An Appraiser's View

March 26th, 2024 9:07 AM

IS THIS THE END of the real estate agent profession? 
            A fair question if you are a broker or agent, especially if you are one who advocated the use of online valuations and appraisal waivers because you did not believe appraisers brought any value to the real estate transaction. If this is you, you question because you do not value what you do any more than you valued what appraisers do. And just like with appraisers, you are wrong, but in the end it may not matter. 

The threat of the demise of every profession is real, has always been real, because change is inevitable.  

A Little History
Is technology the end of my profession? It is a question appraisers have asked themselves for the past 25 years, and with good cause. As the only unbiased and legally required honest participant in a real estate transaction, appraisers have been under attack by agents, loan officers, lenders, builders, banks, buyers, and sellers since the day I entered the profession 24 years ago. The day I started my training I received a magazine in the mail proclaiming the end of the profession was here as AVM's were gaining popularity. Over the past 24 years I have read an article a month on how I am being replaced with a variety of valuation tools, including appraiser modified AVM's, AMC's, BPO's, Zillow, and appraisal waivers. The articles always cause me a little stress, but with a little cognitive reasoning, I always come to the same conclusion. As long as the Lender is responsible for the loan, they will rely on appraisers that cannot be manipulated like data only valuation models, a.k.a "Big Data". 

Where does Big Data Come from? 
Well, for the most part, appraisers and real estate agents. 
15 years ago, a few AMC's forced appraisers to sign an agreement that once they sent their appraisal in, it no longer belonged to them. Appraisalport, an appraisal delivery platform, required this as well. Six years ago, the largest appraisal software firm was sold to the largest provider of data only valuation models, Corelogic. The purchase stipulated Corelogic could not data mine the appraisals of those who used the platform (Thank you Dave Biggers). Undeterred, Corelogic purchased Appraisalport in at the end of the same year. But that only gave them access to the data in a portion of the appraisals, so in early 2023 they introduced a voluntary program where appraisers could share their data between each other, all they had to do was agree that Corelogic could also use the data. I still get a couple emails a week asking why I have not agreed to this. Yes, even my appraisal software company wants to replace me lol. 
This all became possible because in 2010, in response to the real estate market bubble bust, Fannie Mae introduced the Uniform Appraisal Data set and required all appraisals be completed using uniform terminology so they could compare one appraisal to another to determine if there was fraud. The alarm was sounded by several appraiser organizations, and subsequently Fannie Mae assured appraisers they would not use the data collected from the appraisals to create their own online valuation model. Three years later they began offering appraisal exemptions if they already had an appraisal on the property. Those appraisal exemptions evolved over the past few years into appraisal waivers and as of April 1st, Fannie Mae allows anyone trained, not licensed, to provide a property inspection if the lender is willing to accept the data from the inspection. When combined with a data only valuation, Fannie Mae no longer requires an appraisal on any property. The deterrent for the lender is they have to accept the both the physical and data only property data as being accurate, and if it's not, they may have to buy the loan back from Fannie Mae, which I am assuming would only be discovered if the loan went into default. I have evidence that 1/2 that equation won't be an issue within the next year. Fannie Mae's has current online job postings for AI developers totaling over $50 million a year in salary offerings. It appears they are building their own valuation model using the data from the appraisals they promised not to data mine.

When Appraisers are gone, no one will look out for the consumer, unless....
AI will replace appraisers within the next three-five years unless the programmers and owners of the AI are held responsible at the same level appraisers are. (i.e. If they are found to have been used to inflate values by intent or through gross negligence, the programmers and owners are each subject to loss of career, a $1,000,000 fine, and up to 30 years in prison). That should include those who work at and run Fannie Mae.  I believe a class action antitrust lawsuit will happen after the next housing market decline. The question is, will it be too late to save the appraisal profession?   

All you talked about was appraisers, what about real estate agents? 
You are right. But I believe my journey is relevant to yours. I like to think. And I also think I'm intelligent. Over the years I concluded that if lenders were willing to spend millions of dollars and increase their risk to get rid of appraisers to reduce costs, turn times, and increase the number of loans they make, they would be willing to do the same for the two most time consuming and largest cost in a real estate transaction, the agents and the loan officers. The change in real estate commissions is only the 1st major change, softening you up for what's to come. I have long envisioned a system where you look online or in a neighborhood for a home, text a number, and the closest uber driver comes to let you in. "Showingtime" is a huge step in that direction. You think you can't be replaced? Forms have become standardized, mls is available to anyone, there are multiple platforms for uploading your own photo's, measuring, etc. All the tools are there to replace agents and brokers, and the only thing slowing them down is the NAR. 

Why you, (and they), are wrong, but it won't matter.
Like appraisers, honest and ethical agents bring enormous value to the transaction. Agents can help see through the mountains of "selling points" and advise buyers on the market, the neighborhood, the schools, even the neighbors, based on their own personal knowledge. They can help sellers get the most for the home by advising them as to what repairs they should make, providing decluttering and staging tips, and explaining up to date marketing ideas. Agents often have a network of people they work with including different loan officers for different types of loans, staging companies, landscapers, handymen, oops, handypersons, and even appraisers who will get accurate ANSI measurements, listing pricing for complex properties, and buying price for cash buyers. In short, honest and ethical real estate agents are critical to ensuring a seller gets the most for the property and a buyer gets the best deal. But in the end, it will not matter. 

Like the Blake Shelton song, you would call me crazy if I shared how I grew up. We were not wealthy, and for things that would wear out quickly, my parents took us to Kmart. But for things that mattered, like Toughskin jeans, appliances, tools, and tires, they shopped at Sears. Because when it mattered, they wanted quality over price. When I started adulting, I followed the same pattern. I bought all my tools and appliances at Sears, and they lasted. But then along came box stores and cheap imports, and the consumers bought into them for EVERYTHING. Sears was gone when I needed appliances in 2020 for my kitchen remodel, so I bought the highest quality box store appliances I could find. They were pretty, but they do not work as well as my Sears Kenmore Elite had, and 4 years later the stove needs replacing. Ugh. 

Consumers have switched to choosing price over value, even for long term items. And that is why I believe that although it may take 10-15 years, quality real estate agents and loan officers will be replaced with unethical ones. Because providing value takes time and money, and consumers prefer Walmart to Sears.