Automated valuation models, or AVMs as they are commonly referred to, are used quite often in the mortgage lending industry. However, they typically don’t work in New England. This area of the country doesn’t have tract housing, and homes here have too many variables for a computerized valuation model to work with any kind of precision.

Lenders must rely on appraisers to accurately measure the value of a home before approving a mortgage loan. In spite of this, appraisers are increasingly being asked to defend their appraised values against the lower estimated results generated by AVMs. Some communities in Massachusetts are beginning to see increases in sale prices. But AVMs are based on historical data…and we all know where the market has been.

Realtors typically see these changes in market conditions before appraisers do because of their knowledge of homes that are under contract and waiting for financing approvals to close.

Due to the increase in the use of appraisal management companies brought about by the recently enacted Home Valuation Code of Conduct (HVCC), appraisers must now be chosen from a list on a rotational basis. This means that when the appraiser’s name comes up in the queue, they might be sent to places that are not as familiar, but are still within their working territory. When an appraiser, who is desperately searching for comparable sales, telephones a real estate broker for information regarding a listing, it benefits both the appraiser and the broker to pass along information that might not otherwise be available to the appraiser on a public Web site.

One of these bits of critical information is the contracted sale price of a property that is currently categorized as a pending sale. Brokers are bound by a Code of Ethics not to release this confidential information before the terms of the sale have been met or upon the actual closing date, unless they have authorization from the seller. Therefore, brokers are extremely reluctant to release the contracted sale price to appraisers, offering hints instead such as “it sold close to asking.”

Quashing The Close

But what happens when an appraiser is forced to rely exclusively on older closed sales that could have sale prices significantly lower than the property they are appraising? When this happens and these historical sale prices are also being supported by AVM results, the consequence can be a real deal breaker. Current data all points toward market increases in listing prices, and some of those listings are already contracted sales. But if the appraiser cannot get an accurate sale price for those pending listings, they cannot be used as reliable data in the appraisal.

In this volatile market, it may benefit listing brokers to secure the release of this information from their sellers ahead of time. Explain to your client the benefits of having the ability to offer this information to appraisers. Appraisers are also bound by similar confidentiality requirements, so liability concerns on behalf of all participants should be minimal.

As a working appraiser, I base my opinions of value on the information either given to me first-hand or by verifying the information made available to me through public records. Having accurate public information is essential for my analysis to be credible. Listing brokers who do not post accurate sale prices to public Web sites after a closing or leave out seller concessions that may have occurred at the closing, undermine themselves and their colleagues as it invalidates one reliable data source used by most appraisers. As a result, the next sale might run the risk of being valued by an appraiser in an unfamiliar territory without accurate or reliable data from other pending sales to support their value conclusions. For the benefit of our mutual clients, both real estate brokers and appraisers should work together now more than ever.