Appraisers might find themselves with some new competition on the horizon, if a move by some large brokers to get into the appraisal game gets past the board of the National Association of Realtors (NAR) this month.
The Realty Alliance is a coalition of more than 70 of the country’s biggest brokers (including Shelton-based William Raveis) 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 compile tax data, sales records and other info and run it 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 sometimes in lieu of, an appraiser’s report, particularly for refinances. This move by The Realty Alliance 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. Four of the five Connecticut MLSs are owned wholly or in part by Realtor boards; CMLS requires Realtor membership to join.
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 could help secure appraiser’s role in the market.
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 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 and see 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.
Email: csullivan@thewarrengroup.com
