TheMReport — News and strategies for the evolving mortgage marketplace.
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36 | M R EP O RT FEATURE T he COVID-19 pandemic resulted in unprecedented changes in the way industries conduct business. Like everyone else, the mortgage industry adapted to lock- downs by adjusting day-to-day operations. Mandates, social distancing recommendations, and health concerns led Fannie Mae and Freddie Mac—the government-sponsored enter- prises (GSEs)—to relax property appraisal guidelines, allowing appraisers to conduct exterior-only inspections. While the change made sense from a public health perspective, drive-by appraisals presented challenges, raising the likelihood of inaccurate or insuf- ficient data leading to deficient valuations. Perhaps this perception of an abbreviated process is why, when it comes to appraisals, the mort- gage industry has been slow to embrace this evolution. However, this seems to be changing with announcements made by the GSEs in early 2022. The GSEs revealed that beginning in March 2022, they would implement new rules allowing lenders to use Desktop Appraisals (Desktops) for loans that meet certain eligibility criteria. Appraiser's Toolkit T his announcement paves the way for a new era in the appraisal profession, opening the door for continued evolution and modernization within the space. In the interest of refreshing readers' memories, we'll briefly outline the differences between traditional appraisals and the new Desktop or Hybrid Appraisal options currently available. Traditional Appraisals A s readers probably know, traditional appraisals rely on the footwork and expertise of a credentialed appraiser. An appraiser completes a person- al physical inspection of the home's exterior and interior, taking measurements, evaluating its condition, and documenting its features, such as the type of foundation, construction materials used, and any other contributing factors impacting the value of the property. To provide the most credible valuation of a home, the apprais- er also researches county and municipal records to find infor- mation about the property and the surrounding neighborhood. For example, the sales prices of the most comparable homes in the area provide key data to help them complete their market analysis. Desktop Appraisals U nder the new guidelines, the appraiser does not have to physically inspect or set foot on the property. Rather, the apprais- er prepares a valuation based on an existing floorplan and other readily available and verifiable data about the property. This data may be provided by the homeowner, the builder, a buyer's or seller's agent, and public records such as assessor data. The recent sale prices of compa- rable homes are still required for market analysis in determining a property's value. Occasionally, real estate sales agents submit floorplans from a builder along with their multiple listing service (MLS) photos. As part of the desktop appraisal process specifically, GSEs require floorplans to include exterior measurements used to calculate the square footage, along with in- terior walls, doorways, staircases, points of ingress and egress, and the appropriate room labeling. Hybrid Appraisals T here are many forms of Hybrid Appraisals, sometimes referred to as bifurcated apprais- als, whereas the data collection process and the data analysis pro- cess are separate. With a Hybrid Appraisal, the appraiser completes his or her valuation of a property by leveraging data collected by a third party, including the poten- tial for exciting technologies like 3D scanning, to provide accurate New Desktop Appraisal Rules: Today's Pains and Tomorrow's Gains A closer look at how technology in the appraisal space has made the process significantly more efficient for eligible loans. By John Dingeman