The Capacity Challenge Facing Appraisals
Recently, Brain Zitin, CEO of Reggora, joined the Housing News podcast to speak with Sarah Wheeler, HousingWire’s editor-in-chief, about COVID-19 becoming a tipping point for the appraisal industry, and why transformation of the valuation process is so important.
Here’s a recap of what we learned from their conversation (you can listen to the entire broadcast on Apple Podcasts here.)
Some background going into the discussion is that, up until the pandemic, there was already a push to modernize appraisals defined by the efforts from various industry participants to standardize the information included in appraisal reports. Brian explained that these efforts include newer processes like uniform collateral data portals from the GSEs that would help underwrite things more efficiently.
More recently, the concept of appraisal waivers was also adapted. Adoption of these advances had been slow, with the vast majority of transactions still having that appraiser go to the property, do a full appraisal report, do the inspection themselves, and complete the report. Of course, the adoption of appraisal waivers exploded over the past year, with new flexibility being introduced during the COVID-19 pandemic. While the jury is still out on the impact of appraisal waivers, both Brian and Sarah agreed that appraisal waivers are likely here to stay, at least to some extent.
And here’s why this was (and will continue to be) a great thing for the appraisal industry...
For starters, COVID-19 meant people felt less comfortable going into homes and buyers were reluctant to have people in their homes. This, combined with the increase in refinancing activity at the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, has helped the industry become increasingly accepting of appraisal waivers. Perhaps helping pave the way for more permanent changes.
Still, these recent changes have not addressed the fundamental problem the industry is facing, which is the lack of appraisers joining the market. There is a big supply and demand issue, and it’s impacting working appraisers who are facing growing backlogs of valuation orders during times of unprecedented volume, as seen during the pandemic.
There have been growing efforts coming from people within the appraisal industry to make appraisal training and certification more accessible and less stringent; which is essential to lowering barriers for entry. For example, the Practical Application of Real Estate Appraisal (PAREA), an effort from The Appraisal Foundation and similar groups, is an attempt to find a way to provide an alternative path for people to become trainees and eventually appraisers.
Efforts such as PAREA have been and will continue to be important in helping the industry evolve, however the general feeling is that more drastic and long-term adjustments are needed to truly address the appraiser supply and demand challenge. This capacity issue is crucial and impacts the liquidity of the market and accessibility of financing for homebuyers.
Tackling that challenge means the market is going to have to start embracing new ideas that fundamentally address how to scale the market in an efficient way. While appraisal waivers and hybrid appraisal techniques became more common and accepted during the pandemic, these exceptions were meant to be temporary and could not accommodate many types of products.
To that point, earlier this year the Federal Housing Finance Agency put out a Request For Information on appraisal modernization, which looks to address appraisal modernization more officially. This has people wondering what the future of appraisal and the appraiser workforce might look like. You can learn more about Reggora’s position on this by reading Brian Zitin’s submission to the FHFA’s RFI here.
It will be exciting to see how the landscape of appraisal continues to evolve this year. For now, lenders and appraisers should continue to embrace the modern technology and solutions that are available now and keep thinking about and preparing for, potentially, some big changes.
Final note: This blog only scratches the surface of what Brian and Sarah covered in the full podcast. I highly recommend listening to the full version here when you have the time!
Related blog posts
Fannie Mae’s “Value Acceptance + Property Data” Program: What Lenders Need to Know
Curious about Fannie Mae’s “value acceptance + property data” program, announced in March 2023? We created a helpful guide to make it easy for lenders to understand Fannie’s program, how it compares to Freddie’s, and much more.
Introducing the 2022 Appraisal Performance Index
Appraisal fees, revision rates, fee escalations, and turn times — Reggora created the Appraisal Performance Index to provide lenders a view into operational performance across the nation, down to the local level. Here, Ken Dicks outlines why the index matters to lenders and highlights some of the data from 2022.