Controversial technology to be used for \"Offers in Comprise\"
By MortgageDaily.com staff
3/6/2002

The U.S. Internal Revenue Service (IRS) will utilize an Automated Valuation Model (AVM) to determine the home equity of certain taxpayers, according to an announcement from Basis100 Inc. The IRS has signed a one-year contract with Basis100 to deliver the technology that assesses an individual's ability to pay taxes through home equity, primarily with requests for "Offers in Compromise."

Basis100 said that the process will be much faster and more efficient for both the IRS and those seeking an "Offer in Compromise" because the taxpayer is no longer burdened with having to seek out an independent appraisal. The traditional process would normally take several days -- as compared to 5 seconds for the PASS report -- according to the company.

Steve Kropper, CEO of Domania, says the IRS is making a prudent decision because of the time saved and lower cost. Domania utilizes its own 'Home Price Check' to help lenders manage and retain customers. "So long as the IRS is conservative in its use of AVM's, like a lender who uses it for a 50% LTV (Vs 125%), then the cost savings, nearly instant response and improved accuracy make AVM's superior to walk through appraisals," said Mr. Kropper.

Basis100 says that the IRS has been using its AVM technology since March 2000 in a pilot program. Joseph Murin, COO of the Canadian technology company, said "we now have a large government body outwardly validating automated home valuations, which will go a long way towards influencing overall industry adoption of AVM's."

This controversial technology has drawn criticism from some real estate appraisers, who say that physical inspections by licensed appraisers cannot be replaced by AVM's.

AppraiserCentral.com's Steve Keohane said last year that most real estate appraisers are against any company that works with banks to provide them with data for AVM's. Mr. Keohane suggested that AVM's use "fuzzy logic" to determine values.

Basis100 says that its technology helps in the detection of 'Flips'.

Last September, Fitch Ratings -- then known as Fitch -- announced that it would begin using AVM's. "We share concerns voiced by both investors and residential appraisers that the integrity of the traditional home appraisal process is sometimes compromised," said Ken Higgins, a Senior Director at Fitch.

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