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 This is a one-dimensional and outdated way to view comps—37 years old, to be exact.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.