It’s happening. It might not be an appraiser who shows up for the appraisal inspection. I’ve been talking about the potential of “hybrid” valuations like this, and now they’re here.
The gist is somebody besides the appraiser inspects the property and then gives the inspection details to the appraiser to do the “value part” (without seeing the property). Last week Chris Little, a Realtor friend, was talking to me about his first experience with a non-appraiser inspecting one of his listings, so I asked him some questions.
Ryan: What gave it away that this person wasn’t an appraiser?
Chris: When he called and asked for an appointment to access the property he identified himself as a property inspector working on the appraisal. I asked if he had a lockbox key (every appraiser I know has one) and he said he did not. We agreed to meet at the property. At the house he gave me his card which said he was a project manager for a company in upstate New York. There was no mention of appraiser on his card.
Ryan: What did the inspector do at the house? Did he measure it?
Chris: He came in and took a bunch of photographs which he said he would upload to their portal so the appraiser could look at them. He went outside and measured the home.
Ryan: What price was this house?
Chris: The home was listed in the low $800,000’s. The buyers sold their former home and were renting on a short term basis. They were putting down 55% of the purchase price.
Ryan: Did the inspector say he would pass along information you gave?
Chris: Yes, he asked a few questions and said he would include that in his report.
Ryan: What are your concerns about this new process?
Chris: My overarching concern is the validity of the “appraisal.” The buyer was charged less than a traditional appraisal and in my view received less. The proper valuation of a property is essential for many reasons. Inaccurate or incomplete information can effect value and that can effect a transaction, both during the transaction and later on if there is ever a question about value resulting from loss bankruptcy, foreclosure.
Ryan: Anything else to add?
Chris: In my view, this “hybrid” appraisal is meant to streamline the lending process yet puts homeowners and lenders at risk. I don’t think there is a lender out there who would use a discount Cardiologist or Oncologist if they had heart problems or cancer. Why would you underwrite a loan based on an unlicensed individual snapping pictures and taking measurements? One thing that particularly concerned me about the house in question was at almost 4,900 square feet it was more than twice as large as any other home so developing comps would take someone with real knowledge of the market to develop the appropriate value. This unusual Sacramento home doesn’t seem like a good fit for a watered-down process like this.
Ryan: Thanks so much for your time Chris.
Now a few quick things.
MY CLOSING THOUGHTS:
1) This is a move that diminishes the role appraisers play in the housing market for the sake of so-called convenience. Banks are saying, “Don’t worry. Trust us. It’s all good…” While there is a place for big data in real estate, let’s not forget the crucial role appraisers play as a systems of checks and balances. Do we really trust banks to do the right thing?
2) Value isn’t just about size or bedroom and bathroom count. There is so much more an appraiser observes while walking through a house and talking with the agent. To be fair it seems like this would less of an issue on a cookie cutter house, but on something unique it could be a disaster waiting to happen.
3) If the inspector does not have adequate training, there could be a legitimate issue measuring the house accurately (and we know how important that is).
4) Could this become risky for the rest of the market if inflated appraisal waiver or “hybrid” sales become the new comps?
Communication advice for Realtors: It’s going to be key to ask for a business card and be sure you know who you are talking to. My advice? Show up with my appraiser info sheet filled out so an “inspector” can hopefully pass along relevant details to the appraiser. Remember though, the appraiser is getting paid very little do this type of report (I hear $100 to $150), so the “hybrid” system is not designed to encourage appraisers to spend lots of time on the appraisal…
I hope that was helpful or interesting.
Questions: What do you think of “hybrid” valuations? What are the positives and negatives? Any stories to share?