At Valuation Expo in San Antonio, Texas, Nov. 8-10, 2012, I had the opportunity to talk with appraisers from all over the country. I am glad to hear that most are very busy. In addition to the appraisal software and data vendors, many of the representatives in the exhibit hall were from AMCs seeking appraisers for their panels. If you were an appraiser looking for more work, this was a good place to find it.
I attended three of the sessions offered for CE credit. These included “Valuation Visionaries”, “Appraiser Townhall Meeting”, and “Re-Engineering the Appraisal Process”. All involved a moderator and at least four speakers, so I don’t have space to list everyone individually, but they all did a great job and had useful information for all appraisers. Follow this link to see who spoke at each session.
I can’t possibly cover 12 hours of presentations in this article, but I did notice some themes and important points I would like to share. The speakers took an in-depth look at what is really happening in the appraisal industry right now. The discussion first took a look at some perceived competition to appraisers, such as the websites Zillow and Trulia. Some people use these sites to get an idea of what a property may be worth, but these sites are fueled by advertising dollars and are not generally considered reliable sources of value by real estate professionals. The speakers also mentioned two other very familiar alternative sources of valuation, namely automated valuation models (AVMs) and broker price opinions (BPOs). These two products represent a large chunk of the valuation market and do have their place in certain applications. The good news for appraisers was that the most accurate type of valuation products available are still considered to be those that involve a professional appraiser and these are in increasing demand. It is estimated that about 25% of all valuations are performed by appraisers doing some kind of desktop, exterior, or interior inspection report.
The speakers covered where the market is headed and if appraisers will be able to hold on to or even increase their 25% of the valuation market. The way lenders will approach valuation in the future was a key part of the discussion. It is believed that the methodology lenders use for making a determination of worthy collateral may soon change just as the Equal Credit Opportunity Act changed the way they look at credit, since it officially recognized that a proper credit score would not be discriminatory—which means the score is now the all-important number. The panelists think the demand for valuation work by appraisers will increase, but the trend will be to make the process of interpreting this information more automated and we may soon see the assignment of a collateral score to the property based on the appraisal. The lenders want and need more transparency on the collateral side and the Dodd-Frank Act calls for that to happen. Because of that, the speakers mentioned that the new legislation may really end up working very much in favor of the appraiser when everything is fully implemented.
After it was established that appraisers will be a big part of the lending process for some time to come, most of the discussions (by various panelists in all three sessions) centered on changes that will be necessary and what appraisers need to do to embrace these changes and deliver the valuation products that lenders want and need. It was pointed out that appraisers have been doing things pretty much the same way for the past four decades. Not many businesses have changed that little over the same period of time and survived. Yes, the form software is much better, there are digital pictures, laser measuring devices, and so on, but the basic procedure of pulling a few comps and filling out a form hasn’t changed much. The presenters feel that technology is the solution to this problem. They all had a slightly different angle on what a solution might be, but the theme was clear. The basic methodology for performing most appraisals will be changing sooner rather than later.
So what will the appraisal of the near future look like? That is hard to know for sure. The presenters discussed a wide variety of possible products that any appraiser will be able to offer, depending on the client’s specific needs. Some new products may replace your standard URAR form while others may be a good substitute for a BPO. Some of the products discussed are already available to appraisers. One point the speakers agreed on is that “everything is now about data”. The world is quickly moving away from the appraiser as a form filler. Lenders don’t have the resources to sit and review written forms. They need to receive your appraisal as a stream of data that can be quickly analyzed. That is why Fannie Mae and Freddie Mac have implemented the UCDP program with its accompanying UAD formatting requirements. In the past they didn’t even get a copy of the appraisal unless there was a problem with the loan. Now they receive, analyze, and store the stream of appraisal data on every property. This is one of the steps intended to increase transparency and thus help to fix the mortgage crisis and restore confidence in mortgage backed securities. AppraisalPort fully supports this process for your lender clients by supporting AI Ready. When you deliver using AI Ready you are supporting the data needs your clients have.
From the continued discussions it seems likely that appraisers will be changing the way they complete their appraisals on a couple of different levels. First, the way the information itself is entered will change. Appraisers will no longer take their data/research/analysis and transfer it to a specific appraisal form. Instead, the information can be entered/downloaded into some kind of data entry screen or program. This way the appraiser won’t be limited to only entering “what fits on the line” of a certain form. Now the data can be used in a number of new ways and the “appraisal” can be rendered onto any desired form or converted into any desired data file type. Second, the approach the appraiser uses to analyze the data will change. Many appraisals won’t consist of the standard subject information, 3-6 comps, pictures, and so on. The presenters think appraising will need to move to a more scientific methodology using some kind of “regression analysis” to arrive at a value. This technology will require some additional training for appraisers and the availability of a rich pool of data for appraisers to use. The various vendors will need to provide many options for appraiser training as these new methods receive approval from the lenders.
The presenters emphasized that a good national source of data will need to be made available to appraisers. Listening to this, I thought to myself, “This already exists.” Based on some of the questions from the audience, it was apparent that most appraisers had no idea that we offer access to a complete national database of real property data and characteristics as well as access to many of the valuation analysis and review tools the lenders use. Visit our website at collateraldna.com if you want to see what tools are available for your use and let me know if you want to try any of them out.
In conclusion, the presenters had some recurring points they wanted to get across to the audience. First, the need to keep promoting appraising as a legitimate profession and working to get away from the image of it being a cottage industry run out of the back bedroom. This includes promoting the fact that appraisers are the regional experts and act as the eyes and ears of the lender. In addition, always keeping in mind that no one else in the field has the ability to provide valuation products with anywhere near the level of accuracy. Finally, a key point is the need to embrace and explore new technology for the appraisal industry. It was said by one speaker that “the appraiser with the best technology rules.”
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