The world of property valuations has seen numerous ups and downs over the past several years. Everything from natural disasters and economic turmoil to bifurcated appraisals and changing demographics within the appraisal workforce continue to create challenges within this space that will shape it for years to come.
With CoreLogic reporting in its May Home Price Index that home prices nationally rose 3.6% year-over-year and are expected to increase an additional 5.6% from May 2019 to May 2020, ensuring correct valuations is as critical as ever to many phases of the mortgage and default industries. With these challenges in mind, how are the professionals serving in this arena adapting and preparing for the future?
The Winds of Change
During our conversations with the industry professionals working within the sectors of appraisals and valuations, one trend that was often spotlighted is the bifurcated appraisal, also known as the hybrid or desktop appraisal.
DS News recently highlighted this evolving trend in a webinar, sponsored by Altisource and entitled “Bifurcated Appraisals: Insights Into an Evolving Industry.” Featuring insights from representatives of Embrace Home Loans, Fannie Mae, and Springhouse, webinar delved into the history of this emerging spin on traditional valuations, in which different parts of the assignment are completed by different individuals. Proponents suggest that bifurcated appraisals may be faster and less expensive than traditional appraisals, but the process has its skeptics as well.
William Fall, CEO of the William Fall Group, told DS News that the industry should move forward with caution.
“There are some careful steps that need be taken along the way,” Fall said. “I've always felt the best use of the appraiser is in the analytical side, processing data, resources, and other items that are vital to creating a credible report, as opposed to sitting in traffic on the local expressway.” Fall suggests that finding a balance between those two sides could be beneficial for the industry, but cautioned, “we need to be careful in the qualification phase and in the manner of how the implementation actually occurs so that we don't jeopardize the public trust.”
Another trend, and one that could present problems moving forward, is the possible shortage of appraisers. Jacob Williamson, Fannie Mae’s VP of Single-Family Real Estate, noted in a June blog post that 49% of appraisers are between the ages of 51 and 65, while an additional 13% are 66 years of age or older. The issue, he noted, is that 7% of the appraisers have been working in the industry for two years or less, while 52% have been in the industry for more than 20 years. This could present ongoing workforce issues if new blood is not brought into this sector.
The Appraiser Qualifications Board of the Appraisal Foundation adopted changes in 2018 that state regulatory boards have since implemented. These changes include education and experience requirements that were modified to remove barriers that have deterred qualified candidates from entering the profession.
“There are challenges ahead as there are in many industries within real estate,” said George Paquette, SRA, Chief Appraiser, Valuations, with Springhouse. “We have a healthy balance of fee appraisers in most major metropolitan markets, but I see concerns as fewer people are training new appraisers, especially with many appraisers nearing retirement and who may not be willing to adopt the bifurcation process or other new products,”
Paquette added that Springhouse and parent company Altisource have partnered with Fannie Mae and the National Urban League to promote the appraisal industry, and that the response “has been outstanding.”
“By showing participants that they have many options within the appraisal industry and witnessing their reactions, it solidifies that the message we are promoting is well-received and needs to be completed on a larger scale,” Paquette said. “I predict that there are going to be less appraisals in the future, due to appraisal waivers and alternative products, but there will also be far fewer appraisers to compete with.”
Ernie Durbin, Chief Valuation Officer for Clarocity, said, “there are no new challenges” in this industry, noting that the debate about whether the industry is lacking sufficient appraisers has been ongoing for quite some time. He also suggested that an appraiser shortage is the least of the industry's concerns.
“Do we have an appraiser shortage? Well, we certainly do not right now, because we don't have a robust market. But if we were back in the summer of 2016, we had a few states in the northwest and Colorado that had a tremendous backlog. That got people talking about the results of the shortage, or if there was a shortage,” Durbin said.
He added that, while he questions the accuracy of the supposed appraiser shortage now, he did acknowledge that the average age of an appraiser is in the mid-50s, and suggested the industry needs to learn how to make the appraisal process more efficient and more profitable.
The Tech Impact
Appraisers around the country are continuing to see just how powerful and beneficial technology can be in the world of property valuations.
“The number of days it takes to complete appraisals is shrinking and data integrity is vastly improving,” Paquette said. “This is exciting because it is something I have not witnessed in the past.” Paquette suggested that, traditionally, appraisers have been slow to adopt new technology. With more pressure on the lending industry to reduce costs and streamline the process, however, those attitudes may be changing.
Tony Pistilli, Chief Appraiser with Computershare, said that technology began impacting the industry in the 1990s, when computers replaced typewriters and manual processes. The industry has since witnessed the progression of analytics tools and technology that has been able to assist with auto-populate appraisal software and regression analysis, as well as aiding in adjustment validation.
“The next thing we will see is web-based forms, with sales data offered to the appraiser, more data-driven analysis, and less form filling by appraisers,” Pistilli said. “All of these changes have made appraisers more efficient and have allowed them more time to focus on what their area of expertise is—being the local market expert.”
Brandon Boudreau, Chief Operating Officer of Metro-West Appraisal Company, LLC, told DS News that appraisers are being asked to do more data collection, as opposed to property inspectors. While he noted this is good for appraisers, technology could be the answer for speed and efficiency.
“As technology continues to get a grasp on our occupation, you're seeing more integration and more and more adoption of mobile devices used on inspections,” Boudreau said. “Those are all things that are speeding up the process and accelerating inspection time in the field. They’re making it easier to communicate as people become more and more integrated.”
Boudreau added that what makes the integration of technology unique is that “everyone is getting on board” with new technology, but what’s accelerating the process are the different software and hardware options that are helping make the process more seamless.
“A lot of that is the same stuff we've been talking about for 10 years, but the adoption levels are finally here,” Boudreau said. “You're not getting the kickback from the field. Everybody knows you want to be using whatever it is, whether it’s Google Drive to help with collaborative documents, or cloud-based storage, Dropbox, or Amazon Web Services.”
Fannie Mae’s Williamson said that technology within the mortgage industry is playing “catch-up” during a time when borrowers expect obtaining mortgages to be similar to their “online shopping experience.”
Williamson added that technology is being leveraged in the residential appraisal field by appraisers for data collection and validation, photo capture, market analysis, and overall report development.
“The introduction of the UAD in 2012, and the related creation of the Uniform Collateral Data Portal, have transformed our ability to perform appropriate data validations and overall collateral quality reviews with Collateral Underwriter (CU),” Williamson said. ”In addition, CU allows for many units of comparison to recognize trends within neighborhoods and markets that may indicate latent risks that we may not have been able to see without the innovation in CU.” Williamson said that this helps users “throughout the appraisal manufacturing process as well as supporting due diligence throughout the secondary market reviews.”
Dealing With Disasters
The impact of disasters over the past year have been felt throughout the nation. Tornadoes ravaged the Dayton, Ohio, area in May, destroying homes and communities. California’s Camp Fire in late 2018 burned more than 150,000 acres and killed 85 people.
“Unfortunately, us Californians are too used to this by now, and we typically rebound quickly with minimal reaction on the entire market” Paquette said. However, he said that the impact of the Camp Fire was significant and ongoing. “This has caused a major loss to nearly 27,000 residents in these areas where many lost their homes and their employment at the same time due to wildfires. Without homes in these areas, many businesses choose not to rebuild or to relocate, which caused a major economic fallout as well. It is still unknown whether these areas will ever fully recover.”
California’s Camp and Woolsey Wildfires last year caused devastating losses between $15 and $19 billion, according to a CoreLogic Natural Hazard report.
Paquette added that it is important appraisers in areas heavily impacted by natural disasters—as well as throughout the mortgage and servicing industries as a whole—to communicate and do a better job of understanding what affected homeowners are going through.
“Another thing we can do is adjust our processes to help our clients,” Paquette said. “If we know a big storm is coming, we want to alert our clients to manage their expectations and work together to ensure that we are communicating to the appraisers what needs to be verified before or after a major event.”
Durbin said the real issue facing the housing market today is the outcome of natural disasters when coupled with a low housing inventory.
“Suddenly you have thousands—maybe even tens of thousands—of people displaced, with no place for them to immediately move into another piece of property. If my individual house burned down, it would be a tragedy for me individually. But within a matter of weeks I can make a decision about whether I'm going to rebuild that or just buy another property in the neighborhood.” When the tragedy impacts the vast numbers of people often involved in the aftermath of a natural disaster, however, things can be much more challenging.
“You take a multitude of people and you end up with radical changes in the real estate market overnight,” Durbin continued. “Suddenly, you have a lot of people in the market competing for the same properties. The marketplace is upended until new stock is reconstructed there.”
Boudreau said his team in Florida prepares for its biggest local threat, hurricanes, by offering training before a disaster strikes.
“We spent a lot of time training our team on how to do [inspection reports],” Boudreau said. “When it's a little bit more predictable, or you can see it coming with these hurricanes, we start building up bandwidth for that, even lending support to some of our staff who we know the workloads going to be there after the storm.”
The Future
The year 2020 is rapidly approaching, and appraisers are looking ahead as the calendar is set to turn over.
Paquette said he anticipates lenders will be looking for faster valuations, as loans are produced more quickly in order to remain competitive.
“There is a lot of buzz in the industry about possible solutions, but there are still a lot of questions to be answered,” Paquette said. “We need to ensure that independent fee appraisers remain a part of the process, as they are the only unbiased party to protect the consumer and the investor. With the demand for faster valuation products, this often gets overlooked in an effort to close more loans, and that puts everyone involved at a higher risk.”
Fall said while he will be watching what happens with bifurcated appraisals, and said that he is especially interested in what happens to the industry as a whole.
“We've already seen impact in that with regards to some of the changes on the educational side—the appraisal qualification educational side—because we've had record numbers, and that trend seems to be holding so far in 2019,” Fall said. “The number of test takers for the appraisal exam has increased dramatically, and so that's exciting. I trust that positive direction will continue over the course of the next year to 18 months.
Fall is not the only one who will have his eyes on the hybrid appraisals moving forward, as Pistilli noted that appraisers that “adopt and adapt to the new process will continue to be in the industry.”
“Much like auto mechanics in the early ‘80s, when computers started to take over mechanical parts in automobiles, those who learned to work with new technology became more valuable to their industry, and in turn, are making more money today,” Pistilli said “Appraisers have the same opportunity. They ought to see this as a way to add more tools to their toolbox and to expand their services much like attorneys, accountants, and doctors do.”
Williamson said that the timing, cost, and uncertainty of the appraisal process will remain pain points for lenders and borrowers heading into 2020. While adding that Fannie Mae is “actively addressing” these issues, he suggested that there are many factors to consider.
“Consumer expectations continue to evolve, and we must evolve with them,” Williamson said. ”While we recognize that all homes are unique and that buying a home is typically one of the largest purchases people make, we are also cognizant of the fact that technology, data, and analytics continue to iterate and improve, and our overall knowledge of the collateral continues to improve and accelerate.”
“Leveraging all of these things to deliver certainty and credible valuations in a timely manner assures that appropriate customer service expectations are met within appropriate risk tolerances,” Williamson added.
Boudreau said that, as he looks forward to 2020, many of the challenges facing the industry “aren’t going away.”
“The pressure for increased speed will continue. As we’re looking forward, that's what we’re focused on. We're fast, we've cut our times down, no question, but how do we get faster, how do we meet client demand for that?” Boudreau asked. “Also, they've rolled back some of the stricter requirements required to become a licensed appraiser, which we completely support, and I'll be interested to see how that impacts our industry.”