Corelogic Take on Appraisal Overvaluation
The results of this 2021 white paper: Appraisal overvaluation: Evidence of price adjustment bias in sales Comparisons co-authored by Frank Nothaft are pretty interesting. At first glance, I get the CoreLogic evil empire stuff, but step back and take it all in. Here’s the abstract.
Home appraisal came under scrutiny for contributing to the home-price bubble and enabling the origination of risky mortgages that led to the post-2006 foreclosure crisis. Subsequent regulations tried to minimize or eliminate conflicts of interest and improve valuations. Nonetheless, our study of appraisals completed in 2015 and 2016 find that appraisal bias still occurred. Our analysis delves into the underlying appraisal development to identify causes of appraisal bias. Contributing factors are that comps are generally higher valued than the subject property, and appraisers are more likely to comparatively adjust upward lower priced comps but less likely to adjust downward higher priced comps.
President & CEO at Miller Samuel Inc.
Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.
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Image credit Marco Verch
I absolutely can not wait to release white papers on this topic and Bank Karma.
The lenders appraiser has correlated the offer made into the formula and s-he should. The powerful market within the last several years has influenced buyers, sellers and lenders. some of these sales offers have fell thru.
An optimist is Beter than a Pessimist
“…a hedonic pricing model can be a helpful tool to assess the accuracy of a price adjustment associated with a given property attribute or amenity while also ensuring consistency and accuracy in the aggregate. Incorporating hedonic pricing techniques into appraisal development is limited. Given the amount of detailed property information and modeling technology that are available today, the appraisal practice could benefit from employing data-driven analytics to help assess appraisal accuracy in an efficient and quantifiable manner.”
Geez, if only there were a company out there who would sell its collected data to interested parties…
Oh, wait…
Correct me if I’m wrong but didn’t the recent Government oversight research report appraisers should go outside a particular property market area to obtain higher priced “sales” to falsely inflate a property value in an effort to assist low income neighborhoods???? This is all just madness. Perhaps CoreLogic and the Goverment should get together and resolve their differences of over valued vs under valued and just let appraisers do their job. There are human factors other than statistical that play a role and what ever happened to the fact appraisal is not an exact science, it is an opinion.
Estimated value above the sale price now means appraisers are pandering to the lenders, So, I guess If a sale appraisal comes in at the exact sale price I have no doubt the appraiser will be found guilty of appraising the sale price and if less they will be charged with discrimination. I hope you all see the madness of all this nonsense.
Appraisers Ain’t perfect. Be careful with your chosen business, clearly state your goals in an engagement agreement. the form report doesn’t protect appraiser, nor should it.
“Estimated value above sale price now means appraisers are pandering to lenders.”
Yep, that’s completely absurd. Sometimes the market data tells us the buyer/seller parties had their finger on the pulse and put together a great deal very narrowly aligned to comparable market value data from recent similar sales (or that conclusion is extracted from meaningful comparisons.) Or sometimes agents run them low, or can run them too high and need brought back down to reality.
I just completed an appraisal last month where they purposefully under listed like $15k or so, just to assure the deal went through on their schedule. For whatever reason, those sellers needed out without a doubt and it needed to be on their schedule. It was impossible to hold the value figure down because all recent comps in this completely uniform pud townhome project, exact size, exact floor plan, exact room counts, all sold for more, and the subject was better condition to boot. Anyone reviewing that ‘analysis metric’ which compared appraised value against the contracted price, was in fact; reviewing meaningless data.
Oh big data, take a very long vacation. They should be the ones laying off, not the lenders. You guys are making a royal mess of the valuation industry by trying to apply mass market analysis methodology to a space which requires in many common instances; micro market analysis. History will one day reflect a more accurate understanding of todays times; that big data companies were all sales pitch and failed to deliver what they advertised. They like corporations have always done, moved in and exploited a vulnerable industry with no regard for the long term ramifications of their destructive exploitative practices. Then they seek to justify their continued existence in this space with more meaningless analysis of a disrupted market which this specific company has played a substantial hand in disrupting in the first place. Just toss all the appraisal types and company engagement into one pot and stir it, see what comes back. Please.
‘found that as many as 45% of the appraisal values for the securitized loanpools they analyzed were inflated and associated with higher mortgage delinquency rates.’ Well genius, might have something to do with an artificially manipulated federal reserve rate coupled with no skin in the game purchase commitments, local credit factors from local communities and their social contrasts in management methods, and just possibly had interesting juxtapositions involving a run away government and people desperately moving to new areas to escape rising tyranny and marxism which did certainly drive up housing prices and costs of living in many areas. Don’t forget the rising taxes and runaway inflation.
‘This study sheds light on these issues by analyzing appraisal development. Under the sales comparison approach, appraisal development is a process in which appraisers make comparative adjustment to select a few recent transactions that are regarded as most similar or competitive to the appraisal property. Current or recent market transactions of these properties, known as comparable sales or “comps,” are the primary basis for the appraisal development. The appraisal development process entails calibrations of each comp with the appraisal property (also know as the “subject” property) to make the comp a hypothetically identical bundle of housing characteristics. The resulting calibrated value of the comp property—known as the adjusted comp price–becomes a fair market value estimate for the approximation of the subject property.’
O.k., just a few notes to the author here; The resulting ‘calibrated value’. You meant to say adjusted values. ‘known as the adjusted comp price’. Well, sort of, it’s actually the adjusted value indicator from that sale. Price is not the same thing as value. And who is his audience, it’s like appraisal value 101 from someone whom just sat down on the first day. Selection bias! Calibration bias! Journalistic bias! And you don’t have a clue how adjustments work because on the high side of price there is superior quality and more offsets to condition ‘limited by the market’, while on the mid to low side there are more dramatic material location and quality differences which is almost always the case to categorically explain different adjustment basis needs. I’ve read enough.
Must be nice to have years of hard earned appraisal data at the tip of your fingertips while belittling and shaming an industry of the free data that they can now manipulate.
My question is where did these reports originate from? Who’s completing the reports? What the appraisal report manipulated? I mean, we never see the report again once it goes to the AMC. With the plethora of AMC companies employing in-house appraisers, are these reports included? What about the home builders who own their own finance and appraisal department? Is it Jamie from Afghanistan competing reports for Clear Capital, Classless Valuation or Trimavin? Are these federally regulated lenders using their own appraisal companies to write these up? Sure you can pull big data and speculate all day long. How about why appraisers attempt to make value? Let’s see…if we don’t, we can get sued or have a complaint filed against us from FHA, GSEs, lenders, realtors, buyers and sellers. Here’s another question I have, the report states appraisals bias in correlation with LTV for purchase and refinance. I don’t know about y’all, but I’ve never asked for a homeowners/buyers financial information. And why are the loans being made if the LTV is known to carry default risk? Sounds like a lender is providing the appraisals in house. Sounds like the writer is getting fed a lot of misinformation about who’s doing the appraisals.
Prove or Disprove any thesis from the same source is fairness, not manipulation.
Be careful statisticians
…”although helpful to understand appraisal overvaluation, cannot answer the question of how it occurs without further research into the development of calibrated values” UM Yes! So throw out all those nice numbers and grids, because we all know GARGAGE in GARBAGE OUT!
….”the appraisal practice could benefit from employing data-driven analytics to help assess appraisal accuracy in an efficient and quantifiable manner. Future research in
this direction can develop a better understanding of the underlying appraisal valuation process.”
GEEZ where have these people been? Data Driven analysis in the form of what the buyers/market is doing in each market place is exactly what we have been doing for decades!
This report is all about over valuation! Yet PAVE is complaining about undervaluation in minority neighborhoods. Make up your mind people. You still cannot get around the very basic fact that buyers are buyers, they pay what they pay and we report the results. Also lenders want us to BRACKET sales over and under the subject contract price. If Appraisers complete more upward adjustments that would be suspect, same thing with downward adjustments across the board.
As someone here said, they all need to just let us do our jobs! Only we know the entire picture of what is going on in the market with both subjective and objective factors that definitely come into play. This is NOT a 100% objective market as there are shades of gray with buyers. Sorry, they don’t like that, but it is reality.