One of the most consistent observations FNC has been hearing lately from mortgage originators is that they are receiving appraisals from appraisers who are operating outside their regions of competence. In other words, they are appraising in neighborhoods where they don’t know the market.
As lenders know, the real value of appraisers is twofold. First, they can look at the house to assess the current condition; and second, they tend to specialize in a few markets that they know well. This allows them to take their considerable knowledge of the market and apply it to the valuation of a property.
The downturn in the housing market has caused a major disruption in the appraisal process. New regulations and downsizing by the lenders has resulted in many lenders using larger appraisal firms or vendor management companies and relying on them to send the best appraiser to the property. This is not always happening. Appraisers are being assigned to properties without regard to their knowledge of the neighborhood, and the result is that values are being returned that don’t accurately reflect the market value of the property.
Vendor management companies may not know the areas of expertise of the appraisers or may simply have to rely on whichever appraiser is available to take the assignment. Further, as the market has declined, appraisers looking for work may expand the areas in which they are willing to work without regard to their knowledge of the local markets.
Lenders have tried to address this by looking at the distance between the house and the appraisal firm’s address, but many have discovered that the appraiser’s areas of expertise may be far distant from either the firm’s address or even their own home address.
To help lenders to better control this problem, FNC has looked at all properties that each appraiser has appraised historically for any FNC client. Each property was geocoded with its exact latitude and longitude, and then an average location was calculated. This represents the center of all historical appraisals done by that appraiser for all FNC clients. In other words this is the center point of their region of expertise.
FNC then provides the lender with a list of all zip codes within a specified distance of the center point for each appraiser. Most commonly lenders are using 25 miles but some are using a larger or smaller radius.
These zip codes are then loaded into the CMS for auto assignment; or if the lender is using a VMC, the property address can be compared to the list of zip codes when the appraisal is returned for that appraiser. If it is outside their area of expertise, then the VMC can be asked to verify the value.
This process appears to be working effectively to reduce the incorrect valuations that have resulted from appraisers being asked to value properties in areas where they do not know the local markets.
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Robert Dorsey
Chief Data and Analytics Officer, FNC Co-Founder
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