Appraisers might find themselves with new competition if a move by some large brokers gets past the board of the National Association of Realtors next month.
The Realty Alliance, a coalition of more than 70 of the country’s biggest brokers (including William Raveis, with more than 40 offices in Massachusetts), is working with a third-party data analytics firm to allow members to create automated valuation models (AVMs) for their local markets.
Much like Zillow’s “Zestimates” and other home value calculators, AVMs process tax data, sales records and other information through proprietary algorithms to quickly generate an estimated price for a subject property – usually for a much cheaper fee than a skilled appraiser would charge for a report. During the housing boom of the 2000s, many large lenders, including Fannie and Freddie, experimented with using AVMs in addition to or in lieu of an appraiser’s report, particularly for refinances. The Realty Alliance move would allow brokers to fulfill those needs, potentially placing them in direct competition with appraisers.
The Realty Alliance still needs NAR’s blessing, however, as using the MLS data in this way would be a new application – one that may not be permitted under existing data usage guidelines, said Brian Larson, an attorney and principle at Minneapolis, Minn.-based Larson Skinner PLLC, which specializes in advising MLSs.
Brokers already use MLS data to compile “broker price opinions” (BPOs); short reports sometimes requested by lenders to help them decide whether to give a preliminary approval for a loan. But “the difference is there’s a professional judgment attached to a BPO that is not attached to an AVM,” said Larson.
NAR MLS policy “has always permitted brokers to use MLS data to inform their professional judgments, nobody disputes that. The question is whether an AVM is sufficiently similar to that,” he explained.
With the vast majority of the nation’s 900-plus MLSs run by Realtor associations, if NAR gives the go-ahead at its mid-year meetings this month, The Realty Alliance would be able to implement its clearinghouse across most of the country. Two of the three Massachusetts MLSs, the Cape Cod and Islands MLS and the Berkshire County Board of Realtors MLS, are Realtor-controlled. The third and largest, MLS-PIN, however, is broker-owned, and not beholden to NAR policy.
The Threat To Appraisers
It’s unclear how much the entry of large brokers into the AVM arena would hurt appraisers.
In recent years, the desire of large lenders to trim costs has occasionally placed them in conflict with appraisers. Many lenders were content to use BPOs for the valuation of distressed properties, rather than commissioning a full appraisal report.
But as the wave of distressed sales faded, the tightened underwriting standards of the post-crash housing market have led banks to rely more on full, comprehensive appraisal reports, especially for purchase loans. That should help secure appraiser’s role in the market, said Steve Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers.
“I don’t see that this would bring much more to the marketplace than a BPO. There’s already a ton of AVMs out there, and their reliability is all over the map,” he said. “No AVM is as reliable as an appraiser’s opinion of value. All they can do is give you some indicator of where the market is. I’m not sure there would be much of an impact on the need for appraisals.”
Setting The Data Free
The shift in NAR policy could impact more than just appraisers, however. By granting The Realty Alliance’s wishes in this matter, NAR would essentially be saying that MLSs are obligated to provide data feeds to their members for any activity that the member wishes, so long as that activity’s permitted under the MLS’s rules. That would be an important shift, argues Larson.
Most MLSs permit appraisers themselves to become members. If an MLS is required to hand over data to brokers for this purpose, perhaps “an appraisal firm could get a data feed from the MLS, or a group of appraisers could, or a national appraisal firm could do that,” and make their own AVMs, Larson suggested.
Some brokers may have plenty of other ideas in mind for that they could use MLS data for – monitoring agent productivity for recruitment purposes, for example.
If MLSs are required to provide direct data feeds, it could become much more difficult for them to monitor to what uses the data is being put, Larson said. When brokers use MLS data for creating a virtual office website, for example, anyone who visits the website sees what data is being displayed, and competitors are quick to point out brokers who step over the line. “I don’t foresee The Realty Alliance’s partner saying, ‘You can use our tool for free to [test] if we’re complying with the policy,’” Larson said.
MLS PIN has yet to be approached about getting direct feeds of the type The Realty Alliance is requesting, said Kathy Condon, MLS PIN CEO. Under its current policy, appraisers qualify as full participants in the MLS and therefore have the same ability to access data as brokers, and it currently provides direct feeds to brokers who wish them, and brokers must sign separate licensing agreements for such feeds.
But “there is no way we can proactively catch misuse of the data. Most times we must rely on reports from our customers of suspected abuse,” said John Breault, director of customer support and quality assurance for MLS PIN.
Email: csullivan@thewarrengroup.com
