Arizona SB 1291 failed to pass Tuesday afternoon in the Arizona House. The bill would have required a two-thirds majority and passed by less than that. I’ll post further when I know more.
Further notice: Here’s what it all means:
To have passed, the bill would have had to have passed by a two-thirds majority. Then it would have gone back to the Senate, where is also would have had to pass by a two-thirds majority. This is a Constitutional bias in the Arizona legislature against new laws of any sort — generally a good thing.
Since the bill did not pass the House, this means the old version of ARS Chapter 36 is still in effect. It is this version of the law that Zillow.com is alleged to be violating by the Arizona Board of Appraisal.
That allegation has not been tested in court, nor have any of Zillow.com’s direct competitors been alleged to have violated ARS Chapter 36.
As another wrinkle, the amendments made yesterday to AZ SB 1291 that would have clarified that offering the output from an Automated Valuation Model at no cost is not an appraisal, subject to regulatory oversight, could be appended onto another bill. In other words, the existing language of ARS Chapter 36 could be revised to achieve the same effect as yesterday’s amendments.
This is a statement released by Zillow.com this afternoon:
From Lloyd Frink, Zillow co-founder and President:
The issues that Arizona Senate bill 1291 sought to address went far beyond questions about automated valuation models for real estate. The fact is we are still extremely pleased that the Arizona House of Representatives decided to amend SB1291 to recognize the value that sites like Zillow bring to consumers in providing free and easy online access to real estate data and home valuations. We remain confident that any future reviews will similarly recognize the importance that sites like Zillow deliver in creating better informed and educated real estate consumers. Nothing has changed and we will continue to make Arizona Zestimates available for free to all Zillow users.
Additional details RE: AZ Board of Appraisals:
We strongly believe that providing Zestimate home valuations in Arizona is completely legal and in fact an important public service, given that Zestimates are the result of our ‘automated valuation model’ and are not formal appraisals. The Arizona Board of Appraisals relies on USPAP, the national professional standards for appraisers, and USPAP Advisory Opinion to determine propriety of activities. Here is the relevant opinion on this matter (Advisory Opinion 18): http://commerce.appraisalfoundation.org/html/2006%20USPAP/ao18.htm. As you can see, it reads: ‘The output of an AVM is not, by itself, an appraisal.’ Our Web site notes multiple times that Zestimates are not appraisals and you won’t be able to use a Zestimate in place of an appraisal.
We provide the following guidance on our site to all users:
The Zestimate is not an appraisal and you won’t be able to use it in place of an appraisal, though you can certainly share it with real estate professionals. It is an estimate of the worth of a house today, given the data we have available. Zillow.com does not offer the Zestimate as the basis of any specific real-estate-related financial transaction. Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for, such as entertaining offers, negotiating, closing costs, timing, etc.
We have responded to the letters from the Arizona Board of Appraisal, and will continue to engage with the Board and the Attorney General’s office to resolve.
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Ryan Bailey says:
Hey Greg,
BTW, even if it passed today eventually the Governor would have to sign off on it. Every indication out there leads me to believe that the Governor is in pretty tight with the Attorney General and I would conclude that the bill wouldn’t get signed off on until the AG proceeds with actions against Zillow or at least gives the ay or nay… Just my opinion, but I think the ball is in the AG’s court in the end.
April 24, 2007 — 4:53 pm
Austin Realtor's Wife says:
OMG YOU’RE ON FOX!!!!!!!!!!!!! Way to go, Zillow Man! Will you be on Geraldo too? 🙂 You said you weren’t an O’Reilly fan, but what about Bill? 🙂
April 25, 2007 — 7:26 am
Homeowner says:
With these home valuation sites, whenever a transaction is recorded, the data is automatically transferred to the home valuation system, where sellers and buyers can immediately access the information. While that’s not so bad in and of itself, it can intensify the negative effects of real estate and mortgage fraud. If, for example, a property’s value is artificially inflated as a part of a flipping scam, that property’s inflated value appears immediately online. People selling homes in the same area see the numbers and instantly jack up their asking prices. Buyers see property values rising and are willing to pay more. A con artist who knows how to play the game, can pull the strings on the system like a puppeteer, inflating and deflating the market at will.
Now, you might argue that given the proper incentive, appraisers have been known to fudge the numbers, too. You might also argue that these valuation models are even more honest–after all, can’t a computer automatically check whether a property’s value is out of sync with the prices of similar properties in the same area? In theory, yes, but in practice, these valuations are significantly less reliable than what competent, certified appraisers can deliver. In some areas, they may be off by 10%. In other areas, the discrepancy can be as much as 50%. I tried to look up the value of my own house, and it wasn’t even listed.
In addition, these valuations can be extremely old. Based on a valuation model, a bank could conceivably approve a mortgage loan to purchase a house that burned down two or three months ago. Only a human being, an appraiser visiting that house and looking at it inside and out, can determine whether the valuation is truly accurate.
Recently, I sold a home to a client who was approved for a mortgage loan in less than 24 hours. The lender didn’t require an appraisal and never even looked at the house. They relied exclusively on a home valuation model to verify the property’s value. I have seen enough fraud to know that if a seasoned con artist had put together a phony deal, that valuation model could not have detected it, and the deal would have proceeded without the slightest hint of suspicion.
As we rely less and less on the human factor as a system of checks and balances, we are sure to see an increasing problem with real estate and mortgage fraud. Home values will be able to skyrocket overnight without governance, creating a housing bubble that will make the dot.com crash of the nineties look like a soft landing.
When I see customers, clients, and even a few of my colleagues singing the praises of these online home valuation sites, all I can say is “No thanks, I’ll stick with a licensed, reputable appraiser.”
May 2, 2007 — 5:10 pm
Brian Brady says:
“all I can say is “No thanks, I’ll stick with a licensed, reputable appraiser.” ”
Isn’t it great that you have the CHOICE ?
May 3, 2007 — 8:19 am
Steve Keohane says:
Many lenders, including Fannie Mae, Freddie Mac, Wells Fargo, Countrywide and Washington Mutual made very risky decisions several years back to utilize computer generated appraisals (known as AVMs) instead of licensed real estate appraisers.
This extraordinary “Risk taking” by lenders in the name of greed nationwide is now beginning to cause problems in the bond markets because of the extraordinary risk of backing mortgages when nobody ever even looked at the property (homes and property) being financed. The subprime market meltdown due mostly to their Liar! Liar! loans (no income verification) is yet another clear indication of Lender irresponsibility and greed. Driveby “appraisals”, where an appraiser is told not to go inside the property to be appraised have also caused extraordinary losses to the lending industry. Often these driveby’s are ordered because the Loan Officer has already gotten a head’s up of something illegal, such as an illegal basement apartment, or a “gutted” or damaged room, etc.
Lenders nationwide were warned in the spring of 2004, that when they use anything less than a full, traditional appraisal in housing markets where values are soft, they could be penalized on Wall Street.
Fitch Ratings, one of the major risk-assessment firms for the global bond market, believes that anything less than what it calls “the full monty” — an on-site, exterior and interior professional appraisal — is likely to overstate the true worth of the property if it’s located in any of dozens of slowly appreciating markets around the country.
Fitch plans to impose a 10 to 15 percent “haircut,” or devaluation, of the homes backing mortgages in bond pools if they are in soft real estate markets and did not get traditional full appraisals. That rules out all the quicker and less costly valuation alternatives in wide use, including online database “automated valuation models” (AVMs), broker price opinions, desk reviews, tax assessments and drive-bys.
Bond investors — those who buy into the giant mortgage pools that fund much of the U.S. home loan market — care deeply about accurate property valuations. That’s because when borrowers default and go into foreclosure, investors lose more when the appraisal used by the lender inflated the property’s true value.
These AVMs are similar to those you get for free, or pay $10-$29.95 for, like at Zillow, YaHoo or at some other company sites. They were known as neural logic or “fuzzy logic” when they were used on the stock market in the mid 90’s. They failed there miserably.
Like neural logic programs of the past, AVMs which the banks are now using are also failing miserably. These computer programs begin their “appraisal” by blindly generating an appraised value for a home with very faulty data. This computer “analysis” is based on multiple regression analysis with a large amount of the most pertinent variables, including your homes actual condition, its actual verified size, and your location removed from their equation. Only after AVMs find the appraised value do they begin searching to find what they consider likely comparables.
The reason the banks are doing this is not to save you money–but to increase their own bottom line (they collect the fee). This also allows the lender to “fudge” these computer generated home valuations, because no 3rd party (like an appraiser) is now watching them. When a mortgage company is involved, our experience as state licensed appraisers is that a large percentage (not all) of loan officers will do anything it takes to “push a loan” just to collect their own commission. This is not always in your best interest! Suppose you owe much more than your home is worth, and the real estate market takes a down turn; you may soon find yourself filing bankruptcy if you had to sell your home. Relying on these AVMs to give you a value prior to selling your home could very well cost you $10,000-$100,000 in lost equity. It has happened to many people.
AVMs and LOW VALUES:
AVMs base their value estimates without anyone ever evaluating the condition of your home or the condition of the comparable sales used to estimate your value. AVMs nearly always totally ignore the number one criteria in real estate–location. These computer programs could care less if your home is located in a much superior neighborhood–an inferior neighborhood is often separated by just one street from you. These computer programs don’t care if you have an ocean front view, or even a “crack house” view. A comparable which your home is judged by these AVMs may have sold low because half its foundation was falling down a cliff. This AVM comparable could have sold low because most of its lot is far from level–perhaps even a rocky cliff. It could have sold low by $50,000 because it has urea formaldehyde in the walls. The point is, –AVMs don’t ask questions, and don’t see anything. AVMs simply do not care. Because its within their “circle” (distance from your home) computers figure it’s equal to yours. AVMs always indiscriminately compare your neighborhood with run-down and other incompatible neighborhoods. That’s because computers cannot see the difference as they incorrectly analyze data in an office hundreds or thousands of miles away from you.
Computer generated evaluation databases are predominated by 10-15 year old county data. This data most likely does not show whether you renovated your home’s interior or exterior, put in new thermal windows, finished your basement, added an in ground pool, deck or porch. Computer generated evaluations will most likely miss your new kitchen and your new bathroom also. Additionally, AVMs are not likely to measure your home correctly. And they’ll probably miss that finished 3rd floor and that new $60,000 addition in the rear. In short, AVMs do oranges against apples. They’ll include a finished basement as if living area (gross living area) in the comparable sale–and often they’ll not do the same with your home.
Computer generated evaluation databases will most likely not include “fresh sales” in your neighborhood, or even across the street from you. If you have waterfront property, a computer evaluation will most likely compare your home against a non-waterfront home. Should your lot spill over to another town or even another state, this AVM will most likely miss that lot portion outside of your town. Computer generated evaluations will not talk to local brokers about why a home sold so high, or so low. They will also miss a lot of good comparables that exist when a homeowner sells their own property (FSBO). If you have a lot that could be sub-divided to give you a windfall of $100,000-$100,000,000, unlike an appraiser–the bank computer will give you no “heads up” so that your “gravy” goes to the new buyer–and you are none the wiser.
The worse thing about these computer evaluation models (AVMs) is that they are spitting out reports to homeowners who are basing their selling decisions on these. We suggest if you lose money by relying on one of these – that you contact an attorney and file suit. AVMS are often falsely advertised as “Appraisers”, “Real Estate Appraisers” and “Appraisal” on internet search engines.
Read this entire article here:
http://appraisercentral.com/AVM.htm
May 16, 2007 — 7:38 am
Greg Swann says:
That is to say, not only are investors unwilling to learn what you know so much better than they do, they are to be forbidden by force of arms from using any mind but yours. Who should I fear more — AVMs or fanatics backed up by the massed firepower of the Nanny State?
May 16, 2007 — 7:48 am