Strategic Development Worldwide The Future of Residential Appraisal – The AVM Dilemma Appraisal Today Conference San Francisco August 6, 2004 Vicky Cassens Zillioux Managing Director

1 Strategic Development Worldwide, Inc. In the Beginning… Automated Valuations – They have been around longer than we think  County Assessors have been using these products for many years  First developed to accurately value homes for tax purposes  Accuracy was important to eliminate time and money spent on reassessments due to homeowner appeals  Models were developed on a county basis with much of the necessary information readily available as model inputs  Neighborhood idiosyncrasies were identifiable due to limited geographical coverage  This is not really an appraiser issue

2 Strategic Development Worldwide, Inc. Price Index Models Make the Scene University research brings the development and use of price index models  CSW – the Wall Street Model  MRAC – also targeted wall street  Price Index modeling addresses the issues of limited data available to the commercial enterprises  Primary focus was for portfolio valuations in the investor community  Not yet introduced into lending  This is still not an appraiser issue

3 Strategic Development Worldwide, Inc. Automated Valuations Move into Lending The first models are developed for the residential lending market in California – early to mid 1990’s  Initial models are “hedonic”  Initial take on price index models is that they are not accurate enough for individual valuations  First American develops Value Point  More like appraiser emulation with regard to comparable choices and radial searches  HNC develops AREAS  Neural network model that attempts to identify neighborhoods and improve comparable search methods  Much of the time was spent selling the concept rather than the products  Now its becoming an appraiser issue

4 Strategic Development Worldwide, Inc. Not Always an Appraisal Replacement Models are being used in all parts of the lending process…  Prequalification  First Mortgage (portfolio lending)  Home Equity  Wholesale review  Quality control  Default and foreclosure  Portfolio valuation tracking  Internet marketing

5 Strategic Development Worldwide, Inc. The Reality Check AVM’s are here – Like it or not  Only the monopolies get to win the fight  AT&T and the Gopher search engine  So what happens now?  What are the choices?  Forget about it and go on with the way you are doing business  Complain about it and go on with the way you are doing business  Find out what your clients are doing  Figure out what the appraiser related tools are

6 Strategic Development Worldwide, Inc. How Many AVM’s are Out There today? Sizing up the competitive market  There are 15+ AVM models out there today  ValuePoint 4 – First American  Basis 100 – Now First American  ValueSure – Fidelity  CSW – Fiserv  Value Wizard– Trans Union/Banton  HVE – Freddie Mac  MRAC – Basis 100/First American  ValueFinder – Landsafe/Countrywide  Do you see the trend here…..  Q-Value – Real Info  VeroValue – Veros  Net-Value – C&S Marketing

7 Strategic Development Worldwide, Inc. Understanding Your Client Do you know who your client is?  Do you know what they need in today’s market?  Do you understand their competitive environment?  Mortgage broker? What does he need?  Lender? What does he need?  Borrower? What does he need?

8 Strategic Development Worldwide, Inc. Understanding Your Market Do you know…  What the Fitch press release said about AVM’s  What everyone else said about the Fitch press release  What the leading mortgage publications are that will give you information about the lending industry  Which appraisal chat websites are worth the time and which are not  Who the current appraisal management companies are and what they can offer  What appraiser assisted AVM products are out there  What is going on out there in the lending community

9 Strategic Development Worldwide, Inc. Who Gets to Win? There doesn’t have to be only one winner…  How have you handled competition in the past?  Customer service – quality work, fast turnaround  Client relationships  Understanding customer needs  Is this really so different?  Professionalism – understand the big picture in the industry  Everyone needs to move with their market – As a client, how do you expect your doctor/dentist/accountant/attorney to react to technology in their market?