Now and then, Mother Nature reminds us of her power—but 2017 was outrageous. It was a record-breaking year for disasters. According to a recent New York Times report, the combined insured losses from Hurricanes Harvey, Irma, and Maria accounted for more than half of all losses from natural disasters worldwide. That’s not even counting the California wildfires, which cost another $8 billion.
While not as devastating as watching one’s home erupt in flames, lenders and servicers were affected, too. The disasters wreaked havoc with local property values, even on homes that emerged unscathed.
As many lenders recently learned, obtaining an accurate valuation of a home in a disaster area is not simple. For one thing, every disaster is different. After a fire, the visible damage and smell of smoke in a home are easily apparent. Not so after a flood—yet the unknown, lingering effects of water in a home can worsen over time, creating mold, rot, and structural damage.
Another challenge—traditional valuation products are often useless after a disaster. Automated valuation models (AVMs) don’t help since they have no way of knowing whether a home still stands or is half burnt to the ground. An appraisal, you say? Get in line. There are only so many appraisers in every market and it can take weeks for them to get through all the damaged inventory.
Fortunately, it is possible to get accurate valuations after a disaster. New tools, technologies, and strategies are improving these valuations every day. The key for lenders is finding a valuation partner who actively uses these new techniques.
Primarily, lenders and servicers must know how to communicate with borrowers who have been affected by disasters and get as much information from them as possible. If a homeowner is insured, you should find out immediately if they submitted a claim and got a copy of it with the claim amounts.
When it’s time to get a valuation, remember that data alone cannot do the job and must be combined with the skills of an expert who has intimate knowledge of the local market, down to individual neighborhoods and the types of homes in them. This knowledge is key to understanding the impact a disaster will have on local properties as well as the cost to repair them.
The most valuable tool for producing accurate valuations after a disaster is a post-disaster inspection report that combines visual information about the property with FEMA data and information about damages to surrounding properties.
Typically, a post-disaster inspection report will consist of photos of the property, a summary of damages to the exterior of the home, including the roof and foundation, and aerial views of the neighborhood. It should also include information about other properties in the area, including photos, since these factors affect the value too. Ideally, the report should consist of the FEMA disaster declarations, a disaster map, and the types of assistance offered.
Fortunately, recent innovations in these types of reports allow a valuation provider to combine each of the above elements—property data, local market expertise, and FEMA information—in a single statement. Not every valuation provider can do this, but those that do can deliver valuations much more quickly than an appraiser would under the same circumstances—typically, in a matter of days. That’s important when your customers are going through the shellshock of a flood or fire and are desperate for anything that helps them get back on their feet.
Nobody can stop Mother Nature when she’s on a roll. But with access to the right tools, lenders and servicers can weather almost any storm.