No appraisal needed. In case you haven’t heard, last year Fannie Mae introduced Property Inspection Waivers, which means an appraisal is not required in certain situations. Is this a good thing? Well, here are some thoughts swirling through my mind. Anything to add?
1) The automation trend: Automation is happening all around us. Right or wrong, machines are taking human jobs, and the world is changing. Elon Musk actually warns that machines will eventually be able to do everything better than humans, which is a scary thought (way too much like The Terminator). Anyway, machines are starting to be appraisers as property inspection waivers are a growing phenomenon in the marketplace. Some loan officers I’ve spoken to have said they’ve only seen a few while others are reporting about 15%+ of their deals are having waivers. How will this trend unfold? That is the question.
2) Systems of checks and balances: Appraisal waivers are going to make sense in some cases with very low-risk Borrowers, but I find myself concerned about the narrative that we need to use alternative valuation products for the sake of a more efficient mortgage. Let’s not forget the profound greed in the banking world and the important role human appraisers play in being the voice of reason in a transaction. Please forgive me if I’m not optimistic when I hear things like, “Trust us, we have big data. We want to save consumers money. We don’t need appraisers.”
3) Cat urine & big data: We put so much weight on big data, but it’s not always right. It’s like we think something intelligent must be happening since math and computers are involved. Google Flu Trends is a perfect example because Google tried to predict flu patterns, but the project ended after being very inaccurate compared to CDC data (Center for Disease Control). Anyway, there is a place for big data in real estate, but let’s remember valuing properties doesn’t always fit into a neat little equation. Algorithms cannot smell cat urine, know about condition or quality of upgrades, understand layout, analyze the impact of non-permitted additions, etc…
4) Uh oh, hybrid valuations: There is a hybrid appraisal product being pushed right now, and here’s how it works. Someone else does the inspection for the appraiser and then the appraiser will do the value part. Will this inspector have adequate training, report deferred maintenance, understand what appraisers look for, know how to measure square footage, or be paid enough to even care? My struggle in thinking this is a good idea is that assessing the layout of a house, location, quality of upgrades, deferred maintenance, etc… is such an important part of value. It sounds easy to split the inspection with the research, but the inspection actually is research. Relying on someone else to do the “inspection part” seems like a step back when it comes to credible valuations.
5) Next in line for automation: I’m not trying to add stress, but I have to ask an important question. Who in real estate is next in line for automation? Real estate agents? Loan officers? Title professionals? Right now we are at the beginning of talking about how digitizing valuations is good for us because it’ll make the mortgage more efficient. Here’s the question. If this happens to appraisers in mass and we’re okay with it, will it be easier to see happen in other niches of real estate? In short, if you belong to an organization and it is within your power to advocate for appraisers, it may be a good time to speak up.
I hope that was helpful or interesting.
Questions: What do you think of appraisal waivers? Is this a good thing or bad thing? Anything I missed? I’d love to hear your take.