Technology has upended our lives, from the way we meet, to how we order from restaurants and grocery stores, and even how we interact with our doctors. On-demand streaming services like Netflix or Amazon Prime have replaced DVD and Blu-Ray Discs, as new tools have made our daily activities easier and more efficient.
The mortgage industry has undergone a similar transformation in recent years, with the digital mortgage disrupting what has traditionally been a paper-intensive process and e-closing options digitizing many of the steps needed to close a loan.
Yet the digital mortgage is still reliant on many non-digital processes, like appraisals, to be successful. The appraisal remains one of the most manual, time-intensive aspects of the mortgage lifecycle. If the digital mortgage is on-demand video, appraisals, in many ways, are still Blu-Ray.
The appraisal industry has an opportunity to embrace digital resources that will accelerate the continued transformation of housing and financial services. Many new digital appraisal and property data collection tools are available to appraisers today, and the industry expects further innovation in the coming years.
Improving the Borrower Experience with Speed
A modern approach to appraisals utilizing the latest digital resources can increase accuracy and credibility, improve access to property data, and ultimately offer homeowners seeking appraisals more options.
For example, hybrid appraisals are known to improve the borrower experience through convenience, with 145% of inspections scheduled on weekends and evenings. Overall, desktop or hybrid appraisals can help address appraiser capacity concerns and reduce appraisal turnaround time, while allowing appraisers to remain a vital component of the loan collateral process.
And given that appraisals help lenders evaluate the fair market value of a property, a contemporary appraisal process will contribute to the increased success of mortgage lenders while at the same time greatly improving the borrower experience.
With the right tools, appraisals can deliver an opinion of value up to 50% faster than a traditional appraisal. The past two years of hybrid and desktop data have shown a 73% reduction in appraisals that take more than 30 days, which end up being highly disruptive to close dates. For lenders, reduced appraisals times mean they can confidently close more loans for their customers.
Benefits Come after Adoption
The future looks bright, although some obstacles stand in the way. These challenges can be overcome, however, through education, keeping an open mind, and employing a willingness to try new approaches – the same tactics you likely adopted when you first took a chance and subscribed to Netflix or began banking online using your bank’s smartphone app.
If you are like most people, those digital decisions proved worthwhile and made your life a little easier. You will likely continue using these digital products and services because they have clearly demonstrated their value and merits.
The same can be said of digital appraisal tools, which have become more promising with each passing year.
The latest move toward this trend is the Fannie Mae and Freddie Mac desktop appraisal option, which requires the use of digital property data and a digital floor plan. Fannie Mae, for example, recently announced the incorporation of fresh desktop appraisal guidelines and the 1004 desktop appraisal form (which differs from 2020 desktop guidelines in that the purchase transaction must have a loan-to-value ratio less than or equal to 90%, must involve a one-unit principal residence, and must take into consideration a detailed floor plan with interior walls and gross living area [GLA] measurements).
Technology Solves Long-Standing Challenges
This modernized valuation product makes the appraisal process more time- and cost-efficient, eliminating the need for the appraiser to physically inspect the property – thereby cutting the time involved – without diminishing diligence or quality. Both borrowers and lenders can benefit from desktop appraisals, with the latter able to schedule earlier closing dates.
The 1004 desktop appraisal also has the opportunity to alleviate appraiser capacity constraints, help decrease potential unconscious bias, and improve response time. And desktop appraisals help to prolong the careers of appraisers who are not able or willing to go into the field.
Similarly, more professionals are implementing hybrid appraisals, which may involve an on-site interior collection of property data done by a trained data collector using a mobile app followed by a remote completion of the appraisal process at the desk.
The importance here is that, once again, the latest technologies are being used to enhance appraisal efficiency and safety.
Where the Industry Stands Right Now
As of this April, Fannie Mae also now requires appraisers to use the ANSI Z765-2021 Square Footage Method for Calculating. This policy update will standardize the method used to measure, calculate, and report GLA and non-GLA areas of properties.
Desktop and Hybrid appraisals all require floor plans that must be computer-generated (not hand-drawn), specifying all dimensions required to calculate the GLA and other required areas like the basement and garage. And with the evolution of the smartphone and AI, apps like CubiCasa can empower even non-professionals to capture an accurate floor plan in minutes.
This adoption of the ANSI standard will improve measurement consistency, provide a defensible and professional method for the appraiser, and enable repeatable and transparent results for the appraisal report user. Many industry leaders are firmly behind the digitization of floor plans via this guideline, as well as resources like mobile apps that use advanced image-recognition capabilities to scan and map out the total area of the home and create a detailed and accurately measured digital floor plan sketch.
Other technological advancements that are energizing our profession include 3-D imagery, upgraded appraisal software for laser measurement devices and drone photography.
Indeed, there are many things to look forward to in the months and years ahead, thanks in large part to digital innovation and an overwhelming increased willingness to adopt. While there is still more progress to be made in our profession, now is the time to learn more about the possibilities and opportunities that digital tools like these can provide.
As inventor Thomas Edison famously said: “There’s a way to do it better. Find it.” Digital transformation and the modernization of appraisals can help illuminate that path.
As head of corporate strategy, Kenon sits at the intersection of our executive, product, marketing, and sales teams, guiding our growth and ensuring we deliver consistent and long-term value to our customers and partners. Since the beginning of Clear Capital, Kenon has developed and launched some of our most forward-looking solutions, including ClearProp and ClearCollateral.