Getting Familiar with Drive-By and Desktop Appraisals

Ernie Durbin
Ernie Durbin, Chief Valuation Officer at Clarocity
Joshua Walitt
Josh Walitt, Principal Consultant for Walitt Solutions
Robert Murphy
Bob Murphy, Founder of Collateral Advisors LLC

With the new FHFA changes through Fannie Mae and Freddie Mac, Desktop and Drive-by appraisals will be helpful to appraisers during the Covid-19 pandemic. While we know appraisers are familiar with Drive-bys and Desktop appraisals, we thought it would be a great time to offer everyone an interactive webinar update on the best practices for each. Our first webinar is Best Practices for Desktop Appraisals During the Coronavirus on Tuesday, March 31st at 2 pm EDT and the next is Best Practices for Drive-By Appraisals During the Coronavirus on Thursday, April 2nd at 2 pm EDT. We sat down with the hosts, Josh Walitt, Bob Murphy, and Ernie Durbin to further discuss these upcoming webinars.

Buzz: Can you give us a brief description of your background in the valuation industry?

Josh: I am the principal consultant for Walitt Solutions, providing valuation and compliance consulting to lending institutions, appraisers, vendor management companies, attorneys, education providers, regulators, and others. I have a background in appraisal, banking, regulations, policy, training, licensing, audit, and enforcement. I speak at conferences, create and present education, and advise clients on a variety of topics and projects.

Bob: I started as a field appraiser over 40 years ago. During that time, I have been involved and employed on practically all sides of the valuation industry. Currently providing consulting services since leaving Fannie Mae in 2015 where I was Director, Property Valuation & Eligibility. I am a Former SRA and Appraisal Institute instructor.

Ernie: I have been an appraiser since 1982. I ran a regional appraisal firm in the Greater Cincinnati area until 2009. Since 2009, I have worked at the national level as a Chief Valuation Officer. I’m an author, conference speaker, and regularly consult with both appraisers and clients regarding compliance and valuation industry issues as a whole.

Buzz: How do drive-by appraisals come into play during a pandemic like this?

Josh: There are a variety of factors in play. Many states are instituting restrictions on the movement of people. Some states are making it clear that appraisers can continue visiting properties as essential parties, while other states are more restrictive or have not made it clear where an appraiser fits into the stay-at-home restrictions. But in addition to government regulations, we need to remember that people are involved. Many property occupants are indicating to appraisers they don’t want an appraiser entering their home during this time, and there are appraisers who agree. Because every person is different – health, risk factors, personal preference, concerns for family members, and so on – it is important to understand that not every appraiser’s experience is going to be the same. So-called “Drive-By” appraisals, or Exterior-Only appraisals, help reduce risks of contact. Not unlike the “traditional” 2055, the revised Scope/Certifications associated with the temporary Exterior-Only Appraisal option allows the appraiser to drive to the property, observe the property from at least the street at minimum, observe other exterior areas (such as the sides, rear, etc.) after coordination with the client and property owner and occupant, and collect data from other sources related to the subject property. For example, the appraiser, in addition to the exterior observation, can collect subject information from county assessor records, aerial imagery, data providers, historical and current MLS entries, and so on. The GSEs have provided parameters for when lenders may order Exterior-Only Appraisals, specific to loan-to-value, occupants, and other factors related to the loan transaction. Not every transaction can use an Exterior-Only Appraisal.

Buzz: How can appraisers protect themselves from future liability on these types of reports?

Josh: First, read what you are signing. The new temporary Scope/Certifications must be copy-and-pasted into a text area of the report, such as on a blank text addenda page. The appraiser must also be sure to type “desktop” or “exterior” into the Map Reference field. But above those minimum technical requirements, the appraiser should take care to describe his or her scope of work within the report, such as what data sources were relied upon, discrepancies between those data sources and how those differences were reconciled, and so on. Make it clear to the user of the report what you did in the course of your research process. Additionally, communicate with your client, to ensure you fully understand your client’s needs and they understand what you are doing.

Buzz: Why did the GSEs decide to allow the modified use of the 1004 instead of doing the drive-by’s on the 2055?

Bob: They didn’t! They have however allowed the 1004 to be used for a Desktop appraisal. I suspect one of the main reasons is that there is no standardized uniform Desktop appraisal report. The GSEs have been testing their own version of one respectively. There is no one commonly used Desktop form. Also by using the 1004 it allows each of their proprietary systems to analyze the appraisal report and subsequently provide a risk score. The resulting risk score is considered in determining whether representation and warrant relief with respect to the appraisal will be extended to a particular loan.

They do however require an Exterior-only appraisal to be completed on the Form 2055. Both GSE’s have indicated that these appraisals will not be eligible for their respective appraisal representation and warranty relief programs.

Buzz: What USPAP guidance is there on using the 1004 for the drive-by’s?

Bob: The Standard Rules in USPAP do not get into the minutia of a specific form. It’s also important to remember that USPAP does not require a property inspection. Advisory Opinion 2 (AO-2) in USPAP further addresses the issue of an inspection.

Buzz: How do desktop appraisals come into play during a pandemic like this?

Ernie: Obviously, both appraisers and homeowners are reticent about physical inspections of properties given the pandemic. Both Fannie Mae and for Freddie Mac, essentially in concert, released guidance on appraisals during the pandemic last Monday, March 23, 2020. One of the two flexible alternatives is a desktop appraisal. The desktop appraisal is actually preferred to an exterior drive-by by the GSEs. To protect themselves and the public, appraisers will be asked to complete these types of assignments until the pandemic wanes.

Buzz: What disclaimers do you recommend including in these types of appraisals?

Ernie: I’m not sure there any specific “disclaimers,” but there is language that appraisers can provide their intended users that both protect appraisers from being intentionally misleading and assist readers of the report in understanding changes outlined in the Scope of Work. We will be covering these best practices in the webinar.

Buzz: What do you think this will mean for the future of the industry in months/years to come?

Josh: It’s probably too soon to know for sure. All parties will go forward from this understanding the flexibility of scope of work requirements, especially understanding that a scope of work is measured by what clients expect for the type of work and by what peers are typically doing for the type of work. Whether it means more desktops and exteriors will be used, I don’t know. But I hope we will all get a better appreciation for the work of the appraiser and how appraisers can meet various flexible needs of clients.

Bob: It’s anyone’s guess. In large part I believe it depends how long this crisis lasts. These are temporary solutions to a temporary problem. At the same time, this might provide some good data to analyze the effectiveness, good or bad, of using third party data for subject property information in lieu of an inspection by the appraiser for certain loans.

Ernie: There is no question that the impact of this economic event will change the future of the valuation industry. Experts will spend time and money researching and studying this event in the future. How we assess collateral risk in the future will be impacted by the way we are conducting business during this crisis. One thing is for certain, there will be a “new normal.”

Buzz: Why should appraisers attend this webinar?

Josh: I’ve seen too much misinformation on social media discussion groups and even on blogs and in other articles. In this webinar, we look at the source material from the GSEs and expand upon that material to examine “how does this apply to me?” We’re taking a practical approach to this issue.

Bob: As with most guidance releases from the GSEs, there will be plenty of misinterpretation and misunderstanding of the change in requirements. The webinars offer the opportunity to review the specific guidance while also providing the attendee relevant examples of practices to consider using during the course of completing an appraisal as well as the appraisal report.

Ernie: If appraisers are going to remain engaged in the process, they will be completing desktop assignments over the next several months (at least). The best practices portion of this webinar will provide viewers with an overview of topics they will have to consider going forward. These assignments are being ordered right now and appraisers need a head start in considering how to complete these assignments, immediately.

Make sure to join us on March 31st for Best Practices for Desktop Appraisals During the Coronavirus at 2 pm EDT and Best Practices for Drive-By Appraisals During the Coronavirus on Thursday, April 2nd at 2 pm EDT. Have any comments or would you like to submit content of your own? Email comments@appraisalbuzz.com. 

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