Under “normal” conditions, the ability for appraisers to effectively utilize and properly read data is critical in the overall process of the appraisal. But with COVID-19 restrictions and new guidelines in place, appraisers must rely on information supplied from other sources.
How reliable can that information be?
“Because of the coronavirus, many appraisals are now conducted with limited or even no in-person interaction between the appraiser and homeowner,” Appraisal Institute (AI) President Rodman Schley said. “The Appraisal Institute has told homeowners that they can help appraisers understand the interior condition by providing a complete set of photographs, along with information regarding recent repairs and replacements made by the homeowner – including items, dates and costs.
“The Appraisal Institute also has shared that if the homeowner has access to a property survey (land drawing with building outline and dimensions), to provide that to the appraiser as well,” he added. “Our organization also has noted that appraisers may be asking more questions in these limited situations, so homeowners should understand that they are gaining knowledge that will help their work be as thorough and professional as possible.”
Schley said AI further recommended homeowners provide data on sales of similar properties, which the appraiser will examine. AI also has said that in the final analysis, the best sales data available will be professionally analyzed, and that the final data used may not include what was provided by the homeowner.
He also discussed how technologies, such as automated sketches and digital GLA can emerge to benefit the profession moving forward. Schley said emerging technological trends for appraisers include the use of big data and a wide variety of new applications, software and other tools.
“One example of big data’s use is the ability to store information on prior appraisals, property listings and property sales to serve as a comparison to information in a current hybrid appraisal,” the AI president said. “A good source for news of the latest appraisal-related technology is the Appraisal Institute’s quarterly Valuation Magazine, which features software and hardware product reviews – many written by appraisers – in each issue.
“While an AVM is sometimes used in lieu of an appraisal, it is in fact neither an evaluation nor an appraisal. An appraisal requires an appraiser,” Schley added. “AVMs typically utilize public records that might be outdated, incomplete or otherwise erroneous or might rely on multiple listing service data, which often lacks standardization in the description of key items. Appraisals may incorporate algorithms for data analysis, but appraisals have the benefit of a qualified, capable appraiser’s observation, research, analysis and experienced judgment. Well-developed models are at their best when used in conjunction with the expertise of a qualified appraiser.”
Schley also stressed AVM reliability is affected by the quality, completeness and timeliness of data. In volatile environments with high velocity change – particularly change that is different from experience – models often struggle. The coronavirus pandemic likely will result in a widely different real estate market than the one seen in the previous months and years. There is uncertainty about whether AVMs can adjust to such changing market conditions and deliver accurate results. But there’s no doubt that qualified and competent appraisers will be able to adapt to changing market conditions, he said.
“Drones certainly can help offset an appraiser’s inability to fully access a property’s exterior. Other technological tools, such as Zoom, also can help an appraiser see what they otherwise could not during the coronavirus pandemic,” Schley said. “Any tool that helps an appraiser gather valuable information can only help the appraiser develop a reliable, credible opinion of value. But appraisers should carefully examine technologies to assess fraud risks and potential liabilities before relying on them. For example, if the appraiser is considering interior photographs supplied by the borrower or property owner, the appraiser should assess their confidence level that the photographs are a true representation of the property, including the risk that the pictures are not actually of the subject’s interior.”
“Even before life was upended by a pandemic, the valuation profession was working to address alternative valuation products,” Tim Andersen (“The Appraiser’s Advocate”) said. “As alternative valuation products are released, we continue to collaborate within the profession to provide the data as to why an appraisal, completed by a designated appraiser, is still the gold standard in the valuation profession. The lack of access to a property’s interior is an example of the challenges many appraisers currently face. But successful appraisers display the ability to adapt to changing conditions, and the current coronavirus pandemic is yet another opportunity for appraisers to change the way they do business in order to continue providing value to their clients. Well-trained and experienced appraisers will work with their clients to develop opinions of value and other products that meet their clients’ needs.”
Another change, Andersen brings to light surrounding drone usage, is appraisers are carefully examining technologies to assess fraud risks and potential liabilities before relying on them. For example, if the appraiser is considering interior photographs supplied by the borrower or property owner, the appraiser will assess their confidence level the photographs are a true representation of the property, including the risk the pictures are not actually of the subject’s interior, he said.
Will drones be a factor in the appraisal of the future? Andersen said “yes.” However, this will require the appraiser to reboot the mindset that a component of every appraisal must be boots in the living room.
“The pandemic has shown that while boots in the living room is the appraisal gold standard, for some appraisal assignments, copper is good enough. For others, the only standard will be gold. It is also clear that the choice between gold and copper will, to a great extent, remain in the hands of the client, thus it will not be a decision the appraiser will have to make,” Andersen said. “If the client orders an inspection, and the appraiser is willing to accept the assignment with that condition, then the appraiser shall put boots in the living room. Frankly, drones may be more important for neighborhood inspection and/or comp inspection, rather than inspecting the subject.
“It is true appraisers have accepted technology. However, this is simply because it was not possible to reject it,” Andersen said. “Now, is all of that technology to be trusted? Who knows? What one human can design and build another can disorganize and raze. These opposing pressures are what make progress.”