WASHINGTON, May 16, 2018 /PRNewswire/ -- Appraisals are a
vital part of the real estate transaction and have traditionally
been done in-person by an experienced appraiser, but efforts to
reduce costs, increase efficiencies and incorporate more
innovation, technology and data in the valuation process are
expanding the use of alternative valuation methods.
That's according to speakers at a real property valuation forum
yesterday during the 2018 REALTORS® Legislative Meetings
& Trade Expo.
Traditional appraisal alternatives, like hybrid appraisals,
broker price opinions and data-driven automated or desktop
valuation models, can be incredibly useful and
cost-effective tools. But many in the industry, including the
National Association of Realtors®, urge caution when
waiving traditional, onsite appraisals for home purchase
transactions to ensure purchases are based on sound financial
principles and do not put undue risk on consumers or the
market.
Ernie Durbin, chief valuation
officer at Clarocity Corporation, a provider of residential real
estate valuations services, said alternative or hybrid appraisal
reports is a misnomer. "Alternative or hybrid appraisal reports are
simply reports with a different scope of work than a traditional
report," he said. The Scope of Work rule from the Uniform Standards
of Professional Appraisal Practice, or USPAP, was introduced in
2006 and gives appraisers the ability to tailor each assignment
appropriately for the client and circumstances.
He said the scope of work for a non-traditional property
valuation could include a desktop valuation that relies on
third-party inspections and utilizes extraordinary assumptions, a
sales comparison approach or a qualitative analysis that doesn't
make adjustments to comparables.
Durbin also touched on compliance and said for appraisal
alternative reports to comply with minimum appraisal standards they
must conform to generally accepted USPAP standards, be written and
contain sufficient information and be performed by state certified
or licensed appraisers. He also said appraisers bear the
responsibility of compliance, and when using alternate valuation
products, they must determine if the scope of work is enough to
provide credible results and ensure they are in control of the
appraisal process and not limited by the form or format.
Durbin urged caution around alternative or hybrid appraisals,
and advised using local multiple listing service data to select
comparables, ensuring local appraisers have knowledge of the
property type and specific market, and making certain appraisal
reports and scope of work fit and are commensurate with the risk
and complexity of the transaction.
"Hybrid appraisals and broker price opinions are going to be
part of future, whether anyone likes it or not," said Durbin.
"Appraisers cannot let down their guard, and we must ensure that
these are appropriate for the scope of work for the assignment –
and that's not for every transaction"
John Russell, American Society of
Appraisers, agreed and said rather than simply searching for and
expanding appraisal alternatives, the focus should also be on
making better use of appraisers and modernizing and reinventing the
traditional appraisal process, which is the gold
standard.
"Businesses are aiming to save time and reduce costs, but you
cannot toss out safety and soundness and consumer protections for
the sake of the business decisions," said Russell.
Julie Jones, credit risk analyst
at Fannie Mae, shared insights into the enterprise's decision last
year to waive traditional appraisal requirements for some
eligible purchase transactions through its Property Inspection
Waiver program. She said Fannie's property inspection waivers, or
appraisal waivers, are available for mortgages and refinances that
meet specific eligibility requirements, including those with lower
loan-to-value ratios, single-family and condominium properties,
principle residences and second homes, and when Fannie already has
a prior appraisal on the property, among others.
"It's important to remember that the lender and borrower do not
have to exercise the property inspection waiver and may continue
with a traditional appraisal," said Jones. She said the number of
Fannie-financed purchase loans executed with a property inspection
waiver made up less than 1 percent of recent purchase transactions.
Overall, for purchase transactions, limited cash out refinance
transactions and cash-out refinance transactions loans with PIWs
accounted for less than 12 percent of Fannie's book.
Lima Ekram, analyst and assistant vice president at Moody's
Investor Services, said she's seen an increase in the use of
appraisal alternatives in the market, which could impact the
quality of the residential mortgage-backed securities they rate,
where the most important thing is the collateral, or home.
"There are many different types of appraisal alternatives that
are available in the market today, and as we assess the risk of
bonds, we review them carefully and whether the use of appraisal
alternatives is appropriate and that we understand the strengths
and weaknesses of it, so bonds are treated as accurately as
possible," said Lima.
NAR sent a letter to Federal Housing Finance director
Mel Watt last fall concerning the
use of automated valuations in purchase transactions. In the
letter, NAR encouraged Fannie Mae and Freddie Mac to use caution
after they announced a waiver of physical property appraisals for
lower risk purchase transactions. Additional information and
resources for real estate professionals about appraisals can be
found at www.nar.realtor/appraisal-valuation.
The National Association of Realtors® is America's
largest trade association, representing 1.3 million members
involved in all aspects of the residential and commercial real
estate industries.
Information about NAR is available at
www.realtor.org. This and other news releases are
posted in the "News, Blogs and Videos" tab on the website.
View original content with
multimedia:http://www.prnewswire.com/news-releases/rethinking-real-estate-valuations-and-alternatives-to-traditional-appraisals-300649833.html
SOURCE National Association of Realtors