Believe It: Robots To Replace Real Estate Appraisers
Yep, it’s happening. Appraisers -- professionals trained to determine the market value of property or land -- are going the way of Blockbuster and the office cubicle. Thank big data -- you can’t blame the Millennials on this one.
According to Bloomberg, lenders are finding that appraisals based on computer programs are ultimately as reliable as a typical live performance -- and cheaper.
Appraisers aren’t currently using industry sites like Zillow to work their magic, but they may as well; the algorithms of the Zillow Group’s software are capturing the data needed to predict value in the nabe. That technology is drilling even deeper, collecting info on everything from hardwood floors to electric vs. gas.
In addition to algorithms, Zillow’s Zestimate tool utilizes machine learning, public records, MLS data, and broker info to determine property values. The company is constantly honing and shaping the technology to make it more seamless.
The possibilities are beginning to feel real. Mortgage financiers (like Freddie Mac, to name just one -- not too shabby!) are realizing that this sounds like a plan. This past June, Freddie Mac began accepting automated valuations for some refinancing loans, with plans to extend the program in the coming months. And so it begins.
This is nothing short of seismic shifts in the way business is done. Since time began, Freddie and his twin, Fannie Mae, required on-site appraisals, non-negotiable. The reason: to make sure the potential buyer isn’t getting ripped off, which would increase Fannie and Freddie’s risks.
Even before the Orwellian threat, the profession has been stumbling for a few years now. The Appraisal Institute says that, as of 2015, there are 78,500 real estate appraisers working in the U.S., down 20% from 2007. The drop reflects more residential than commercial appraisers.
Appraisers as a group are getting older (and often not as tech-savvy). The Appraisal Institute reports that 62% of appraisers are 51 and older, while 24% are between 36 and 50. A mere 13% are 35 or younger.
Of course, the appraisal industry is not going down without a fight. Organizations like The Appraisal Institute insist that there are some features and conditions of a property appraisal that cannot be easily sized up by a computer (for instance, street noise, low-flying planes, repair negotiations). In addition, many real estate agents have issues with Zillow’s numbers; in Illinois, a lawsuit was filed against Zillow for unlicensed appraisals (Zillow disputes this).
Another red flag: for an appraisal model to work, the property must be compared against similar properties. This is just fine for a housing development; not so much for a more diverse area.
Ultimately, the question remains: is it a genuine, authentic appraisal, or merely an estimate?