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Risk of "wildly inaccurate" home estimates if automation replaces human appraisers

By Mike Wheatley | November 28, 2018

Federal agencies are trying to push the concept of automated home appraisals, but appraisers worry that the plan could lead to “wildly inaccurate” valuations of some homes.

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The idea is to reduce the number of homes that require an in-person appraisal by a human, in order to speed up closing times and save money for both buyers and borrowers who’re looking to refinance.

The proposal, which was developed by the Federal Deposit Insurance Corp. alongside the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency, in-person appraisals would only be necessary for homes valued at $400,000 or more. Currently, that threshold is $250,000.

The plan calls for automated home evaluations instead of an in-person appraisal for those properties that qualify. However, appraisers argue the move could lead to more inaccurate estimates, as well as sellers who become more unreliable about their home’s value. According to the FDIC, the automated evaluations “provide an estimate of the market value of real estate but could be less burdensome than appraisals because the FDIC’s appraisal regulations do not require evaluations to be prepared by state-licensed or certified appraisers”.

“In addition, evaluations are typically less detailed and costly than appraisals," the FDIC added.

Such evaluations have been required for transactions exempted from the appraisal requirement since the 1990s.

If the move does go through it still wouldn’t apply to government-backed loans from agencies such as the Department of Veteran Affairs, the Federal Housing Administration, Fannie Mae or Freddie Mac, which all have their own standards for appraisals.

Buyers and homeowners who are refinancing could save an estimated $500 by forgoing an in-person appraisal. However, appraisers say automated appraisals are unreliable.

“Automated valuation models are when you throw a lot of data in the hopper and flip the switch; it churns, and it spits out a value,” Jonathan Miller, president and CEO of New York–based appraisal firm Miller Samuel Inc., told realtor.com. The problem, he says, is that AVMs don’t account for property condition, which lead to “wildly inaccurate” estimates.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
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