Borrowers, Lenders, and Appraisers All Benefit from Innovation in the Appraisal Industry

This article was initially published on CUInsight.com. ‍

Innovation is the new buzzword in today’s mortgage lending market. Over the course of the past decade, financial institutions and technology companies have become more adept at discovering efficient ways to close loans with minimal friction. This shift has allowed mortgage lenders to compete not only on rate offerings, but also on borrower experience and the time it takes for loans to close. As a result, borrowers and lenders have started to place a premium on a mortgage experience that is both easy and stress-free.

However, despite the industry’s newfound acceptance of technology to streamline mortgage lending, one key area has remained particularly stagnant: the real estate appraisal. While being a necessary component of nearly every conventional home loan, only marginal efforts have been made to improve the quality and speed of the appraisal process. In fact, since 2010, the government has passed legislation that actually make it more challenging for those working in the appraisal industry today.

Why the mortgage industry needs appraisal innovation

In response to the 2008 housing crash, the Federal Housing Finance Agency (FHFA) passed the Appraisal Independence Requirements (AIR) in an effort to ensure that real estate appraisals were truly unbiased and independent. Among other things, the AIR limited the manner in which mortgage lenders could interact with real estate appraisers.

The legislation prompted a rise in third-party appraisal facilitators, or appraisal management companies (AMCs), who today serve as an outsourced option for mortgage lenders to order appraisals. Alternatively, some lenders have built out independent, large in-house appraisal processing departments, which have substantially increased internal costs and manual operations.

From a high level, the appraisal industry has become increasingly fragmented over the course of the last decade. There is no compliant, consolidated entity or technology that brings appraisers, lenders, and borrowers onto the same platform in an effort to streamline the process, which has resulted in a challenging appraisal experience for each of the three parties.

How appraisal innovation benefits borrowers

For borrowers, the appraisal is often considered out of sight and out of mind — a dormant period of the loan process where borrowers idly wait for weeks as the appraisal is completed. During this time, borrowers have no insight into the process or timeline for delivery. Because they are left in the dark, it’s often unclear to borrowers why the appraisal is taking so long, and once the appraisal is finally completed, borrowers are not provided a simple explanation as to the methodology or guidelines that led the appraiser to his or her valuation.

This lack of transparency in the appraisal process often leads to friction between the borrowers and lenders. Loan officers want to keep borrowers up to date, but through traditional methods everything operates in a black box for the lender. For borrowers, the appraisal process breeds frustration that could easily be addressed with an innovative approach.

How appraisal innovation benefits lenders

For lenders, appraisals have become unnecessarily time consuming, costly, and opaque. For those lenders who choose to build out independent internal processing departments, they are forced to allocate money and manual resources to managing their appraisal panel, playing phone tag to follow up on appraisal completion times, and have to arduously review each appraisal.

The manual nature of the process is especially challenging for smaller lenders or credit unions, who would prefer to spend time on improved member experience. It cost Alpha Mortgage $70 per loan file, as we found in a case study on the lender.

Rather than keeping everything in-house, if lenders instead choose to outsource their appraisal operations to AMCs, they lose oversight and sacrifice quality during a critical part of the mortgage lending process. Lenders today are seeking control over the appraisal process, but without the headache of day-to-day management.

How appraisal innovation benefits appraisers

Finally, even for appraisers the appraisal has turned into a tedious process as the industry has been burdened with regulations and increasingly unrealistic demands. Today’s appraisal expectations require appraisers to follow a rigid set of guidelines that often delay the delivery of the appraisal.

Perhaps more frustratingly for appraisers, their margins and fees have shrunk as third parties like AMCs take a cut of their appraisal fee. From a technology perspective, appraisers today pay thousands of dollars for software that should in theory help them do their job, but the available form software and management software for appraisers are outdated and counterintuitive. Appraisal innovation allows appraisers to connect to more lenders, reduce tedious tasks, and spend more time doing what they do best — appraising. The GSEs agree that appraisal innovation is needed, which is why the push for appraisal modernization has taken off in recent years.

The need for appraisal innovation in the mortgage industry

All in all, the traditional appraisal management process has numerous drawbacks that are the result of a lack of standardization and innovation within the industry. The multitude of service providers, lack of industry transparency, and stifled communication methods have hampered not only the speed at which appraisals are completed, but also the quality of the final product. Today’s appraisal turn times are growing, quality of appraisals are decreasing, and costs for everyone are rising.

There are ways to shift this status quo, through innovation, automation, and consolidation. Lenders and appraisers should be allowed to spend more time focusing on the core aspects of their jobs, not manual tasks like calling or emailing to provide status updates, or chasing brokers down to schedule inspections, or going back and forth on issues of revisions. Again, we've seen just how costly this can be for lenders, as explored in our white paper that shows how appraisal innovation can reduce loan origination costs by $258 per loan file for lenders.

There is incredible room today for automation in the industry — not of the appraisal itself — but of the workflows that revolve around the appraisal. We are seeing companies begin to wade into this arena.

Through new technologies and platforms that bring all relevant parties onto the same, transparent platform, lenders, appraisers, and buyers will benefit from a streamlined appraisal process where everyone saves time and money.

Want to see a comprehensive appraisal management solution for lenders? Check out our lender solution page to learn more about the benefits for lenders and how it all works.

Are you an appraiser looking to simplify dealings with lenders? See the platform for yourself over on our appraiser solution page.