Introduction

Mortgage lending is a collaborative process. It takes the support of many third-party partners to get a new loan through the origination process and to the closing table on time. Because these partners are so important to the lender’s success, it makes sense that choosing and managing partners well is a critical concern for leading lenders.

This is especially true for collateral valuation. The appraisal function can be one of the most time-consuming activities in the origination process. Effective risk mitigation requires the lender and its appraiser partners to get this task done correctly. Closing the loan on time is important, but speed cannot come at the expense of quality.

One way lenders control both the efficiency of their appraisal process and the quality of the resulting appraisal reports is through careful management of their panel of appraisers. Through a combination of strategy and technology, lenders can ensure they are set up for success.

In this guide, we’ll reveal seven best practices for lenders who are managing their own panel of appraisers.

Defining Success

Best practices don’t exist in a vacuum; rather, they are specific process steps developed to make a team better at completing a certain function that go far beyond simple tips for better execution. Before we get into our list of best practices for better appraiser panel management, we should be clear on the lender’s overall goals.

While success looks slightly different for every lender, when it comes to the appraisal department, most lenders want an efficient process that gets orders out to appraisers and accepted promptly, provides for a good experience for their borrowers, and results in a quality appraisal product delivered in a timely manner.

What lenders hope for in an efficient appraisal process:

• Appraisal orders in the system as soon as possible based on risk tolerance
• Orders accepted by the appraiser within hours of the request
• Borrowers contacted within a specified time of order acceptance
• Inspections scheduled within a specified time frame from order acceptance by the appraiser
• Finished appraisal product by the lender in accordance with an established Service Level (SLA)

Throughout this entire process, the borrower’s experience is of utmost importance and all appraiser partners should approach all customer interactions with professionalism and effectiveness. When the process moves along efficiently, it drives a better relationship between the borrower and the lender and maintains a good operational cadence within the organization.

A well-run appraisal process will have an impact on the lender’s ability to attract new business from its referral partners. In the words of Jan Valencia, Systems Administrator for Alpha Mortgage Corporation:

"The speed at which our appraisers can now make appointments, from a turn time standpoint is reputational. Realtors talk amongst themselves in the office and say, ‘Wow! Alpha Mortgage ordered my appraisal this morning and it’s accepted before lunch.’ Those things just didn’t happen when we used a manual process."

If we can agree that these are the goals for an efficient appraisal department, here are seven best practices for achieving them.

1. Maintain Pipeline Visibility

A single problem in a well-run department will have a cascading effect on the enterprise. As personnel are pulled off other tasks to deal with the problem and any fallout, other problems are created. This is often seen in appraisal departments when a loan officer asks for information on a deal that has somehow slipped through the cracks. Suddenly, it’s a mad scramble to get the job accepted by an appraiser and a rush order on the report.

This problem can be alleviated with better pipeline visibility and exception management. Appraisal managers must have their fingers on the pulse of the operation at all times. This can be quite challenging during periods of high loan volume, meaning powerful appraisal management technology is a requirement.

Managers should know or be able to quickly ascertain any of the following information:

• Number of orders in the pipeline
• Number of orders inspected
• Number that require attention
• Date and time the order was placed
• Close dates on all outstanding orders
• Any changes that have occurred and subsequent contact with vendors
• Orders that are past due or due soon
• Orders that haven’t had the inspection scheduled quickly enough
• Orders with counter-offers from appraisers
• Orders with outstanding communication from the vendor

Good pipeline visibility will also reveal potential problems before they become serious. For instance, if appraisers consistently fail to hit expected service levels, it could point to a capacity issue, requiring the manager to shift work temporarily to other appraisers. Acting quickly will preserve borrower satisfaction and keep loan officers sourcing new business instead of worrying about missed closing dates.

Does better pipeline visibility make a difference? Just ask Eric Prue, First Vice President of Residential Lending Innovation at Leader Bank, who commented on the success they had with introducing increased pipeline visibility and automations:

"We created an efficiency rating and it showed that we were able to operate 213% more efficiently, and also to decrease our appraisal turn time by three days, while originating more volume."

2. Allocate Orders Efficiently

A good appraisal process starts with the efficient allocation of new orders out to appraisers. Getting the job accepted by a qualified appraiser and into production quickly is critical. Success here sends a clear message to business referral partners that the lender cares about their business.

Efficiency reduces cost and takes time out of the process, but it cannot come at the expense of compliance.

For compliance, it’s important that the appraisal department is aware of the individual appraiser’s credentials including licensing and agency approvals, as well as certifying that their documentation is on file and up to date. Once the department is certain that the panel is staffed with qualified appraisers, the next task is to allocate orders.

Order allocation is one of the areas where technology can play a pivotal role in creating efficiency and shortening turn times for lenders. While lenders might have a natural inclination to want to control the selection process and ensure the proper matching of appraisers, the latest algorithm-based technology presents faster and more accurate ways of accomplishing this. The best platforms will allow lenders to combine the best of both worlds; leveraging automation upfront for speed, while also giving full visibility and control to manually make adjustments if needed.

Regardless of whether you manage the allocation process manually or by leveraging technology, there are several factors that should be considered when searching for the best appraiser for each job. When prioritizing a list of appraisers for a specific order, you (or your algorithm) will want to ask about:

Expertise

Does the appraiser have relevant, recent experience working on properties that fall in a similar location and price band? How about the product type?

Location

Is the property conveniently located for the appraiser? Will the appraiser be heading that direction for other jobs in their pipeline?

Bandwidth

What else is in the appraiser’s pipeline, and do they have sufficient bandwidth to complete the order within the preferred time frame?

Appraiser Score

How has this appraiser performed in the past? (Learn more about this topic in best practice #3 below)

Another tool that has proven very effective in getting orders out and quickly accepted by appraisers is a mobile app.

When the department’s technology platform can send orders out to the appraiser’s phone, it is easier for them to accept them while they are away from the office. This tool is especially effective with the single practitioner, and industry data shows nearly half of appraisers are single practitioners.

3. Track Appraisal Vendor Performance

Once the job is in the hands of the professional fee appraiser, the lender still has the opportunity to influence the success. While appraisers are independent, and compliance with state and federal laws requires that they remain so, modern technology can help give lenders visibility into the status and potential delays.

For example, a loan officer could receive an automated notification informing of a potential delay, which would allow them to either troubleshoot or reset expectations with the borrower.

Regardless of how the appraiser performs, lenders must have a way to measure the appraiser’s performance against their established performance standard. Vendor scorecards have been in use in our industry for quite some time, but it’s even better to have a scoring mechanism built into the appraisal department’s technology platform.

Over time, these scores will give lenders useful information that can help create a more efficient appraisal process. For instance, if the data show that certain appraisal vendors can complete certain products at a higher level of service or produce higher quality results, they can be given priority with allocation decisions.

In fact, the more metrics the department can measure, the more complete the view of their fee panel will be. The department manager should know:

• Number of jobs assigned versus accepted
• Number of reports returned on time versus not
• Average time to accept a job
• Average time to contact the borrower
• Average days until inspection
• Average time to return a report
• Number of required corrections or revisions
• Any other metrics the lender finds usefu
  

Tracking performance isn’t just a way to ensure that vendors are living up to agreed upon Service Level requirements or Agreements (SLA’s). It’s also an opportunity to periodically reward best performers, as well as indicating where appraisers are in need of more support, better technology or additional training.

Vendor performance is increasingly important as a lender generates new business in a purchase money market.

4. Maintain Transparency

It can be argued that every problem the loan originator encounters is, at its core, a communications problem. Everyone agrees that effective communication and transparency is a requirement for success, especially in collateral valuation. This applies to all of the key stakeholders involved, including a lender’s appraisal vendors, loan officers, and borrowers.

Let’s look at a few key relationships where communication is crucial:

Appraisal Team & Appraisers

When working with appraisers, it’s important to set up efficient two-way communication. This starts with setting clear expectations around work quantity and quality. Each appraiser that a lender does business with with should have a good understanding of how much work will be assigned as well as the expected quality of service. Do not assume that appraisers will naturally perform to your standards.

Likewise, it should be easy for appraisers to communicate back to the lender’s appraisal desk. If they have questions, need to report a fee change, or there’s an unexpected delay, it’s best for that information to go directly into a modern platform that can properly route the information while triggering the appropriate next steps.

Good technology can be used to provide effective notifications. For example, appraisers can be automatically notified of incoming orders, changing dates and payment information. Knowing that they have more work coming and prompt payments for reports delivered makes any professional want to deepen the relationship and do their best work.

Appraisal Team & Loan Officers

Transparency throughout the appraisal process is crucial for loan officers. The more they know about the status of each appraisal order, the better they can proactively troubleshoot and keep their customers informed. A modern technology platform would give loan officers automated status notifications as well as access to customizable and granular pipeline dashboards to ensure everything is on track. Even better would be for loan officers to access this information directly within the loan origination system (LOS) where they already do the majority of their work.

Loan Officers & Borrowers

When it comes to the appraisal portion of the loan process, borrowers often fall into a “black box” and are forced to wait blindly, sometimes for several weeks, until the official report is submitted — far from the ideal customer experience that lenders wish to deliver. Borrowers have high expectations, and they deserve to know where their appraisal stands each step of the way. Ideally, they should be able to see appraisal statuses and notifications directly in the point-of-sale system (POS), while also receiving personal outreach from their loan officer.

Good communication goes beyond logistics and expectation setting, as it impacts a lender’s overall reputation. Buyers, sellers, and agents all want to know how the deal is progressing, and good technology can provide updates without human intervention.

5. Manage Compliance with Technology

Compliance is critical to every firm operating in the financial services industry. Lenders must keep compliance in mind as the loan progresses through every step of the origination process to avoid hefty penalties.

Appraisal management is no exception. Ensuring that the appraiser selection process is compliant and operating within applicable regulations and policies is one of the core functions of this department.

Lenders have a choice when administering appraisal: they can delegate to third parties, maintain their own program, or utilize a combination of the two. When a lender manages their own appraisal panel, it means that the company is taking responsibility for adhering to all compliance standards and requirements. And while there is risk with managing a panel, the lender is not relieved from overseeing the administration of appraisal activities, whether it is done internally with their own resources or delegated to a third party.

There are many reasons that lenders are willing to take on this additional risk, as maintaining long-standing relationships that provide mutual benefits, increased efficiency, and increased control can benefit lenders and borrowers alike.

Fortunately, modern appraisal management software offers built-in features to help lenders maintain compliance. Without such technology, it could easily take a full team of compliance professionals to mitigate non-compliance risk. For these reasons, few lenders will attempt to manage this function manually.

It’s important that the lender works with its technology partner to ensure that all regtech functionality built into the system is turned on and fully configured, and all controls and settings are compliant with applicable regulatory and policy requirements.

6. Streamline the Payment Process

One of the principal steps in the real estate appraisal process is ensuring the appraiser is paid efficiently. For many lenders, this is an overly complex manual process that takes human staff to complete, adding time and expense to the process, while opening the lender up to the risk that their relationship and reputation with the appraiser could be damaged by slow payment.

Modern appraisal management software can automate this process, tracking the fee amount and sharing data with the LOS to ensure accurate disclosure to borrowers.

The software can tell if the fee a vendor requests exceeds the amount disclosed to the borrower to temporarily stop the deal and alert the department. Perhaps most conveniently, the system can collect fees directly from the borrower, without human interaction.

Business rules built into the system will allow the department to hold orders for payment and then allocate them to appraisers to allocate the orders immediately knowing that the lender will advance payment to the appraiser if required.

Loan officers typically find the payment process tedious, not wishing to go back to their loan applications with the request for appraisal report fees. Technology can be employed to help avoid this.

This can also streamline the process for the accounting department, making it possible for the team there to know if the borrower has paid up front, if the lender has advanced funds, or if the fee was paid out of an application deposit.

"Our accounting department was able to save about 15 hours or so a week just from not having to process the invoices individually." -Eric Prue, Leader Bank

It’s also in every lender’s best interest to pay their appraisers in a timely and automated manner, if nothing else, to strengthen the partnership. Happy and compensated appraisers will be more motivated to stay loyal to that lender while delivering work quickly and efficiently.

7. Choose the Right Technology Partner

While most of the above best practices could, in theory, be performed manually by an experienced and well-staffed appraisal department, in our experience lenders will only get the full benefits of these process improvements if they employ modern appraisal management software.

Fortunately, that software is available today, in use in the industry and proven to help lenders capitalize on all of these best practices.

Reggora provides mortgage lenders with appraisal management software that makes all of the above easy and seamless. From pipeline visibility to appraiser performance reporting, and compliance, we have you covered.