Is it time to overhaul the appraisal process? By now, most appraisers have read the Request for Information (RFI) published by the Federal Housing Finance Agency (FHFA) on December 28, 2020. If you haven’t taken the time to read it, you can take a few minutes and read it here: Public Affairs Detail | Federal Housing Finance Agency (fhfa.gov).
The RFI seeks responses which will “be used by FHFA to determine the necessary modifications needed to ensure Fannie Mae and Freddie Mac operate in a safe and sound manner.”
This RFI is your chance to impact the direction that the inevitable appraisal overhaul will go. Until February 26, 2021, FHFA will take your feedback on the RFI , giving you a few more weeks to get your response sent in.
Four Components of the RFI
The RFI contains 4 components:
- The Uniform Appraisal Dataset (UAD) and the design of appraisal forms
- Automated Valuation Models (AVMs) and appraisal waivers
- Valuation differences by borrower and neighborhood ethnic makeup
- Appraisal modernization
While all 4 components of the RFI are important, we’ll address appraisal modernization in this post.
As stated in the RFI, there are “necessary modifications” planned for the appraisal process. These modifications will impact the 2 distinct components of appraising:
- Property data collection
- Analyzing that data to determine property value
Support for these modifications is growing. The COVID-19 pandemic was the impetus for widespread appraisal modifications. Many appraisers saw firsthand the workability of appraisal adjustments. Successful appraisals utilizing the modifications proved the necessity of modernizing appraisal methods.
Some appraisers worry that hybrid appraisals will lower the quality of appraisals and increase financial risk to customers.
Hybrid appraisals use the services of a third party. The use of a non-appraiser to inspect a property can be concerning for some. When a non-appraiser inspects a property instead of a trained appraiser, the financial risk increases for lenders. At the Birmingham Appraisal Blog, Tom Horn discussed 5 concerns about bifurcation and the use of non-appraisers in the appraisal process:
- Do they know how to correctly measure a house?
- Are they aware of what features they should be looking for?
- Do they understand how to recognize items of importance, such as needed repairs?
- Will they have proper communication with the owners?
- Will they report everything they see?
Many appraisers share Horn’s concerns. These concerns are valid and beg to be addressed. Proper training for an inspector will certainly be required as part of the appraisal process overhaul. If required training isn’t a requirement for the new processes, then Horn’s concerns should be at the top of every appraiser’s response to the RFI. As we have no way of knowing the new requirements, voicing these concerns should be important to every appraiser. Responding to the RFI is the perfect opportunity to speak up!
How can appraisers come to accept these “necessary modifications”?
Let’s refer to an interview with Jared Preisler, Chief Appraiser at DataMaster, and Keven Ewell, a member of the Utah State Appraisal Board and appraiser at DataMaster.
As we’ve already established, the pandemic crisis of 2020 was the catalyst for immediate change in the appraisal industry. Appraisers who want to stay busy and in business have to adapt!
As Jared Preisler observed,
We’ve seen companies and industry participants who have never had a way to gather data electronically, that, in a very short period of time, came up with wonderful apps on how to gather that data.
The crisis showed the need and then we reacted to that need, which oftentimes, … is what helps us use the technology. Some of this is exciting! We’re seeing a real acceleration in our industry that we haven’t seen before.
The year 2020 forced the real estate industry to jump forward in ways that were already gaining traction, albeit it quite slowly. Hybrid appraisals were suddenly more acceptable, and appraisers who were once detractors became more open to them.
Is there any going back to the way things were? As Jared observed:
If it’s working and it’s better, why do we have to go back? Why would we go back to riding a horse and buggy if we’ve got a car?
I can’t imagine ever taking an order by fax machine again, and yet 15 years ago it was one of my best technology tools! It made me a lot of money! But I’d hate to go back to it.
Keven Ewell added,
It’s been helpful to chip away the stone a little bit so that we can look at things a little differently, so we can look at things that might make us more efficient.
For instance, we’re seeing the industry as a whole change, and saying, ‘you know, there’s a better way of doing this, we can help the appraisers become better at their jobs.’
There’s a lot of fear in change, but as we adopt it, I think it’ll only help us. I think what this has done is help open the eyes of regulators to say, ‘Hmm, maybe there is a different way of doing it.’
The wheels are turning faster now, and with this RFI and promised changes coming from the FHFA, it’s clear that things will never go back to the way they were at the beginning of 2020.
Change is Good!
Providing new valuation solutions based on appraiser capacity, turn times, training, and so on makes sense! Real estate is changing, FHFA is evolving, and appraisers must change too!
For appraisers who are well-established in their methods and are resistant to change, fresh ideas from other well-established appraisers might help them adapt more willingly.
Jared and Change
Jared has appraised for over twenty years and has developed a very efficient appraisal process. However, he is never satisfied with just turning on the process and letting it run. He continually looks for better ways to complete his work. Jared explains:
I’m very much a proponent that there needs to be some change. Are there things that we’re doing today that we don’t need to do? Why do I have to drive my comparables today? We deal with 85% of the MLS data across the country on a day-in-day-out basis here at DataMaster and agents are so much better at uploading photos, letting us see what the property is like. It’s not uncommon to see 40-50 photos or a virtual reality tour! So why do I still have to drive those comps? Why can’t I utilize that technology? Why are we still identifying that there is a garbage disposal? Those are the kind of things that we need to look at and get rid of.
Keven and Change
Keven, who has also appraised for over twenty years and has developed his own efficient appraisal process, agrees with Jared.
I think there’s a lot of fear that comes up with this, trying to teach an old dog new tricks.
We can look on Google earth, we can look at aerial imagery from the counties…I don’t really need to involve all five senses to understand the property. I can see it with my eyes and see it from my computer. In some cases, I can see much better from my computer than I can from the street. There are just a lot of tools that I can use!
There are a lot of tools out there! Don’t be afraid of them! Embrace them! Try to figure out how to incorporate them so they can make your more efficient and better at answering the question, ‘Why is my house where it’s at? What makes it unique, or why is it similar to everything else around it?’
Opponents of changes to the appraisal process are worried that appraisers will be replaced by computer programs and untrained recorders. Proponents believe this isn’t the case:
I truly believe that they’re not trying to eliminate the appraiser. But they’re trying to maximize our role, our tools, [and] our talents in the whole risk process and minimize where we are not necessary or needed.Jared Preisler
Rather than fear what may come and barricade ourselves into a cozy burrow in the hill, Keven advises:
If you’re not growing in your profession, if you’re not looking for new ways to do things, (change!). I used to have a manager that used to say, ‘If it’s not broke, break it so you can make it better!’ Constantly challenge your process, but leave your appraiser hat on.
Change is inevitable, even in well-established professions. And like it or not, change is coming to the appraisal process.
Change is the law of life. And those who look only to the past or present are certain to miss the future.John F. Kennedy
Where Do You Stand?
Bifurcated appraisals is undoubtedly a touchy subject for some appraisers. Yet, change in this arena is inevitable. As FHFA prepares to overhaul the appraisal process, perhaps appraisers will open themselves to a new, more efficient ways of doing their jobs.
For a more detailed look into this subject, listen to our podcast, “The Road Ahead for Uncertain Times” here.
We’ll all be waiting and watching as 2021 gains steam and the “temporary” changes to the appraisal processes become requirements.
Where do you stand on this?