Hybrid Appraisal, Part VI
Is it possible that Lo-Brid or even No-Brid appraisals could be even faster and more cheaper?
Hybrid appraisals have been hyped as being a “modernization” of the appraisal process. While the appraiser still fills out the “Fannie Mae” form, the actual property visit is done by another person (with as yet undefined or unknown competency). There is no assessment of the neighborhood nor the comparables. The appraiser apparently is to select the three or more comparables without direct visual input.
Questions arise: what is the real goal? And what is the real outcome? Are there any unintended consequences? Who does what?
In my previous ‘hybrid’ blogs, we have looked at the aspects of USPAP, appraisal theory, and heard how non-appraiser field work might affect appraisers, lenders, and the public good. Of the several issues, one has come to stand out. To taste-test the different issues, it’s good to look at a simplified outline of the valuation process:
- Identify the problem—client needs, work scope, relevant market, and the critical elements of comparison.
- Select the relevant sales data (comparables).
- Make adjustments to key variables: building area, cap rate, site size, view, visibility, access …
- Interpret and present the information to the client.
What goes unspoken today, is that the results depend on how the data is improved, or curtailed along the way. This happens at each step.
Per the Fannie Mae March 2019 Appraiser Update, a lender assigns a “property data collector [who generates] a robust and accurate set of data elements, photos, and floor plan.” Delivered to Fannie Mae, who then makes a decision about the level of risk and “the level of collateral validation needed.” This includes “experimentation around what data elements are most important for measuring collateral risk.” “The important thing to keep in mind is that the property data collection happens prior to, and completely independent of, the appraisal assignment.” “Property data provided to the appraiser … is strictly observation, measurement, and fact.”
Presumably the PDC (Property Data Collector) will make no ‘appraiser’ judgment of condition, effective age, usable site, detrimental conditions, safety issues, zoning compliance, building code compliance, occupancy, functional obsolescence, encroachments, view, basements/add-ons inclusion/exclusion.
Apparently no one will look at comparables.
The way I read this is that Fannie Mae, through its lenders will perform better factual data collection than does the MLS, Realtors, and licensed (or supervised trainee) appraisers. The factual information will then be used for “a message to the lender prescribing the level of collateral validation needed; which may include a full appraisal, costing tens of dollars or more. But then there will be yet another savings by requiring a new ‘modified’ version of the 1004, called a “1004P.” Heck, this may be even better than the 1004MC!
The bottom line 1: Traditional appraisal delivers only a point value. An opinion. An opinion based on unreproducible human judgment. Done well, data can be improved, but always requires some judgment.
The bottom line 2: What Fannie Mae and other holders of collateral risk need, is an analytical result, not an opinion. What lenders and portfolio managers need is risk/safety uncertainty scoring and forecast— not point-value opinions.
The appraisal profession must learn to deliver what the market needs, not what it wanted and needed in the past.
May 8, 2019 @ 11:19 am
George, your quote: “The appraisal profession must learn to deliver what the market needs, not what it wanted and needed in the past” is hurtful! And it may be just what is necessary to shake it out of its lethargy, ennui, and inertia. Keep motivating us, George!
May 8, 2019 @ 6:37 pm
Aunt Fannie just let the cat out of the bag today saying that an appraisal would be used as a last resort if the first three methods are not satisfactory. The first three are as follows, market overview using existing data that assesses the risks of sustained pricing levels, then if that doesn’t work a desktop report, then a home inspector inspects the property and provides the inspection report to the desktop appraiser, and then finally, and probably cheaply, a 1004UAD appraisal. Given the number of appraisers who are sitting around twiddling their thumbs right now, and bankers being caught in the squeeze between what they need to charge in fees and interest and what the market is willing to pay, the days of the independent fee appraiser are numbered. I won’t be holding my breath as I am the last sort of appraiser a lender would willingly want to work, as I am the kind of appraiser that insists upon a job being done properly and correctly the first time without compromise or making someone else’s value.
May 23, 2019 @ 2:40 pm
They are calling this the “modernization” of appraisal! I call BS! Statistical data does not tell you what improvements the owner has made since most of the data comes from public records which we all know is not accurate! Secondly, I will never appraise anything I can’t inspect myself. Since the appraiser takes full responsibility, I won’t let someone I haven’t trained or who is not licensed, and who they got on craig’s list, or wherever, to take pictures and that’s all I get to see of the property I am appraising! Anyone who is doing this is going to be in violation of USPAP, so if you are stupid enough to risk your license to help out Fannie who crashed the economy because they were greedy and Wall Street sold those so-called securitized loan pools to unsuspecting “investors” all over the world, go ahead, whore for Fannie! I refuse to do this, and I know they will blame the appraisers again for their sloppy work! With all due respect to computers, and none for algorithms, I wouldn’t trust Fannie to feed my cat! They are a private entity, and it is bad enough appraisers had to conform to UAD which is ridiculous and the Market Conditions form they know doesn’t work in rural areas, and I could go on, but just because we use math and computers to appraise does not mean computers are better than trained, experienced appraisers for valuing property! Because banks have tons of money from their last bailout, and they and realtors never liked appraisers anyway, they have spent a lot on lobbying to get rid of our profession! That doesn’t mean we have to conform to their low standards! If the public knew what they are doing they wouldn’t take a waiver and pay $500 for no appraisal as an option if offered. Often times, the appraiser is the only objective third party who opines on the value of the property, serving both the bank and the borrower with fiduciary relationships! Just to warn people reading this blog, statistics is also not the answer to a good appraisal because you need too much data to support something when comps work just fine! I want to ask George here if he wants to fly in a Boeing 737 where the software over-rides the pilot who has been trained, licensed and is experienced? I don’t think you would, nor would anybody because two planes crashed killing hundreds of people in those so-called state of the art planes. By the way, the training for that equipment was more costly, causing people to not purchase it because it was optional. Well, if you think TAF is the “leading expert in real estate appraisal” protecting the public trust, I have another blog for that issue, but we all know they have ruined a perfectly good profession, because they are in cushy jobs in Washington DC, influenced by lobbyists, who guarantee they will have jobs as long as they kill our profession in favor of computerized and hybrid appraisals! I am glad George brought this up! How about those driverless cars, one woman in Phoenix was killed in one of those, and they are still testing them out on people in Tempe, AZ! When will people learn that computers don’t replace people? Technology is good for some things but is not good for appraisal (ie., Zillow and Trulia), flying airplanes using software (Boeing) or driverless cars! Instead of blogging we should all be forming a strong union, or you can kiss your appraisal business goodbye, and it is going to affect commercial appraisers too, so the real so-called smart brokers can do BPOs for zillion dollar loans, and nobody will need an MAI or FRICS. Then realtors have their own phony designations they can get in a week, so they will be competing with the licensed appraisers. Glad I don’t have to do sfr form work, but feel very badly for people who worked hard to get licensed and take the ethical rules seriously! Computers don’t have ethics, but hey, they are engineering the next bailout, so in this de-regulatory environment, get another job if all you can do is form work!