The Practical Applications of Real Estate Appraisal (PAREA) program, as many appraisal professionals have stated over the past few years, will be a “game changer” for the industry.
Veteran appraiser and Restb.ai Valuations General Manager Tony Pistilli believes there will be more, and perhaps younger and more diverse, individuals entering the profession because of PAREA and Property Appraisal and Valuation Equity (PAVE), and that more, perhaps older appraisers, will leave the industry due to their reluctance to adapt their skill set to new processes and ways to complete valuation products.
“These initiatives along with emerging technologies such as artificial intelligence and computer vision will change the appraisal industry and how appraisals are completed,” Pistilli said. “A majority of states have already adopted PAREA, and I believe others will as the course providers release the actual training curriculum.
“So far PAREA hasn’t had an impact on new individuals entering the profession, but only because it has yet to be released by a provider. Once the program is available, I expect there to be a surge of individuals interested,” he added. “Appraisers have included statements in their appraisals that they are measuring to ANSI standards, but from an appraisal review perspective, it is difficult to impossible to validate that appraisers are actually measuring in compliance with the standards in every case.”
On May 18, the Appraisal Institute (AI) announced the Appraiser Qualifications Board (AQB) approved AI’s PAREA program for the licensed residential path. PAREA, which is an online program, is an alternative pathway for aspiring appraisers to gain their required experience hours to become a licensed or certified appraiser. Historically, the only option for an appraiser to complete their experience hours was through a supervisor/trainee model that requires the aspiring appraiser to find their own supervisor, AI stated.
The Appraisal Foundation’s (TAF) Board of Trustees awarded the Pathway to Success Grant to AI to assist with the development of the PAREA program. The grant is designed to open up the appraisal profession to a new generation of appraisers and stipulates that participant priority be given to veterans, minorities and those in designated rural areas. AI was awarded the full grant amount of $500,000 to build its AI PAREA program in collaboration with its partners. AI also committed more than $2 million toward the program.
PAREA is currently accepted in 43 states, and that number is likely to increase.
Key elements of AI PAREA include:
- Participants will be supported throughout the program by mentors who are AI Designated Members and full-time employees of the organization. AI specifies rigorous requirements for designated membership regarding experience, education and moral character and that those individuals demonstrate the highest standards of education and ethics.
- AI PAREA participants will have access to the organization’s 66 chapters to enhance networking opportunities and connect with appraisers who can potentially help participants become geographically competent.
In addition to the basic specification of three Uniform Standards of Professional Appraisal Practice (USPAP)-compliant reports established for PAREA programs by the AQB, AI PAREA features an additional 10 practice assignments and reports. The assignments are consistent for all participants and include a variety of complexity and property types to reinforce important appraisal concepts and skills.
The assignments are developed by an organization with a 90-plus-year history of creating best-in-class education, publications and other appraisal products.
AI PAREA participants have access to a knowledge center that includes a variety of resources like forms software and a multiple listing service (MLS).
“The AQB’s approval of AI PAREA for the licensed residential path is a significant milestone for our organization and the entire valuation profession,” AI President Craig Steinley said in a release. “This program will create many opportunities for aspiring appraisers who might not currently have a pathway into the profession.
“Work is underway to refresh the AI brand and website and we’ve already seen significant improvements in our communication methods, including the launch of our all-new Face Value podcast and Instagram channel,” Steinley added. “AI PAREA is another priority, along with ongoing efforts to recruit and retain AI professionals.”
TAF President David Bunton expressed his appreciation regarding this announcement.
“The Foundation is so pleased to see the first PAREA program receive approval from the Appraiser Qualifications Board,” Bunton said in a release. “The introduction of this program to the marketplace opens a new pathway for aspiring appraisers, and we look forward to welcoming PAREA participants to the appraisal profession.”
Bunton noted the first PAREA module should be available to aspiring appraisers this fall.
“We are eager to see the impact it will have on the profession,” he said.
PAVE and technology
Pistilli also commented on how selected technology will enhance the objectives introduced by way of PAVE.
He said computer vision is one of the emerging technologies that can assist with avoiding appraisal bias and achieving accurate appraised values. Through the identification and removal of biased images, appraisers will not have knowledge of the race of the occupants.
“Computer vision can also accurately and predictably standardize condition and quality and identify the existence of damage in the subject and the comparable sales, which will assist with the undervaluation and overvaluation of properties,” Pistilli said.
SingleSource’s Senior Vice President/Chief Risk Officer Dean Kelker said technology will be one element that helps mitigate appraisal bias as automated tools can take some of the subjective interpretation of the data out of the valuation process.
“According to the findings of the PAVE Task Force, there are a number of other areas that need to be addressed to reduce the incidence of appraisal bias, including the training of appraisers, increased recruitment of diverse appraisers, and greater oversight of the appraisal review and reconsideration of value processes, to name a few,” he said. “As previously mentioned, appraisal bias is a much more complex issue than many people realize due to things like historical redlining. The modernization program is a step in the right direction, however. It will definitely reduce the opportunity for bias in the valuation process, especially in the situations where technology products are employed.”
As to whether selected technology enhances the objectives introduced by way of PAVE, and assures fair value, Damien Weldon, Black Knight’s vice president of valuation products and analytics, and John Holbrook, Black Knight’s vice president of strategy – valuations, had these observations.
“Our (Black Knight) Risk Profiler Plus product does a comps analysis looking at the racial composition (based on Census data) of where subject property is situated compared to where the comps are located,” Weldon said. “We provide indicators of where the potential for bias may exist. PAVE is about changing the valuation landscape from a racial bias perspective, and the first aspect of that is being able to identify where a potential problem exists.”
“Data-enabled analytics deliver insights and intelligence around appraisal bias risk, at speed and at scale,” Holbrook said. “AVMs combined with Census data can draw out new insights to where bias may or may not exist. Mobile technology that collects data using AI to objectively identify condition and quality will help remove bias.
“Modeling tends to be consistent, and consistency is how you remove bias,” Holbrook added.
Furthermore, Black Knight said, the depth and breadth of data being collected with mobile tech will provide more than sufficient data to an appraiser to do a desktop or hybrid appraisal.
Appraisal modernization tools
Pistilli said there are concerns and misconceptions surrounding Fannie Mae’s modernization announcement in its March 1 Selling Guide update.
“I think the wording of the announcement has created some unneeded confusion and concern among appraisers,” Pistilli said. “Currently, Fannie Mae’s announcement introduces data collection into the waiver process. Appraisers should look for opportunities and adapt to use their skills in different ways to grow their business.”
One of the biggest concerns raised by appraisers is whether these bifurcated products are an appropriate way to manage collateral risk, Kelker added.
“In order to properly manage collateral risk, sufficient due diligence must be completed on a transaction that is appropriate to its inherent risk. The modernization process is designed to match the valuation product more closely to the underlying risk of the loan transaction,” he said. “For a 95 percent LTV (loan-to-value) loan, is it necessary to do the same deep dive on an applicant with an 800-credit score, stable employment, above average income, and a significant amount of savings as you would on someone with a 650-credit score, seasonal employment and no savings? Probably not.
“Those are two completely different sets of circumstances,” he added. “However, in the valuation space, we have historically treated everyone exactly the same, which doesn’t really make sense. Instead, we should be treating each transaction differently based on the risk profile. Appraisal work is changing through this process, but it’s not going away. It’s only changing and evolving to the different level of analysis. When I had my first AMC job many years ago, we sold credit reports, too. At the time, a residential mortgage credit report, which is what every lender used, would cost $50 and take four to five days. Today, a credit report costs a fraction of that amount and is practically instantaneous.”
So why would anyone still pay $50 and wait five days, Kelker asked.
“That same logic can be applied to the appraisal waiver program. Why should a low-risk applicant be paying $500 for a full appraisal if it’s not needed one to manage the risk? The answer is they shouldn’t. That’s why the industry is moving in this direction,” he said.
Holbrook emphasized that appraisal modernization is exactly that: It is for appraisers to modernize what they do.
“None of what is taking place is designed to eliminate the appraiser. It is designed to help the appraiser do something different,” he said. “We invite the appraiser to participate in data collection. It’s a new source of revenue. You can earn more per hour. You don’t have to do 10-hour appraisals to make $300-$400. You could go do an inspection and make $100 in 45 minutes.”
Inspection reports are a popular and growing part of the mortgage business, but Holbrook worries some appraisers may see the work as unworthy of their skills.
“Appraisers, who by training, are actually best-qualified to do inspections, have been reluctant to do them, perhaps because of their limited scope. But if appraisers don’t do that work someone else will, and that would be an unfortunate missed opportunity,” Holbrook added.
Will this additional technology further speed up the appraisal process, especially at times when appraisal demand surpasses a lender’s ability to produce a new loan?
“Technology will help accelerate the appraisal process, but more important is to change the operational process. Just like dentists and hygienists, doctors and nurses, bifurcating the process to include qualified data collectors will allow appraisers to do more appraisal work and get assignments done quicker,” Pistilli said. “Appraisal waivers can and certainly have lowered the cost of collateral risk management on the front end of the process. Time will tell if an expansion of waivers beyond the current use will have diminished success and ultimately cost more through increased loan loss severity.”
Boosting efficiency
Weldon noted that during the pandemic and refi wave, there was a limited supply of appraisers to meet the demand for mortgages at scale and speed.
Black Knight’s REvolution suite has proven that an inspection can be done in less than an hour and a hybrid appraisal in an hour and a half, Holbrook pointed out.
“People who are leveraging Black Knight’s REvolution suite are gaining tremendous efficiencies as we combine onsite property-collected data, MLS, public records, all in an environment that streamlines and compresses everything an appraiser would do from six or seven hours to less than three,” he said. “In the appraisal modernization workflow, collecting data the right way removes opportunities for mistakes downstream.”
“You’re collecting new data faster, more efficiently in a high-integrity environment,” Weldon added. “And also validating data in a consistent, secure environment. This also eliminates rework, builds in accuracy upfront, and lowers costs. It enables singular input versus iterative, while poor quality data and information and corrections take time and cost money. Time equals money.”
When the industry experienced the spike in appraisal demand in 2020 and 2021, consumers had to wait weeks for an appraisal report, which was slowing down the entire loan transaction and creating bottlenecks, SingleSource Appraisal Modernization and Quality Control Vice President Matt Stepanovich said.
“The new appraisal waiver programs and the overarching appraisal modernization initiative should eliminate the possibility of that ever happening again. More efficient utilization of appraiser capacity will mean lower costs and faster deliveries for consumers, even in times of increased demand,” he said. “Also, the addition of trained, background checked, and skilled data collectors will help with appraiser capacity on a national scale. The valuation industry depends on appraisers as valued partners with a valuable skill set. Appraisers are the backbone of the lending process and relied on to assess risk on a property. Rather than having them scheduling appointments, sitting in traffic, or wasting hours of their day driving, their time and expertise in local markets can be better spent analyzing data, reducing risk, and providing reliable values.”
Regulatory environment
Steinley shared his thoughts with regards to regulations.
“We’re anticipating an active regulatory environment, with the PAVE action plan in the implementation phase, including several pertinent guidance and regulatory initiatives already underway,” he said. “These include efforts to improve consumer disclosure and lender processes relating to reconsiderations of value and appraisal appeals; appraiser diversity; and automated valuation model quality control standards. Outside of PAVE, we anticipate the VA to engage in some cursory regulatory activity relating to a recent enacted law focusing on desktop and waiver policies; and the Internal Revenue Service will be implementing a new law relating to syndicated conservation easements.”
“The PAVE objectives focus on removing unnecessary subjectivity from the appraisal process. Mobile inspection apps using digital capture technology satisfy that objective and can create greater consistency across multiple geographic regions,” Clear Capital Executive Vice President of Strategy & Growth Kenon Chen said.
As to the ANSI standards (measurements) established by Fannie Mae, Chen outlined how this particular method of determining value will take more shape in 2023.
“ANSI standards continue to be adopted in appraisal modernization programs. The process of vetting and approving technology providers for GSE inspection-based waiver programs is another way to ensure that ANSI standards are built into approved technology for use by appraisers and data collectors,” Chen said. “The PAVE objectives focus on removing unnecessary subjectivity from the appraisal process. Mobile inspection apps using digital capture technology satisfy that objective and can create greater consistency across multiple geographic regions.”