NMP - September 2016 - 55

Appraisals, AVMs, BPOs: Which Should Mortgage Professionals Choose? By Scott Robinson, MAI, SRA, AI-GRS T The disadvantages of AVMs AVMs can be quick and inexpensive, but they are not simply "automatic appraisals." The reliance on them instead of an actual appraisal is an illustration of the Latin phrase caveat emptor ("let the buyer beware"). Here are a few reasons: l AVMs can be non-credible and unreliable: AVMs are only as good as the data that generates them. Their end results rely on publicly reported data that are frequently inaccurate, incomplete or out of date. AVMs also may pull information from FMLS or MLS that does not correspond to data requirements and regulations governing a physical appraisal. l AVMs can't factor in property's physical attributes: AVMs cannot consider physical factors that can affect property values such as a recent kitchen remodel, the quality of the neighborhood, convenient access to public transportation or the motivation of the seller. An actual appraisal typically requires an appraiser to visit the property and to perform a visual inspection. This enables appraisers to accurately report property information, which they can verify. l AVMs may be submitted as evidence in a lawsuit: Litigants have used AMVs as evidence in lawsuits alleging appraisals prepared by certified appraisers were inflated. Although it is known that AVMs rely on out-ofdate information and are subject to bias, several federal and state courts have ruled that, in the early stages of a trial, the AVM estimate is admissible, allowing the law suit to continue. l AVMs may cause unnecessary stress for consumers, lenders, real estate agents and appraisers: Consumers may not realize that the property value produced by an online AVM could be noncredible and unreliable. Convinced that the appraisal is non-credible and unreliable, they may challenge it, or even cancel a sale or purchase. It's worth noting that the federal Dodd-Frank Act signed into law in 2010 requires a complete interior inspection appraisal in all "higher risk" loans. It confirms the importance of competency and thoroughness in collateral valuation, particularly in higher risk situations. Where there is more risk with the loan, and other factors such as credit and capacity to repay indicate higher risk, more diligence in the collateral valuation process is imperative. Under Dodd-Frank, the term "higher risk" has an expanded definition, and it reportedly has the potential to capture as much as 10 percent of today's market. For mortgage professionals in need of a credible, reliable opinion of value, BPOs also might or might not have a place in the lending process. Broker price opinions Broker price opinions, or BPOs, are opinions of property value rendered by a real estate broker. They are frequently used in cases where a lender has a potential foreclosure. Not wanting to alert the homeowner of this action, a real estate broker may be hired prior to the foreclosure to determine the property value. There are two types of BPOs: l The drive-by BPO: As the name implies, the broker does not enter the property, but only continued on page 94 55 n National Mortgage Professional Magazine n SEPTEMBER 2016 What is an AVM? The Appraisal of Real Estate, 14th edition, published by the Appraisal Institute, defines an automatic valuation model, or AVM, as: "Computer software that queries property and market data, analyzes comparable property and market information to assign a value or range of values to a particular property, or generates metrics applicable to assessing the credibility of valuation-related statements or conclusions." Developed approximately 40 years ago by property tax appraisers, AVMs analyze property information from public property records, including tax assessments and deeds. The goal was to help improve productivity and fairness in locations where there may not be a sufficient number of tax assessors. By the 1990s, AVMs became important tools (http://rismedia.com/2016/05/18/aut omated-valuation-models-whatyou-should-know/) for financial institutions in their evaluation of collaterized mortgage risk. Today, consumers can get a "guess-timate" of their home's value without the cost or time of dealing with a lender or an appraiser. This information is available within minutes using free AVM programs on Web sites such as Trulia and HouseLogic. But does the convenience of easy access ultimately help or harm lenders' clients? NationalMortgageProfessional.com o help their customers, lenders might be tempted to choose a less time consuming-and potentially lower cost-real estate valuation method than an appraisal. But while alternative valuation options-such as automated valuation models (AVMs) and broker priced opinions (BPOs)-might be cheaper, are they better? AVMs and BPOs can play valuable roles in real estate valuation, but there are many reasons they should be regarded as supplements to, and not replacements for, real estate appraisals ... which remain the valuation profession's "gold standard." http://rismedia.com/2016/05/18/automated-valuation-models-what-you-should-know/ http://rismedia.com/2016/05/18/automated-valuation-models-what-you-should-know/ http://rismedia.com/2016/05/18/automated-valuation-models-what-you-should-know/ http://www.NationalMortgageProfessional.com

Table of Contents for the Digital Edition of NMP - September 2016

Table of Contents
NMP - September 2016 - Cover1
NMP - September 2016 - Cover2
NMP - September 2016 - 1
NMP - September 2016 - Table of Contents
NMP - September 2016 - 3
NMP - September 2016 - 4
NMP - September 2016 - 5
NMP - September 2016 - 6
NMP - September 2016 - 7
NMP - September 2016 - 8
NMP - September 2016 - 9
NMP - September 2016 - 10
NMP - September 2016 - 11
NMP - September 2016 - 12
NMP - September 2016 - 13
NMP - September 2016 - 14
NMP - September 2016 - 15
NMP - September 2016 - 16
NMP - September 2016 - 17
NMP - September 2016 - 18
NMP - September 2016 - 19
NMP - September 2016 - 20
NMP - September 2016 - 21
NMP - September 2016 - 22
NMP - September 2016 - 23
NMP - September 2016 - 24
NMP - September 2016 - 25
NMP - September 2016 - 26
NMP - September 2016 - 27
NMP - September 2016 - 28
NMP - September 2016 - 29
NMP - September 2016 - 30
NMP - September 2016 - 31
NMP - September 2016 - 32
NMP - September 2016 - 33
NMP - September 2016 - 34
NMP - September 2016 - 35
NMP - September 2016 - 36
NMP - September 2016 - 37
NMP - September 2016 - 38
NMP - September 2016 - 39
NMP - September 2016 - 40
NMP - September 2016 - 41
NMP - September 2016 - 42
NMP - September 2016 - 43
NMP - September 2016 - 44
NMP - September 2016 - 45
NMP - September 2016 - 46
NMP - September 2016 - 47
NMP - September 2016 - 48
NMP - September 2016 - 49
NMP - September 2016 - 50
NMP - September 2016 - 51
NMP - September 2016 - 52
NMP - September 2016 - 53
NMP - September 2016 - 54
NMP - September 2016 - 55
NMP - September 2016 - 56
NMP - September 2016 - 57
NMP - September 2016 - 58
NMP - September 2016 - 59
NMP - September 2016 - 60
NMP - September 2016 - 61
NMP - September 2016 - 62
NMP - September 2016 - 63
NMP - September 2016 - 64
NMP - September 2016 - 65
NMP - September 2016 - 66
NMP - September 2016 - 67
NMP - September 2016 - 68
NMP - September 2016 - 69
NMP - September 2016 - 70
NMP - September 2016 - 71
NMP - September 2016 - 72
NMP - September 2016 - 73
NMP - September 2016 - 74
NMP - September 2016 - 75
NMP - September 2016 - 76
NMP - September 2016 - 77
NMP - September 2016 - 78
NMP - September 2016 - 79
NMP - September 2016 - 80
NMP - September 2016 - 81
NMP - September 2016 - 82
NMP - September 2016 - 83
NMP - September 2016 - 84
NMP - September 2016 - 85
NMP - September 2016 - 86
NMP - September 2016 - 87
NMP - September 2016 - 88
NMP - September 2016 - 89
NMP - September 2016 - 90
NMP - September 2016 - 91
NMP - September 2016 - 92
NMP - September 2016 - 93
NMP - September 2016 - 94
NMP - September 2016 - 95
NMP - September 2016 - 96
NMP - September 2016 - 97
NMP - September 2016 - 98
NMP - September 2016 - 99
NMP - September 2016 - 100
NMP - September 2016 - 101
NMP - September 2016 - 102
NMP - September 2016 - 103
NMP - September 2016 - 104
NMP - September 2016 - Cover3
NMP - September 2016 - Cover4
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201910
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201909
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201908
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201907
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201906
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201905
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201904
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201903
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201902
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201901
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201812
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201811
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201810
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201809
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201808
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201807
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201806
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201805
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201804
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201803
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201802
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201801
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201712
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201711
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201710
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201709
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201708
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201707
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201706
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201705
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201704
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201703
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201702
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201701
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201612
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201611
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201610
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201609
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201608
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201607
http://www.nxtbook.com/nxtbooks/nmpmedia/nmp_201604
http://www.nxtbookMEDIA.com