The public response to the recent Federal Housing Finance Agency (FHFA) Request for Information on appraisal-related issues was significant, with 164 unique written comments. As one might expect, the comments revealed differing opinions.
This general alignment matters a great deal as the FHFA, through their oversight of the GSEs, who have the vast majority of the market share, plays a key role in the conforming lending market being the de facto regulator. The FHFA needs to hear about the world’s view outside of those they regulate.
Here are a few snippets from some of the responses to the RFI.
From the National Association of Real Estate Brokers (NAREB):
“Experienced appraisers bring forth a myriad amount of knowledge that can be useful in producing quality appraisal products. While there is a real concern that those older appraisers may find it difficult to adapt to the new policies, we are confident that a vast majority of them will be able to make that transition. In fact, we are confident that these seasoned professionals will prove to be a valuable asset to the industry through the transition phase.”
From the National Association of Realtors (NAR):
“NAR generally finds that the appraisal continues to be the best method for determining an opinion of value in a real estate transaction.”
From the Mortgage Bankers Association (MBA):
“While MBA supports the ongoing development of such tools, MBA also acknowledges the need for appraisers and lenders to provide some level of oversight and due diligence to preserve the overall quality of the data referenced in future valuations. Any process improvements adopted by the industry must be comprehensive and employ a holistic view of appraisals…” and “Should the market begin to rely too heavily on valuations not supported by traditional appraisals, lenders and the Enterprises may be exposed to greater risk because of a lack of evidence of the condition of a property.”
From the National Association of Home Builders (NAHB):
“NAHB is a strong proponent of a sound and effective appraisal industry. Appraiser training, education and data availability are critical components to improving the accuracy, credibility and integrity of appraisals.”
From the Independent Community Bankers Association (ICBA):
“Accurate and timely appraisal reports are also integral to a community bank’s risk management system and help ensure the bank is making sound lending decisions.”
The Value of the Human Appraiser
These entities make many other comments about technology, workforce options, modernization and the need for change. I focused on these comments for a reason, they demonstrably corroborate that the human appraiser matters regardless of anything else said.
Being a human and an appraiser, I think humans are valuable in the appraisal equation. As I have read many of the responses and listened to the comments made a few weeks back, I am heartened to hear comments and strong assertions that humans matter when it comes to understanding collateral value. And as an appraiser with a master’s degree in information systems, I am also extremely fond of how technology can improve and simplify the complete collateral valuation experience.
Using the analogy of an axe representing technology and data, the axe is useless without a human to wield it. The axe can do nothing on its own. It takes the skill and knowledge of an experienced user to get the maximum value. An improperly used axe can injure the user or be damaged through misuse rendering the tool useless. In these responses, I hear a lending industry clamoring for the freedom to use the “new tools” that already exist.
The story of Paul Bunyan, as illustrated by Disney, comes to mind. A salesman comes to town with a steam-powered chain saw telling all the lumberjacks to ditch their axes, get with modern times and use the new saws. Paul challenges the man stating nothing can beat the heart and soul of himself and the ox. A contest is set up, and in the end, the man with the chainsaw barely wins, and Paul Bunyan and the ox ride into the sunset, never to be seen again. Let’s not be like Paul Bunyan. Instead, we should put down the axe and pick up the chain saw and stay in the game. Too many RFI comments and comments, in general, reflect a narrow-minded mentality that the traditional way is the only way.
Since the day I took my first appraisal course, I have heard technology and AVMs are going to take over the profession. Fast forward 25 plus years and appraisers are busier than ever. We are now on a precipice of big change, and all of the profession needs to step up and do something to shape and change the future. It is time to do the new ideas and experiments. In this effort, it is critical that we focus on keeping what we know adds value in the valuation equation, humans. Common sense indicates technology must be more integrated and utilized in helping the appraiser analyze what the data and analytics created by technology actually mean –– for each lending transaction.
Innovation doesn’t mean changing everything. Take cars, since the beginning cars have had a steering wheel. While the enhancements to the steering wheel are innumerable, the wheel part hasn’t changed –– because it works. The human component in forming an opinion of value is and remains the key to long-term stability –– regardless of how we believe technology can help. Bringing in new data, methods, people and processes needn’t remove the core component, in this case, the appraiser. Like the steering wheel, the appraiser clearly continues to add value.
What do we do? Everyone needs to do something. I mentioned the 164 responses to the FHFA RFI, considering, according to Fannie and Freddie, there are approximately 40,000 appraisers actively doing GSE work and thousands of lenders and AMCs doing business with the GSEs, the number of responses is relatively small. There is a strong need for individuals with high ideals and a vision to be involved in imaging the future. Individual comments and actions matter. Anyone can comment at any time to the entities that regulate appraisal, the Appraisal Subcommittee has regular public meetings, the Appraisal Foundation has numerous public meetings, FHFA and the GSEs have comment options. Appraisal trade groups can represent their members’ interests and so on. Whatever you do, do something.
The future is bright as we humans choose to make it. Let’s make it fantastic.