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Freddie Mac AVM to Assist with Appraisal Reviews

Freddie Mac announced that starting February 28, 2010, Home Value Explorer (HVE) will assist lenders in reviewing appraisals.  Loan Prospector will provide a point value estimate for the property address from HVE, which is Freddie’s AVM.  The use of HVE, along with appraisal best practices, can be found in Seller/Servicer Guide Bulletin 2009-18.  Loan Prospector will return the HVE point value estimate that can then be used to determine whether an appraisal requires additional review.

Freddie Mac recommends that if the variance between an appraisal and the HVE point value estimate is more than 20 percent then: 1) the appraisal should be considered for additional review by a senior underwriter or in-house appraiser; 2) obtain a review appraisal or a second appraisal; 0r 3) reject the appraisal.

Freddie adds that the HVE point value estimate from Loan Prospector should not be shared with the appraiser of the subject property; and all HVE data should be treated as strictly confidential and appraiser independence should be maintained.

Comments
  1. ANOTHER DUMB SHORTCUT! GET A FULL 2000 REVIEW AND MAYBE YOU CAN GET A TRUE PICTURE.

  2. Courtland

    Please AVM aren’t worth the paper the generate. I had a loan that I ran through Citi’s AVM system on a 2nd mortgage. This was a purchase transaction for $130,000. It was a market transaction (two different realtors – no fraud). The AVM came back at $189,900.

    Um, isn’t the condition of the interior of the house germane to determining the value of a home? Drive by appraisals. Brilliant, just brilliant…

  3. Sandi.

    AVM’s do a disservice to everyone. Data only valuation is not a true indicator of a home’s value. The reason you have appraisals is to validate the size/room count and quality of the construction. AVM’s only take the tax data whichi usually does not have accurate information for size, number of bedrooms, baths, etc. I don’t like HVCC, but this is worse and will further hurt the housing industry. Whatever happened to “market value” – the cost a buyer is willing to pay to a seller willing to sell.

    If approving loans based on an automated computer model has been proven not to work – why would using an automated computer model to say yes or no to values be any better. There is a reason people underwrite risk and a reson appraisers write reports basedf on a physical inspection. The definition of insanity – doing the same thing over and over expecting different results. I think it fits in ths case.

  4. Mary Wolak

    So this means in a subdivision, a molel is worth what a model is worth with no consideration to upgrades or downgrades? This is as bad as using some of the current sites that use old public records. Another way to ruin the housing market!

  5. I think the automated systems do not give the property the full benefit esp if a foreclosure and lacking appliances and has mold etc. or an overbuilt house for the neighborhood EVERYTHING has exceptions and the system does not allow for that. Look at Realty Trac and Zillow their values are not even close to being correct by just pulling sales in a certain area and nothing more yet this seems to be the way things are going. It seems to not matter if you have high end appliances or tile floors vs no appliances and old carpet that needs replacing just as an example. I see this as only causing lots of problems and trying to put ALL PROPERTY in the same bracket. This will only hurt values and the whole mortgage system

  6. PJTMC

    Classic……do the people making these decisions have a clue? I think not. I agree with the other writer “interior conditions”…… they don’t need to know about no stinkin’ interior conditions….full steam ahead.

  7. David Rasmussen

    60% of all properties in this county are outside city limits. Using an AVM is like using a tennis racket to swat flys.

  8. Beth Aquilizan

    Here is a copy of a reply I sent to an AMC client (for Freddie) requesting I discuss why additional properties they designated were not considered in a review I performed: (subject property address has been removed for privacy)

    You have asked me to comment on additional properties from the neighborhood which you have specified and to indicate why I have not considered them in my analysis. The properties are 14009 SE Mall Street, 6204 SE 136th Avenue, and 12646 SE Harold Street.

    In performance of any review, I run a search for comparable sales as of the date of the appraisal using the subject description as given in the original appraisal. The resultant comparable sales are a starting point to determining whether the most similar comparable sales have been included. In this instance, the search provided me with several sales, including the comparable sales included in the original analysis as well as three others which I deemed relevant to the analysis and which I physically viewed in performance of my review. Those properties are: 4255 SE 117th Avenue, 13707 SE Raymond Street, and 15012 SE Gladstone Court. I have determined that the original appraisal included the best available sales, and that these additional sales support the value arrive at in the appraisal.

    The 3 properties which you have asked me to comment on did not come up in my initial search for comparable data. A review of the RMLS data related to these sales clarifies why this is the case: two have very limited physical similarity to the subject and the third did not sell on the open market, in addition to being physically dissimilar.

    It appears that an AVM has been utilized which culled these properties as “comparable” properties to the subject and exposes the weakness of such valuation models. 14009 SE Mall Street has had no upgrading; the original appraisal includes comparables which have been upgraded to a degree similar to that of the subject. 6204 SE 136th Street is located on a 8772 square foot parcel. The original appraisal included comparables all of which, like the subject, are located on oversized parcels with a potential for divisibility. 12646 SE Harold Street is a sale which is reported through County Files but was not a property which had been exposed to the open market for sale. It is not possible to determine whether the transaction had been an arm’s-length transaction, and therefore, inappropriate for use in an appraisal analysis. Additionally, this property also is located on a small (6615 square foot) parcel.

    At the risk of putting an unprofessional finish on this communication, I am going to take the time to vent my frustration at being required to respond to this request. I have been furnished with supposedly appropriate additional sales data and required to discuss why they were not included in my analysis. As my comments above make clear, these properties would not have been considered appropriate comparables by any reasonable appraiser. It is obvious that an automated module has spit these out from a database consisting of all property transfers reported by the county, whether verifiable as arm’s-length transactions or not. I have described above how I cull and analyze comparable sales for a review. It is obviously vastly superior to the method utilized which resulted in the selection of properties your client has asked me to comment on. Your client may be well-served by a suggestion to employ an actual appraiser to select comparables which they would like a reviewer to comment on.

    Thank you for reading this.

  9. Comp selection is tough. Agents are not always accurate with the true condition of a property when they enter marketing remarks in the MLS. AVM’s require a preparer to make a lot of “assumptions” about the subject and the comps. Markets mixed with REO and FMV sales are also a challenge. Often, the preparer is not informed of the purpose of the AVM. There is a big difference in scope when a bank wants to know a 30 day liquidation value compared to an owner occupant refinance value.

  10. Baldo

    Jeez Louise
    Why bother with the appraisal, Just use the AVM, HVE and watch the market crumble
    Of course if no one is doing appraisals, where will they get the data to create the HVE?

  11. FCL

    How unfair………and we call this a free country? Eventually people will not think that it is worth owning property and taking pride in what they own. More battles for the homeowner when they feel it is time to sell their treasured possession. More sacrifices for the diligent buyer when they want to purchase their greatest investment. More discouraging news for the Real Estate industry. More Unnecessary Govt. control…………….going too far!

  12. Toby

    Investors will not accept AVMs as an indicator of value. They will, however, consider them in the review process. They are a “cheap” first filter to determine what level of review an appraisal requires. Investors have been using several private lable AVM sources with even more dubious valuations. Freddie should be applauded for circumventing this practice with a much better process. Certainly not perfect, but the lesser of the evils. Besides, the twenty percent variance is not unreasonable for this purpose. The HVCC has ensured that appraisal quality is inconsistent, thus requiring further review protocols.

  13. Rob

    I actually love HVCC. I am no longer controlled by HMC’s and no longer have 5-bosses on every deal. This should of been done 20+ years ago. Come on–Think about it…HMC works on commission and has the ability to select which appraiser he uses …..The system was set up for Fraud over 20 years ago and it finally caught up with us……

  14. Mary Davin

    To fully understand the differences in valuation methods with often conflicting results, all real estate professionals – brokers, agents and mortgage personnel – should be required to take the USPAP standards and basic appraisal courses, through to the Market Data and Analysis class. Only then would all the players have a better understanding of the appraisal process and how true value is determined. The true value of a property, for ethical appraisal purposes, is NOT determined by the uninformed, eager buyers and broker/agents who overbid and artificially escalate the value of a property – such as happened at the height of the market from 2003-06. Nor by pressures of the bank and mortgage underwriters. The same is happening today with foreclosures in some markets selling at inflated values driven by competetive and zealous investors and buyers.

  15. Thomas Feeney

    OK…, where do I start. With the advent of HVCC, effectively house values will never appreciate. Appraisers have no/ lost the incentive to consider the intrinsic value of a house. A house is a home for a family.., like finger prints everyone is different; not simply brick and mortar. We’re deep in the process of eliminating the human factor of buying a home. What happened to the tried and true adage that the value of a commodity is what a willing able buyer pay for it. Why do sellers price there house on the open market…., why do we still have that in the equation? Shouldn’t the seller just put the house on the market and plug the sales price in to a pricing model and the buyer will pay that amount. Why do buyers and sellers negotiate…, the foundation of an “open market”. There must be something between Skynet and vapor properties. But, now that the government is involved we are using a canon to tune a piano.

  16. Robert Schafer

    AVM is a joke ! I have received AVM’s from time to time in my business to find them to be extremely inacurate. When trying to establish a value on a single family residence, I have received data on Condo units. In addition, AVM does not take into consideration location, views, condition, upgrades, quality of construction, any additions, parking or other amenities which may influence the subject’s marketability. In a custom home market, such as Mammoth Lakes, AVM’s will only lead to misinformation and providing unreliable loan criteria. This information does not protect the lender or the borrower and will only lead to more bad loans.

  17. Linda Wieneke

    Unfortunately for appraisers and lending institutions. Whenever the government becomes involved in anything. They generally make it worse than it was. Advice from people who are not actively in the field doing the work. Is not useful data.

    There are appraisers out there that shouldn’t be in the field. The 10 minute field inspections some bad seeds make are not true appraisals. I generally spend at least an hour or more thoroughly inspecting the house and property. Then more time for the neighborhood and the comparables. I follow all the guidelines, take lots of pictures and provide an underwriter with the ability to confirm my numbers. In others words I earn my fee.

    Then I’m expected to share that fee with AMC’s and every other idiot who wants a piece of it.

    Now they want AVM’s. Good Luck! I know my local counties records are never up to date or correct. And don’t get me started on mistakes. Isn’t that where AVM’s get their data. lol Let’s make the mess worse than it is Washington.

    My suggestion is to back up the clock to before HVCC and provide better review of reports that are in question. If an appraiser is found negligent punish that appraiser not the whole. Which is what should have been done to begin with. Plus I think all of the grandfathered in appraisers that never had to meet the new guidelines. Should have been required by the state to pass the current testing to show that they are up to date on all educational issues. But that is just my opinion and observation.

  18. The biggest problem with any AVM is that there is no filtering–so all sales are included. All comps are sales; all sales are not comps. This will not substitute for a real live LOCAL appraiser with a knowledge of the nuances of the local market.

  19. Another ridiculous hoop for hard working and under paid appraisers, thanks to AMCs, to jump through. Now I will have to argue with a computer about how I came up with the market value. They won’t even share the AVM with the appraiser. So even less needed communication. HVCC SUCKS!!!!

  20. Colleen Patterson

    A few months ago I read FHA had determined that since the HVCC went into effect, the accuracy of the appraisals they were receiving from appraisers had improved 15%. They knew this because when they ran HVMs on the subject properties, they found that the appraisers were now coming in closer to the HVM value by some 15%.
    Do HVMs make their buck by giving low values. No? No money in that! They are not only consistently inaccurate, they are significantly inaccurate on the high side. Could that have anything to do with their increasing encroachment into the business? Seems to me like a more economical, reliable and direct route to overappraising. I did my usual compulsive, thorough research on an assignment recently, applied 20+ years appraisal experience in four states, and submitted a carefully considered value. I got a call from the AMC that the underwriter ran Zillo on the property and found a very different value conclusion. I don’t doubt it. And the inference of course, was that I was in error. That I do doubt. If these uses of AVMs seem harmless to you, I suggest the old foot in the door theory. That is what these “reviews” in fact are. In time the acceptance of AVM as primary value sources will surely grow – they are cheap, fast, and higher. Yummy, who could resist. And when these loans get blocked with the other securitized mortgages from the $150 per appraisal brigade favored by the AMCs,
    we will see another crisis – surprise!- that will dwarf this one. And then the human appraiser will be revalued. And most of us old experienced warhorses will be pasturing elsewhere, and the capable young will have wisely applied their resources elsewhere. Guess what we will have left. And yes, of course the answer is for systematic full reviews by capable local appraisers of work being done for lenders and the secondary market. Does that even exist any more? The investment of a few hundred dollars to verify an investment of hundreds of thousands? And going back to that 15% “improvement”. What do you think that really means? A pushing of values 15% over what used to be the norm under the old , pre-HVCC system?

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