By Larry Beard, Certified Residential Appraiser
There are a variety of appraisal products available to lenders that tend to be referred to as “Alternative Valuations” or “Hybrid Appraisals.” These alternative appraisal products are a new frontier for appraisers. Appraisers will need to make a decision whether they want to participate or to remain on the sidelines of what appears to be a growing field of valuation services. I encourage appraisers to learn as much as they can about these new products before dismissing them as somehow a threat to current business or determining they are not USPAP compliant. For lenders, loan transactions in which the “Transaction Value” (generally the loan amount) is $250,000 or less, appraisals are already not required; however, these same transactions DO require an evaluation that meets substantially the same requirements as an appraisal:
“An evaluation method that does not provide a property’s market value or sufficient information and analysis to support the value conclusion is not acceptable as an evaluation.” Appraisers with their market knowledge and analytical expertise, combined with advanced technology, are best suited to provide this service. The discussion of whether appraisers should be allowed to complete Evaluations by satisfying the Interagency Appraisal and Evaluations Guidelines, rather than complying with USPAP, is a topic for another blog coming soon.
Several appraisal products are currently emerging to meet lenders’ needs in this new arena. Probably the most discussed new appraisal product is the “Hybrid Appraisal.” The Hybrid Appraisal typically utilizes a third party inspector to collect onsite property data, sometimes performing an interior inspection, instead of an Appraiser. The inspector’s data is then analyzed by an Appraiser, and an appraisal is developed based on the third party inspection and the appraiser’s market knowledge supported by a Sales Comparison Approach. It’s important to keep in mind that it’s the appraiser who determines whether the Scope of Work is sufficient to develop credible assignment results. The appraiser must be sure not to mislead the user of the report. As with any appraisal report, the appraiser must utilize recognized methods for developing assignment results and maintain a work-file for each assignment. Even with a Hybrid Appraisal, the development of the value opinion must meet the requirements of USPAP’s Standards Rule 1.
Completing a Hybrid Appraisal will definitely involve a short learning curve for an appraiser who is used to personally inspecting a subject property, but I believe the time and effort will be worth it in the long run. Hybrid Appraisals are not a replacement of traditional appraisal products, such as a 1004, but rather an extension of the appraiser’s expertise into a NEW market of primarily low-risk, low cost home improvement and equity loans. The added value an appraiser brings to the valuation question in this circumstance is an enormous step up when compared to a Realtor provided BPO or CMA.
While an appraiser won’t be making an onsite visit, they also won’t be making an appointment, fighting traffic, working outside in inclement weather, wasting gas etc. They will instead, from the comfort of their office, use their market knowledge and analytical skills to analyze the third party data and develop credible assignment results. The reporting of the assignment results, in most cases, is completed on-line using a variety of third party proprietary reports. Some of the benefits of online reporting are that it is accessible 24/7, there is no new software to buy, and if you are so inclined the assignments can even be completed while out in the field, between appointments, or back at the office. The flexibility of the online system can allow an appraiser to fill in gaps in scheduling with paid work instead of being idle.
While the fee paid will most likely be less than a standard appraisal, there can be a significant increase in production volume since no time will be spent driving back and forth to the subject property, or driving comparable sales. I encourage appraisers to learn as much as they can about these alternative appraisal products since demand is predicted to grow. Thank-you for reading our blog!