In a newly developed white paper titled “The Future of Appraisals,” HouseCanary’s Chief Appraiser Steve O’Brien, and EVP of Analytics Alex Villacorta, Ph.D., layout strategies for effective and efficient technology use to democratize home values and modernize real estate.
Although technological advances are stirring the industry, the potential consequences of bad valuations mean that human expertise is still a necessity, and good data and analytics can inform exactly how much is required to refine data-backed valuations.
“It’s like Morse code: The data are the beeps—and we have more of them than ever before—but if you can’t decipher the signals, you can’t understand the message,” O’Brien and Villacorta write. “The data are the ingredients, the analytics are the recipe, but people will still need to stir the pot.”
The study uses the single-family rental (SFR) investment market as an example. Of the more than 15 million SFR units nationwide, over 200,000 are owned by institutional investors—representing about 2 percent of the market. Conversely, in the multifamily market, institutional investors own more than 55 percent of units. In addition, investors who own just one unit comprise 45 percent of the SFR market, and 87 percent of investors own 10 or fewer units.
The authors ask: “Why is this market so fractured?” O’Brien and Villacorta attribute this investment obstacle for major institutions to the antiquated nature of real estate investment, including the current state of appraisals, but a change in is the forecast.
O’Brien and Villacorta highlight additional key findings to indicate the future of appraisals, including the streamlining of valuations. According to the study, this will unlock remote property investment for a number of large investors, bringing confidence and speed to the real estate investing process and ushering real estate investment into the 21st century.
When it comes to small banks and credit unions, technology-enabled appraisal solutions can provide financial relief by saving money on yearly and quarterly valuations of loan packages.
“The future of appraisals is already signaling a sea change for nearly every segment of the real estate industry, and the signal is only growing louder,” the study notes. “We are not far from a time when investors can see the potential aggregated rental yield of a nationwide portfolio in a matter of minutes—or get a value estimate for a property they see on their morning commute using nothing more than a mobile phone app.”
Utilizing these advances, what’s the best balance between technology and human expertise? O’Brien and Villacorta suggest starting out using data and analytics to allow appraisers to focus on the parts of the appraisal process that the models can struggle with, making their expertise available where it’s most needed.
Additionally, even as the data and analytics improve, humans will still be necessary for an appeal or audit, acting as an arbitrator for a market whose terms are increasingly dictated by high-end computer models.
“Forward-thinking appraisers will need to adapt to a market that requires their expertise in different forms, but they shouldn’t brace for a market that doesn’t require their expertise at all,“ the study concludes.
To view the full white paper, click here.