I became an appraiser because it was something I thought would utilize my analytical skills, allow me to become a business owner, and provide a good income for my family. The time it takes to become a Certified Appraiser is about on par with completing a graduate degree. Long time appraisers had always cautioned to ignore the rumors about the appraisal industry being finished in the next 5 years. 5 years always came and went, and appraisals and appraisers were still needed. The chatter has begun again among a lot of appraisers that in the next 5 years the appraisal industry will be finished. But something changed.
This time, I’m hearing from more and more appraisers that are no longer laughing it off as something people have always said. Fannie Mae (and Freddie Mac to some degree) have announced that the gold standard of appraisals (for lending) requiring an appraiser to physically observe a property, physically drive the neighborhood(s) and physically observe comparables and then write a report based upon data driven observations and knowledge of local market nuances will no longer be the default option for lender transactions. Instead, it is being replaced by what Fannie Mae calls “Value Acceptance”, “Value Acceptance + Property Data” or “Hybrid Appraisals”.
Value Acceptance is essentially using an Automated Valuation algorithm to determine whether the property’s value is high enough to satisfy lender risk. Also known as an appraisal waiver, which already accounts for about half of lender transactions.
Value Acceptance + Property Data allows a third party (who is not a licensed appraiser or licensed anything) to provide data to the lender about the property including its condition, GLA (size), views, notable features, etc. effectively replacing a very essential part of what an appraiser does in order to provide the most accurate results. The fees I’ve seen touted for these data inspectors has been less than $50 per property. The data collector then submits this to the lender and the lender uses the information gathered by the data collector with its automated valuation algorithm to determine if the property value is high enough to mitigate its risk.
Hybrid Appraisals allows the same third party individual to collect data, and then pass that information to a licensed appraiser to complete the information based upon that third party’s information with any liability for inaccurate results resting on the appraiser. A risk, I and many other appraisers are not willing to take, especially if the loan has to be bought back, or a host of other issues are found down the line.
A number of appraisers, realtors, and appraisal advocates have voiced their concerns about the role of the Property Data Collector and the messaging from Fannie Mae that the gold standard of appraisals is “no longer the default option”. See this letter to Fannie Mae from the Appraisal Institute or this video from a Realtor about their concerns about this new process.
A webinar I attended with a representative from Fannie Mae commented that the impact on appraisers would be no more then 3-5% of what would have been a traditional appraisal. Optimistically, one could say that percentage is no big deal, but as a realist, there really is nothing that will cap that percentage at 5%. As more and more people begin to trust Automated Valuation Models from what they believe is an unbiased algorithm (rather than a local licensed appraiser in their market area), and as lenders and consumers seek to save money (charging a technology fee of $100 or less rather than a $500 appraisal fee), many appraisers are beginning to feel like their careers are headed for an abrupt change. And while changing and adapting is a fact of life, cutting out the local appraiser on most people’s biggest financial investments of their lives, does not seem like a good idea.