An Appraiser's View

IS THIS THE END of the real estate agent profession? 
            A fair question if you are a broker or agent, especially if you are one who advocated the use of online valuations and appraisal waivers because you did not believe appraisers brought any value to the real estate transaction. If this is you, you question because you do not value what you do any more than you valued what appraisers do. And just like with appraisers, you are wrong, but in the end it may not matter. 

The threat of the demise of every profession is real, has always been real, because change is inevitable.  

A Little History
Is technology the end of my profession? It is a question appraisers have asked themselves for the past 25 years, and with good cause. As the only unbiased and legally required honest participant in a real estate transaction, appraisers have been under attack by agents, loan officers, lenders, builders, banks, buyers, and sellers since the day I entered the profession 24 years ago. The day I started my training I received a magazine in the mail proclaiming the end of the profession was here as AVM's were gaining popularity. Over the past 24 years I have read an article a month on how I am being replaced with a variety of valuation tools, including appraiser modified AVM's, AMC's, BPO's, Zillow, and appraisal waivers. The articles always cause me a little stress, but with a little cognitive reasoning, I always come to the same conclusion. As long as the Lender is responsible for the loan, they will rely on appraisers that cannot be manipulated like data only valuation models, a.k.a "Big Data". 

Where does Big Data Come from? 
Well, for the most part, appraisers and real estate agents. 
15 years ago, a few AMC's forced appraisers to sign an agreement that once they sent their appraisal in, it no longer belonged to them. Appraisalport, an appraisal delivery platform, required this as well. Six years ago, the largest appraisal software firm was sold to the largest provider of data only valuation models, Corelogic. The purchase stipulated Corelogic could not data mine the appraisals of those who used the platform (Thank you Dave Biggers). Undeterred, Corelogic purchased Appraisalport in at the end of the same year. But that only gave them access to the data in a portion of the appraisals, so in early 2023 they introduced a voluntary program where appraisers could share their data between each other, all they had to do was agree that Corelogic could also use the data. I still get a couple emails a week asking why I have not agreed to this. Yes, even my appraisal software company wants to replace me lol. 
 
This all became possible because in 2010, in response to the real estate market bubble bust, Fannie Mae introduced the Uniform Appraisal Data set and required all appraisals be completed using uniform terminology so they could compare one appraisal to another to determine if there was fraud. The alarm was sounded by several appraiser organizations, and subsequently Fannie Mae assured appraisers they would not use the data collected from the appraisals to create their own online valuation model. Three years later they began offering appraisal exemptions if they already had an appraisal on the property. Those appraisal exemptions evolved over the past few years into appraisal waivers and as of April 1st, Fannie Mae allows anyone trained, not licensed, to provide a property inspection if the lender is willing to accept the data from the inspection. When combined with a data only valuation, Fannie Mae no longer requires an appraisal on any property. The deterrent for the lender is they have to accept the both the physical and data only property data as being accurate, and if it's not, they may have to buy the loan back from Fannie Mae, which I am assuming would only be discovered if the loan went into default. I have evidence that 1/2 that equation won't be an issue within the next year. Fannie Mae's has current online job postings for AI developers totaling over $50 million a year in salary offerings. It appears they are building their own valuation model using the data from the appraisals they promised not to data mine.

When Appraisers are gone, no one will look out for the consumer, unless....
AI will replace appraisers within the next three-five years unless the programmers and owners of the AI are held responsible at the same level appraisers are. (i.e. If they are found to have been used to inflate values by intent or through gross negligence, the programmers and owners are each subject to loss of career, a $1,000,000 fine, and up to 30 years in prison). That should include those who work at and run Fannie Mae.  I believe a class action antitrust lawsuit will happen after the next housing market decline. The question is, will it be too late to save the appraisal profession?   

All you talked about was appraisers, what about real estate agents? 
You are right. But I believe my journey is relevant to yours. I like to think. And I also think I'm intelligent. Over the years I concluded that if lenders were willing to spend millions of dollars and increase their risk to get rid of appraisers to reduce costs, turn times, and increase the number of loans they make, they would be willing to do the same for the two most time consuming and largest cost in a real estate transaction, the agents and the loan officers. The change in real estate commissions is only the 1st major change, softening you up for what's to come. I have long envisioned a system where you look online or in a neighborhood for a home, text a number, and the closest uber driver comes to let you in. "Showingtime" is a huge step in that direction. You think you can't be replaced? Forms have become standardized, mls is available to anyone, there are multiple platforms for uploading your own photo's, measuring, etc. All the tools are there to replace agents and brokers, and the only thing slowing them down is the NAR. 

Why you, (and they), are wrong, but it won't matter.
Like appraisers, honest and ethical agents bring enormous value to the transaction. Agents can help see through the mountains of "selling points" and advise buyers on the market, the neighborhood, the schools, even the neighbors, based on their own personal knowledge. They can help sellers get the most for the home by advising them as to what repairs they should make, providing decluttering and staging tips, and explaining up to date marketing ideas. Agents often have a network of people they work with including different loan officers for different types of loans, staging companies, landscapers, handymen, oops, handypersons, and even appraisers who will get accurate ANSI measurements, listing pricing for complex properties, and buying price for cash buyers. In short, honest and ethical real estate agents are critical to ensuring a seller gets the most for the property and a buyer gets the best deal. But in the end, it will not matter. 

Like the Blake Shelton song, you would call me crazy if I shared how I grew up. We were not wealthy, and for things that would wear out quickly, my parents took us to Kmart. But for things that mattered, like Toughskin jeans, appliances, tools, and tires, they shopped at Sears. Because when it mattered, they wanted quality over price. When I started adulting, I followed the same pattern. I bought all my tools and appliances at Sears, and they lasted. But then along came box stores and cheap imports, and the consumers bought into them for EVERYTHING. Sears was gone when I needed appliances in 2020 for my kitchen remodel, so I bought the highest quality box store appliances I could find. They were pretty, but they do not work as well as my Sears Kenmore Elite had, and 4 years later the stove needs replacing. Ugh. 

Consumers have switched to choosing price over value, even for long term items. And that is why I believe that although it may take 10-15 years, quality real estate agents and loan officers will be replaced with unethical ones. Because providing value takes time and money, and consumers prefer Walmart to Sears. 

   

Do you look at your property tax bill and wonder why it keeps going up every year? Although a percentage of the increase is likely due to government imposed and voter approved “fees”, the largest increase is most likely due to an increase in your assessed value. This is especially true if you have owned your home less than 10 years! But what is assessed value, where does it come from, and is it accurate? Great questions, I’m glad you asked!

1^st off, no, it is not accurate, nor is it intended to be. Here is why. Assessed value is the value your home is given by your county assessors office each year. The value can be developed by the assessor’s office by utilizing data from various sources, such as the price you paid for your home, adjusted for the average yearly market increase in your market area, improvements to your home or site derived from county building permits, and/or a “mass appraisal” of homes in your market by the assessor’s office staff appraiser. None of these include an actual inspection of your home nor do they currently have access to any appraisals completed on your home for any purpose. Therefore, it would be impossible for them to be precise in the development of your assessed value. This also why appraisers do not use assessed value as a data point when developing an appraisal (yet online valuation models rely on them, but that’s a different blog for a different day)

If you disagree with your property tax bill you can file an appeal with the assessor’s office and they will review your tax assessment, but they will not inspect your property, therefore a tax appeal is most successful when it includes a full appraisal by a licensed appraiser. We are an unbiased 3^rd party with no interest in the outcome of your appeal, so the assessor trusts our opinion. Because we are unbiased, telling an appraiser what you need the property to appraise for should cause the appraiser to recuse themselves and refer you to a new appraiser. An appraiser’s job is to provide an opinion of value, not a high one, not a low one, just one that reflects what the market indicates your property is worth. There is however a way you can influence the appraiser’s opinion of value to be lower. Here’s how.

Complete the following steps before the appraiser arrives & it will affect the opinion of value of your home.

1. Let your pristine landscape and hardscaping go. I’m talking dead plants, shrubs, knocked over tress, 2’ tall overgrown lawn with weeds. Take a jackhammer to sidewalks, patios, and retaining walls, and cause some real damage! You could even make a little extra cash by allowing contractors to pay to dump their construction debris all over your site.
2. Do not clean your house for at least a month. Leave dishes, dirty clothes, mud, etc. where it is. Don’t take out the trash, let it pile. Stop by some yard sales and get free items to place throughout the house. Pile the floors with junk high, the counters even higher. Do not leave old food in the fridge. Appraisers don’t look inside the fridge and honestly, that’s just disgusting.
3. Destroy your flooring. Bring an engine into the living room, get oil and grease on the carpet, leave an oil pan out with oil in it and a few parts laying on the floor.
4. Decorate your walls with custom graffiti. This one can be fun! Get those old cans of spray out and go to town! Just make sure you are not artistic; a good Disney mural might have the opposite effect on the appraisal. A few well positioned holes in the drywall are always a good negative value impactor.
5. Make it appear your roof is failing. You don’t have to destroy your new roof, just run a hose into the attic, attach a sprinkler, and let it run for a couple hours every day for a week. The damage will be extensive and should give the appraiser cause to make an assumption the roof is in need of replacing (along with the drywall, insulation, flooring, and well, maybe the entire roof depending on what the sprinkler hits)
6. Have a kitchen fire! Go ahead and start a fire on your stove. Let the smoke damage your entire house. Do not clean it up. Do put out the fire though.

*Note* The above recommendations are both tongue in cheek and based on actual experiences I have appraising homes. Please do not do any of them. The cost to repair will outweigh any tax savings by tens of thousands of dollars.

Next week’s blog is “How to increase the value of your home by $5,000 with just a $10,000 investment!”

The point is if you need an appraisal for any purpose, tax, refi, estate, or divorce, improvements (or dis improvements) to your property aren’t necessary as they typically do not result in enough of a difference to warrant the cost of the improvements. Appraisers are also trained to “see” things that impact value, both positively and negatively, without you having to stage your home.  

If you need a tax appraisal for appeal, or just valuation for an estate, don’t damage your home! Give us a call today @ (916) 303-0960 and get an unbiased opinion of value. A valuation you can rely on.

Eagle 
  Appraisal 
        Services  "We Value Your Home" Tm
5693 Sparas Street
Loomis, Ca 95650
Cell (916)303-0960

 

Lamar Jackson's inability to get a contract negotiated is the 2nd biggest story of this NFL offseason, and the rhetoric has me wondering if anyone really understands how this (and home sales/appraisals) actually work? Let me try and summarize it. 
The work that goes into determining the right deal for an NFL contract is enormous. Each potential signee is individually assessed by 32 different teams for their weaknesses and strengths on the field, in the locker room, off the field, in the off season, potential income they will generate, injury risks, estimated number of years left contributing at current rate, and an estimate of contribution at a either an increased or declining rate as the contract ages, depending on the players projection. The team then looks at the entirety of the market, comparable available players, what they are asking for, comparable unavailable players that have recently signed a deal, what were the terms of that deal, and what the team has available to spend. Because each team performs their own analysis each will have their own opinion of a players value. The work and analysis that needs to be done is similar to an appraisal of your home for a mortgage, but differs in that it only takes into consideration what the value is for a specific buyer, which is why some teams are willing to pay more than others. 
Lets look at the contract negotiations from the players side. Most players are represented by a sports agent that either has a long history of successful contract negotiations or works with an agency that does. These agents and agencies do their own research on exactly the same thing the teams do, discuss their results including how they players value may be higher for which teams and why, and come to an agreement on how much they are going to ask for prior to taking calls and offers. Once they have agreed on what they feel is their market price, the agent brings the player to the market. The analysis and agent/player agreement is similar to what an appraiser and real estate agent would do if the property had unique features that would be best marketed to a specific clientele.
  But if all sides have done their homework, why doesn't Lamar have a contract yet? From an outside point of view, it appears to be because Lamar is his own agent, and the valuation of himself done by himself, is at above current market due to his own bias (sound familiar agents?). Although it is possible race may play into some owners or general managers decisions, it certainly does not apply to all of them. The owners are in the NFL business for 3 reasons. Money, glory, and  power. If a player can bring them either of the 1st two on the list, they will be signed. Period. But despite being available for an amount less than what Lamar is asking the Ravens to pay him, not one team has made an offer. That is the fact of the market for Lamar today, and the market is what determines his NFL value. 
 

As a long time die hard 49er fan I have spent a lot of time watching games both in person and at home. I also enjoy preparing to watch games as if I am the coach, breaking down the opposing teams strengths and weaknesses, how they match up with my team, how my team should adjust, and how their team may adjust. The last two years I have added in how the assigned refs will influence the way the game is played. As an expert in both fields, my honest assessment is NFL officials are nowhere near the standard of excellence required of real estate appraisers. 
For instance.
A real estate appraiser provides an unbiased opinion whereas NFL refs are influenced by the home crowd.
A real estate appraiser does their due diligence on each aspect of the appraisal. NFL officials make the customer (the coach) request someone else look at it in order to ensure it was correct. And they limit them to requesting accuracy twice a game. 
A real estate appraiser reports everything they see. An NFL ref "let's them play" which alters the result. and  
A real estate appraiser can take as much time as needed to be accurate, whereas an NFL official has to keep the pace of the game. 

Wow, in looking over the list, it appears NFL officiating is similar to an online valuation of your home, quick, but not very accurate.
 
To be fair, it's the speed at which the decision is required that affects the accuracy, not the integrity of the appraiser or ref. So the next time you get impatient with how long an accurate, unbiased appraisal takes remember, the alternative is a poorly called game that has a 50% chance of altering the result against you. 

It's been one heck of a season, 
FAITHFUL THEN, FAITHFUL NOW. GO NINERS!! 

It's been documented that a business that puts forth an opinion on a political hot topic is committing suicide. I believe that CAN be the case, but I also believe being silent on an important issue that is within your area of expertise can also be detrimental to that business. For me, racial bias in appraising falls in the latter category. So lets dive in. 
First of all, let me be transparent. I have not yet taken the course on racial bias that I will need to take before I can renew my license. I am purposely venturing an opinion prior to taking the course, because I am curious if my opinion and approach will differ once I have the required education? I am open minded but as of now cannot see how it could change. Here's why. 
Appraised values have been required by federal law to be unbiased since 1983.  Additionally appraisers are required to use the most relevant comparable sales or they are also in violation of both appraiser bylaws and federal law. The State of California also has laws against appraiser bias. Yes, I realize that just because there is a law doesn't mean everyone abides by it and that bias doesn't exist. It just means that a biased appraiser would need to be diligent in preparing a biased appraisal that would not raise red flags so as not to get caught. I'm sure bias happens, but not in my reports. I always report my opinion of MARKET VALUE which ensures I do not have bias or prejudice. What do I mean by "Market Value" and how does that keep me from being biased? 
Market value, as defined for federally related transactions, is what a TYPICAL buyer would pay for a home. The determination of a typical buyer includes location, size of home, size of site, age and condition of home, quality of home, etc.. Market value does not include a neighborhoods make up of race, religion, sexual orientation, etc. . Think "If I found a house I wanted to buy, who else would be looking to buy that home?" Those are the typical buyers for that house. Using comparable sales from outside the defined "typical buyer" market throws up a red flag that the appraisal needs to be reviewed which cause the appraiser more work. I think it's important to also understand what exactly is a comparable sales. 
A comparable sale is just what it sounds like. It is a sale of a home that you and other typical buyers would considered similar to the home you are wanting to refinance or buy. It is rarely an exact match, but should be similar in some of the following. Location (think things like School district, near freeway, rural area, etc), living area, bedroom count, bath count, stories, amenities, and site size. ie; If you are buying a 2500 square foot, 5 bedroom, 3 bath home, would you pay the same price as you would for a 1500 square foot 3 bedroom 2 bath home on a similar sized lot in the same neighborhood? Of course not. Similarly, you probably would not pay the same price for a home that is located in an neighborhood that has industrial and commercial uses as you would for one that is in a quieter neighborhood. Basically, comparable sales are sales that have the features most similar to the the home you are wanting to buy or refinance. A neighborhoods racial or religious profile should have no influence on which comparable sales an appraiser uses. In fact, I believe it has no place in any industry.  
I am not racist or prejudice. I have seen it and it's both disgusting and confusing. I like talking to people, especially those who have culture. How can someone judge a person without getting to know them? Do they not realize what they are missing out on? I have been invited to many family Bbq's of people I have just met and the celebration itself is the only reason I remember what race or religion they were. 
Anyway, I digress from the point of the post. (Climbs down off soap box) The point is, I understand racial bias exists in appraising, it just doesn't exist in mine. 
 
Have a great day everyone, talk to people you don't know, and enjoy life! 

  

A recent price shopper asked me "If online valuations are free, why does an appraisal cost so much?" The reason is both simple and complex. The simple is, online valuations aren't required to be unbiased or accurate. Providing an accurate opinion of value requires an inspection not only of your property, but a neighborhood inspection, and a street inspection of all sales deemed relevant. This takes extensive time, gas, and unbiased reasoning. If you don't need an unbiased accurate opinion of value, I will tell you. But first I must know the reason you want an appraisal. That's where it gets a little complex.
In every appraisal request I determine the scope of work before I provide a fee quote. It is as important for me to understand the reason you need an appraisal as it is to have the details on what is being appraised, because the time needed to inspect and complete an appraisal depends on the purpose of the appraisal. The fee is based on the time needed to provide an accurate opinion of value. Although there are typically only 3 or 4 sales plus a listing or two in the reports I complete, those sales are selected after extensive research into 20 to 30 sales from within the market.  Rarely are the 3 sales you see the "easiest" sales, which is what online valuations use. The average time to complete an appraisal today is 10 hours. Add in the cost of a vehicle, gas, yearly schooling, tools needed, mls access, insurances, software, etc. and the cost per appraisal easily exceeds $500. It's possible that you can hire an appraiser for less, but based on the math, you may end up with the equivalent of an expensive online valuation.
When shopping around remember, your are getting an appraisal because you need an accurate opinion of value, so you might want to hire an appraiser who is good at math.      


     

Ok, now that I have your attention, no, the market is not declining in most areas, but I guarantee you it will. When? Well, if I knew the answer to that I would be sipping a beverage on the beach of a tropical island instead of trying to help people prepare for the coming market decline. That said, when asked, my magic 8 ball responds with "Without a Doubt" and "You may rely on it" instead of the  "Cannot predict now" it was coming up with just a few months ago. Given the accuracy of the 8 ball I myself have decided to prepare for the decline. I recommend you do the same. 
But how do I "prepare" for a market decline? I recommend three things. #1 Refinance out of a variable rate 1st mortgage. #2. If you have a HELOC balance either pay it off or refinance it into your 1st *Note* If when refinanced you will not be able to afford payment do not refinance. and #3. If you are considering investing in distressed sales by tapping into your home equity, increase the value of your home so you can get the lowest rate possible on monies borrowed. 
Which brings us to the meat and potatoes. How do you increase the value of your home in a declining market when with a few exceptions, remodeling currently  increases home value by only 70%-85% of the cost? Yes, I have seen all the tv shows and even know a few contractors who specialize in flipping properties. They have a spreadsheet that shows what they paid, what their costs were, and how much they sold it for, usually showing a 15-20% flip profit. But they are leaving out two important parts of the formula, their own labor costs and the time factor of an increasing market. (The home would have increased in value during the time they were remodeling whether they remodeled or not). Plus, if they are acting as the real estate agent they leave their 3-6% sales commission out as well! When these are added profit usually drops down below 10%. Which means the exception is, if your home is in need of repairs and/or significant updating, taking care of your home maintenance, finishing those projects, and updating your home can increase the value by as much as 10% in a declining market!  
My magic 8 ball says the market decline is coming "Without a doubt" so my advice is don't wait. Prepare your home today. 

Will appraisers be replaced next year with big data provided by companies like Corelogic, Zillow, Cubicasa, and Open Door? 
?            Well, no. And yes. I entered the profession in 2001, and one week after starting my new career I was stunned to find a front page article that laid out the end of the appraisal industry within a year. The culprit? Big data and appraisers who unknowingly allowed companies to data mine their appraisals, (The content once belonged solely to the appraiser and use of the content for anything but the purpose stated by the appraiser was prohibited) but that's a story for another day. Today I want to talk about why does big data and algorithms continue to fail to be accurate?
            First a simplified explanation of what big data is and where it comes from. Big data in the appraisal industry is a compilation of everything real estate. It is data mined appraisals uploaded through software companies, the entirety of Fannie Mae and Freddie Mac's appraisal portfolio, current and past mls data, county records, national real estate trends, local trends, and more recently, third party property data such as building sketches, all input into an AI system that analyzes it in seconds and spits out a current market value. The key to accuracy is the algorithm(s) it uses. And in a subdivision of similar quality and condition homes, it can be accurate. But it isn't always. Why?
            I have explained for 21 years why online valuations aren't accurate on properties with non standard amenities, the easiest explanation being that if an appraiser failed to consider non standard amenities in developing an an opinion of value for a property they wouldn't be accurate either. But the losses incurred by Open Door this year and my direct knowledge of homes they overpaid for last year when the market was increasing had me wondering how their model is so far off on a simple tract home. The answer is they have a faulty algorithm. It may be as simple as they built their algorithm during a historic market increase and the AI determined the increase would continue, or the human component influenced the AI by buying properties above the suggested value. In any case, like the platforms before, it failed to be accurate on a large scale.  Imagine big data, algorithms, and private enterprise as the only means of valuation in a declining market and how that would affect lending abilities and home prices? Yikes!  
            Markets change, neighborhoods change, buyers preferences change. What increased the sales price by 5% in 2010 may not affect the sales price today. Algorithms and AI can only consider data after enough of it has been compiled to affect the algorithm. Any change to that and you end up with home values being based on the last house that sold. As appraisers we analyze the last hold sold, contact the selling agent, look through photo's, drive by the property, etc. and incorporate the result in developing their opinion of value of your home.  
            The appraisal industry isn't the only one experiencing big data pains, and certainly isn't the 1st. In fact, big data has been around since the early 1980's. I embrace big data fully, and even wrote a big data program in the mid 1980's (DB3 anyone?). But big data has it's faults, and those faults haven't changed much in 40 years. You ever wonder why your local hardware or big box store is always out of something? It may be because they use big data to order for them. Big data orders based on what is selling, and if at the time of inception there wasn't much inventory on an item, sales would therefor be low, and big data can only order off that data. Example. An electrical supply house installed a big data ordering system. At the time they had just sold all of the most popular romex wire they had in stock, 14-2 with ground. The computer didn't order any because it had no record of selling it and it took a couple months before a human was able to override the system. It was 1988 and they lost over 3 million dollars in sales, as well as several customers. Today we have algorithms all over the world basing what is needed on data acquired during the pandemic. Inventories are undersupplied and staffing is shorted today because a computer is telling humans what is needed and humans aren't being allowed to override the systems.        
            There is a place for big data. The more data we have the more accurate an appraiser can be when comparing properties and market influences. When I started in this industry all the data was obtained in a printed book, on a black computer screen with green writing, driving by a property, and calling the listing agent. Today we have multiple sources of photo's, permit records, assessor records, etc. at our fingertips which help, but big data cannot (yet) replace a physical inspection by a knowledgeable appraiser who can consider the quality of materials, condition of the improvements, location influences (does it really have a view?), and functionality of your home.  
            So no, big data is not replacing your trusted appraiser next year. But yes, if appraisers stop providing more accurate opinions of value than big data does, then they will be replaced.