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Statistically Supported Appraisals Are Key

Appraisers may have started to change their business practices one at a time probably only a few years ago, but their strategy shift and where they are headed already has started to become clear. 

The new direction, according to Mark Linne, chief strategic and valuation officer at AppraisalWorld/Bradford Technologies, a seasoned appraiser with decades of experience, appears to be a fast adoption of technology and social media.

Added to expertise, he says, it helps maximize appraisers’ ability to respond to a wide variety of valuation demand. “Today only statistically supported, technology-based appraisals are acceptable.”

Appraisers’ focus is on lenders alone, he says, but they also should work with Realtors and other entities that are willing to pay—even though valuations may cost anywhere from $100 to over $1,000.

“Appraisers and Realtors have a very vested interest in one another’s success because there’s a lot of commonality in what we do," he says. "I’m not saying everyone should hold hands and start a dance...what I’m saying is that it’s detrimental to the profession as a whole. There’s a way for us to work together to ensure data accuracy, clarity and transparency.”

Appraisals that use statistical analysis to review and combine single unit, neighborhood and global data to create a real estate value report are in demand, particularly in distressed neighborhoods where it is not as easy to assess value. Appraisers need to decipher value from an eclectic mix of properties that enter the market as a short sale, REO, or regular sale, find comparable properties, and comply with regulatory requirements.

“It feels like it’s chaos out there,” he adds, but what is emerging out of it is a return to the appraisal foundations.

Dodd-Frank along with state regulation, on the other hand, are affecting valuations and confusing investors. Most are trying to figure out how to crack into the GSE market, so the more Fannie Mae and Freddie Mac incorporate statistically supported appraisals into their systems the better, he says. “Everyone is concerned about appraisal quality!”

Linne leveraged his expertise to assist Bradford Technologies develop and introduce a Collateral Valuation Report that ties together regression analysis, an interactive valuation model and global market data for summaries now being used by U.S. Bank, which is a conservative bank interested in appraisals that can effectively compete with BPOs, he says. After introducing CVR 2.0 in July, Bradford started developing a cloud based CVR for large banks and credit unions.

Technology is transforming the traditional appraisal process, Linne says, vendors are taking property valuation to a new level. The overall drive of the appraisal and valuations industry is technology that allows users to benefit from the regression analysis tools that have already been used by other financial industries. 

CVR 2.0 has already received a very strong response from Realtors who similarly to appraisers face pricing and valuation challenges, Linne says. "Tools that provide a realistic assessment of property values avoid surprises at the closing table and ensure everybody wins,  so data clarity and expanded property information is key to all parties in a mortgage transaction."

Appraisals are constantly reviewed for accuracy regardless of what happens with the property owners. Among others Fannie and Freddie require frequent appraisal reviews to avoid data gaps or mistakes.

Technology has made manual data reviews obsolete. As banks’ reliance on technology progressively increases experienced appraisers who embrace it can turn those old skills into assets.

“It is much more efficient for rappraisers to do business that way,” says Linne. “It helps their internal business process, makes their life easier, and makes them more competitive.”

According to Linne, who is a strong advocate of his profession and what he calls the irreplaceable value of appraisals, many of his peers are embracing the new reality.

He tells stories of experienced appraisers who are now going through target training that aims to retool them with current market skills. In one example, he said, after educating himself through technology and marketing training seminars, an experienced 69-year-old appraiser managed to increase his monthly income to $10,000.

Subsequently he brought up to date his wife, son, daughter even his in-laws. “This is the wave of the future,” he told Linne. “My contractor updated my website, I’m on Facebook, I have a marketing contact, and I’m reaching out to Realtors.”

“He was going 100 miles an hour. It was the first time in years that I’ve heard an appraiser be that enthusiastic about the industry,” recalls Linne. In his view the overall drive of the industry is towards incorporating new technology.

“Appraisers are now saying: We’ve been everything else that we can, technology is all that is left to offer us competitive solutions,” he said, and lenders, appraisal management companies and the rest of the mortgage industry agree.

Yet technology is not just a faster way to fill out a form, he added, “it is a better way to do an appraisal and everyone who chooses not to go through that path will lose.”

Today many companies focus on collecting and reporting data, but everyone is aware of the fact that better data and better analysis is not the same thing.

“If appraisers help slice and dice that data for their customer, that’s good for everyone,” says Linne.