Risk-Based Appraisals: Home Value Forecast Explores the Advantages of Advanced Market Data and Analytics

Share Article

Pro Teck Valuation Services’ Home Value Forecast (HVF) explores how a more sophisticated risk-based appraisal could be provided by taking advantage of the amount of market data and analytics available while better protecting homeowners and investors.

Pro Teck Valuation Services’ Home Value Forecast (HVF) explores how a more sophisticated risk-based appraisal could be provided by taking advantage of the amount of market data and analytics available while better protecting homeowners and investors.

This month’s Lessons from the Data points to two specific areas where appraisal products can evolve to support more intelligent risk based underwriting decisions; establishing a range of value and providing better data to support more accurate market condition conclusions.

Regarding the range of value, the Lessons illustrate that market uncertainty regarding home valuations makes providing an exact true value impossible. A number of factors including: tastes and preferences, unobserved variables such as higher quality windows, inaccurate public information due to unreported home improvements, urgency to buy/sell; distress sales, financing, seasonality, and thin markets are just some of the variables that can create a range of possible values at any given time.

The authors state that these factors are not the only points that can make value estimation difficult, and they also explore how much volatility should be expected as a function of the heterogeneity of the market. Even in very homogeneous active markets the price range can easily run plus or minus 5 percent. Depending on the uniqueness of the neighborhood, a plus or minus range of 10 percent should not be unexpected.

The second area that improves appraisals is the Market Condition Addendum (form 1004MC), required by Fannie Mae and Freddie Mac. The addendum supports market trends and conditions for the subject’s neighborhood. It requires an analysis of inventory as well as trends in median sale price, list price, days on market (DOM), Sale-to-List price ratio, and impact of foreclosures and REO’s. The appraiser needs to perform a statistical analysis to determine if each of these market indicators is representative of a declining, stable or increasing overall trend in neighborhood property values, and then draw a market conclusion.

“Developing the most accurate and supported market condition conclusions can be aided with analytical tools developed to assist the appraiser in analyzing a potentially large set of market data. Advanced statistical calculations only a modeler can perform can provide the user of the appraisal with a higher level of confidence,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “Appraisals based on incomplete data or faulty trend information may lead to wrong conclusion that can negatively impact a loan when an increasing market is misreported as stable or decreasing and vice versa.”

Collateral Analytics, a partner in Home Value Forecast, has developed automated analytics that can be used by the appraiser to provide a more consistent, accurate and robust neighborhood analysis.

“Perhaps it is time to provide a confidence band range in addition to the appraiser’s point value. Add to this a more statistically robust market condition conclusion and we can shed light on the relative riskiness of a particular estimate,” said Dr. Michael Sklarz, President of Collateral Analytics. “Such improved risk-based underwriting will better protect both homeowners and investors.”

To read the full story, please visit homevalueforecast.com. Reporters who are interested in data for their reporting area, as well as national, regional or metro level housing data tailored to meet specific story needs, please email your inquiry to mediarequest(at)protk(dot)com.

About Home Value Forecast
HomeValueForecast.com was created from a strategic partnership between Pro Teck Valuation Services and Collateral Analytics. HVF provides insight into the current and future state of the U.S. housing market, and delivers 14 market snapshot graphs from the top 30 CBSAs.

HVF is built using numerous data sources including public records, local market MLS and general economic data. The top 750 CBSAs as well as data down to the ZIP code level for approximately 18,000 ZIPs are available with a corporate subscription to the service. To learn more about Home Value Forecast and Pro Teck’s full suite of residential real estate valuation products visit us at http://www.proteckservices.com. You can find Pro Teck on Twitter at @ProTeckServices.

Media Contact: Janice Walker, JD Walker Communications, LLC
781-290-6528 or jdwalker(at)jdwalkercommunications(dot)com

# # #

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Tom Hoff

Janice Walker
Visit website