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.
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.