Guidance Document Change: Providing guidance to real estate appraisers and AMCs on the use of hybrid appraisals
Commenter: Mary Cummins, Cummins Real Estate
Comment on hybrid appraisals
Comment on hybrid appraisals
I've been a real estate appraiser in Los Angeles, California for over 35 years. During this time I have always inspected the subject property and taken original photos of the comparable properties. All of my clients insisted that I, as a licensed, certified and insured real estate appraiser, personally inspect the subject and take original photos of the subject and comparables. MLS photos of either were never acceptable. An appraiser's assistant or appraiser trainee has never allowed to do the inspection.
Some AMCs, lenders and other parties today are preparing to do "hybrid appraisals." I recently took a class by one of these entities which will be doing hybrid appraisals. I took the class so I could better understand the process and resultant valuation.
In a hybrid appraisal someone other than a licensed real estate appraiser would inspect, measure and photograph the subject property. That person would then upload that data and photos to an online "dashboard" within the client's website. I was told that the client would provide the comparable sales, active listings, their MLS listing page and MLS photos to the appraiser. A licensed real estate appraiser would then go to the "dashboard" and complete the appraisal using data prepared by others. The resultant appraisal looks like a dumbed-down info-graphic of a regular appraisal.
I was told the purpose of the hybrid appraisal is so the client can save money and time. The "inspector" gets $65 or so and the appraiser gets $65 or so for a total of about $130. A regular full appraisal with inspection by the appraiser is $300-$350. I don't see how time is saved as you have to arrange for an inspector and appraiser.
I have a few issues with the hybrid appraisal. First, the inspector is not a licensed appraiser with years of training, experience and E&O insurance. They would not be able to detect defects in the subject which could substantially affect the value. They would not be able to tell if additions were done with permits or not, to code or not, is there deferred maintenance...
Second, the appraiser does not get the opportunity to inspect the subject's neighborhood by driving to the subject. Is it located next to a water tower, homes with graffiti, vacant and rundown homes, supporting facilities...?
Third, the client chooses the comparables. The appraiser needs to do the comparable search. That is one of the most important parts of an appraisal. We first search +/- 15% GLA, within six months, within a half a mile radius then we tighten or widen the search as needed. After we have enough comparables we choose the ones which are the most similar to the subject. Whoever chooses the comps sets the value.
Fourth, the appraiser can only see the comparables via their MLS listings and photos. Everyone knows real estate agents don't describe their listings in a matter of fact manner. They will say there is an ocean view but if you go to the property, you will realize there is only an ocean view if you build a second story and remove part of the neighbor's house. There is a good reason we are not allowed to use MLS photos in regular appraisals. There's a good chance they've been Photoshop'd or taken at a specific angle which doesn't show a major defect. Real estate agents' photos can be very misleading with wide angle and telephoto lenses not to mention Photoshop editing.
Fifth, the resultant appraisal inspected by someone other than an appraiser would not carry a lot of weight. It would be easy for the inspector to miss major defects, the client to give the appraiser comps which aren't comparable and for the MLS information and photos to be misleading. When you are talking about a $130 "desk appraisal" verses a $300 full appraisal by a licensed and insured appraiser, the $170 savings would not be worth a property to be improperly appraised $50,000-$100,000 over what it's truly worth. As the real estate recession already began Q4 2018 this is not the time to be experimenting with anything that would be riskier than the current legal appraisal.
I'd like to remind everyone what happened before the last "great recession" that began Q4 2007. Financial regulations were rolled back similar to what is happening today. Our government today is rolling back the Dodd-Frank Act which was originally put in place as a result of the great recession. People were able to get no document loans. People were offered low teaser rate adjustable mortgages with little to no money down. People who could not afford certain mortgages received them anyway. People ultimately were foreclosed upon and lost their homes. Banks who still held those poor quality loans lost money. Investors who bought those bundled loans in mortgage backed securities lost a lot of money. The government had to bail out the banks and Wall Street. Let us learn from history and not repeat those same mistakes.