Reggora’s Brian Zitin on 2022’s appraisal outlook

Maleesa Smith: Hi, Housingwire listeners. My name is Maleesa Smith, and I’m the managing editor of content solutions here at HousingWire. Today, I’m joined by Reggora CEO, Brian Zitin. In this sponsored episode of “HousingWire Daily,” we’ll be focusing on what 2022 has in store for appraisals. Brian, thanks so much for joining us today.

Brian Zitin: Yep. Thanks for having me, Maleesa. Always excited to talk appraisals.

Maleesa Smith: Great. Well, let’s start with a look back at 2021. What were some of the biggest changes to the appraisal landscape this year?

Brian Zitin: 2021 was definitely unique in that the mortgage industry as a whole experienced a massive unprecedented amount of volume. So, for the appraisal, which was already one of the big bottlenecks of the process, it became even worse. So if you look at historical turn-times in 2021 of appraisals, they were much longer than in previous years. So, because of the kind of massive spike in demand relative to the flatness in the supply of appraisers, turn-times got worsened and on top of that, appraisal fees shot up pretty significantly as well.

So, what was once say, $500 appraisal, may be $600, $700 right now. So that was a huge kind of change in the market. And as a result of that, a lot of lenders either, you know, directly shifted or started thinking about shifting away from using appraisal management companies to a more direct to panel approach in the, you know, hopes of reducing some of those fees and working more directly with appraisers and kind of getting better performance.

So those were some of the kind of operational differences and changes that were happening in 2021. And then as a side note, there was also a lot more renewed focus on potential racial bias in the industry with the formation of the paved task force with various, you know, government entities and the involvement from the GSE actually as well when it comes to, you know, different data analysis and things like that. So there’s a bunch of attention and interest into that general category. And then finally we saw some, you know, movement from the GSE in terms of, oh not the GSE rather, but the FHFA in terms of, you know, alternative products like desktop appraisals, things that were part of the initial COVID roll out that may look like a more permanent fixture moving forward.

Maleesa Smith: Well, Brian, that’s a great segue because my next question is now looking forward to the topic dominating the appraisal world is what you just mentioned with the FHFA announcing desktop appraisals are permanent. How will this affect appraisals in 2022?

Brian Zitin: I think the answer is that it depends. So, although there was a significant increase in volume, as I said, there was also a similar significant increase in appraisal waivers that the GSE were putting out. So that helped offset some of, you know, the volume crunch. And so, what we don’t know yet and probably won’t know until they actually rolled out, is are these desktop appraisals meant to supplement that even further, meaning they’re gonna keep appraisal waiver percentages at, you know, the frequency that they are now and add desktop appraisals on top of that so that they are even less full appraisals happening? Or will they try to taper down the amount of appraisal waivers that were happening and replace some of those with desktop appraisals? So depending on the answer to that could have effect in either direction when it comes to turn-times and prices and things like that.

I mean, as a whole, for sure everything will improve because overall mortgage volume is gonna go down. But if they, at the same time, reduce the amount of waivers and replace that with desktop appraisals, you know, there actually may be not as offset maybe as it would’ve been, because there’s still gonna be appraisal is doing desktop appraisals, which eat into, you know, the regular work. So, it’ll depend on how the FHFA and the GSEs decide to roll it out. But, you know, I foresee definitely obviously a change in behavior when it comes to the different types of products and lenders will certainly wanna jump on it if they can use it.

Maleesa Smith: Absolutely. And you already touched on it, but what are the benefits of desktop appraisals versus in-person appraisals?

Brian Zitin: The main things are really speed and cost. With the full appraisal, obviously, the appraiser has to physically go out to the property and inspect it. And this is honestly the most time-consuming part, not necessarily the inspection itself, but the coordinating of the inspection. So, you know, the appraiser needing to call the borrower or the listing agent and figuring out a time when they can go and drive and get there, now that all goes away. So if I’m an appraiser and I get a desktop appraisal order, I can start working on it right away.

So speed is obviously a huge benefit and factor as part of that as well as cost because, you know, the appraiser isn’t having to drive and go places they can do these faster. Typically, the cost of the appraisal is less. Now, the caveat is that it potentially comes with less quality obviously because no one is stepping physically inside the property. And so with that, there is less certainty around the condition and anything that may be wrong with the property that could affect value. And so, there are various trade-offs when working with a desktop appraisal versus a full in-person appraisal.

Maleesa Smith: Shifting gears a little bit, we’ve had a lot of talks surrounding a growing shortage of appraisers. What does this mean for the future of appraisals and what role does technology play here?

Brian Zitin: It’s a good question. I mean, and I think it’s also, you know, connected to the desktop appraisals in terms of, you know, a potential reason why the FHFA and others are pushing more for it to increase the liquidity of, you know, the appraisal market because of this shortage. And, you know, there’s been various efforts like per year and different things to try to bolster the appraisal population, but it hasn’t had a huge success yet. So, you know, we’ll find out more in the next year or two, especially seeing like the pain that people experience this year, how much effort and success actually goes into, you know, bringing new appraisers into the industry.

But I think as a hedge in case that doesn’t work, what we’re seeing is the potential introduction of these alternative products where you don’t need as much supply to go and do them. Like desktop appraisals or even you know, the term’s been floating around forever, the hybrid appraisal where, you know, there’s an introduction of a new supply of individuals who aren’t appraisers to go and do those inspections depending on, you know, the qualifications of those individuals.

So, the role that technology is gonna play in all of this is just making sure that that all works cohesively. So let’s say that there actually is an introduction of another third-party inspector who can go do some of these inspections on hybrid products, and that becomes another new type of vendor that a lender will need to figure out how to manage and, you know, order from and track the status of and all that. So the technology’s gonna have to be really cohesive from an actual workflow standpoint to make it worthwhile to utilize that supply. And then the other aspect of the technology is, you know, for those individuals who are going and doing inspections, who may not be as high-level experts as appraisers, technology’s gonna have to try to bridge the gap on that data collection.

So we’ve seen a big increase in interest around things like 3D scanning technology, LiDAR, computer vision, and things like that to make the data collection process more digestible for individuals who don’t have as high-level expertise, as I said. So, I think those are gonna be the two big roles of technology is, you know, making the workflows and the logistics all flow seamlessly, and then making the data collection process much more easier and accurate.

Maleesa Smith: That’s really interesting. And to close this out, let’s take a look over at the consumer side. How do appraisals impact the borrower experience and what ramifications does this have for the predicted purchase market of 2022?

Brian Zitin: Well, the appraisal for the borrower is one of the most stressful parts of the process, because number one, it takes really long. So you’re kind of waiting. It’s an unknown variable outside of the control of anyone. The lender can’t do anything about it, the borrower can’t do anything about it. And it can seriously impact a deal depending on what price the appraisal comes back. Now, this wasn’t as big of an issue, the timing was when it comes to the huge refine market that we saw because there’s really no urgency when it comes to the close outside of maybe, you know, the preferences of the actual borrower. But now with purchases, there’s a deadline because there’s an actual closing date with another party, you know, that other party, the seller is probably also entertaining other offers. And so, what we saw on this crazy market was like cash offers winning out hugely because of the ability to do that.

And so if the appraisal continues to become or continues to be a problem for a lot of lenders who, you know, haven’t invested it in the right technology or processes or whatever, it’s gonna be a huge weakness for them because the borrowers aren’t gonna have as predictable of a process and may lose out deals versus another lender who can deliver appraisals at a faster rate. So, you know, in a more heavy purchase market, the timeliness and predictability of the appraisal actually becomes even more important. So we’ll see, as I said earlier, kind of how the volume all shakes on what turn-times look like, but it definitely becomes an even more important variable for lenders now more than ever.

Maleesa Smith: Well, Brian, thanks so much for joining us on “HousingWire Daily,” and giving us a forward look into the appraisal landscape of 2022.

Brian Zitin: Thank you so much.

Maleesa Smith: Listeners, see you back here tomorrow.