A hot new controversy has broken out in the real estate valuation arena: Appraisers charge that a major property database company is pilfering key pieces of information about houses when they submit appraisal reports online.

The issue flared up recently when top executives of FNC Inc, a Mississippi-based real estate data aggregator and technology firm, revealed that the company "extracts" certain information from appraisals sent to mortgage lenders electronically using AppraisalPort.com, a service developed and owned by FNC. AppraisalPort is used by many of the country's highest volume mortgage companies.

Company spokeswoman Angela Atkins says that only property description information is lifted from private appraisal reports, not valuation estimates or narrative comments by the appraisers themselves. Property description data -- dimensions of the house, numbers of bedrooms, bathrooms, interior square footage, lot size, etc -- generally is publicly-available through tax assessment and other courthouse records, Atkins said, and therefore is not a proprietary work product of individual appraisers.

"Nonsense!" said Richmond, Virginia-based Patrick Turner, founder and head of P.E. Turner Appraisals. "We do our own measurements, we walk through the interiors and record the numbers of rooms and square footage as of now, not some time in the past," he said. "Our data is more accurate and up to date, which is why they (FNC) want it." But, argued Turner, they have no right to simply strip it out, take it without permission or payments.

Turner charged that FNC's data is being supplied directly or indirectly to developers and users of "automated valuation models" (AVMs), which cost a fraction of traditional appraisals and are available within minutes rather than days. Most websites that offer "free" valuations of houses to people thinking of selling or buying employ AVMs to arrive at their value estimates. Some of those sites, such as Zillow.com, have been criticized for putting out inaccurate estimates.

Traditional appraisers have lost significant business to AVMs in recent years, as lenders have sought online computer-assisted valuations rather than opting for slower and most costly valuations by live appraisers.

"They (FNC) are taking our work product, and using it to help put us out of business," said Turner. In the long term, he said, that's going to be bad news for buyers and sellers because of AVMs' inherent limitations. It's especially risky in markets where values are slipping -- or increasing -- rapidly. Worse yet, under the current system appraisers are charged $5 every time they submit their reports online through AppraisalPort, which then transmits appraisal data in formats preferred by lenders.

Atkins said FNC is fully within its legal and contractual rights to pull out property data from appraisals, and does not provide it to AVM developers, only to lenders.

"We are not an AVM company," she said, "and we could not exist without appraisers."

Turner cited recent examples from his own practice where public information on houses was out of date or seriously inaccurate. In one case a property he measured at 2,900 square feet of above-ground habitable space was listed at 1,104 square feet in publicly-available data.

"Imagine the difference in (appraised value) between an 1,100 square foot house and 2,900 square foot house," he said.

Turner and other appraisers are considering actions to counter what they believe to be the stripping of their work without payment. Among the possibilities: copyrighting appraisals, legal action or regulatory complaints.

In the meantime, he advises consumers to demand copies of all valuations they're charged for by lenders. Some lenders, he said, are charging loan applicants $400 or more for "appraisals" that actually were done by computer programs and cost $25 or less.

Published: January 22, 2007

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.