Tell someone that you’re a professional fee appraiser and most folks won’t have any idea what that really means. Some will picture the guys at Pawn Stars or the Antiques Roadshow trying to put a value on something they pulled out of their parent’s attic. If they’re in the mortgage industry, they’ll likely fall into one of two groups – those who understand the value you bring to the home finance transaction and those who think you fill out forms. The latter group is far larger.
Perhaps it is the seemingly endless stream of electronic advertisements for form-filling software, but something has convinced a large majority of mortgage industry professionals that what we do is fill out the latest version of the appraisal report.
It’s no wonder they think some computer software application can replace us.
In truth, human appraisers fill two vitally important roles today, (1) we collect information and (2) we analyze it so it can be presented to our clients. How we present our findings, the forms we use to display the conclusions we have reached based on our years of experience and the available data, have changed over time and will continue to do so. But the two critical roles we play in the process will not change.
The changes we’re seeing in our industry today and in the forms investors are requiring lenders to use to present our opinions of value, are changing in pursuit of optimization and efficiency. We should embrace that, even if most of the efficiency gains go to our clients while our jobs get more difficult, at least in the short term.
Some appraisers are vehemently opposed to some of these modernization efforts because they remove some of the steps in our traditional process.
Ours is not the only industry where we see this. Think of oral care. Dentists, in particular.
If you go to the dentist today for a toothache and it’s a professional you have seen in the past, perhaps for a regular checkup, you would not expect to have to sit through the x-ray procedure again. That was already completed in the recent past. What you need now is relief. So, you flop into the chair and the dentist goes to work relieving your pain.
Today in our industry, mortgage servicers are making refinance offers to new borrowers within 90 days of boarding them to the servicing platform. In a falling interest rate environment, it’s not unusual to see a borrower return to the closing table for a new loan within a year of closing on their last one. Unlike the dentist, we heat up our full appraisal pro and prepare to x-ray the property again, metaphorically speaking.
COVID forced this concept to the forefront, and we saw the rise of appraisal waivers — when the GSE’s make a risk-based determination that the information they have relative to the property and the expected value of that property are sufficient for a subsequent transaction. The GSE’s are confident that the expansion of the waiver program has not increased risk, and their regulator has signed off on the use of waivers, sending a signal that risk exposure is being held in check.
But even with waivers, there will be a time when these properties need to be re-examined. At some point, there will be questions about changes to the property that must be answered by a professional appraiser.
But will this be a return to the full appraisal methodology of the past? It’s likely that we may see an appraiser role or an appraiser-supervised role where we send someone out to collect physical information and provide feedback to the lenders and agencies about the continued reliability of the initial set of data.
If that sounds like a role that we could hand off to a computer, realize that every system must be measured and maintained to ensure that the algorithm is still providing reliable results.
When an automobile comes off the assembly line, it’s not just rolled out to the general public. It’s tested. We’ll have to do the same thing. In fact, we’ll be even more important because unlike the automotive industry, we have no standardized approach to the collection and development of real property data.
There can be a wide variance between what intended users require in terms of property data, think lenders versus tax assessors. The human appraiser has to navigate through this pool of non-standardized data to arrive at reasonable conclusions when estimating the value of the property.
Before COVID, pretty much all real estate finance transactions were handled similarly in terms of appraisal requirements. Today, that has changed and it won’t change back.
Lenders and their investors now know that some transactions will likely always require a full appraisal, but many will not. If a lender takes a property back as REO after foreclosure, you can bet they will want a full appraisal in order to be confident in their loss severity estimate. But a refinance at 30% LTV using a 15-year note probably won’t require the full nuts and bolts approach. This is not a new concept, appraisal validation has been in the risk nomenclature for quite some time, it was just not very commonly practiced.
Through all of these changes, our roles will remain the same. We will continue to gather the data and make sense of it, providing key relevant feedback to our lender clients to base a decision, which is all the appraisal was ever designed to deliver.
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