Mark Walser, senior vice president at Class Valuation, addressed some specific appraisal matters that lenders and appraisers will encounter during the overall loan transaction process. Walser shared many aspects of the process relating to efficiency, reliability and accuracy.

Initially, we asked about the integration of modernized appraisal technology methods into the home equity loan process and how that may have become a “game changer” for credit unions.

 “It’s important to distinguish between current methods using technology and the advancements of appraisal modernization,” Walser told Valuation Review. “The majority of solutions in home equity lending center around running an AVM for value and sending an individual to the property to snap a few exterior photos from the street. Often, an AVM does not meet the ‘confidence’ thresholds, pushing lenders to consider appraisal solutions.  Upgrading to a ‘full appraisal product’ to support home equity lending decisions, whether it’s a drive-by or more comprehensive appraisal options, represents increased costs.     

“The issue for most lenders in home equity is that they are the ones absorbing the costs of valuation,” he added. “So, modernization involves adding much more data authenticity of the property’s quality and condition using a combination of 3D property imaging, GSE-grade floor plans, and property condition, along with the ability of an appraiser to use that data to provide a valuation – while keeping the cost down.” 

Appraisal methods: A hindrance to the loan process?

Some have characterized traditional appraisal methods as being a hindrance with respect to the loan process. Walser disagreed, noting appraisers perform a critical and difficult function in the loan process, being an objective gauge of the true market value of the property. 

The traditional appraisal has two broad components, he said: there’s an inspection of the property and the actual valuation, or assigning an opinion of value, to that property.  

“Most experienced appraisers, if they have the data given to them about a property and can trust it, are able to provide analysis and a valuation on the majority of properties in their core market areas in a matter of a couple of days,” Walser told us. “They research the property, pick their comps and in some cases even know what the general value range will be. The physical property inspection is designed to make sure there are no factors that need to be adjusted for, no safety and soundness issues, or that the property truly is in the same condition as the glossy MLS photos make it appear to be.      

“Lending decisions have functional deadlines, especially in purchase transactions. The problem that the industry has experienced is that there are fewer appraisers now than there was pre-pandemic, and this creates appraiser capacity issues when times get busy, or in rural or underserved markets,” he added. “When this happens, the ‘inspection’ part of the process takes far longer and this jeopardizes the ability to close loans on time and carries high costs in the form of penalties, rate lock expirations, and other negative impacts.”  

Walser then gave the example pertaining to the pandemic of 2020-2021 where an unprecedented mix of high volume, the inability to get into homes during lockdowns, and capacity issues for appraisers caused a near meltdown in appraisal turnaround times and loan closings in many market areas.  Missed or late loan approval deadlines create real economic impacts for all participants in a transaction, he noted.

He then discussed modern appraisal technologies and what assistance they can provide appraisers and lenders concerning overall efficiency, reliability and accuracy.

“It’s important to understand the game-changing nature of these solutions,” Walser said, referencing advantages that can come from 3D virtual tours of a property which allow an appraiser to see each part of the exterior and interior and walk through as if they were there, effectively eliminating the need for a time consuming, in-person inspection by the appraiser. “An appraiser receiving these assets knows ‘when and where’ the data was captured and can write their appraisal to that effective date while trusting that the property is verified and the data that they are viewing is from that very property.” 

Modern appraisals assist credit unions

Walser pointed out that every credit union leader remembers the turntime and capacity issues from 2020-2021, and it’s important to understand that about 90 percent of all appraisals fall within the Fannie Mae and Freddie Mac framework.

“So, what happens in that world affects every lender, and when we contemplate what problems we’re solving for, appraisal modernization squarely addresses the appraiser capacity issue and the ability of credit unions to get accurate and timely valuations for loans, even for their portfolio lending,” Walser said.  

He then outlined why credit unions might look for alternatives to traditional appraisals.

Credit unions have one of the best lending frameworks in the business, Walser said, and that is to take care of their members by focusing on saving time and reducing costs. And, he emphasized, whenever a credit union can streamline the process and save their members money, they will attempt to do so.   

“Here’s a great win-win example,” he said. “Traditionally, credit unions on a home equity or portfolio loan have started with an AVM for property value, and a quick, two-minute drive-by exterior inspection of a property to see if it has any issues at a cursory level. This is a process that averages around $75 dollars in most parts of the country. But if the ‘confidence score’ on the AVM is too low, then they have little choice but to upgrade to an appraisal product. 

“In most areas, a drive-by appraisal is well north of $450 dollars,” Walser added. “And in some cases, they ultimately go to a full appraisal which costs much more. But a property data collection-based valuation could be an interim step from a fee standpoint, allowing lenders full access to review the property and allowing alternative valuation or appraiser specialists to look at the property quickly and render a value conclusion on a timely basis for a lower cost.” 

*Be sure to read Part II of our interview with Mark Walser.