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Real Estate Appraisals and Copyrighting Facts

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9 Responses

  1. Frank says:

    Justin Hughes gave a terrific presentation on this topic at the Berkeley conference in August 2006. He has some interesting philosophical takes on the process by which an opinion about something’s value may well become a fact.

  2. Barrett says:

    “restricting access to the appraisals.”

    “if traditional appraisers really think they are losing money, they could just increase their fees to lenders to cover the lost value (good luck!).”

    This is not an option. Most major lenders have felt pressure to use a middleman (that orders and manages the appraisal for them) to act as a chinese wall. These middlemen also sell data. But this has caused more problems than it solves. When I worked with Major Lenders I never felt pressure to inflate values. This type of pressure is usuallly felt from Brokers, who do not use middlemen.

    These middlemen are Appraisal Management Companies(AMC). There are not many of them so there has been a quasi-consollidation. Instead of having 50 major lenders as potential clients, appraisers have to deal with 3 or 4 AMCs. This also creates a major shift in bargaining power.

    Residential appraisals are now looked at as commodities. The only factor AMCs look at is price. If they have to choose between Joe, who has 20 years of experience and charges 350, or Bob, who just got his license but charges 300, they choose Bob everytime. The result is fee which have been cut by more than 50% in some instances. Why do they do this? Its in there best interests. The cost/benefit is in their favor. Even if the inexperienced appraiser screws up, they have a home as collateral and whatever the difference is the appraiser’s Insurance will pick up.

    These AMCs charge less but get more. They now extract the data from the reports to use in their AVMs and other products, which directly compete with appraisers.

    You see the government has put pressure on major lenders to make sure there is no pressure put on appraisers. This was done to increase the quality of appraisals. But the consequence has been lenders using AMCs which in turn has decreased the quality of appraisals, decreased appraisal fees, and is pushing appraisers out of business.

    Sorry to vent, but I am an appraiser (and a law student).

  3. Eric Goldman says:

    Barrett, thanks for the perspectives. There’s nothing like the voice of an insider. Based on your description, maybe it’s not disintermediation but reintermediation by AMCs. If I read your description correctly, the AMCs consolidated power after lenders outsourced their appraisal requirements in response to previous efforts by appraisers to seek government protectionism? Sounds like the industry’s future isn’t promising… Eric.

  4. Shane says:

    This is a subject that I am surprised that anyone outside to the appraisal industry has picked up on. The issue of data has been around in the appraisal industry for many years. If you contact some of the older appraisers they will be able to refer you to a time when the Appraisal Institute and its appraiser members had some relationship problems over a software that gathered data and later sold it to avm’s. That has seemed to die down over the last few years but the data issue has once again came up. The one driving issue is the amount of business available in the market right now and so now becomes a competing for business subject.

    The subject just scratches the surface, but I am glad to see that industry issues are starting to be taken notice of outside to the appraisal industry. First it should be understood what an appraisal management company is and how they came about, how many are owned by major lenders and also the relationship of the lender to the appraiser, last but not least the relationship of the lending industry to the appraisal industry, as you can see the issue goes deeper then just a copyright.

    Issues of quality and consumer protection are at play here too, while they are a little more detailed issues. The fact that the avm’s are using appraisal data is because the data that is generated by online methods is not as accurate in many cases and is hard to gather from local government data harvesters such as assessors.

    So now is to see what the next installment will be in this saga.

  5. Barrett says:

    “Sounds like the industry’s future isn’t promising”

    Hence why I am in law school. :)

    The business is in flux and the future is not clear. In many industries (e.g., stockbrokers, insurance), technology has brought more value to end users and has gotten rid of the middle man. In this case, the middleman is shoplifting the data, charging more, and paying less. So the added value is not being passed on to the consumer/borrower. If it was, then perhaps there would be some social benefit. But the AMCs and banks are just fattening their pockets. I am all for technology and I believe in the utility of AVMs. My problem is with the lack of bargaining power of the typical appraiser; and the lack of transparency from the consumer’s end. The consumer gets charged $600 for an appraisal; the appraiser gets paid $200; the AMC takes its cut; and the bank takes the rest.

  6. Mike Madison says:

    Barrett’s comments indirectly confirm what I learned years ago in financial services litigation (this was following the S&L crisis of the 1980s): One, the purpose of the appraisal isn’t really to protect the borrower. The primary purpose of the appraisal is to protect the lender. Consumer protection arises indirectly, because proper underwriting by lenders protects the public treasury from having to bail out over-extended lenders. Two, the lender cares partly that the appraisal is accurate (up to some reasonable point), and it cares partly that the appraisal comes certified by someone whose authority is recognized in the banking community. But if there are inefficiencies to be squeezed out of the system via dis- and re-intermediation and technology, it’s plausible to me that the banks and their agents, not consumers or appraisers themselves, should be the beneficiaries.

    Does the new order offer a more efficient method of satisfying the underlying interests? AMCs seem to satisfy the certification interest. As to the quality interest, it’s not clear whether appraisal quality is suffering. If not, I don’t see a policy problem, and as Eric notes, the IP claims are hindering marketplace competition. If so, then the right response may be intervention by bank regulators. IP claims are often imperfect spear-carriers for quality arguments, and copyright law is especially imperfect.

  7. Iso Belgesi says:

    Interesting point, i’ve never think about it like that..

  8. With the last two transactions I’ve done, I actually just made use of free appraisal reports. I was able to dispose my properties without having to shell out so much in home appraisal services.

  9. JonasSmith says:

    I wanted to leave a little comment to support you and want you a good continuation. Wishing you the best of luck for all your blogging efforts.

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