It's Not That Easy

The recent legislation in Arizona allowing Zillow.com to continue valuations of real property has been heralded as a triumph for technology and the real estate business. The truth is, it isn't that easy. The Arizona legislature opted to cover the consumer by having Zillow (and others) label their 'valuations' as 'not an appraisal.  A blog I read championed this as a triumph for agents and consumers, and the writer opined that agents ought to be able to do 'valuations' for lending purposes.  

The truth is, consumers are confused. They have always been confused over the difference between a CMA, a BPO and an appraisal.  As a practicing appraiser, I have often had consumers assure me that their house was 'appraised' when in fact, an agent did a CMA. I teach agents, and I teach appraisers.  Appraisers have far more education and training.  In most states, including mine, the day the ink is drying on a new salesperson's license, that individual can go running out and tell a consumer either what to list a house for, or what to offer for one. That's scary. And now, we have some voices saying, let them also do valuations for loan purposes--very scary.  

Then there is Zillow.  Zillow essentially took technology that has been around for a long time--automated valuation models using such mind-numbing things as multiple linear regression--and applied it to residential property. According to the Wall Street Journal, in one of their worst 'zestimates', Zillow was off by two million dollars, because their system failed to recognize the value of a gated community. Automated valuation models have their place--but not in the hands of amateurs. On top of that, consumers rely on real estate professionals to value property--and they think we know what we are doing. The truth is, we should know what we are doing. Yet, as an appraiser, way too often I am in a house where the owners are 'upside down'--because the last 'appraisal' was either a BPO, a drive-by--or who knows what?

Agents and appraisers both have valuable roles to play in the industry. Yet, when agents start valuing property--for things like loans--they are getting in way over their heads. Finally, any agent considering valuation of property for a fee should carefully check both their state license law and their company E & O policy to see if they are covered for this kind of practice. As the saying goes: "Fools rush in where angels fear to tread."