Out-Competing AVMs

Editor’s Note:  Appraisers can combine their expertise with technology to compete and beat AVMs, according to appraiser and Zaio Chief Executive Officer Thomas Inserra, SRA. Read his thoughts below.

Out-Competing AVMs

by Thomas Inserra, SRA

Appraisers don’t have to accept the continued loss of business to AVMs. They can compete for the business and win by combining technology with their professional expertise and by “pre-appraising.”  

2007 will be a major transition period for appraisers. Over the last 10 years, appraisers have lost 70 percent market share to AVMs, BPOs and other non-appraiser valuation products that out-compete us by using technology and speed of delivery to their advantage.

Appraisers can and must follow their lead. If we don’t take immediate and decisive action, we appraisers will continue to lose market share in 2007 and beyond. While this loss of work is most apparent in the residential sector, there are signs that technology providers and other non-appraisers are already working on ways to penetrate the commercial appraisal market as well.

AVMs: Less Risk?
Freddie Mac dropped a bombshell on the appraisal industry by announcing in November that for three consecutive years a portfolio of loans originated by AVMs (provided by a computer) is outperforming on a risk adjusted basis a portfolio originated by appraisal reports prepared by experienced and licensed appraisers.

The likely cause is a rise in inaccurate value conclusions from appraisers who caved to the frenzy of lender pressure. The results suggest that the independence of appraisers has been compromised. As a result, lenders may actually face a higher level of risk when using a licensed appraiser than an AVM!

There is a false perception among appraisers that government regulation will solve the problem. The reality is that it is not possible to legislate ethics. Our best hope lies not in trying to mandate ethical behavior by loan officers but rather in reengineering the appraisal process so lenders never get the chance to pressure appraisers.

Zaio believes that 2007 will mark the first year of widespread acceptance of “pre-appraising,” which involves the independent appraisal of real estate by a licensed appraiser with the inspection and date of valuation occurring just prior to the loan transaction, rather than after the origination of a loan transaction.

Zaio believes that the most effective way for appraisers to reverse the trend of declining market share is to embrace pre-appraising as a method of restoring independence and eliminating lender pressure, and the mad rush to finish appraisals by a certain deadline, which can lead to sloppy work and decreased quality.  

Appraisers can beat AVMs at their own game by using technology to improve the quality and accuracy of their reports. Technology makes analyzing substantially more data possible. Pre-appraising, or having an appraisal ready in advance, removes the speed advantage of AVMs, as well as the pressure from lenders to make a deal work.

Zaio’s software helps appraisers to more thoroughly evaluate all comparable sales rather than just three, to more efficiently appraise properties and to allow an appraiser to monitor and update the value of an entire database of appraisals on a daily, weekly, or monthly basis, which means appraisers truly can become the ultimate expert of property values in their local areas.


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