Tuesday, October 3, 2023 | The Latest Buzz for the Appraisal Industry

As Cruise Ship Captains or Harbor Pilots, Real Estate Appraisers Face a New Horizon

The world of maritime navigation provides an interesting analogy for today’s Real Estate Appraisers. Just as the Captain of a cruise ship or a large cargo vessel holds the ultimate authority on board, an appraiser takes command of the valuation process. They guide the process from start to finish, navigating through the complicated waters of property valuation. The ship’s Captain oversees everything from navigation, maintenance, and cargo handling to ensuring compliance with laws and regulations. Their goal is to ensure the safety of the ship, crew, passengers, and cargo as they journey from point A to B.





However, in the final miles of their voyage, the Captain relinquishes control of their enormous vessel to a specialist – a harbor pilot. These are experts at navigating ships through complex waterways, such as harbors, rivers, and canals. They board the ships and guide them safely into ports, maneuvering them through potentially congested or hazardous waters. Their role is specific, temporary, and incredibly crucial to the local region.

Harbor pilots must have intimate knowledge of their local waterway. They need to understand its depth, currents, potential hazards, and the regulations that govern it. Just as a harbor pilot steers a massive ship through a challenging harbor, real estate appraisers navigate the complexities of local real estate markets, understanding the nuances and unique elements of each property they value.

In the 19th and 20th centuries, technological advances, including steamships, radar, and electronic navigation systems, revolutionized the maritime industry. The role of harbor pilots evolved alongside these innovations. While their expertise in local conditions remained vital, they also had to adapt to new technologies, taking charge of increasingly complex vessels.

The appraisal industry mirrors this transformation, with real estate appraisers navigating new territories in their valuation assignments. Advances in technology, regulatory changes, and GSE (Government-Sponsored Enterprises) requirements have significantly influenced valuation practices, leading to new responsibilities for appraisers.

The introduction of the Scope of Work Rule in the 2006 version of USPAP (Uniform Standards of Professional Appraisal Practice) marked a significant shift in appraisal practice. It replaced the Departure Provision, promoting a more systematic approach to appraisals. It encouraged appraisers to focus on customizing each assignment based on the specific needs of clients, intended users, and the type of value to be developed. The rule allowed for flexibility and innovation in the appraisal process, creating new opportunities for appraisers and enabling them to adapt to the changing needs of their clients.

Indeed, the requirements of clients have shifted considerably over time. Many aspects of the mortgage process have been streamlined through the continual emergence of new technology. The process has been sped up by online data stores which facilitate the application process, credit verification, and automated underwriting. Property owners can now estimate the value of their collateral early in the process and electronically review appraisal reports, thanks to large data repositories containing detailed property characteristics.

One of the last steps in the mortgage process to undergo significant change is the assessment of collateral or the appraisal. Change, however, is upon us. Freddie Mac’s “ACE + PDR” and Fannie Mae’s “Value Acceptance + Property Data” are just the beginning. These programs build on previous appraisal waiver programs by adding a property data collection report provided by a third-party vendor. With this data collection, the GSEs receive extensive discrete data on the properties they will use as collateral. This information feeds into their valuation models, leading to more accurate automated assessments.

Though initially, these new valuation options will be offered as alternatives for loans that would have previously received an appraisal waiver, the reach of these programs will likely expand as more detailed property data become available across the country. In this evolving landscape, fewer full appraisals will be performed in the future, transforming the role of appraisers.

To respond to these changes, appraisers need to embrace and implement the Scope of Work rule. This implies recognizing that valuation is a multifaceted process. Appraisers may be asked to perform desktop assignments (Hybrids) based on reports provided by property data collectors. Although these desktop hybrid assignments may initially be exception-based, such as when loan terms change, or when the property data collection uncovers complexity that requires the appraiser, they are expected to expand into other areas of valuation practice, including default, equity line, and securitization assignments.

In the future, the scope of work for appraisers will involve less property data collection and more data analysis, much of it completed at their desks. By embracing this changing scope of work, appraisers can complete more reports daily without leaving their offices. There will also be other opportunities in valuation practice, including property data collection, submarket analysis, and other valuation services requiring local market expertise.

Appraisers must see themselves as “Real Estate Valuation Experts” and expand their practices to provide other valuation services beyond the traditional scope. They should be ready to offer different segments of the valuation process individually, depending on their client’s needs. This flexibility will open new business avenues when “full” appraisal orders begin to decline.

Like harbor pilots, appraisers are experts in their local areas. They need not navigate the entire valuation process, but they play an essential role in the potentially tricky waters of the local real estate market. They know their local market “harbor” inside and out, including its depth, currents, potential hazards, and regulations.

Most harbor pilots are former ship captains who have specialized knowledge above and beyond basic ship operation. As a result, their average salary is significantly higher than that of ship captains. In the same vein, appraisers can apply their unique local expertise to specialize and maximize their profits. They can focus on making value decisions, avoiding the consumption of time on tasks that others with less expertise could complete.

In essence, forward-thinking appraisers will resemble the “harbor pilots” of valuation. By embracing the Scope of Work Rule in USPAP and applying it to their practice, they will carve out a profitable niche for themselves. They are capable of providing all kinds of valuation services but will apply their expertise where it is most needed and most profitable. With new business sources and higher returns for their time, the future is indeed bright for appraisers who are willing to navigate and adapt to the upcoming changes in the valuation industry.

Jim Morrison

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