Foreword

Thank you for opening this Ultimate Guide to Modern Appraisal Operations.

Our goal was to create the industry’s first generally-accepted, defacto industry standard for operations in this critical department.

Readers of this guide will have a better understanding of the appraisal process as it exists today, the challenges industry stakeholders face in the current environment, and a path to more efficient, modern appraisal operations.

While our own appraisal management platform is the industry leader in modernizing this process for both lenders and professional fee appraisers, this guide was not written to promote any single platform or solution. Rather, we have set the stage and provided information any lender can use to create their own modern and efficient real estate valuation process.

While this guide is based on our experience in the industry and our own research, compiled both in-house and with STRATMOR Group early in 2022, we also have called upon subject matter experts from around the industry to ensure that this is the most up-to-date and complete information available anywhere.

- Brian Zitin & Will Denslow, Co-Founders, Reggora

Introduction

Welcome to the Ultimate Guide to Modern Appraisal Operations. The guide was researched and written to provide a clear path from where the industry finds itself today — plagued by an appraisal process that slows down the origination process, increases costs for both the lender and the borrower, frustrates professional fee appraisers, and degrades the borrower experience — to a more efficient, modern appraisal process that meets the needs of all stakeholders.

This guide explores the requirements and ongoing operation of a best practices–based appraisal process. It has never been more important for the home finance industry to reach this ideal.

It doesn’t matter if the lender is experiencing high volume or low, an optimized appraisal process is beneficial in any market cycle. That’s true whether it helps better capture and process volume spikes or aids in the maximization of profit in times of more moderate revenue.

Just ask Kevin Peranio, Chief Lending Officer for PRMG. As PRMG continued to grow in volume during the refi boom, their switch from managing their own panels to an appraisal management company (AMC) partnership model removed some communication breakdowns. But the leading wholesale lender was still in need of a transparent, rapid-speed communications system that could adapt to their needs. They realized that the time was right to pull the trigger.

“If you look at originators doing more volume, they’ve leveraged modern tech,” Peranio said. “If I’m an appraiser and want to do more volume, I need to leverage modern tech. The bifurcated process is a tremendous opportunity for appraisers to do a ton of volume and being an early tech adopter with a company like Reggora, which allows appraisers to do just that, is going to put you at the forefront of serving more families and making more money.”

But what if volumes aren’t high? 

The management team at one regional bank which adopted Reggora says it’s still time to optimize the appraisal department. The bank was spending about $100,000 annually tasking a staff member with chasing down past-due appraiser invoices. It was taking up time from full-time employees (FTEs) in multiple departments, including operations, revenue, accounts payable, and others.

This is a real problem for banks that are losing staff as volumes fall. Appraisal management technology provided the bank a solution with automated payment processing and automated order allocation functionality, which quickly empowered employees to spend more time focusing on their core jobs (rather than on redundant, manual tasks) even as the bank’s overall efficiency improved.

“In our more metropolitan markets, with more available appraisers, we’ve seen a drop in turn times. It’s roughly one day less for those markets compared to what the branches stated their turn times were in our previous solution,” according to the bank’s SVP of loan operations. “By having our process set up to default to collecting at the time of ordering, we have seen significant improvement on this front compared to our previous platform.”

Whether volumes are high or falling, it makes sense to optimize the mortgage lending appraisal process now. While we’ve worked with lenders intent on offering their loan officers and borrowers a better experience from the appraisal department in all kinds of markets, this work becomes increasingly important in markets like the one we’re in now.

Having a high cost to originate when loan volume is very high is survivable, if not sustainable. But during lean times, lenders must cut operational costs. Profit per loan is simply too low today to continue to pay high costs for loan origination.

If we can judge by the flurry of appraisal-related activity at the government-sponsored enterprises (GSEs), lenders aren’t the only ones concerned. In March 2022, Freddie Mac issued new guidelines aimed at modernizing the appraisal processes, including the introduction of ACE+ PDR (property data report). Another tactic Fannie Mae and Freddie Mac are implementing is the permanent acceptance of desktop appraisals.

“We feel this is the right time…with regard to appraisal modernization,” said Scott Reuter, Chief Appraisal Officer at Freddie Mac. “We’re helping to build out product offerings on the spectrum between waiver and full appraisal.”

In a 2022 webinar featuring both GSEs, Reggora CEO Brian Zitin put it clearly: “As everything else in the mortgage process continues to get better, in the last two years, appraisal turn times actually got worse. Appraisal continues to be a bottleneck around the ideal one-click mortgage … By unlocking a new option that has the potential to have faster turn times, it’s going to remove that bottleneck from the overall digital mortgage process. That’s why for lenders who are looking to optimize speed to close, appraisal has to be on that checklist. Otherwise, you’re never going to get there.”

Optimizing the appraisal process matters now more than ever, but how can you most effectively and efficiently get that project done?

Having the right target to shoot at makes everything simpler and so this guide was designed to demonstrate what modern appraisal operations look like, how they are set up and why they work.

We hope this guide helps you reach that goal and build a more successful mortgage lending business.

Chapter 1: The Appraisal and Valuation Process

In this chapter, we outline some of the basics of the appraisal process. We cover who appraisers are, how they add value to the real estate industry, and outline how the process of creating an appraisal report impacts stakeholders in the home buying process.

The art and science of real estate appraisal is the result of a process practiced by trained and licensed professional fee appraisers. The goal of the appraisal report is to provide an opinion of value and provide other relevant data and analysis for the property to be used in the decision-making process by a mortgage lender. While professional appraisers also complete appraisal reports for other purposes, this guide will focus on the work they perform for mortgage lenders, mortgage servicers and investors.

While the home loan borrower is an important stakeholder in the mortgage transaction and will often interact with the appraiser during the valuation process, the direct beneficiaries of the appraisal process are the lender or servicer for whom the report is being prepared. This is true even when the appraiser’s client passed the expense of the report back to the borrower.

The appraiser does not work for the homeowner. Neither does the appraiser work for the real estate agent or mortgage loan officer, both of whom are key influencers in the process. The appraiser’s report is an important risk mitigation tool for the lender who advances the loan, the mortgage servicer who is servicing an existing loan and ultimately the investors that provide the necessary capital resources to support the mortgage finance system in place today.

Appraisal Products & Appraisal Modernization

The long-term vision for valuation is a tech-driven process that drastically reduces turn times, lowers costs, and eliminates redundant manual processes — all without sacrificing quality in the appraisal report. This is where the GSEs, Fannie Mae and Freddie Mac, have rolled out a number of solutions meant to cover different scenarios and property types. Here are the components that make up the spectrum of appraisal modernization.

To determine which product is right for a given transaction, there are several risk factors taken into account such as property history, if the property has had a prior appraisal, property complexity, property uniqueness, and the borrower’s credit risk. The less risk involved, the more of a role technology can play in creating the report. The more risk involved in the transaction, the more the report depends on an appraiser's involvement.

The goal of appraisal modernization is to allow appraisers to focus on delivering a research-based opinion of value and free them from needing to be involved in low-risk transactions. We’ll explore this topic more in-depth in chapter 7.

Defining Success

Success in the appraisal process exists on a number of levels. Each stakeholder may view it slightly differently.

The lender originating the mortgage loan views success as a quality appraisal report that justifies the loan amount, conducted in a timely and predictable manner. An inflated appraisal only satisfied part of this requirement and therefore cannot be considered a success.

The mortgage servicer may need to know the current value of a property in the portfolio if the borrower becomes delinquent on loan payments. If the borrower goes into default, the servicer must know if the property is valuable enough to cover the expenses and outstanding loan balance in the event of a foreclosure.

Either of these stakeholders may have an internal appraisal management department that defines success in different terms. Most appraisal department managers want an efficient process that gets orders out to appraisers which can be accepted promptly, provides for a good experience for their borrowers, and results in a quality appraisal product delivered in a timely manner.

Putting all of this into terms with which managers are more familiar, stakeholders would like to see:

• 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 submitted to the lender in accordance with an established service-level agreement (SLA) and reporting requirements

Throughout the entire real estate appraisal process, the borrower's experience is of great concern to all stakeholders. This requires all appraiser partners to 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, who recently revamped their appraisal operations:

“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.”

For the mortgage servicer, a good appraisal management process is an important loss mitigation tool that can help to reduce loss severity in the case of loan default.

Achieving success is easier if the stakeholder has access to a set of best practices in the form of specific process steps developed to make a team better at completing a certain function that goes far beyond simple tips for better execution. 

The rest of this guide will provide information stakeholders can use to create and manage more effective appraisal management departments and workflows in service to the achievement of these goals.

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Want to read the rest of the report? Access a PDF of the full report here.