My husband and I are investors. We purchased an REO in the spring of 2008. It had a listing price of $45K (Michigan), which we did not pay, although we put over $50K into a rehab.

The market did not bear a re-sale, so with winter coming on, we placed tenants in our beautiful home. Summer of ‘09, the tenants receive a knock on the door with someone wanting to view the interior and make an offer. Their source? Foreclosures.com, the REO arm of Zillow. Apparently the house was listed as a for-sale REO with an asking price of $45K. Over a year and the data stream had not updated! A few choice words with their webmaster and the listing was removed, but not before the tenants felt unsure of their tenancy footing.

I have no idea how Zillow renders a Zestimate, but I am guessing it is simply the last sale amount adjust by the net percentage decrease or increase of the median sale value of “like” properties in the same geographic area since the date of the last sale.

I’m sure they will say there is sooooooo much more to it, but probably something like that.

Have a chardonnay and relax. Make Steve get the pizza. Watch a chick flick, or something.

Smithers – Zestimates are quite serious business. No place for snarkiness there. (Insert smiley to reflect sarcasm.)

Actually, the Zestimates have become (at least in our little world) non-issues. We check them before meeting with a seller for the first time, because invariably the sellers will attempt to draw this weapon. However, and I blame this on the abundance of information (oft competing) out there, Zestimates truly don’t seem to carry the same weight with the consumer these days. They are easily dismissed.

What is really at issue is supply and demand (mostly latent demand), and Zestimates be damned. It’s kind of like an article I wrote this week for Inman News. There is so MUCH news out there, all of it different, that the consumer is tending to cherry pick the best for their circumstances. So, we have buyers with their proverbial hair on fire (”Must get free money tax credit NOW before it’s too late!), buyers who are waiting for the real Armageddon, sellers who have read that prices are going up-up-up and the recession is over, investors with cash burning a hole in their pockets, etc.

So, do the Zestimates help or hurt? Well, I suppose information is never a bad thing, and I have confessed that over time the accuracy of the Zestimate has improved. But, a bot can’t reason, so there is an inherent danger in putting all of your pricing eggs in this basket.

The key where all information is concerned is in interpretation of the information. That little variable continues to be a volatile one that is wreaking havoc on our market.

(It’s late, I’m tired, and I am silently hoping this sort of makes sense when I reread it in the morning.)

You say “I have received three appraisals this week that were no more thoughtful than a Zillow Zestimate. In fact, the Zestimates were arguably more accurate. ”

I am curious if in your experience Zestimates are impacting actual buyer and (non-distressed) seller behavior. You have discussed “zestimates” in past blog posts (I recall something about how buyers are bringing Zestimates to open houses). Do buyers refuse to go bid over the Zestimate, or expect a certain % discount off the Zestimate, even if a particular Zestimate is obviously too low? Vice versa, do sellers refuse to sell below an obviously too high Zestimate, fearing they might be “giving it away”?

What do you say to prospective sellers and buyers who whip out their Zestimates on you (beyond, asking them – nicely – to put it back)? Are you better off (as an agent) because of Zestimates, i.e., do they help more than they hurt in bringing buyer and seller together?

Apologies for total lack of snark in this comment.

Didn’t mean to skip over you. I hear ya, and that is a different issue entirely which we are now facing. It helps to be an investor with all cash. Those are the guys closing the transactions at the lower price points.

I don’t expect the appraiser to be a “yes man;” far from it. What I do expect is the same level of care given to delivering an opinion of value that I give when delivering my own opinion of value to my clients.

I have received three appraisals this week that were no more thoughtful than a Zillow Zestimate. In fact, the Zestimates were arguably more accurate. My most recent report included an incorrect sale price for the “subject” property (he forgot to read the counter offers) and a “comp” in which the two critical digits in the sale price had been transposed resulting in a $70,000 error. He ran with it, making adjustments to a mistake, and relied heavily on this property in his opinion of value since it represented the only model match.

A second “comp” was actually a trustee sale — the bank bought it from themselves.

Finally, all properties including my listing with the new $40,000 kitchen and the REO with original kitchen, a linoleum emporium with the garage door off the tracks and the one remaining light fixture sitting in the corner of the living room, were considered to be of “similar interior condition.”

I didn’t even mention the “pending comp.” I bothered to call the listing agent. “That one closed over full-price. We just haven’t updated the MLS yet.”

I swear, and I am not making this up, I think he used Redfin for his research. In trying to figure out where the mystery trustee sale comp came from, I noticed that the seven homes he chose for his “analysis” were the top seven in their list of recent sales — in order.

“So, call someone and have them fix it!” you say. Well, not so fast. No one will talk to me — not the appraiser, and not the lender. I am not even trying to argue his choice of comps; I am just trying to get the blatant errors corrected. But, here is the problem. This new system intended to protect the appraiser’s independence has eliminated all checks and balances. It’s a sentence without trial, and it is not protecting buyers from overpaying or lenders from overlending in practice.

What it is doing is giving dictatorial powers to the appraiser. While there are undoubtedly many, many fine ones who still have some semblance of a career in the wake of the HVCC, there are many others who just slam it home knowing that there are virtually no consequences to a few mistakes here and there, or an occassional best guess (in the case of one comp I saw with no photos and no description, yet the appraiser was able to make comparisons and adjustments for condition and effective age quite handily). They aren’t paid enough to spend any reasonable amount of time on the task at hand, yet the transaction hangs in the balance.

“Your appraiser, in the good ol’ days, wouldn’t be hired unless he consistently “hit the mark”. He understood well that many, like you, had commissions on the line and his service would no longer be useful were he not to confirm your ever-wise purchase decisions for your clients.”

Actually, I have never ordered an appraisal in my life. That has always been the role of the lender. If there was a tendency for the appraisal to “hit the mark” to protect a commission, it was the mortgage broker’s commission, not mine, he cared about. I was never his client.

And here is the irony — the powers that be wanted to eliminate the temptation for appraisers to act with bias, yet the only “disconnect” has been in the dialogue between the appraisers and the agents who really know the market. Many lenders have their own AMCs now, and the lenders and appraisers are still quite connected. Remember my loan officer who said, “We are standing behind the determination of value.” The use of the word “we” doesn’t smack of independence at all.

“Its shameful that the appraisal community is taking such a heavier than correct penalty for the lending market’s collapse. Its equally shameful that the HVCC and resultant AMC’s entry into the market are, in combined form, making a bad situation far far worse.”

I couldn’t agree more. Here is my biggest gripe. As much as I enjoyed the roaring ’03s, I did not invent credit default swaps, I didn’t offer 103% financing with stated income and teaser rates, and I never once approved a cash out refi thirty days after closing only to hand my “client” with no skin in the game a quarter of a million dollar check. Lenders have always lent, and I have always represented buyers and sellers in the transaction. The effect of what we have done in our attempt to address the sins of the past is to both punish and reward the wrong people.

After years in the biz with nary a single failed sale for you related to appraisal issues – you can see the “check and balance” structure of the system was NOT working. Appraisal law (consistent country wide) requires the appraiser to be a market “follower”, not a leader. If appraisers have been keeping up with you (value wise) during the drive up years of the market, they were not doing their job as the job requires – but were merely puppets of the brokerage community (Mortgage brokerage community), who as you say so aptly, had no “skin in the game”.

Now, of course, the distance provided between production people and appraiser people allows the appraiser to do his job and FOLLOW the market. If your market is performing like your statistics show (the reverse bell curve on your website), then if the appraiser is following the law, he will ALWAYS be low. As his data is dated, and the market is moving. Its built into the requirements he must fulfill to provide a standards compliant appraisal.

You say you got a lousy appraisal. Not because he mis-measured the house or didn’t identify a bug problem. You say this because he didn’t agree with your client, your offer (and others) and yourself. Shameful! Isn’t rendering an opinion that’s not YOUR opinion exactly what he was hired to do? I’m not saying he was right – actually sounds like he was not right. But regardless, the world needs to quit perceiving the appraiser as a yes man as your long history of success has made him out to be.

Your appraiser, in the good ol’ days, wouldn’t be hired unless he consistently “hit the mark”. He understood well that many, like you, had commissions on the line and his service would no longer be useful were he not to confirm your ever-wise purchase decisions for your clients. Now, his Professional Liability policy is paying for those bad decisions, that the brokerage industry propagated for years, and he quite likely will be losing his practice, if not his fancy ocean viewing home, in the fallout. Will you? Will the mortgage broker?

With the advent of the HVCC and the disconnect now in place between production and appraisal, the appraiser is helpless to keep up when the market begins moving upward again. His lack of “courtesy” to you in not responding to your phone calls is quite likely his intepretation of the HVCC’s mandate to stay disconnected from all production folks. But how, really, does a market-measurer measure a market when prohibited from full access to market information because he can’t communicate freely?

Its shameful that the appraisal community is taking such a heavier than correct penalty for the lending market’s collapse. Its equally shameful that the HVCC and resultant AMC’s entry into the market are, in combined form, making a bad situation far far worse. And perhaps the ultimate resolution will come one day when, like your former neighborhood mortgage broker specializing in liar loans and little doc support, the role of the fee appraiser becomes excess. Maybe he’ll be replaced with someone more like an in house actuarian for the insurance company: a trained economist/statistician that can measure markets at a more macro level, and someone else will take responsibility for on site inspections (measuring, checking for rot and bugs and the like). When that day comes, we’ll repeat a day in history when “relationship banking” prevailed, and your goodwill, good job, and good credit will get you a loan from your friendly neighborhood bank staffer. In that future day, trust that the bank’s opinion of value will OFTEN be different than yours. I believe that’s what happens (should happen) when a system of checks and balances is working, and not broken. So perhaps you should get used to having this problem and find correct paths for consensus building when they occur. As they will, if history is our guide, and with more frequency I believe.

We’re returning to a day when people bought a home for living, and used their job for making money (and when nary the two would meet). That can’t be good news for you; for any appraiser I know or even for anyone in the brokerage community. But perhaps it will mean a future for our children that includes home ownership – a hope that’s been fading for years.