New Tools, Techniques in Appraisal World

May 13, 2015

Participants from the lending, multiple listing services, and real estate worlds discussed how technological advances are changing the world of valuations, and in some instances creating more confusion than efficiencies. At a forum at the REALTORS® Legislative Meetings & Trade Expo in Washington D.C., experts discussed such frustrations and new developments in the appraisal industry.

Bob Murphy, Fannie Mae’s director of property valuation and eligibility, single-family credit risk, underwriting, pricing and capital markets, was on hand to explain how the mortgage giant is using a new tool called Collateral Underwriter to evaluate the work of appraisers. Since January, Fannie Mae has been using the proprietary model-driven tool to rank valuations on a five-point scale on every loan insured by the company, as a risk assessment of the quality of the appraisal, searching for any possible bias or overvaluation. Murphy says there has been a fair amount of confusion about the new tool, but that it’s not a method to punish appraisers or change appraisal values.

“Collateral Underwriter is not a decision engine,” Murphy says, noting that it simply helps their lender partners determine how much attention they need to give to the underwriting process. “Just because a property gets a five doesn’t necessarily mean there’s something wrong with it.”

Vice President of Operations at Quicken Loans Mike Lyon agreed that the tool has been helpful to their underwriting process, and predicts other lenders will be eager to add the tool as well.

“Collateral Underwriter has not slowed our process down at all,” Lyons said during the panel discussion, noting that appraisals that come back with higher scores sometimes need more comps, or a closer look at comments from a more experienced underwriter. “It’s going to allow us to do our reviews in a more efficient manner.”

The panel also discussed the changing nature of AVMs, or automated valuation models. Most agreed that as more data flows into the models, they are bound to become more accurate as long as the company that stitches the data together values accurate information.

“You will see them get more accurate. They are constantly working toward that,” said Tom Hosack, broker of Northwood Realty Services in Wexford, Pa.The challenge with Zillow is that they can’t monetize accuracy… Their profit center is not based on accuracy.”

No matter how accurate they get, however, AVMs will remain simply “conversation starters” for real estate professionals, according to James Harrison, RCE, president and CEO of MLSListings Inc. in northern California.

“I haven’t seen an AVM that doesn’t have qualifiers on it” about accuracy, Harrison said. “Your clients are coming to you and they’ve already done the research… It’s a good opportunity to sit down and explain to them your value.”

Hosack agreed: “In almost every market there’s outliers… A computer can’t look at a house and tell if 35 cats lived in it.”

Finally, the panel also discussed the need to be ready with information for both buyers and appraisers to assist with what can be a trying process, especially in a market that’s heating up in a lot of areas around the country.

“You absolutely have to have a tablet and a smartphone or you’re at a huge disadvantage,” Harrison said. “As you’re interacting in real time with your clients you need to have the apps lined up to bring them the information you need.”

But not all appraisal headaches require a high-tech solution. Several panel members agreed that real estate professionals provide information about a property to appraisers before the valuation is completed.

“When I was appraising [property], I wanted to talk to every real estate agent that I could,” Murphy recalled, noting he would often call them for information about comps. “Have that list of improvements ready for the appraiser. Even if it’s not clear in the listing, have the homeowner just write it out.”

—By Meg White, REALTOR® Magazine