Appraisal modernization is officially underway, and while it presents an exciting opportunity for lenders to reduce cycle times and is likely to improve efficiency in the market, it also brings a lot of questions.
To help shed some light on the topic as it relates to desktop appraisals, we hosted a webinar with the experts from Fannie Mae and Freddie Mac along with Class Valuations' Chief Innovation Officer, Scot Rose, and Reggora’s CEO, Brian Zitin. Check out the on-demand webinar recording for part one here, and join 1,500 of your industry peers who have already watched. You can also view part two, which follows up with the GSEs one month into permanent acceptance of desktop appraisals.
If the webinar did nothing else, it made it clear that the industry has A LOT of questions about desktop appraisals and how they’ll work. In this post, we’ve compiled top questions that came up during the webinar as well as in conversations that we’ve been having with others in the mortgage community. Below you’ll find answers to these questions organized in the following categories.
Answers are provided by Reggora’s director of appraisal compliance and initiatives, Ken Dicks, as well as resources from our partners at Fannie Mae, Freddie Mac, and Class Valuation.
What are desktop appraisals?
Beginning in March 2022, Fannie Mae and Freddie Mac began to accept desktop appraisals. This means that, for some properties and loans, a licensed appraiser is now allowed to complete the home appraisal without physically visiting the property. Instead, they will leverage data that can be made available via third parties (homeowner, realtor, builder, etc.) and through public sources.
Here are some resources to help you learn more about desktop appraisals at a high level:
- [BLOG] 5 Things to Know About Desktop Appraisals
- [BLOG] Understanding Desktop Appraisals: Takeaways from Fannie Mae and Freddie Mac
- [OVERVIEW SHEET - Fannie Mae] About Desktop Appraisals
- [ARTICLE - Freddie Mac] Desktop Appraisal Assignments – A Practical Guide for Appraisers
Now, let’s dig into the nitty-gritty. Keep reading for answers to the most common and pressing questions around desktop appraisals:
- What 3rd party assistance is available for provisioning interior photos, sketches, etc.?
As this will apply to eligible purchase transactions, data typically found in an extensive marketing package available through either the MLS or the listing office website that includes extensive photographs of every room, a virtual walk-through, and a detailed floor plan may have a high degree of potential success to meet the data criteria for a desktop appraisal. The appraiser will utilize additional data sources customarily used to complete the appraisal process including tax assessment and municipal records, aerial or satellite imagery, plat maps, deeds, etc. to research the pertinent facts about the property. Additionally, the appraiser can request a real-time video call with a person at the property to verify and/or supplement any information not available through the marketing materials.
- What AIRS-compliant sources can appraisers receive data from (for the floor plan and other data)?
Assuming AIRS is referring to Appraisal Independence Requirements compliance, appraisers can obtain data from the typical property data sources, such as independent third-party real estate data aggregators, municipal records, past sales, etc. For additional information, see Desktop Appraisal Assignments – A Practical Guide for Appraisers or About Desktop Appraisals: FAQ #4.
- How do appraisers verify the upgrades sent in by borrowers or realtors? They have the potential to contain biased information.
Verifying any upgrades would require a similar validation process to what is utilized when a standard desktop appraisal (FNMA 1004 / Freddie Mac 70) is completed. Examples could include reviewing receipts, municipal records, building permit data, etc. For additional information, see About Desktop Appraisals: FAQ #4.
- With appraisal independence safeguards, how is the use of a real estate agent or builder being involved in gathering the data (or sketch via technology) acceptable, since they would be compensated with the closing of that loan?
While we know that appraisers are not allowed to collect data from interested parties, it’s still possible to use the information they provide as long as it is verified. As stated in Form 1004 Desktop / Form 70D Appraiser’s Certification #10, appraisers are required to verify information provided by parties who have a financial interest in the sale or financing of the subject property. For additional information on this topic, see Desktop Appraisal Assignments – A Practical Guide for Appraisers or About Desktop Appraisals: FAQ #4.
- With no inspection, do you see appraisers not being able to see the property condition as a roadblock for appraisals being able to determine a value?
The ability to complete a desktop appraisal is highly dependent on sufficient data being available to the appraiser. The Fannie Mae advisory states that if sufficient information is not available, the appraiser is not to complete the desktop appraisal. See Form 1004 Desktop / Form 70D Scope of Work: “the appraiser must ... (3) report his or her analysis, opinions, and conclusions in this appraisal report.”
- Can an appraiser complete a desktop appraisal based on a PCR (Property Condition Report)?
PCRs are a part of the Hybrid Desktop offering, where appraisal-specific data is obtained through third parties who actually visit the property. In the case of a desktop appraisal, the data is obtained by the appraiser, from alternative sources such as MLS, municipal records, data aggregators, and third parties who had previously collected the data.
- Who is responsible for acquiring (sic obtaining) a floor plan?
The expectation is that the appraiser is not responsible for obtaining the floor plan; instead, it would come as part of the marketing materials for the property and be delivered by either the property contact or the appraiser’s client. If an acceptable floor plan is not readily or easily available to the appraiser, then the order would not meet the qualifications for a desktop appraisal.
- Will real estate agents or sellers be required to be a part of the process, and how can an appraiser use a floor plan provided by the selling agent or the seller who is an interested party?
Creating and providing a floor plan are separate actions. As real estate agents and sellers are interested parties, they are not required to be part of the process of creating floor plans; the floor plan would likely be part of the marketing package or provided by another third party or entity that specifically generates floor plans for real estate in a digital format. Agents or owners can provide a floor plan that was generated with technology such as a sketch tool or 3D scan, as the technology is considered a disinterested party, and the content is controlled by the software. In a situation where the agent of the seller creates the floor plan, the appraiser should confirm for accuracy. For additional information, see Desktop Appraisal Assignments – A Practical Guide for Appraisers or About Desktop Appraisals: FAQ 6 & 7.
- With regards to the interior floor plan, in what ways are lenders responsible for ensuring the proper technology was used?
The responsibility to verify that the floor plan was created by a credible, disinterested party, such as a third-party sketch tool or 3D scan application, falls to the appraiser. It is the responsibility of the lender's underwriting to review the content of the appraisal reports to ensure that the information is reliable (for example, reviewing whether the data was provided by a third party or 3D scan or in the case the floor plan was created by an interested party the steps taken by the appraiser to verify the accuracy through a disinterested source or process). For more information, see About Desktop Appraisals: FAQ 6 & 7.
- What purpose does a floor plan vs. a sketch serve?
A floorplan, noting interior partitions, will provide a representation of the room locations and functional aspects of the layout. Whereas a sketch does not need to show the room identifiers or functional qualities. For additional information on the difference between a floor plan and a sketch, see Desktop Appraisal Assignments – A Practical Guide for Appraisers.
- Why is the floor plan a requirement now and not in the past?
Floor plans are a requirement for desktop appraisals as a form of risk reduction. By providing the appraiser with a floor plan, the appraiser can make a determination on the functional adequacy of the floor plan. In the past, floor plans were only required in the appraisal when an appraiser cites a functional deficiency.
- What is the approach to getting the real estate industry to adopt the floor plan process?
Let’s start by looking at the recent history on this topic. The Desktop Appraisal program was a pilot program born out of appraisal modernization efforts in 2017 at the direction of the FHFA known as the Value Verify program. The Covid-19 emergencies provided expansion opportunities for the desktop process and showed the FHFA there was limited incremental risk for appraisals completed with no inspections. Moving forward to 2022, the requirement for a floor plan to augment the appraiser’s data collection process provides greater understanding by the appraiser of the improvements and acts as a mitigant for the potential for loss created by a deficient floor plan. By allowing the use of desktop appraisals, FNMA, Freddie Mac, and the FHFA are encouraging stakeholders (lenders, real estate agents, sellers, and appraisers) to develop effective and efficient processes for the transmission of floor plans.
Looking forward, floor plan technology tools have advanced to the point of making reliable floor plans accessible in the marketplace. It is now up to the stakeholders to identify when the opportunity is made available for a desktop appraisal process to seize upon it with an end result of creating a more efficient and effective appraiser/lender process and ultimately a superior customer experience. Technology partners like Reggora, a leading technology company focused on increasing the efficiency and effectiveness of processes between lenders and appraisal providers, have available modern technologies to efficiently transmit floor plans and other information directly to the appraiser.
- Are investors likely to accept desktop appraisals without floor plans?
Investors will not be able to accept desktop appraisals without floor plans, as floor plans are required for desktop appraisals. For more information, see About Desktop Appraisals.
ANSI (American National Standards Institute)
- Does Fannie Mae require ANSI-compliant measurements for desktop appraisals?
Fannie Mae does not require desktop appraisal floor plans to be compliant with the ANSI standard but encourages the appraiser to voluntarily adopt ANSI when possible.
- Does Freddie Mac require ANSI-compliant measurements for desktop appraisals?
As of now (March 24, 2022), Freddie Mac has not required the use of ANSI. More information is likely to come on this.
- Would it make sense to implement a program that has appraiser trainees go into the field to do these measurements and inspections, conforming to ANSI?
If an appraiser or trainee that is supervised by the appraiser visits the house to do the measurements and inspection, the appraisal product would become a standard appraisal, rather than a Desktop Appraisal (FNMA 1004 / Freddie Mac 70).
Liability & Appraiser Concern
- How can an appraiser be confident in certifying that the information/data used for the appraisal is correct when the appraiser must use third-party data?
Per the Statement of Assumptions and Limiting Conditions within the desktop report form, it is assumed that the appraiser has relied on data provided by third parties, and has used only the data they consider reliable. The appraiser “assumes there are no material omissions and makes no guarantees, express or implied, regarding the accuracy of this data.” Appraisers are accustomed to placing reliance on secondary data sources not originated by the appraiser, as the valuation process requires the appraiser to gather both primary and secondary data when developing the appraisal and to practice “duty of care” when incorporating data and analysis in their appraisal results.
- If an appraiser is not physically placing eyes on the home, how can they guarantee what they are valuing is actually there?
Per the Statement of Assumptions and Limiting Conditions within the Desktop report form, it is assumed that the appraiser has relied on data provided by third parties, and has used only the data they consider reliable. The form states: “Unless otherwise stated in this appraisal report, the appraiser has no knowledge of any hidden or unapparent physical deficiencies or adverse conditions of the property (such as but not limited to, needed repairs, deterioration, the presence of hazardous wastes, toxic substances, adverse environmental conditions, etc.) that would make the property less valuable, and has assumed that there are no such conditions and makes no guarantees or warranties, express or implied.”
- Where do the appraisers learn how to complete a desktop appraisal should they want to accept these types of assignments?
Appraisers can obtain education on the concepts of desktop appraisals from a variety of education providers; however, we are not aware of any training resources that are directly available in the marketplace at this time. As with all appraisals, appraisers are responsible for developing their own method to complete the appraisal processes in accordance with the Fannie Mae and Freddie Mac appraisal requirements.
- What is the approach to getting the real estate industry to adopt the floor plan process?
Adoption of desktop appraisals and the floor plan process is not expected to happen overnight. However, by allowing the use of the desktop process in the market, new process efficiencies and new technologies are expected to follow.
- When will lenders start leveraging and requesting desktop appraisals?
In a poll taken during the Understanding Desktop Appraisals webinar among close to 1,000 participants, 98% indicated that they were either planning to use or considering using, desktop appraisals within 2022. In order for lenders to adopt the new product, they may need to adapt their internal processes and workflows, and they will also be dependent upon appraiser adoption of the new data collection methods.
Cost changes / ROV
- Will desktop appraisals potentially lead to a reduction in cost change requests?
We are unable to comment on direct fee amounts to ensure fair trade.
- Do lenders have the ability to dispute a desktop appraisal?
The decision on whether a desktop appraisal can be disputed is up to the lender. Individual lenders will need to develop processes if they will accept or allow disputes or reconsiderations.
- Will desktop appraisals potentially lead to more reconsideration of values or claims of discrimination?
Removing in-person interaction between parties has the potential to decrease the opportunity for discrimination. However, that is not the only interaction that may drive discrimination. Reconsideration of values should not increase if the quantity and quality of data provided to the appraiser are at the level that eliminates the potential of valuation errors (e.g. detailed documentation of recent replacements, renovations, and remodeling). A recent NY Times article digs into this topic further.
- Will the amount charged for a desktop appraisal be different from traditional appraisals? Will there be changes from an AMC perspective in terms of fees?
The cost of an appraisal — whether traditional, desktop, or otherwise — will continue to be determined by the market.
- Is an end-loan construction appraisal eligible for the desktop product?
The answer to this one is likely yes, but it depends on the timing and parameters of the construction and loan. For more information, see About Desktop Appraisals: FAQ 16.
- What is a virtual inspection and when is it required?
In order to complete the desktop appraisal, the appraiser might conduct a virtual inspection, which leverages technology to gather data about the property. This might be in the form of a video chat with the homeowner or leveraging mobile device apps operated by someone other than the appraiser. For more information, see About Desktop Appraisals: FAQ 6 & 7.
- If a full appraisal is ordered after a desktop appraisal, does the same appraiser have to perform the full appraisal?
No, there is no requirement that the same appraiser performs the full appraisal.
- How do we combat the issue of bias from realtor-submitted data on the MLS and floor plan data?
Introducing the use of technology in data collection and floor plan generation, such as creating floor plans using 3D scan technologies, helps to remove any personal interaction which can result in bias.
- Will the desktop appraisal product be allowed in FSBO (for sale by owner) purchases?
Yes, desktop appraisals can be used in FSBO purchases, provided sufficient data is available for the appraiser to complete the appraisal.
- Will the GSEs continue to use SSR scores to verify the validity of the quality of the appraisal? What will be required from the GSEs for higher-scored loans?
UCDP uploads will be required and risk scoring results will continue to be delivered to the lender. No changes are anticipated in how the lender administrates UCDP and proprietary risk scoring models.
- If a lender obtains a full appraisal after their desktop appraisal, what steps need to be taken?
Appraisal Independence requirements apply in the event a second appraisal is ordered by the lender. FNMA Appraisal Independence FAQ #8 prohibits a lender from ordering a second appraisal when they are attempting to influence the outcome of the first appraisal and are now value shopping. Additionally, both FNMA and Freddie Mac require that when a lender obtains more than one appraisal, the lender must adhere to a policy of selecting the most reliable appraisal rather than the appraisal that states the highest value, document the reasons for relying on the appraisal and submit the appraisal selected by the lender through the UCDP prior to delivery.
- What type of verbiage needs to be used within the desktop appraisal (FNMA 1004 / Freddie Mac 70) report that will be sufficient to address any third-party data that is used within the final valuation?
There is not a requirement for specific verbiage other than certification #13 within the desktop appraisal (FNMA 1004 / Freddie Mac 70) form, which states: “I obtained the information, estimates, and opinions furnished by other parties and expressed in this appraisal report from reliable resources that I believe to be true and honest.”
- Is there a difference between this desktop program/form and the desktops that were allowed during the height of COVID?
Yes. There is now a specific form required for a desktop appraisal that was not in use during the period of time when inspection relief was permitted. In addition to the new form, the new desktop program requires floor plans, which was not part of the relief program.
- How can lenders and borrowers address the potential issue of having an increase in values coming in lower than the purchase price because the interior upgrades will not be part of the valuation?
The challenge will be to communicate accurate and reliable information when it comes to upgrades. Desktop appraisals are optional, so if extensive upgrades or any other property complications are known upfront, all parties should work with their lenders when deciding what appraisal product will be most beneficial to the transaction.
- If desktop appraisals appear to be the same amount of work for the same price, what is the benefit?
Desktop appraisals have benefits for several stakeholders in the appraisal process. They are designed to help lenders reduce cycle times by reducing appraisal turn times. This also improves the borrower’s experience by allowing them to close faster. By removing the need to schedule an inspection, travel to the property, and complete the inspection, appraisers should also be able to complete the report significantly faster.
- Many ideas and practices work well when a real estate market is performing and prices are increasing. We know this from history. If the market shows signs of weakness or pullback, would there be a possibility of eliminating the desktop product?
It’s important to remember that the GSEs exist to provide liquidity to the US residential housing market, so Americans can buy homes. With too few appraisers, most of whom will age out in the next 5 years, and too few people entering the profession, the GSEs won't be able to accomplish their mission without fixing the bottleneck that is the appraisal. That said, desktop eligibility is a policy decision and many policy requirements are subject to review and change given market conditions and risks posed, meaning that anything is possible.
Still have questions? Bookmark this page and check back frequently as we continue to seek answers from the GSEs and the market.
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