Thursday, 21 October 2021 | The Latest Buzz for the Appraisal Industry

An Opportunity to Change the Appraisal Industry

Fannie and Freddie are slowly rolling back some of the COVID-era regulations that have facilitated getting appraisals done during the pandemic. Appraisers are starting to get one-off requests from Fannie and Freddie for more information and an interior inspection, even though the property already had a COVID-alternative accepted.

This rush to return to the status quo has created buzz in the appraisal industry—a wish that Fannie and Freddie were talking to appraisers about how to make the appraisal process more efficient and accurate. COVID has given the entire housing industry a chance to re-evaluate and use technology to make the process of buying a home faster. As lenders continue to use technology to speed up transactions, the appraisal process remains one of the few manual tasks left, and it’s arguably one of the most important.

The time for change is now. The industry has an opportunity to use this time when things are in flux to come up with a faster and more effective solution by adopting a hybrid appraisal approach. This would mean using technology backed by an experienced, licensed appraiser to solve a real problem and make turn times much faster. Why is there resistance to coming up with a solution that works for everyone?

It’s time to make the appraisal process more efficient by solving these problems.

Problem #1: Not Utilizing Online Data for Comps

One of the most time-consuming elements of the appraisal process is the requirement to drive by comps. This is a one-dimensional and outdated way to view comps—37 years old, to be exact. With today’s technology, imagine if appraisers could use online data sources, including MLS data and Google Maps with 360-degree aerial viewing.

This way, appraisers could see not only the front of the comp but also the street behind the comp, and for that matter, the entire neighborhood. This would allow the appraiser to look for any potential adverse influences that might affect marketability or impact property values. It would provide a superior method of analysis, save valuable time, and further mitigate risk in the comp selection process.

Problem #2: Not Using Technology to Improve the Appraisal Process

The use of technology would allow appraisers to get accurate information about a home from a borrower that can be cross-referenced with public records. This method provides a more accurate solution than an appraisal waiver or a hybrid appraisal. With the appraiser in control of the entire virtual process, there’s protection for the borrower, bank, and investor. This technology is now available. In order for this to work, there would need to be leeway from Fannie and Freddie on allowing the introduction of technology to the appraisal process.

Now, let’s talk about accuracy. Many appraisers are afraid to turn in a report right now because they can’t justify a price based on the comps they have available in many U.S. housing markets. This puts the appraiser in a no-win situation. While appraisal waivers created ease in the mortgage process during the 2020 pandemic, they have convoluted the property valuation process immensely. Appraisers don’t want to put out a number that’s not 100% accurate.

Ultimately, using technology will preserve the integrity of the appraisal process while also making it more convenient for lenders and borrowers. Even better, it will eliminate the need for appraisal waivers and protect all parties and the housing market as a whole.

What’s at Stake

What’s the risk of not adopting new appraisal technology? Because non-QM lenders have more flexibility on appraisals, they are going to come up with new ways to get them done fast, and it’s going to hurt lenders that have to follow the rules of Fannie and Freddie because they won’t have the ability to implement the solution.

Most importantly, integrating technology and eliminating appraisal waivers will bring appraisers back into the process where they’ve been taken out over the last year and create consistency—protecting borrowers, lenders, appraisers, and the housing market itself.

That’s why it’s critical for those in charge of the appraisal process to look at how we can improve the system and the data that’s available for comps. In the end, that’s the best way to protect everyone involved and also move the entire industry forward.

Responses

  1. Wow. What a big load of malarkey this article is.

    If you want to know about what APPRAISERS think about “Changing the Appraisal Industry”, why would you have an article written by the “Chair of the National AMC Committee”?

    Oh, and by the way….this type of article does NOT “advocate for appraisers” as he claims he does.

    As for your “Problems”;
    Problem 1;
    “One of the most time-consuming elements of the appraisal process is the requirement to drive by comps.”

    Are you trying to say that appraiser’s should not have to drive comps? Because we already use the resources you mention, AND we drive the comps because the appraisal FORMS Certification SAYS WE DID. Whether or not we include an “original photo”, we certify that we observed the comparables from the street. If you want to remove this statement from the certification, that doesn’t mean that the appraiser will not still choose to drive the comparables if they determine its needed in order to produce a credible appraisal. The Scope of Work is ALWAYS the appraisers decision.

    Problem 2 – “…The use of technology would allow appraisers to get accurate information about a home from a borrower that can be cross-referenced with public records. This method provides a more accurate solution than an appraisal waiver or a hybrid appraisal.”

    Are you serious? You sincerely think a borrower / home owner will provide accurate data? Ask appraisers that have had homeowners provide photos during the last year, that do not show needed repairs or are actually the WRONG PROPERTY. I know of an appraiser that was sharp enough to cath that a homeowner sent him the MLS photos for the townhouse unit NEXT DOOR TO THE SUBJECT instead of the subject photos. When the appraiser contacted him to ask why he intentionally sent photos that werte not his house, he answered….”Because they had remodeled theirs and it was much nicer than mine. I needed it to appraise as high as possible.”

    In addition, the appraisal form states;
    Certification #10
    “I verified from a DISINTERESTED SOURCE all information in this report that was provided by parties who have a financial interest in the sale or financing of the subject property.”

    That Certification requirement ALONE says that parties with a financial interest in the subject property are NOT a reliable source of information. (Like we didn’t already know that.)

    It offends me that you would state that appraisers are AFRAID. (??)

    “Now, let’s talk about accuracy. Many appraisers are afraid to turn in a report right now because they can’t justify a price based on the comps they have available in many U.S. housing markets. This puts the appraiser in a no-win situation. While appraisal waivers created ease in the mortgage process during the 2020 pandemic, they have convoluted the property valuation process immensely. Appraisers don’t want to put out a number that’s not 100% accurate.”

    We are NOT afraid; we are aware that this “overpaying” cycle we seem to be in will eventually end…and then what? At some point, rates WILL increase, and homeowners will want to refinance before the rate gets too high for them to afford the payments, but they won’t be able to because the property will not appraise for what they previously paid or what they currently owe. Sound familar? Or maybe not, depending if you were around for the last big “downturn”. And guess what? Appraisers won’t “put a number” that’s not accurate….but Realtors certainly will, with very little thought as to the effect it will have on a buyer or our economy later.
    Important newsflash; in real estate, PRICE and VALUE are not interchangeable terms AND it is NOT an appraiser’s job to “justify a price.”

    Appraisers understand that we have a duty to protect the PUBLIC INTEREST, and are not advocates for ANY party. In fact, WE are the ONLY party involved in a mortgage transaction that is neutral, unbiased, and not an advocate.

    When you say…
    “Ultimately, using technology will preserve the integrity of the appraisal process while also making it more convenient for lenders and borrowers. Even better, it will eliminate the need for appraisal waivers and protect all parties and the housing market as a whole.”

    How do you figure that an automated valuation model will “protect” all parties? Certainly you realize that automated data can easily be manipulated by those collecting and using it. Also, appraisers are well aware of the unreliability of “public data” when it comes to our subject properties. Some counties have better data than others, but NONE are as accurate as the data gathered by a Certified Appraiser. That point can’t be argued. That’s why companies that “farm data” want access to OUR appraisals. (and that issue is an entirely new can of worms we won’t open right now)

    When you say…
    “That’s why it’s critical for those in charge of the appraisal process to look at how we can improve the system and the data that’s available for comps. In the end, that’s the best way to protect everyone involved and also move the entire industry forward.”

    Question; Are you a Certified Appraiser? Because I don’t find you on the Appraisal Subcommittee’s National Registry. Therefore, you are being presumptuous speaking as if you have the solution for appraisers. Especially since you so obviously represent the views of the AMC industry, which is typically in direct opposition to issues and solutions Certified Appraisers have offered and promoted over the years.

    When you say…”The time for change is now.” Appraisers know exactly what you mean. Now, while so much has “temporarily changed / modified / waived”, it will be easier for AMCs to promote their agenda and get policy changes they’ve been wanting for a long time.

    The truth is that many of the issues we are talking about trying to fix were either caused or exacerbated by the AMC business model that continues to search for the “cheapest and fastest” appraiser in order to keep a larger portion of the appraisal fee pre-paid by the borrower.

    And AMCs continue to fight against efforts by appraisers for transparency in regards to “appraisal fees” on closing documents and in appraisal reports. Engagement letters from AMCs commonly include a “prohibition” of disclosing the appraiser’s fee. Borrowers continue to be completely in the DARK about what an AMC even is, and how much of the fee the borrower pays, goes to them. They continue to believe the entire fee is going to the actual APPRAISER.

    If you expect appraisers to believe that you want to “advocate” for us….
    ACTIONS speak louder than words.

    But hey…that’s just my 2 cents. (and more)

    1. Tammie, thank you for this breakdown! You clearly know what you are talking about, and certainly took ample time to dive into this review. I appreciate it, and I love your passion for the industry. However, there were some items in your review that I want to clarify: I do NOT represent myself as an appraiser – I do NOT think that an automated valuation model is better than a professional appraiser (not by a long shot) – I am sorry that I offended you with the word “afraid,” perhaps that was a poor choice of words as I am not a professional journalist and I apologize for this oversight. I did not want to offend anyone, I only wanted to create awareness that the growing nonQM market could affect the appraisal process – for better or for worse – so this is our chance to empower appraisers by TRUSTING appraisers to tell us what makes them more efficient and providing them with options. I am an advocate for appraisers, and proudly have many wonderful relationships with appraisers all across the country that have explained to me the pitfalls of the process in depth. I only wish to help appraisers, and the industry, by educating, providing options, and gathering more insight from passionate industry professionals like you.

    2. The appraisal process is literally only part of the mortgage process that doesn’t lean on technology to make it more efficient. It’s time to change this and I believe that’s what this article is saying. No slam to appraisers, in fact, to me it reads as though it’s trying to bring more business back to the appraiser as opposed to leaning on appraisal waivers and AVMs that don’t protect the borrower, the investor or preserve the integrity of the market and true market value.

      1. Well said Sarah! As non-conventional lenders enter the market, lending standards will decrease, and appraiser requirements will follow. USPAP can only protect the industry so much. We need to find ways new to empower appraisers and improve the appraisal process. 🙂

  2. The fact they printed the response from Tammie D lends credibility to the site that I just found.
    However, she included every point that I thought of, And more, as I read through the article. As an appraiser with 30 years her response seemed more credible and well thought out than the article. Her point of the perspective of the writer seems to be most telling.

  3. As a thirty year veteran appraiser, my take on this is that the industry is evolving, and we have to evolve with it. Alex is correct, in my opinion, that driving by comps is, for the most part, outdated, and a waste of appraisers time. It is one-dimensional. Most appraisers rush through the drive-by comp process and can’t see if there is a garbage dump, high voltage transmission lines, or even an industrial plant just behind the comp. On-line data sources and aerial views of the comps would provide a more thorough and accurate way to determine if there are any adverse influences. Right now, and for the foreseeable future, Fannie Mae has determined that Hybrid 1004 appraisal reports are here to stay. Hybrid reports do not require driving by comps. Many appraisers, however, including myself, would not accept a Hybrid appraisal assignment, because I wouldn’t trust a third party to do the subject property inspection adequately. However, I would perform a Hybrid report that allowed ME to do a virtual walk through with the third party, to guarantee I see every aspect of the property necessary to meet my high standards, or make the determination, in the end, that an on-site inspection would be required for this property. This approach would save the appraiser an incredible amount of time, allow the appraiser to do a higher volume of reports, and provide the confidence necessary to ensure a thorough and accurate determination of value. I am typically slow to embrace change, but if there is new technology available that enables us to do our job more effectively and efficiently, I am 100% on board.

  4. This is very intriguing dialog! Appraisers are the foundation of this countries valuation system and there is no substitute for a real life appraiser analyzing available data to determine a fair and accurate opinion of value! What I do believe is our industry must address the diminishing number of qualified appraisers that can produce a credible appraisal reports or help those appraiser we do have be more efficient. It appears the consensus to fix this problem is to use automated valuation models or flat out just waive the appraisal all together. It is my understanding that more than 50% of non-cash out loan originations are accompanied by an appraisal waiver. Unbelievable!

    This, for many reasons, is irresponsible and certainly does not protect the various parties involved. Appraisers and their continued involvement is imperative to the financial well being of the MBS market. From the borrower to the end investor, not having a solution for credible valuations on loan originations, increases risk across the board and will eventually lead to unforeseeable fiscal hardship.

    From what I gather from this article, it is imperative to find sound, innovative solutions to keep the appraiser at the forefront of the appraisal process. The idea of introducing technology to help appraisers evaluate information more efficiently all while maintaining the integrity of the appraisal process, sounds like a win win. If new concepts and innovative processes can help appraisers be more efficient, improve the frequency of appraisals being performed on new loan originations, and help produce an even more comprehensive analysis with an increased scope of work, then we should all be taking a very close look at what these tools are and how they can be implemented responsibly.

    This article is right on with the approach and I applaud innovative thinkers that are looking out for the appraisal community. The way I see it, if we do not take a long hard look at beneficial change then the appraisal industry will soon be the Achilles heel of the mortgage origination process.

    I hope those that read this article will embrace the sentiment that appraisers should be more involved with the implementation of innovation in order to renew the confidence in our valuation system. Originators far and wide are taking a close look at what can be done to expedite the appraisal process. I for one certainly want to be a part of the solution and engage in productive conversation surrounding the advancement of the valuation process.

    1. Thank you for taking the time to read (and comment on) this article Jason. Your comment “The idea of introducing technology to help appraisers evaluate information more efficiently all while maintaining the integrity of the appraisal process, sounds like a win win” is EXACTLY what I am trying to convey!! Appraisal Waivers seem dangerous and as you mentioned “irresponsible.” I’d love to find more ways to engage appraisers rather than relying on waivers or AVMs.

  5. “Adapt or Die”. It is imperative that we continue to look forward and utilize new technologies to improve and become more efficient. Alex states, “This would mean using technology backed by an experienced, licensed appraiser to solve a real problem and make turn times much faster” As we continue to see volume reach all new heights and PIWs drop, we as an industry have to adapt to change and embrace technology, while still embracing the importance of the subject matter expert, the licensed apprasier.

  6. It’s never a good sign when industries don’t adapt to change. This is virtually the only part of the mortgage process that hasn’t gotten faster. It’s time to adapt it in a way that makes sense but also keeps the market safe for everyone. To me, the best way to do that is to make sure that the appraiser stays the most important part of the process while utilizing technology to make the appraiser more accurate and efficient.

    1. The appraiser IS the most important part of the process! Well said Sarah 🙂 As Tammie D mentioned, the appraisers “are the ONLY party involved in a mortgage transaction that is neutral, unbiased, and not an advocate”

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