The Automated Appraisal: Tips for a Changing Appraisal Environment

Perhaps you’ve heard the murmurs about an automated appraisal. There are big changes coming to appraisals, and they’ll have a huge impact on how the mortgage industry does business.

Today, we’re breaking down some of the new developments in appraisals, what they mean for your business, and tips to help you prepare.

I keep hearing about the automated appraisal. What does that mean?

When you hear automated appraisal, that refers to a computer doing the valuation without an appraiser. These calculations are made using mathematical models and databases of residential information from public records.

In addition to the automated appraisal, we’re starting to see moves toward a hybrid appraisal process called bifurcation, meaning that a computer and a person complete the valuation. In many cases, this means that a person (who may or may not be an appraiser) collects information on the property via property inspection and a computer does the valuation. In some cases, it might be a person completing a desktop for the valuation.

What are some of the benefits and drawbacks of bifurcation?

You’ll want to keep these benefits and potential drawbacks in mind when it comes to bifurcation:

Benefits

• Lower cost than traditional appraisal
• Much faster to complete
• Greater ability to expand during times of high demand

Drawbacks

• The person conducting the property inspection may not be licensed or have enforceable standards of practice, so the borrower experience can vary widely
• You have to make sure the person doing the desktop appraisal knows the local market– that’s your responsibility as a lender

We’ll discuss more about how you can overcome some of the drawbacks to reap more of the benefits later in this post.

If the GSEs continue the path to bifurcation, what does that mean for my business?

Assuming the GSEs continue to develop their bifurcation capabilities, that means your business and your customers will likely see some cost savings.

It also means that you will likely be using an appraisal management company (AMC) for the property inspection and the desktop appraisal, if needed.

What this means is you need to know how to effectively select an AMC partner that fits within the guidelines the GSEs set forth for a bifurcation appraisal.

If I’m going to have to start looking for my own AMC, what should I look for?

Here’s a quick list of what you should look for in an AMC:

1. They’re licensed in the state where the mortgaged property is located
2. They’re insured
3. They have detailed and effective standards by which they evaluate their appraisers and that they’re actually using those standards to vet
4. They have a detailed process for handling customer complaints
5. They’re audited independently

When it comes to understanding the AMC’s standards for appraisers, try asking these questions:

• How do you select appraisers/property inspectors?
• How many years of experience must the appraisers/property inspectors have?
• How often do the appraisers/property inspectors get trained and re-trained on certain topics (especially ones related to customer service)?
• How do you determine that the desktop appraiser is knowledgeable and local to the market before hiring them for an assignment?

For understanding the AMC’s auditing and monitoring requirements, try asking these questions:

• How often does the AMC audit the work of each appraiser?
• How does the AMC monitor interactions with customers?
• How do they manage their documentation?
• How often is the AMC audited by an independent body, and what were the results of the last independent audit?

Like with any business partner, you should ask plenty of questions to get a better understanding of how that partner works and how that method will impact you as a partner.

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There are two things to walk away with today. The first is that you want to make sure that whether you’re working with an appraiser, property inspector, or an AMC, that the appraiser or property inspector visiting your customers’ properties are qualified and trained to provide good customer experience

The second is to remember that these improvements in appraisal technology are a good thing. They’ll help the industry save more time and money and allow for more time to be spent on complex problems.

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