What If the Algorithms Are Wrong?

Excerpt: Algorithms are everywhere…
Mathematician and data scientist Cathy O’Neil coined a term for algorithms that are secret, important and harmful: “weapons of math destruction.” Learn more about the hidden agendas behind the formulas.”

“Algorithms are opinions embedded in code. It’s really different from what you think most people think of algorithms. They think algorithms are objective and true and scientific. That’s a marketing trick. It’s also a marketing trick to intimidate you with algorithms, to make you trust and fear algorithms because you trust and fear mathematics. A lot can go wrong when we put blind faith in big data…”

Check out the video of the Ted Talk: 15 minutes and well worth watching. “The Era of Blind Faith in Big Data Must End” I love Ted Talks and have subscribed to the Ted Radio Hour Podcast for a long time.

My comments: Remember the Recent Mortgage Crash The Data Did Not Predict? Why? They did not include data from the Great Depression, the last time real estate markets crashed all over the country.

Who was saying something was wrong? Whistleblower Appraisers. Appraiser Petitions fell on deaf ears. Some appraisers spoke the truth and lost their appraisal businesses and/or were blackballed by lenders.

Zillow awards $1 million prize for making Zestimates more accurate

Excerpt: According to Zillow, the improvements to the Zestimate will decrease its current nationwide error rate of 4.5% to less than 4%, meaning that half of all Zestimates will be within 4% of the selling price, and half will be off by more than 4%.

Put another way, Zillow claims that on average, the Zestimate is $10,000 off of the actual sale price for a typical home, but with the improvements from the contest, future Zestimates could be approximately $1,300 closer to the sale price.

Dave Towne’s Comments: Let that sink in for a minute. They claim current Zestimates average around 4.5% accuracy; the new one when implemented will drop that to about 4.0%.
For every 0.1% change, they spent $230,000!

My comment: I wonder how wide the percent range  is… especially on a particular property.

Is the Appraisal Profession Dying?

By George Dell, MAI

Yes. Appraisal as we know it is dying.
Can it be saved? No.
So what should I do? What should “we” do?

The data has already been gathered. The analytics software is free. The pictures have already been taken. “Let’s Make a Deal!”

Analysis requires judgment. Human generalization is enhanced by computation. Complete data can be enhanced/cleaned as well as “confirming a comp.” A point value is an inherent part of a predictive value distribution. A documented, reproducible result is the most credible, believable answer.

My comments: I believe that human appraisals will still be needed. There are times that a human appraiser is needed to interpret results, and “go beyond” the data for Highest and Best Use, Unusual properties, etc. Lenders will move to computerized risk management, once investors will accept this. Most residential lender valuations will not need humans as the value of an individual property in investors’ portfolios is not critical. Of course, when the market inevitably crashes, there will be no appraisers to sue to recover some of the lost money. Maybe our E&O premiums will go down.

How’s Your Online Presence?

Excerpt: If you have a business and do not have an online presence many will not be able to find you or they will wonder if your business is still in operation. We recently had our heater stop working. Even though we live in Texas, it can get below freezing here in our area. Now, we have a local person that we have used and trusted for our heating and cooling service for years but I still had to search for their phone number. If I couldn’t find them online, I would probably wonder if they were still in business. Fortunately, they had a great informational website and they were able to come out and do a fantastic job repairing our heating system.

The blog post covers many topics, including, websites, Facebook, Twitter, content, etc. Worth reading.

My comments: Good summaries of the various topics. I recently spoke with the author, Shannon Slater, who writes from practical experience. Of course, I had to mention using her blog to market to real estate agents, since I wrote an article about it in my last month’s paid newsletter ;> She does a monthly market update with graphs, etc. I suggested putting some of it on her blog weekly.


Why You Need a Website
for Non-Lender Appraisals

I was just reading an Valuation Review appraiser survey from Sept. 2018, Voice of the Appraiser. In the marketing section, appraisers said they used word of mouth and did not need any other marketing (for working with AMCs). Now that AMCs are dropping fees and some are closing down, savvy appraisers are looking for non-lender work.

If no one can contact you, they can’t give you any non-lender (or lender) work!!!

I was looking for an appraiser’s phone number today. Did not have a website. The very old online appraiser directories had an old phone number. No email address, of course. What if I was trying to give the appraiser an appraisal order?

In December 2018 issue of the paid monthly Appraisal Today, I wrote about websites in the article “Your Website – the easiest and fastest way to get non-lender work!!” Just Do It!!

To read the article, plus 2+ years of previous issues, subscribe to the paid Appraisal Today.
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President Signs Legislation Increasing Commercial Appraisal Threshold

Source: Appraisal Institute
Excerpt: The SBA appraisal threshold has long been set by statute at $250,000. Now, SBA 7(a) and 504 loans involving commercial real estate below $500,000 no longer require an appraisal.

An Appraisal Institute analysis revealed that approximately 65 percent of SBA 7(a) loans already were exempt under the $250,000 threshold level. For loans under the $500,000 threshold, the percentage increased to roughly 77 percent.

Additionally, the National Credit Union Administration is considering a proposal to raise its commercial real estate threshold level to $1 million for credit unions. If the federal bank regulatory agencies follow suit and increase to that level, approximately 90 percent of 7(a) loans would be exempt from appraisal requirements.

My comments: Commercial lender fees dropped significantly in 2008 and have not increased much since then in my area and many other places. Why? An oversupply of commercial appraisers. Recently there was a local Appraisal Institute Chapter Social Meetup for new appraisers – they were all commercial.

The problem is also online Bid Boards keeping fees low plus national large appraisal firms, needing to keep the work coming in. Over 20 years ago, Wells Fargo started using one here. I tried it a few times, but the other bids were well under mine. I never got any bids accepted. Now the bid boards are all over the country. I quit doing commercial lender work 10 years ago, when the fees crashed.

The world’s most dangerous roads and highways

 Just For Fun and Hopefully Not Any Nightmares ;>

Can’t be described. Just click on the link below. I am not going to complain about freeway traffic, rain and snow! As much ;>

Great fotos and info at:

My comment: Dangerous neighborhoods and cities links were very popular in this newsletter, so I’ve got another one today. Appraisers like to read about dangers I guess ;> Bad News Always Sells, A Rule of Reporting. The Biggest News for appraisers is Appraiser Goes To Jail. Not much of that now…


Is SmartExchange (Comp Sharing) Not USPAP-Compliant?

By Woody Fincham, SRA

Excerpts: “…SmartExchange is a nationwide appraisal network that puts property data back in your control by giving you immediate access to pure, UAD formatted appraisal data…

So, is this something that appraisers can and should use? I have reached out to several USPAP experts and walked through a series of questions with them and with other practicing appraisers. I have also done my own research to come to my own opinion. Much of social media is asking an important question about this type of technology: Is comp data shareable or does it fall under assignment results which would be deemed confidential?

Well written and worth reading

My comments: I have never used a la mode so don’t know much about it. But I have seen online comments from their users about this issue.

I remember the old CMDC days in California. Back in the 1970s several California S&Ls set it up so their appraisers could get data as they were not allowed access to the MLS. Appraisers submitted the first page of their reports, and the data was entered and compiled into books for appraisers to use. When I started lender appraising in 1986, they were widely used. There were other data sharing systems in other part of the county. No one ever mentioned any ethical problems. There was no USPAP then. FYI, the CMDC books and data is still available from Corelogic as they purchased the company who did them, FNC.

HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, go to www.mbaa.org
Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to info@appraisaltoday.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.
Mortgage applications decreased 2.5 percent from one week earlier

WASHINGTON, D.C. (February 6, 2019) – Mortgage applications decreased 2.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 1, 2019. The previous week’s results included an adjustment for the Martin Luther King Jr. Day holiday.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 12 percent compared with the previous week. The Refinance Index increased 0.3 from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index increased 13 percent compared with the previous week and was 2 percent lower than the same week one year ago.

“Mortgage rates for all loan types declined last week, with the 30-year fixed mortgage rate falling seven basis points to 4.69 percent – the lowest rate since April 2018,” said Joel Kan, Associate Vice President of Industry Surveys and Forecasts. “Despite more favorable borrowing costs, and after a three-week surge in activity, purchase applications have slowed over the past two weeks, and are now almost 2 percent lower than a year ago. However, moderating price gains and the strong job market, including evidence of faster wage growth, should help purchase growth going forward.”

Added Kan, “Refinance applications saw a very slight increase compared to the previous week, despite the broad decline in rates.”

The refinance share of mortgage activity decreased to 41.6 percent of total applications from 42.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 7.8 percent of total applications.

The FHA share of total applications remained unchanged from 10.5 percent the week prior. The VA share of total applications decreased to 10.0 percent from 10.7 percent the week prior. The USDA share of total applications increased to 0.5 percent from 0.4 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.69 percent from 4.76 percent, with points decreasing to 0.45 from 0.47 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350) decreased to 4.50 percent from 4.60 percent, with points increasing to 0.28 from 0.24 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.70 percent from 4.77 percent, with points decreasing to 0.57 from 0.58 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.11 percent from 4.16 percent, with points increasing to 0.47 from 0.46 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 4.04 percent from 4.14 percent, with points remaining unchanged from 0.37 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.

Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
2033 Clement Ave. Suite 105
Alameda, CA 94501 Phone 510-865-8041
Fax 510-523-1138
Email   ann@appraisaltoday.com

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