The Path to Appraisal Modernization
Is a two-day appraisal achievable? Absolutely. Is it an overnight fix? Unfortunately not.
We would love to say that Reggora alone could shrink your appraisal turn-times to two days and fully optimize all of your operations and spend, but the reality is that true change requires more than just technology. True change also necessitates shifts in industry regulations and standards, with full alignment from industry stakeholders and GSEs.
Align GSEs? Change regulations? You might think we’re crazy, but we’re already seeing these shifts happening.
Below I’ve outlined what the future of valuation and appraisal will look like once regulations shift and the industry fully adopts new technologies. If you’d like to dig in a bit deeper and understand how we can get there, read our white paper, The Path to Appraisal Modernization.
The Vision for Valuation: Taking a Risk-Based Approach
Before long, the residential real estate valuation process will rely on a combination of technology, data, and human intervention. This new approach will not only eliminate redundant manual processes and reduce costs, it will also drastically reduce turn-times.
To get there, the industry will need to adopt a risk-based approach to valuation, which would allow for different valuation methods depending on the type of property in question. For example, a generic Texas ranch that is up for sale can rely on the recent sales of twenty other similar ranches around it to help determine its valuation. Standardized properties such as this would not warrant the same level of underwriting scrutiny compared to a unique, complex property in rural Maine.
This system will allow stakeholders to select a different valuation type—full appraisal, desktop appraisal, automated valuation model, or other hybrid models—depending on the complexity of a given property.
To understand how this might play out in practice, let’s look at a sample hybrid appraisal process:
- Once a property needs an appraisal, an automated system will gather public data on the property to determine its complexity and what kind of valuation method is best suited for the property.
- If a hybrid solution is recommended, a third party inspector (like a real estate agent, gig economy style worker, or even a homeowner) could be at a property within a day and use a mobile application to take specific pictures of the property and input a handful of variables.
- This data will then go to an appraiser at a desktop who can run an appraisal report based on the data.
- This final value is then compared against a number of comparable recently sold properties to ensure that there is no significant deviation in value. The entire process could feasibly take place over just two days.
In some ways, the industry has already started to explore this third-party system due to the challenges faced during the height of the COVID-19 pandemic, when appraisers weren't able to enter properties as easily. Freddie Mac has taken a leap forward with the announcement of Automated Collateral Evaluation (ACE) + Property Data Reports (PDR), showing its commitment to appraisal innovation. The goal is to allow the marketplace to continue to find ways to shorten turn times through efficiency while allowing for the identification and mitigation of risk. As stated in the bulletin first announcing the addition of ACE, “This change will allow Sellers and Borrowers to continue to benefit from originating loans without an appraisal while mitigating risks and ensuring we purchase Mortgages secured by properties in acceptable condition.”
Likewise, Fannie Mae aims to take the industry into the future, listing digital transformation in the mortgage process as the top benefit in its documentation outlining the implementation of desktop appraisals. “Leveraging the wealth of big data, the power of advanced analytics, and the speed of technology, appraisers can perform desktop appraisals without physically inspecting the property.”
It’s important to note that this shift would not eliminate the need for licensed appraisers. While appraisers are an indispensable part of the valuation process, there are two foreseeable challenges that should encourage the industry to embrace additional methods of valuation:
- The first is that the pool of current appraisers is shrinking, partially due to high barriers to entry into the profession. As a result, it will become increasingly difficult for lenders to find qualified appraisers to provide in-person valuations with quick turn times.
- The second reason is the manual nature of the existing appraisal process, which will hinder the larger real estate industry’s technological advancement — especially the realization of the one-click digital mortgage.
An optimized appraisal workflow will not only benefit the individual parties involved, but also the real estate industry as a whole. Once appraisal logistics are improved and technology is able to play a larger role in the appraisal process, a natural transition towards more tech-savvy forms of valuation will begin. The change will not be immediate, but gradual and strategic, and much of it can be facilitated by the optimization of the existing appraisal infrastructure.
The future is exciting, but as we mentioned, it’s not an overnight fix. The juice is absolutely worth the squeeze, though, as we've seen lenders optimizing their appraisal process reduce their cost to originate — especially relevant when fears of margin compression dominate the market. To learn more about the current challenges facing valuation, the vision for the future, and how we can achieve it, read our white paper, The Path to Appraisal Modernization.
