified appraisers can deliver. In some areas, they may be off by 10%. In other areas, the discrepancy can be as much as 50%. I tried to look up the value of my own house, and it wasn’t even listed.

In addition, these valuations can be extremely old. Based on a valuation model, a bank could conceivably approve a mortgage loan to purchase a house that burned down two or three months ago. Only a human being, an appraiser visiting that house and looking at it inside and out, can determine whether the valuation is truly accurate.

Recently, I sold a home to a client who was approved for a mortgage loan in less than 24 hours. The lender didn’t require an appraisal and never even looked at the house. They relied exclusively on a home valuation model to verify the property’s value. I have seen enough fraud to know that if a seasoned con artist had put together a phony deal, that valuation model could not have detected it, and the deal would have proceeded without the slightest hint of suspicion.

As we rely less and less on the human factor as a system of checks and balances, we are sure to see an increasing problem with real estate and mortgage fraud. Home values will be able to skyrocket overnight without governance, creating a housing bubble that will make the dot.com crash of the nineties look like a soft landing.

When I see customers, clients, and even a few of my colleagues singing the praises of these online home valuation sites, all I can say is “No thanks, I’ll stick with a licensed, reputable appraiser.”

Posted By: Ralph Roberts @ 12:45 am Comments (6)
Filed under: Appraisal Fraud,Mortgage Fraud,Real Estate Fraud,Technology

6 Comments »

  1. We all like to go on line to get information. When we go to different on-line financial calculators for rates or quotes we realize they are only guestimates and only as accurate as the parameters that define the calculations. They simply analyze the data that they have been programmed to include and crank out a number from the mathmatical formulas set up. No tweaking, no what ifs, no special circumstances, and only as relevant as the day the model was set up. This is especially the case with home valuation calculators. Every home is unique. If location, style and price are the three determining factors for home buyers, how can a mathematical equation determine the appeal of such factors as view, floorplan, landscaping, proximity to powerlines, gaudy wallpaper, cleanliness, etc., without visual inspections. Most valuation systems rely only on sold price. They don’t even factor in net price (selling price minus seller contributions such as closing costs, free trips, big screen tv’s, extra realtor bonuses ) which is not available from the public records. Trust an experienced Realtor or Real Estate Appraiser to get you the true market value of the house you are planning to buy or sell.

    Comment by Brent D. — April 26, 2007 @ 7:51 am

  2. Online valuation article
    Mr.. Roberts,

    I thoroughly enjoyed, and agreed with, your article on RIS Media regarding the online valuation sites.

    —————-
    Just this past week I looked two properties that I had sold in recent years.

    1. Stone Croft

    Cyberhomes said it was worth $620,000
    Zillow said it was worth $560,000
    and the new HomeGain said between $450 and $520,000

    In looking at available properties, and knowing the area very well, I believe finding a buyer within the next 6 months at about $600,000 to be fairly accurate.

    2. Freeport

    Cyberhomes said it was worth $260,000
    Zillow said it was worth $332,000
    and the new HomeGain said they could not find the address

    The value on this home is probably more in the range of $275,000
    —————–

    While I have not even considered the fraud angle that you offer, it’s quite obvious that the need for the public to have qualified representation is just as high as it’s ever been.

    As a listing agent that closed 133 properties last year – I have encountered numerous listing presentations where I’ve spent more time diffusing/explaining these valuation sites than I’ve been required to in discussing our local marketplace or my services!

    I am just setting up a website (yes, I’m slow to join the internet revolution) and it will feature a blog. I’m curious about if you allow others to link to your articles? yes! with credit RRR

    Thank you for your consideration,

    Michael Patton
    mpsignup@eoutlook.com

    Comment by Michael Patton — April 26, 2007 @ 1:13 pm

  3. I had considered the possible problems with online valuation sites when dealing with clients. I had not thought about the apprasial implications. Great post and I am enjoying your blog very much.

    BTW, your Afterword in “Realty Blogging” was very encouraging. Thanks for the time!

    Comment by April Groves — April 26, 2007 @ 1:50 pm

  4. Thank you! No Thanks, I’ll Stick with an Appraiser

    We really appreciate your article! After +20 years in the RE business, history always repeats itself in some form.

    Hopefully, people will listen to your advice.

    Sincerely,
    Lore DeAstra
    Lore DeAstra, MBA, SRA, CCRA, SCV, CTM
    Continental Appraisal Consultants
    Director of RE Services
    2711 Buford Rd, Suite 101
    Richmond, VA 23235
    (804) 231-4676 Telephone
    (804) 231-7632 Fax

    Comment by lore.deastra@continental-appraisal.com — April 26, 2007 @ 4:06 pm

  5. Bravo! I am a licensed real estate broker and a certified residential appraiser. I can tell you some real horror stories developing because of the use and misuse of valuation models. One key issue, not mentioned in your article is this: there is no replacement for an interior and exterior walk through by a qualified appraiser.

    How does a valuation model account for:

    1) a home that backs up to a freeway?

    2) a beautiful view property with blue water or white water views?

    3) the site utility of a lot with a large unusable section?

    4) a home which has had massive upgrades or

    5) a home which has never been painted or maintained in 50 years?

    6) or bedroom and bathroom counts, and living area discrepancies?

    You can easily see the problems which can be developing with lenders and the public in general. The valuation models are based on public record information. It is a simple “garbage in and garbage out” scenario.

    Thank you for your help in getting the word out on these “crazy push button” valuation models. They are a tool but not a definitive method which lending should be based upon. I appreciate your comments.

    Linda J. Damiani
    Damiani Properties

    Comment by Linda J. Damiani — April 27, 2007 @ 4:06 pm

  6. First, please tell be were to find an honest appraisor. You make it sound as if an online home valuation is acceptable when you go apply for a loan or refi. It is supposed to be the Lending Institution that orders the appraisal, not Joe Citizen. Everyone knows that brokers are paid on commission therefore, that gatekeeper will hit what ever the aim. I thought that the Closing Agent was the holder of that title. Being that he or she is is the final act in the home buying/selling escapade, they are supposed to catch such things as inflated appraisals.
    When I needed an appraisal for a refi, Broker Ordered, comps could not be found. That year, four homes had sold in the few weeks prior, but were Not used for comps. Every home may be different, but it is the funny financing involved with the homes that kept them from being comps. I have seen enough creative work done FOR the purpose of flipping that if anyone with any ethics whatsover, was doing their damn job, would have questioned that appraisor and the rest of the, soon to be unemployed, bodies involved. Getting an idea of what properties are worth from an online source is no different than an instant CSA guesstimate. How many homes did you sale for the Listed Price?

    Comment by Danielle Von Tungeln — April 29, 2007 @ 8:34 am

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