April 20, 2007: Attention Arizona Board of Appraisal: An internet real estate valuation is not an appraisal

The Arizona Board of Appraisal has sent Zillow.com two letters demanding that it "cease and desist from all appraisal activities in the State of Arizona until such time as they are performed by a licensed or certified appraiser in this state." The Criminal Division of the Arizona Attorney General's office has also sent a similar letter to the Seattle-based internet real estate portal.

The conflict turns on what an appraisal is. Zillow.com argues that the results of its Automated Valuation Model are not appraisals, and its web site puts a disclaimer to that effect on every page. In defining an appraisal as "an opinion of value," the Board of Appraisal would seem to have set itself in opposition not just to Zillow.com but to other popular real estate valuation sites -- Eppraisal.com, CyberHomes.com, etc. The Board of Appraisal has not sent notices of violation to these sites.

Here's another way of thinking of this: An appraiser is contracted for hire to offer evaluations to buyers, sellers or lenders in the expectation of compensation. None of these characteristics apply to consumer-oriented AVMs. No one asks Zillow or its competitors to evaluate a property, and no one pays them for having done so.

More importantly, the output from a consumer AVM cannot be used to obtain a mortgage -- the overwhelming source of business for appraisers. The appraisers will argue that unrepresented buyers and sellers are using Zillow's "Zestimates" or other AVM results to evaluate properties, but this is certainly their own business. Given that they had been working from anecdotes and gut-feelings before, it's hard to claim that they are somehow worse off now.

I think the real issue is the threat posed by objective, automated, internet-based systems to state-licensed functionaries like appraisers or real estate agents. Is a Zestimate as good as an appraisal? Maybe not. But if an unrepresented seller and buyer agree about the value of a home in an all-cash sale, whether or not this agreement is buttressed by an AVM, should they be required by law to spend $350 for an appraisal?


Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.

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