With home prices stagnant or declining in dozens of markets around the country, a bitter dispute has broken out in the property appraisal industry, a fight that could affect how millions of houses are valued.
On one side are traditional appraisers, who render estimates based on interior and exterior inspections and research market conditions and recent selling prices of “comparable” properties.
On the other are data companies that vacuum up vast quantities of publicly accessible property information and help create “automated valuation models” that many lenders use for home-equity loan transactions and increasingly are consulting to make primary mortgages.
Traditional appraisals cost $300 to $500, and can take days–sometimes a week or more. AVMs, by contrast, are available almost instantaneously online and may cost a lender $25 or less. AVMs power the valuation estimates anyone can obtain online–free–from Web sites promising to tell you what your house is worth.
Appraisers have resented encroachments by AVMs for years, in part because they have lost some of their business and revenue. They also have challenged the accuracy of AVMs, arguing estimates often are off the mark, especially when price patterns are changing rapidly.
But now many appraisers are upset about something they view as even more threatening: They say their reports are being looted of key information without compensation or permission. Appraisers say that one of the dominant electronic real property data companies, FNC Inc. of Oxford, Miss., is “extracting” proprietary data compiled by appraisers and reselling it to lenders and others who may load it into AVMs. To add insult to injury, appraisers say, they must pay FNC $5 per report when they send valuations to lenders in electronic form using FNC’s online platform, AppraisalPort.com.
“We are paying them [FNC], and they are stripping out our work product without paying us a dime,” said Patrick Turner, a Richmond, Va., appraiser.
Angela Atkins, public relations manager for FNC, said the firm extracts only property description data from appraisal reports, not proprietary narrative analyses or actual valuation estimates. FNC is building a national property data repository, analogous to the three national credit bureaus’ files on consumers, for its lender customers, most of whom are among the 30 highest-volume mortgage companies in the country, according to Atkins.
“We are not an AVM company,” she added, “and we could not exist without appraisers.”
Turner charged, however, that the physical descriptions appraisers include in their reports–square footage of interior space, numbers of rooms, floors, bathrooms, bedrooms, lot dimensions and the like–are proprietary because they often are more accurate and up to date than public records.
He cited the example of an appraisal he completed recently, where the public data indicated that a house had 1,100 square feet of habitable space, whereas his measurements showed it had 2,900 square feet above ground plus a newly renovated basement of 1,200 square feet.
“Imagine the difference in [appraised value] between a 1,100-square-foot house and a 2,900-square-foot house,” said Turner, who holds a Senior Residential Appraiser designation from the Appraisal Institute, the main professional group representing the industry. Computerized valuations “can’t be accurate when the public records they are relying on are out of date or wrong. That’s why everybody wants to strip out our data–it’s valuable because it’s accurate and current–but they don’t want to pay us for it.”
Turner says he and other appraisers are discussing how to better control the use of their key data. Copyrighting appraisals is one possibility; legal or regulatory relief are others.
Meanwhile, he urges consumers to pay closer attention to the appraisals used in their transactions. Computerized valuations “can’t smell, can’t see, can’t hear” and may be based on outdated information in fast-changing markets, he says. .
Turner also advises buyers to demand a copy of the full appraisal to make sure it was done by a licensed, professional appraiser.
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You can contact Kenneth Harney by e-mail at realestate@tribune.com or send letters to: Kenneth R. Harney, Chicago Tribune, Real Estate, 435 N. Michigan Ave., Chicago, IL 60611
