Thursday, 6 May 2021 | The Latest Buzz for the Appraisal Industry

Will Your Smartphone Replace Your DISTO?

Technology is transforming the mortgage industry at almost every turn. With all parties in the loan manufacturing process looking to improve efficiency, reduce risk and provide a better borrower experience, emerging tools and technology that can achieve these outcomes will continue to be in high demand.

The appraisal is a vital part of the loan origination process and the acceleration of technology adoption by appraisers is helping them improve both efficiency and accuracy. One particular technology gaining interest among appraisers is an improvement to a time-tested tool used to measure a property.

Laser Measuring

When laser measuring devices first became popular as a means of measuring distances, they were seen as a step forward for appraisers. In fact, a particular tool was so widely adopted that its brand name became a generic term for all laser distance measuring devices – the DISTO.

Prior to the introduction of this and other tools, appraisers would typically use handheld tapes and measuring wheels to obtain measurements used to estimate a home’s Gross Living Area (GLA). The problem with the manual method is accuracy – measurements could vary quite significantly from appraisal to appraisal. Even with adoption and use of early laser devices, measurements were still inconsistent because of rounding errors and differences in how dormers, stairwells and two-story entries were handled, among other reasons. In fact, our quality control (QC) efforts at Freddie Mac confirm that about 20% of the time, when two different appraisers measure the same house, they get significantly different results for GLA.

Greater Accuracy through Technology

Since capturing and reporting an accurate GLA can play such an important role in the valuation process, Freddie Mac is exploring new and emerging ways to better confirm building measurements and floor plans to help appraisers more efficiently obtain more accurate results.

Of particular interest are advancements in smartphone technology that literally put more functional solutions right into the palm of our hand. One example of that innovation that might be meaningful to appraisers is “Light Detection and Ranging,” or LiDAR. The technology uses light sensors to measure the distance between a sensor and the target. LiDAR is already widely used in other fields (for example, agriculture, archeology and autonomous vehicles). In addition, consumers are already beginning to use these tools in more immersive ways and real estate agents are frequently creating 3D and virtual tours of homes.

Impact on Appraisals

LiDAR doesn’t just provide more precise measurements; it may also be particularly helpful for appraisers because it can support the creation of floor plans and even 3D models of homes. Virtual inspections are going to be easier, more complete and more consistently consumable going forward. And when used in conjunction with a traditional inspection, they allow an appraiser to revisit the property virtually, to confirm property characteristics as the appraisal is being developed and the report is being written.

In the short-term, LiDAR could help appraisers streamline and standardize the measuring process – leading to a more reliably reported GLA. Over time, greater accuracy could mean less back and forth between appraisers, lenders and appraisal management companies (AMCs). It might also reduce potential liability resulting from getting a measurement wrong or “missing something.” Longer term implications of floor plans generated using this technology appear to be potentially even more significant. User interactivity with floor plans – allowing clicks on specific rooms and areas – would become more commonplace. Plus, the technology could also help with capturing features, amenities and characteristics that influence property quality and condition.

So, What’s the Outlook?

As this technology becomes more mainstream, it will have significant implications for the mortgage industry – its applications seem almost endless. Incorporating technology like LiDAR across the housing process is going to be critical. Even if an appraiser gets an accurate GLA with the use of LiDAR, it’s vital that the same measuring approach is used for the GLA in listings and public records for available comparables.

As Freddie Mac continues to learn more and explore the potential for LiDAR , we encourage appraisers to continue to stay positive and be well informed so they can play a meaningful part in the advancement of this technology and reap the benefits it can provide.

Responses

  1. I had a recent encounter as a result on an agent trying to create a floor plan using software that she referred to as Doll House. This was a fairly large complex home that I measured, and I must add “accurately”, at 5,644sf, and she told the prospective buyers the home only has 4800+/- square feet. I’m sure that like most hardware and software there is differences in quality, as well as there being a learning curve. This home has allot of closets, a wine cellar, two story great room and foyer, vaulted keeping room, laundry, pantry, recessed file safes that would conform to ANSI standards, etc. I also doubt that the hardware/software can be fine tuned for the thickness of walls, 6″ vs. 4″ studs or Frame, Stucco, Stone or Brick. I think they can have allot of potential. Wouldn’t it be nice if the appraisers could be trained to write down what they measure to the nearest 10th or inch and not round to the closest foot or half foot, and to also follow ANSI Standards. The appraisers that train others need to be retrained.

  2. So, there’s an issue with the way “appraisers” are reporting GLA, but not with how Realtors report GLA???

    And when you say “…about 20% of the time, when two different appraisers measure the same house, they get significantly different results for GLA.” Exactly how much of a difference is considered to be “significant”??

    Surely we all realize GLA adjustments are not necessarily made for every square foot, right? Example; it may be that an adjustment is not indicated or made until the difference is greater than 100 sf, or 200 sf or even more depending on the market area, market research, and/or the total size of a home. All the more reason to know what you mean by “significant differences” between 2 appraisers measurements…exactly what number is significant?

    In addition, square footage is definitely NOT just about measurements. It’s about whether an area qualifies as living area. If all you are comparing is the same address by 2 different appraisers; was 1 a full interior inspection and the other a drive by only? (for which the appraiser most likely used a Realtors reported GLA or a tax records reported GLA – both of which can be very unreliable)

    In general, the article seems to imply that appraisers are the problem, that they are not measuring GLA correctly and software could do a much better job.

    My opinion is that any software that can be used to virtually measure a homes GLA, can be easily manipulated to report whatever you’d like and is only part of the continuing effort to remove the professional appraiser from the loan equation.

    But hey…maybe that’s just me. ¯\_(ツ)_/¯

  3. Mr. Reuter, I have no doubt that a more digital or virtual approach to house measurement s coming, it’s just not here yet. I often inform those that ask that if you have 10 appraisers measure a house you will get 9 measurements, meaning only 2 will be the same. Measurement consistency is a big deal in our industry and it should be improved but the problem lies largely in two areas where virtual measurements cannot help.

    No matter what tool is used there will always be judgment involved in measuring gla. It is not purely objective. Only a market expert can determine when an area conforms in quality and utility to be included in gla. Even detached living space is not always a yes or no question but one of how it is perceived in the market. Digital tools will still require a human to program or decide what should be included in the measurements and as long as that is the case there will be differing judgments.

    I recently appraised a simple 1-story house. Attached to the listing were the builder’s construction plans and a Matterport sketch. The Matterport sketch was 115 sf smaller than the builders stated gla, 1,750 sf vs 1,865 sf. I measured 1,871 sf. That’s a significant difference on a simple 1-story design. What about complex 2-story houses where the exterior walls are hidden in the roofline? How will these digital tools piece together and account for all the closets and wall thicknesses?

    Technology will improve and will always more forward not back, so virtual measuring is in our future. But it is no panacea. I suspect that differing brands will still yield different measurements for the reasons noted above. For good or bad real estate is not a commodity. Many if not most houses will still require an element of judgment to measure. We will always need someone to judge if the measurements are credible and if not to determine why.

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