Krystal Schware, PA CREA
New Regulations Are Doing WHAT to Consumers??
Today is April Fools' Day yet it was the month of March that left real estate appraisers and other industry professionals feeling like they were being fooled. The news and updates released from Fannie Mae and Freddie Mac are leaving a bad taste in the mouths of all who are in the know. What I am about to share with you is surreal, scary, and wreckless, yet this is reality. Buyers and consumers, you may feel like you are being 'punked.'
Fannie Mae and Freddie Mac have released news that they plan to stop using actual trusted, trained, professional real estate appraisers to protect you in your next loan or mortgage-related transaction. A real appraisal has become their very last option if they can't fit you for one of the new alternatives. Your biggest investment may be left to chance. Don't let the fresh, more user-friendly jargon fool you. Unless you have an immaculate credit score and are not cashing out on your equity, these new alternatives are absolutely not in your best interest. Why are they allowing this potential harm to consumers? To potentially shave a day or two off of how long the loan process takes. Next, maybe we should start eating half-raw chicken to shave off 20 minutes of the cooking time. Both could leave you sick and full of regret.
The new loan process will have an appraisal waiver as the first and preferred option. They changed the name of from waiver to a 'value acceptance.' Great marketing ploy. Using positive words like 'acceptance' automatically triggers one's mind to it being a positive thing. "Yay! My value was accepted!" This allows a lender-approved value instead of a real appraisal. The lender does the value acceptance coupled with data collected by a random third party. How many of you think it is smart business to let a person with a vested interest in making money off of you, have the reigns? Data can often be fudged when there is a personal interest in its success. But wait; there's more.
To facilitate these new options, they created a new 'job' called a PDC. A Property Data Collector. This person can be any random stranger who takes a two or three-hour class and they will be then be sent into your home. They are not licensed, not certified, have no background check, and may have zero real estate knowledge or experience. (As of this time, I have found no regulations for PDC's for background checks) It could be an uber driver or a convicted felon entering your home under the guise of an appraiser. (So why not just use a qualified appraiser and do an appraisal while they are there, right?) I highly recommend that if someone is being sent to your home for this, you confirm if they are an actual real estate appraiser. Ask their name and look them up on the national registry; www.asc.gov Actual appraisers are background checked, certified or licensed, monitored by the State, put through years of education and scrutiny, and must meet strict regulations to remain an appraiser.
If a person or property doesn't qualify for a waiver, then your next inferior appraisal replacement is called a hybrid. Hybrid appraisals can take as long or longer than real appraisals, so this one has me stymied. First, you wait for a PDC to go do their thing. I've seen this take up to 10 days, which is WAY longer than an entire traditional appraisal in most areas. They send out an Uber driver, oops, I mean PDC, to do the job of an appraiser, then they send the Uber driver's data, oops, I mean PDC's data to an appraiser. The appraiser is then expected to do an appraisal of a home they have never seen, relying on data from a 'PDC' they have never met and of whom they have no clue of their qualifications or accuracy. Sound legit? I'll let you decide.
If no other possible shortcut method is approved, then a real appraisal will be permitted. I highly recommend telling your lender that you want a real appraisal. Your biggest investment is not a place for Uber drivers or cheap and fast over accuracy. (Not bashing Uber drivers; they are great. We just don't want them appraising oury homes.)
Quick and easy and A.I. are the wave of the future. But they cannot competently replace the eyes, ears, and reasoning skills of an educated appraiser. To demonstrate the harm of A.I. over real, I'll leave you with this example. I think by now everyone has heard of Zillow. It is an online site that gives you an automated value for your home. (Here in the appraisal world, we joke that the A in Zillow is for accuracy.) What many of you may not know is that Zillow had made an attempt to branch out into buying, flipping, and selling real estate, basing its sales and purchase prices on its own automated valuation model. Zillow's own platform was so far off base and so unreliable, that they put themselves out of business in that part of their venture. It is recorded that they lost $880 MILLION DOLLARS in 2021 due to these failed efforts. They blame the volatile market and other excuses for its failure, but its failure in this venture was visible since its inception; the automated values were far from accurate. This is how unsafe and unreliable online and automated 'valuation products' are. And this, my dear readers, is a similar model to how you and your family could be handled for your next refinance, purchase, or mortgage-related transaction.
If you have any questions regarding your home's value, call the specialized professional. Call a certified or licensed appraiser. We're happy to help and it's literally what we do and what we are here for.