In the early days of the Internet, there was an email joke that circulated among those of us in the mortgage and housing space. It went something like this: There were three or four different views of the same house. The seller's view looked palatial, as if the house were worth more. The buyer's view showed the house as smaller and worth less. The assessor thought it was gold-plated. And the appraiser saw the house as a run-down shack. Too bad that joke isn't making the rounds in people's inboxes right now, because it's truer today than ever before. Valuation has never been an easy thing to assess, and today is no different. Yet despite the hills and valleys our industry has endured in the past five years--and with all we've supposedly learned--we are no smarter today in assessing housing value than we were before everything crumbled.
When determining the value of a property, we must look at all perspectives. We must be risk-averse and open-minded at the same time. We must listen to the market as much as we listen to the "valuation specialists."
The only problem is, the banks are holding the purse strings and their risk-averse stance makes it difficult to see the true picture.
We all have a stake in determining best value in order to right a market that's been toppled over on its side for too long.
And to determine best value, we have to let all voices chime in.
Value isn't the same to everyone
It's one thing to bring cash to the table and pay what you think a property is worth. It's another to do so when asking for financing.
When you're putting up your own cash for a purchase, most of us think more carefully and cautiously--both bank and individual.
But that doesn't explain why an appraisal or broker price opinion (BPO) convinces a lender that a home is worth, say, $6o,000 in today's market when an investor comes along with $100,000 to out on the table.
More importantly, when lo would-be buyers agree that the house is worth $loo,000, shouldn't the bank question the valuation process and take a closer look at the data and methods that influence valuation?
Wouldn't that help all of us--even the lender trying to approve a buyer's loan to make the purchase happen?
We are only as good as the tools we use to determine value. In today's market, every valuation product is flawed, and everyone in the industry knows it.
All losses and workflow decisions are made based on estimated value provided by individuals who may or may not have incentive to skew numbers. Every tool we have--appraisals, BPOs and automated valuation models (AVMs), to name a few--are based on history. At best, those numbers show what happened last week, last month or last year--and certainly don't reflect the true value of a property today.
There's another important factor influencing our assessment abilities today. We're all once bitten, twice shy.
After the bubble burst in 2007, we hunkered down to evaluate how we got here and all of us became wary of creating another free fall. We're gun-shy now instead of trigger-happy like we used to...