Slashdot Mirror
Proposed Regulations Would Allow the Majority of US Homes To Be Bought and Sold Without Being Appraised by a Human (wsj.com)
Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser [the link may be paywalled; alternative source]. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms. From a report:
The proposal was made earlier this month by the Office of the Comptroller of the Currency, the Federal Deposit Insurance. and the Federal Reserve. It would increase to $400,000, from $250,000, the value of homes that can be bought and sold without a tape-measure-toting appraiser visiting a property.
More than two-thirds of U.S. homes sell for $400,000 or less, according to U.S. Census data and the National Association of Realtors. If the regulators' proposal had been in force last year, about 214,000 additional home sales, or some $68 billion worth, could have been made without an appraisal, regulators said in their 69-page proposal.
Some worry, though, that dropping appraisal requirements would introduce new risks into the $10.7 trillion market for home loans. "We still would prefer a human being doing the appraisal," said Lima Ekram, a mortgage-backed securities analyst at Moody's Investors Service. One issue: Automated valuations done by computers are largely unregulated. The 2010 Dodd-Frank financial overhaul required regulators to propose quality control standards for so-called automated valuation models, but they have yet to do so.
More than two-thirds of U.S. homes sell for $400,000 or less, according to U.S. Census data and the National Association of Realtors. If the regulators' proposal had been in force last year, about 214,000 additional home sales, or some $68 billion worth, could have been made without an appraisal, regulators said in their 69-page proposal.
Some worry, though, that dropping appraisal requirements would introduce new risks into the $10.7 trillion market for home loans. "We still would prefer a human being doing the appraisal," said Lima Ekram, a mortgage-backed securities analyst at Moody's Investors Service. One issue: Automated valuations done by computers are largely unregulated. The 2010 Dodd-Frank financial overhaul required regulators to propose quality control standards for so-called automated valuation models, but they have yet to do so.
Can someone explain how this works in the US? Presumably people don't buy houses without getting them checked out first, to make sure they are sound and not on top of a disused mine shaft or something.
Is that what this person does? And if so how will the computer do it? Or will the buyer have to get their own human to check?
const int one = 65536; (Silvermoon, Texture.cs)
SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
Homes can always be bought and sold without appraisal. The question is whether we should allow banks to loan on a property without looking at it, especially if the loans are subsidized by public money. If the property is in much worse condition than its neighbors, then the bank/government lose out, since the property is likely worth less than its electronic appraisal. If the property has renovations that aren't accounted for in the appraisal, then the bank/buyer/seller need to pay for a human appraisal anyway.
Ah well, the property bubble re-inflated under Obama is due to pop anyway, so I suspect banks will tighten regulations on their own in a falling market. Rates hitting 5-6% will lead to fun times with property...
Sure, but banks need to know that what they're paying (loaning out) makes sense. Thus a requirement for an appraisal. This is even more important if it's a government-backed loan -- i.e. public money.
The collapse is likely to happen soon, and this is a good thing. Let the banksters and REITs who bought property after the last crash take a cold bath.
Sure, but banks need to know that what they're paying (loaning out) makes sense. Thus a requirement for an appraisal. This is even more important if it's a government-backed loan -- i.e. public money.
But appraisals are somewhat worthless. The buyer and the seller both obviously think that the house is worth X or they wouldn't be doing the transaction. The only thing the appraisal does is shows that the last few buyers and sellers of similar properties came to the same conclusion. At the end of the day, a house is only worth what someone is willing to pay for it and averaging out the last few dozen sales to come up with an appraisal value does nothing to prevent bubbles or bad investments.
Anyone with first-hand experience buying and selling during the previous housing boom knows how "flexible" a lot of appraisers were in bending to the will of agents in getting appraisals that accommodated asking prices.
Calling it flexible is being generous - there was outright and rampant fraud in the system. Appraisers who didn't play ball weren't used in future work, creating a perverse incentive to go along even for those who wouldn't otherwise be predisposed to break the rules.
Appraisals have nothing to do with investments or bubbles. Your lender does not care what you are willing to pay for a house, they care what someone else will pay if you default on the loan. The appraisal process is supposed to help determine that.
That is not an appraiser, that is a assessor. Assessors look for major changes to the property since the last assessment. Appraisers look for much more than that.
anecdote != data
The buyer and the seller both obviously think that the house is worth X or they wouldn't be doing the transaction.
But that particular buyer might be an idiot. The bank needs to know if there are any *other* buyers out there who would pay X for the house.
In BC, Canada house "appraisals" are already often calculated by computer algorithms. I say "appraisal" because actual human appraisals are rare.
Computed value is based on market activity in neighbouring areas (sales are public knowledge), age of house, type of dwelling, land size, house size, bathrooms, etc.
When we asked for a line of credit secured by home equity, the bank said "we might send someone to drive by and have a look" and they asked us to self-assess our own house value, nobody came and we got approved.
It worked great for money laundring, where you buy a house and sell it the same day for double the price. This is why they put humans bavk in the process...
If an experiment works, something has gone wrong.
Homes are already typically appraised ( guesstimates ) every year so the local government knows how to calculate your taxes so I don't quite understand why this is an issue. ( Well, Texas anyway. Is likely a different story in other States where taxes on homes are capped at the purchase price. )
Unless you're paying cash for the home, banks will typically only lend up to X amount of the appraised value of a home. ( Loan type, credit score and whatnot taken into account ) Why would they loan you an asking price of $500k for a home only worth $250k simply because the sellers think they can get it ? If you walked away from it, the bank would now be stuck with a home only worth $250k. Bad for the bank.
In that situation, the bank has no issues loaning you the $250k that the home is appraised at, but it will be on you to come up with the other $250k.
Finally, if you're about to commit to a $500k home, why would you cheap out on a third party* appraiser and / or inspector ?
( Yeah, I'm sure the real estate agent knows who to call, but it would be in your best interests to call someone they DON'T know to ensure a fair inspection )
That's just nuts.
Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser [the link may be paywalled; alternative source]. That potentially opens the door for cheaper, faster, but largely untested property valuations based on computer algorithms.
Federal regulators have proposed loosening real-estate appraisal requirements to enable a majority of U.S. homes to be bought and sold without being evaluated by a licensed human appraiser [the link may be paywalled; alternative source]. This opens the door to realtors being able to defraud the consumer on a scale hitherto unseen in the continental US.
There, I fixed that for you.
But that particular buyer might be an idiot.
Or worse, in collusion with the seller. Team gets $2 million from bank for $500K home, buyer then declares bankruptcy, bank eats $1.5 million loss unless tax payers are forced into the deal.
I say its fine to remove the appraisal requirement so long as the tax payer is also removed from the equation. Otherwise the bank may also like the fraud.
"His name was James Damore."
Will this allow counties to asses their own values for property taxes?
But appraisals are somewhat worthless. The buyer and the seller both obviously think that the house is worth X or they wouldn't be doing the transaction.
Are you sure about that? I've personally seen someone attempt this scenario: Buyer and seller are in cahoots, "agree" on a price that is roughly 3x what the house would fetch on an open market. Bank provides the agreed-upon money as a mortgage on the property, seller default, bankrupt, bank repossesses, buy/seller split the cash and bank is left trying to sell a house at 3x the actual open-market value.
The only reason the idiots in the story failed is because repeated appraisals made by various banks automatically stopped the loan being made.
That is the real purpose of the appraisal..
I'm a minority race. Save your vitriol for white people.
You're asserting "all rooms in an area of similar size are worth the same" without looking at any of the details that an appraiser would. Ceilings, doors, glass, light, materials, all kinds of things factor in.
They factor in far less than you think. Many sellers spend a small fortune on new countertops and carpets only to find they make little difference to buyers.
The idea that you're going to get a realistic valuation of all of that from a housing inspector or a public county recorder-assessor is just retarded.
Inspectors don't do valuations. That is obviously not their job. But they WILL find major problems, such as structural insect damage, that can influence the valuation.
NOBODY uses tax assessments to do valuations. They use the sale price of comparable properties.
Good, let the economy burn. Bonus points if it burns to the point that it takes the ad-supported, privacy-robbing "tech" industry with it.
I have friends who worked for lenders, directly responsible for contacting the right appraisers and ensuring the appraisals were done properly and on-time, so as not to hold up loans in progress.
The concept might be good, but in practice? The whole thing seems like a sham to me.
The loan officers do their best to hand-pick the appraisers for given loans, to make sure they go through at the valuations they need to see. The law says, of course, that they're not allowed to do that. But the OWNERS of many of the lending institutions know that things have to work that way, for them to maximize profits and prevent a lot of angry customers who want to buy a property, but get turned down.
So what happens? The lenders opt to use specific software packages that automatically assign appraisers for loans entered into the system. But the software database still needs to be filled with the appraisers it's supposed to assign. Guess who gets to choose who gets put into the database when it's all configured?
Unlike actual inspectors, the appraisers don't even have to really take a close look at much of anything. They have to bring some photos back to the bank and give a guesstimate of the value based on comparable properties. In most cases, they're only required to do a "head and shoulders" look at the attic of a given home, for example. They're not required to climb up into an attic beyond that point.
Often times, the appraisers are even told they can't get hired to do appraisals for given lenders unless they charge below a certain price. If that is below the going rate for an appraisal in that zip code, you can be sure the appraiser is going to do only the bare minimum necessary ....
I'm a homeowner in Maryland too, but as I understand things? The increased taxes are set up in advance. So even though they "only go up every 3 years", they're based on a planned increase in the 3 year period before the new rate is charged.
The appraiser is trying to determine how much someone would likely pay for the property, if the new owner or the bank wanted to sell it.
Supposed you see in one my posts I'm trying to sell a computer. BeauHD says he'll give me $1,000 for it. Nukenerd says he'll give me $1,100 and I agree to sell it to him for $1,100.
Roughly how much do you think someone might be willing to pay for that computer if Nukenerd decides to sell it somewhere else?
The amount someone IS paying for it, and the amount someone is selling it for, is a pretty darn good hint about how much someone would pay for it. Obviously it's not the *only* way to estimate how much someone would pay, so it's not the only thing appraisers use. How much someone is paying is a good data point for how much someone would pay, though.
> Ironically, most appraisals find the value of the home is just slightly higher than the agreed upon sale price.
I don't see anything ironic surprising about that. The appraiser is trying to determine how much someone would likely pay for the property, if the new owner or the bank wanted to sell it.
Supposed you see in one my posts I'm trying to sell a computer. BeauHD says he'll give me $1,000 for it. Nukenerd says he'll give me $1,100 and I agree to sell it to him for $1,100.
Roughly how much do you think someone might be willing to pay for that computer if Nukenerd decides to sell it somewhere else?
The amount someone IS paying for it, and the amount someone is selling it for, is a pretty darn good hint about how much someone would pay for it. Obviously it's not the *only* way to estimate how much someone would pay, so it's not the only thing appraisers use. The actual price it is selling for is a pretty darn good indicator of what it would sell for next month, though.
But that particular buyer might be an idiot. The bank needs to know if there are any *other* buyers out there who would pay X for the house.
A computerized appraisal with a simple home inspection that shows the condition of the house would be more than enough to catch this. I've seen appraisals and comparative market analysis reports done and honestly, I think a computer algorithm would likely be just as accurate if not more accurate. There is no reason for a manual $400+ appraisal for most properties when a computer appraisal and a 5 minute walk thru to make sure the house is in the condition claimed would be enough.
The buyer. If you don't want one, the bank may insist on one if they're giving you a loan. The realtor should have nothing to do with the appraisal or choice of appraiser, other than unlocking the door so he can get in. My appraiser and realtor arrived before I did, and I found them talking with each other in front of the house. I wasn't happy about that (it turned out they knew each other from past appraisals). When his work was done, I paid him with a personal check.
The whole point of the appraisal is to provide a third independent sanity check on the value of the home (the first two being the seller's valuation, and your realtor's valuation).
The bigger problem with the housing boom was that your realtor wasn't always acting in your best interests if you were buying. When you hire a professional, like a lawyer, you pay them a fee, and they work in your best interests. When you hire a Realtor, their fee is usually a set percentage of the sale price. That works for the seller, but for the buyer it creates a conflict of interest. Your Realtor is supposed to be trying to get you the best price possible, but they get paid more if they don't help you get the best price possible. The industry really needs to address this problem before it can be taken seriously as a "professional" organization. I used Redfin since their realtors get paid a fixed fee.
of a regulation not being enforced is to throw the regulation out entirely. That's like saying that because folks speed we shouldn't have speed limits...
Also something that came out after the crash was that most of the defaults were from rental and investment properties. e.g. house flippers and retirees who didn't have enough to live on but had enough to gamble on. The problem wasn't so much that they paid too much. It was that when the economy tanked they either couldn't get renters (since they renters were stuck renting shit holes) or they couldn't flip the house. Since they weren't living in the places they just walked away. That made all the phony baloney Credit Derivatives collapse and the economy went with it.
The real solution to the 2008 crash isn't to stop appraising houses. It's a) build a more robust retirement system so old folks don't gamble their life savings and b) put the regulations that Clinton & Bush Jr cut down back in place so we can split mainstreet and wallstreet banks, thereby killing those damn credit default swaps. e.g. Don't let the banks mix safe mortgage investments and risky wallstreet ones.
tl;dr: we don't want less regulation, we want more.
Hi! I make Firefox Plug-ins. Check 'em out @ https://addons.mozilla.org/en-US/firefox/addon/youtube-mp3-podcaster/
Homes currently valued at $250K could go up to $400K?
No.
That $250K home will still be $250k, and will still not require any appraisal to sell it just like before.
That $400K home will still be $400k, however it will no longer require any appraisal to sell while currently it does require one.
Sounds great if you're a seller but the number of potential buyers has been reduced drastically.
No, the potential buyers in the victim category goes way up, while the rest of the potential buyers remains the same.
If someone was selling a house for $200K but it was falling apart inside and not worth $120K, a buyer could still go to a bank and ask for a $200K loan/mortgage.
Currently the bank will just take the sellers word that it's worth $200K and grant the loan (assuming the buyer has enough credit for that ofc)
Later when the buyer realizes the house requires another $80K+ in repairs just to make it safely livable, they are screwed in getting additional credit, and screwed in still owing the bank $200K
The same situation with a $400K home however wouldn't work the same way currently.
The bank will not take the sellers word for it, they will do their own appraisal and see if the house is worth that price. They will not grant a loan for it if they don't feel it is worth it.
Most sellers WANT that. Who wants to become $400K in debt for a house you can't live in without hundreds of thousands of dollars in repairs first?
If this change goes through however, the bank WILL take the sellers word it is worth $400K and grant the loan, putting the victim buyer in the same situation described above and screwing them.
Buyers that know what they are doing will continue to know what they are doing and not make bad purchasing decisions, so that pool of buyers will remain the same.
Buyers that don't know better can now be victimized by banks and issued loans for homes not worth the loan amount and get really fucked over with debt.
That second pool of buyers will get larger, but that isn't a good thing.
And that word is "sucker"
But, sure, let's not require it. I mean, 2008 was *so* much fun, and the banks got bailed out, anyway, let's do it again.
Need to contact my Congresscritter. And Senators. And the friend who works for the national homebuilders' std's body....