Since 2009, the residential appraisal profession has experienced significant changes. Many of the changes were thought to be temporary, and many were not really permanent solutions, but to many, these patchwork solutions have acquired the feeling of permanence.
Take the MC 1004, Collateral Underwriter, and the Uniform Appraisal Data Set. Ask most any good residential appraiser how the requirements arising out of the changes have improved the overall quality of appraisals.
Hybrid Appraisals. The mere mention of this term can set off a group of appraisers.
Over the past several years, a newer product – the “hybrid” appraisal - has emerged. It has achieved some acceptance and popularity in select markets.
Let’s define a hybrid appraisal. A hybrid appraisal is a valuation completed by an appraiser who performs the valuation analysis without ever visiting the property. The inspection/site visit is undertaken by another person, supposedly possessing some skills in the “inspection, listing, and measurement of the property.” The theory behind this type of appraisal process is that the appraiser can concentrate on applying the valuable analysis and data collection/selection skills and leave the inspection to someone who does not necessarily possess the analytical skills that are of primary importance in the appraisal process.
The concept is not entirely new. “Desktop” reports or “drive by” appraisals have been around for years. In the first case, an appraiser provides a property valuation reported on a short form without a property inspection. In the second case, an appraiser inspects the property from street frontage. The hybrid tries to bridge the gap between the obvious short coming of an appraisal with no or limited inspection and the logistical hassle of the “full inspection” appraisal.
Many appraisers are not exactly overjoyed by the encroachment into the heart of the residential appraisal process the hybrid creates. They are asking questions, such as “are hybrid appraisals USPAP compliant?” “Can the results of the third-party inspection be relied upon and still meet professional requirements?” “Do they threaten further the ability of residential appraisers to make a decent living?” “Are they the next step in eliminating real estate appraisers in the residential mortgage appraisal process?”
At least at this point in the process, users mostly use these types of appraisals for loan maintenance, portfolio analysis, or possibly workout situations. Let’s see if the hybrids gain greater acceptance.
Appraisers raise at least the following issues: a/ Can a credible result be obtained without entering the subject property? b/ How can a comfort level be obtained from the third party inspection? c/ By undertaking a hybrid appraisal, is an appraiser exposed to being accused violating USPAP. All good questions; the issue bears some further consideration.
New Appraisal Forms. The complicated real estate appraisal environment gets more complex. The secondary market is in the process of overhauling appraisal forms. Stay tuned, hold onto your hat, this could be a big change with major adjustments required on the part of appraisers! Hybrid appraisals and more….?
A Further Note - The Role of Financing. Financing – interest rates and availability of credit - drives all real estate markets, but particularly 1 – 4 family markets. Rising rates have tamped down refinance markets. So far, purchase activity hasn’t been affected as the limited inventory trend continues with no relief seemingly in sight, particularly in the core market communities.
Are rising rates a concern for residential markets? Maybe. The Fed is looking for its version of a “soft landing” by nudging rates up, trying to rein in inflation but not hamstringing economic growth. Unless something really odd occurs, such as political meddling, it’s a realistic and probably achievable goal.
Great Article. Ted Whitmer recently wrote “Applying USPAP Fairly in Review” in Working RE Magazine, (See http://www.workingre.com/applying-uspap-fairly-in-review/) Well worth spending the time to read it if you are an appraiser, reviewer, lender, or regulator.
Bill Pastuszek, MAI, ASA, MRA, heads Shepherd Associates, Newton, Mass.