This is Part Two of a multi-part series on Modernizing Appraisal. Read more here.
Issue #1: “Modernizing Appraisal” can mean different things to different patrons and different “authorities.” An appraisal is defined as an opinion of value, provided by a licensed appraiser. An appraisal report is the delivery mechanism (paper or electronic). Unfortunately, the entire discussion of modernization has been framed around the report, not the actual analysis! This distinction frames the entire debate, legislation, regulation, and philosophy at issue.
The potential for the public good lies in the accuracy and reliability of the analysis, and is reflected in the understandability/relevance of the report.
Issue #2: As we frame and define appraisal modernization, we must keep in mind that real appraisals comprise a small and declining part of the valuation/collateral risk input. Much of today’s collateral decisions are of alternative valuations by non-appraisers, partial exemptions, and “automateds.”
We believe this is an important public policy issue. It is not just a minor technical detail!
“Appraisal modernization,” in its current conception, is limited to the report, not the analysis. Attempts to legislate and regulate this limited “appraisal report” construct, may add yet another layer of complexity and stagnation.
What does this mean to appraisers, and the GSEs (FannieMae and FreddieMac)? How about the other government agencies, such as HUD and VA? And how about our private lenders and bank construction lenders? Where do we start? What does the “appraisal modernization” concept initiate?
For appraisers, “appraisal” only means one thing – the analysis/development process. For non-appraisal valuations it means the report. For users and authorities, it means the report they receive. Additional obfuscation comes from GSE acceptance of “drive-by,” “appraisal waiver,” “evaluation,” “property inspection plus,” and even BPO (Broker Price Opinion) alternatives.
This confusion generates confusion. It further complicates any new layer of fix. We need clarity and pointed simplicity, not another overlay.
As so often happens, the words we understand can help us empathize with each other, or they can cause us to just talk right past each other. And we again wonder why things don’t work nicely.
And when we add the Dunning-Kruger intrusion, the law of unintended consequences, and new rules which beget additional workarounds – these combine to create another spaghetti bowl of rules, laws, and regulations. These encourage another economic meltdown, and new calls for fixes, and harm to the public.
Genuine “modern” regulation must be bigger than just about appraisal reports.
Only dramatic and fundamental change in valuation and collateral risk assessment will save the day. We must fearlessly consider today’s computation/analytic possibilities. Possibilities born of data science, computer power, and artificial intelligence blended with trained expert competence.
It is our belief that this blend of human judgment and computer power can solve some societal issues. These include homelessness, affordability, safety, and a happy (not antagonistic) society.
We need valuation reform, not report repair.