Editor's note: This story originally appeared in the October edition of DSNews, out now.
There is nothing like a pandemic and life-and-death consequences to accelerate innovation. This is especially true in the pharmaceutical and medical field, where scientists are rushing to develop a vaccine for COVID-19. Surprisingly, it’s also true in the appraisal industry.
As the deadly COVID-19 pandemic mobilized the country to shelter in place, immediate action was taken to try and accommodate the need to keep key sectors of the economy moving while allowing people to avoid close contact with each other. This became very apparent with residential appraisers and the issue of interior inspections. The GSEs, FHA, and VA all acted swiftly and offered appraisers the flexibility of providing alternative valuations in the form of a desktop or drive-by appraisal. Interestingly, they also allowed appraisers for the first time to use photos and information supplied by the homeowner as an “interested party” to the transaction. This is where the story of innovation starts.
Necessity Is the Mother of Innovation
Within the first month of the pandemic taking hold in the U.S., no fewer than eight companies, including my own company, Bradford Technologies, developed digital solutions to keep the appraiser and homeowner safe while still getting interior photos to the appraiser. The solutions varied, but all met the criteria for keeping both parties protected while providing the appraiser with vital information they normally would not have in this situation. The result: appraisers were able to provide more accurate and credible valuations, lenders received collateral valuations they could trust, and homeowners received their loans.
To understand the significance of this flurry of innovation, we have to go back three years to the height of digital transformation in the mortgage world. We all know how the millennial demographics and new fintech technology was driving lenders to reconsider how they did business. Well, the millennials have not disappeared. They are largest generation in American history and are estimated to be 85 million strong, a force greater than the baby boomers. Millennials live in a digital world connected by their smartphones, and they expect everyone they deal with to be connected as well. For sure, they do not know why it takes seven days to perform an appraisal when they can get approved for a loan in minutes.
In late 2017, the pressure to move into the digital world caused the GSEs to take notice and start an initiative to modernize the appraisal process. Their premise was that appraisers should be at their desks, not in the field with a measuring tape inspecting properties. Someone else should do the inspection. By dividing the labor, productivity would increase, reducing the time to produce an appraisal.
To test this theory, the GSEs implemented pilot programs using third-party inspectors paired with appraisers at their desks. These programs are ongoing, and the jury is still out as to the degree of their success. However, most appraisers view Appraisal Modernization, as the pilot programs are called, as a threat and are dead set against it.
Fast-forward to today. Appraisers, now facing the threat of catching the COVID-19 virus, are experiencing the benefit of producing appraisals from their desk while using information collected by a third party, in this case the homeowner. This, of course, takes the GSEs’ idea of division of labor to another level. Even though appraisers were initially against Appraisal Modernization, based on our surveys, they are now finding the interaction to be delightful, smooth, and non-threatening to their livelihood. The interior photos add another dimension that they never had when doing desktop appraisals. And homeowners, contrary to earlier fears of fraud and deception, are providing an abundance of quality information to the appraiser.
The Seed Has Been Planted
As an interested party, homeowners have become a part of the appraisal process. The question is, where does it go from here? Will the homeowner’s involvement be curtailed once the threat of the virus is gone? Or will the homeowner-appraiser digital connection grow stronger? From the millennials’ point of view, they’re wondering what took so long. They want the involvement; they don’t want to wait seven days or longer for an inspection to be scheduled. The GSEs and lenders want an appraisal produced quicker, but without a loss in accuracy and credibility. So, what is standing in the way of homeowners becoming a permanently accepted source of information for the appraiser?
The short answer is trust and privacy. Besides the capability to deliver information and photos to the appraiser, these new digital services need to maintain the privacy and confidentiality that has come to be expected between a homeowner and appraiser. And just as important, the information provided to the appraiser needs to be trusted and authenticated. What is to keep a desperate homeowner from taking pictures of an upscale property and submitting them as their own? What keeps a homeowner from stretching the truth about upgrades or remodels?
In the words of President Ronald Regan, “Trust, but verify.” This is the key to accepting homeowner-provided information as a credible source for the appraiser. At Bradford Technologies, we have focused the strength of our service, TruView, which is able to authenticate information provided by homeowners while preserving the privacy and confidentiality of the homeowner-appraiser relationship.
When evaluating services that allow a homeowner to provide information, there are eight criteria that the service should be judged on.
1) Does the service geocode the property address? Can the homeowner’s property address be geocoded? Can Google or Bing find it on a map? If they cannot, the property should not be eligible for homeowner-sourced information.
2) The homeowner’s smartphone, either iPhone or Android, needs to have its GPS location setting turned on so the photos are embedded with a timestamp and geocode revealing the location and time each photo was taken. When evaluating a service, one should ask: Does the service force the homeowner to take a test photo to ensure the GPS setting is turned on before starting? Does it continue to check every photo to ensure the GPS is not turned off?
3) Access to the smartphone’s photo gallery needs to be prohibited. This means that the service must not allow the homeowner to upload photos that reside in their photo library. Only photos taken by the camera and directly uploaded are acceptable. This ensures that the photos have not been tampered with or compromised in any way.
4) GPS spoofing must be detectible. Spoofing is the ability to change the GSP setting in a smartphone. It’s easy to do, and the service must be capable of detecting whether the smartphone has been spoofed, and if it has, the process should be stopped.
5) Homeowners should provide an affidavit attesting to the accuracy of the information. For example, the service should force the homeowner to affirm with an “I Agree” button before proceeding, confirming the information and photographs are to be used to prepare a report that the lender may use as part of their loan determination process—and that if the information is found to be fraudulent, it may adversely affect that determination.
6) The service must include visual and tabular verification of the location where the photos were taken relative to the geocode of the property address. Because timestamps and geocodes are long numbers, it’s easy to overlook any discrepancies. The service should provide the appraiser a map showing the property location and the locations where all the photos were taken. While GPS data involves a margin of error, all the photos should be in the vicinity of the property.
7) Maintaining the privacy of the homeowner’s information is critical. As with a traditional home inspection, the homeowner expects the information they provide to be treated with the same care that protects their privacy and confidentiality. URL links to the data that can be easily emailed or forwarded or passed around an office should never be used to access the information, because it’s too easy to compromise the trust of the homeowner. We have implemented two-factor authentication to safeguard the information. Only the homeowner and appraiser know the two factors. Two-factor authentication is the same technique used in ATM machines.
8) The service should assist the appraiser in processing the homeowner’s information. Once the appraiser has the data, what features does the service have to assist in converting the raw data into actionable information that can be used in the appraisal analysis? We believe that getting authenticated homeowner information is just half of the process. The second half is processing that information in such a way that empowers the appraiser to efficiently include the information in the appraisal report.
Any service that meets the above eight criteria will create a strong foundation for trusting the homeowner supplied data as well as provide the efficiency needed by the appraiser. This foundation will set in motion the next wave of innovation, which will be the creation of virtual inspection platforms. Ultimately, the innovations we are seeing today will take the appraiser from their traditional legacy processes into a digital world where they are better connected and able to service millennial homeowners anytime, anywhere and from any device.
We all wish these innovations were not being driven by a global pandemic. Nonetheless, they remind us that a stronger, more efficient appraisal process is always possible.