When it comes to valuations, every lender wants reasonable cost, high- quality and timely turnaround. However, we have been conditioned that the appraisal process has trade-offs—you can have two items on the list, but not all three at once.
These trade-offs have been heavily influenced by the realities of manual processes, which greatly influence cost and turnaround time. Fortunately, as we have seen happen with countless other industries and even within most stages of the mortgage loan lifecycle itself, data-driven technology and innovation are creating new opportunities never before possible.
The appraisal industry is experiencing a paradigm shift. Process transformation is opening the door for appraisers to work differently, leading to smarter valuations and more choices for lenders. Here are three key factors driving this change:
TECHNOLOGY’S IMPACT – GOING MOBILE
Appraisal technology has traditionally come in the form of desktop software, but in recent years it has shifted to the cloud, providing access to appraisal applications on any device. This movement has allowed appraisers to be more flexible, and deliver increased quality, speed and cost-efficiency.
Historically, appraisers would spend hours visiting the county court house for public records, combing through hard copy and online records for past and present listings, and recording measurements on a paper form after physically inspecting the property. Then, the completed appraisal would be shared back and forth between the appraiser and lender until alignment was reached on the details.
Today, there are several valuation options where an appraiser can gather information on a property more efficiently. The availability and accessibility of data— such as prior appraisal records, public property information, listing sources, Google Earth mapping service, and other resources—eliminates the need for an appraiser to personally inspect the property. In certain cases, a visual inspection may not be needed at all.
Current appraisal applications have advanced to the point of asking appraisers “rule-based” questions even as the report is being developed. If information entered on the appraisal does not match the public record, the application will trigger a rule and let the appraiser reconcile the data instantaneously.
SILVER LINING IN THE CLOUD
Cloud technology connects the industry to massive amounts of data via desktop and mobile devices, which appraisers can access to drive computations and leverage rules-based tools. This allows for quality crosschecks to be conducted well before the report is ever delivered to the lender, representing a move from quality control— which has traditionally happened at the end of the process—to quality assurance.
In a quality assurance model, these quality checks begin the moment the appraiser gets and accepts the order, and continue as he or she completes research, begins analysis and writes the report. With the maturity of mobile technologies and expanded access to cloud connectivity, the marriage between collecting data with an inspection and infusing that data into the report-writing process in real time has greatly accelerated.
Without the use of these technologies, 60% to 70% of appraisals are returned with revision requests. If the appraisal comes back from the lender several times before it meets client expectations, the turn time is significantly increased.
Quality assurance allows for errors to be corrected before they ever reach the lender, cutting down on administrative back and forth and creating greater efficiency. Once an appraisal report has been delivered, lenders are able to utilize the same cloud-based interface to look at the report instantly and have real-time communications with the appraisers in order to resolve any questions or concerns that remain within minutes.
Second, web-based services and the cloud have made it easier for appraisers to access the data they need to apply their knowledge of the market and make more accurate valuations. One area where this has been especially helpful is comparable selection. Comparable sales data was once considered muddy, but with enhanced data standards and cloud-based tools that allow appraisers to filter, sort and select comps from thousands of sales and listings, this process has been significantly improved.
Appraisers can spend more time on analyzing the properties to find the most relevant comps, and less time driving to visit them all.
Analytics also play an important role in appraiser selection and collateral validation. Lenders are turning to service providers who can leverage data and analytics to quickly identify the most qualified appraiser for a particular assignment. This helps ensure the most accurate and timely collateral valuation possible because the appraiser is already familiar with the area and property type.
As an added layer of validation, data analytics can help confirm new pieces of property information, such as an addition to a home. This gives both the lender and the investor greater confidence in their lending decision.
MARKET CONDITIONS SPEED THE TRANSFORMATION
Finally, real estate market conditions have provided a strong tailwind to the transformation of the appraisal process.
According to the Mortgage Bankers Association, U.S. mortgage originations are at a current level of $463 billion as of the second quarter of 2017. Although refinancing originations are down slightly from earlier in the year, purchase originations are up nearly 50% from the first quarter of this year, when mortgage rates first started to tick up following the presidential election.
In addition, the long-awaited entrance of millennials into the housing market stands to unleash years of pent-up demand in purchase originations. Not to mention, this generation is the most comfortable with the emerging mobile technologies that the appraisal industry is moving toward.
Alongside these market dynamics, some lenders and investors are allowing appraisers to use technologies and processes to improve efficiencies that they didn’t allow previously on certain loan applications, ultimately resulting in the lending trifecta: a high-quality valuation delivered quickly and at a reasonable cost.
THE CHANGING ROLE OF THE APPRAISER
In this new paradigm, the appraiser remains critical and central to the valuation process. New technology helps speed the process and provides easier access to data for assessing the property, but ultimately only a knowledgeable professional familiar with the human element in the market equation can deliver a robust, high-quality valuation.
With these new tools, appraisers are more efficient than ever and the accuracy of their valuations is much improved. Appraiser focus on data analytics provides lenders with a better quality report, resulting in fewer addendums and completion of the appraisal in a timeframe that consumers and lenders have not previously seen.