Your Next Home Might Be Appraised by a Robot
Your
Next Home Might Be Appraised by a Robot
Regulators are moving to allow a majority of U.S.
home purchases to be conducted without licensed appraisers
By Ryan
Dezember Aug. 24, 2019 5:30 am ET
The next time you buy a house, your lender might deploy a drone
and a computer algorithm to size up the property instead of a
tape-measure-toting human appraiser.
Federal regulators are moving to allow a majority of U.S. homes
to be bought and sold without the involvement of licensed appraisers, by
increasing from $250,000 to $400,000 the value of homes exempt from a human
evaluation.
In doing so, they are opening the
door to more appraisal work being performed from afar and by computer models.
Proponents of the change, primarily financial institutions and
state banking regulators, say that by not having to hire a licensed appraiser,
lenders and home buyers will save money and real-estate deals can be completed
faster. Appraisers and consumer-advocacy groups that have opposed the change
argue that it introduces new risks to the $10.9 trillion market for home loans
and that computer models and other technology can’t
replicate a trained appraiser’s judgment, human senses and experience.
“Software is eating real estate,” said Jeremy Sicklick, chief
executive of HouseCanary Inc., which has trained computers to assess the
condition of homes using photos and sometimes employs drones to produce images
of properties. “You’re seeing the beginnings of the machines outperforming
humans in terms of accuracy.”
HouseCanary, which charges $59 for its 20-page
computer-generated property valuations, is among those that stand to benefit
from the change. Appraisers, meanwhile, are in danger of losing market share.
Appraisals for a single-family home typically cost between $375 and $900.
David Bunton, president of trade group The Appraisal Foundation,
said boosting the threshold for appraisals serves to “hollow out the teeth” of
lending regulations put in place after the 1980s savings-and-loan crisis. “It will
likely prompt many financial institutions to significantly reduce attention to
collateral risk management,” he said.
The proposal was made in November by the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corp. and the
Federal Reserve. The FDIC and the OCC have approved the change, and the Fed is
expected to follow suit. The new rules will take effect once it does.
The $250,000 threshold was set in 1994. That is also the
baseline for the S&P CoreLogic Case-Shiller National Home Price Index.
According to that oft-cited home-price gauge, a home that sold for $250,000 in
June 1994 would have been expected to sell for more than $640,000 in March. At
the depths of the housing bust, in December 2011, that house would have been
about $445,000, according to the index.
More than two-thirds of U.S. homes sell for $400,000 or less,
according to U.S. Census data and the National Association of Realtors. Had the
higher threshold been in force in 2017, about 214,000 additional home sales, or
some $68 billion worth, could have been made without an appraisal, regulators
said.
Regulators say the immediate effect of loosening appraisal
requirements would be limited because most home loans in that price range are
bought by mortgage giants Fannie Mae and Freddie Mac , or
guaranteed by other federal agencies. Those typically require valuations by
licensed human appraisers regardless of home value, though Fannie has begun to
eliminate appraisal requirements for some refinancing loans.
It would affect loans that are held by lenders or pooled into
mortgage bonds without government backing. The market for private mortgage
bonds dried up in the aftermath of last decade’s housing collapse, but lately a
growing number of loans that could otherwise be bought by Fannie and Freddie are winding up in private bonds.
Moody’s Investors Service has been among those that have warned
that eliminating appraisers from deals heightens risks for investors.
Alternatives such as broker price opinions—which are a type of perfunctory evaluation performed
by real-estate agents and even outsourced to office workers in India who use
online data—or computer-driven automated valuation models “would weaken the
credit quality of new residential-mortgage-backed securities,” Moody’s has
said.
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