Reader Question: Today, we have fantastic technology. We have companies using algorithms that evaluate homes without even walking through the house. Yet we still have poor real estate appraisers. I want to refinance my home with the low-interest rates. I am working with one of the big players that lend across the country. I live in a high-cost area where lot prices are high. The lender sent out an appraiser who lives fifty miles away in a low-cost area. They did a lousy job.
The comparables were no comparables, and they missed several features. There was even a computation error. The lender turned down the application. I complained, and the lender agreed to send out another appraiser. Incredibly, the same appraiser showed up. I paid $375 for the first one, so I turned the appraiser away. I withdrew the loan application because of this. I know what my home is worth. How can this happen in a high tech world?
Monty’s Answer: An appraisal is simply one person’s opinion of value. If you arranged ten estimates for the same day, you would likely get ten different answers. As comparables become rare, or the home’s uniqueness or size becomes more subjective, the greater the variance between the high and the low opinion.
Appraising is not an exact science. When a refinance is involved, even though you pay for the appraisal, the lender is the appraiser’s client. The appraiser’s opinion is for the lender. The lender needs assurance from a trained outside source that if the borrower lost their job or had an accident that prevented them from making loan payments, the lender is secure. Here is an article about home valuation that sheds more light on valuations.
An appraisal is part science and part art. Technology wants to believe that artificial intelligence (AI) can evaluate a home. Several large companies feel very strongly that a computer can appraise a home. They employ AI and ignore the art. Here is a link to Consumer Affairs and reviews of one of these tech companies. This writer believes that while someday, AI may succeed in evaluating a home, the computer is not smart enough today to master the art. We still need a trained set of eyeballs. Anecdotally, as hard as this is to believe, there are real estate agents that present these online appraisals to consumers as an operating standard. It is way to early to rely on this shortcut.
Lenders today have appraisers appraising appraisers
Some lenders today engage experienced appraisers with a history of accurate appraisals to review the appraisers. They know there are weak links. Today, an appraisal management company, not the lender, assigns the appraiser to a home loan application. When you learn the selected appraiser’s name, you can research them, and you can turn the appraiser away. Here is an article about appraisal management companies that you may also benefit from reading.
If you disagree with an appraiser, this article is about challenging an appraisal. Consider speaking with your lender about their inability to influence the choice of appraisers. The lender may consider switching AMC’s if there are enough complaints.