BLOG VIEW: The foundation of every real estate transaction is the appraisal. Subsequently, appraisal reviews have always been a critical factor in the underwriting process. The importance of these reviews is underscored by today's higher standards for appraisal accuracy, as well as regulations narrowing the timelines for completion. Ultimately responsible for ensuring appraisals are completed properly and in compliance, lenders are finding and optimizing resources to both help underwriters and redefine the appraisal review process.
There are both modern and tried-and-true techniques that lenders are using to improve the quality and speed of the review process. Automated valuation models, scorecards and various review tools already provide excellent sources of data. However, we are seeing a noteworthy transition as it relates to technology for appraisals; after what seems like a lengthy respite from significant technology development, many existing companies are either improving their solutions or launching entirely new tools to enhance data collection and appraisal reviews.
We are even seeing new startup companies enter this space focusing primarily on developing technology that has not existed in the valuation arena. This activity encourages other organizations to ‘up their game’ and create better products that facilitate faster, more accurate reviews. With rising competition, technology companies are not able to rest on their laurels; instead, they must keep up with the changing lender requirements and other solutions on the market.
In addition to advancements in technology from the private sector, the launch of Fannie Mae's Collateral Underwriter (CU) in January of this year represents another technology tool impacting the appraisal review process. In addition to providing risk scores and critical messages to the underwriters directly, the use of CU by appraisal management companies (AMCs) can streamline the review process and generate stronger appraisals.
Typically, lenders receive appraisal reports, which go through underwriting and reviews, then go back to the appraiser for modifications. However, with CU, AMCs have an added tool and can alert appraisers of hard stops or negative items on the front end, enabling the appraiser to address those issues before the report is submitted to the lender.
Making these alterations initially accelerates the process, and speed will be of even greater importance come Aug. 1, when the TILA-RESPA Integrated Disclosure changes will shorten the timelines for completing these by the closing date.
There is no doubt that in the world of appraisals, technology is increasingly imperative. As regulations become more stringent, automation enables all participants to work and communicate with the speed this environment requires. However, there is no substitute for human expertise. In addition to technology, lenders should lean on third-party partners for appraisal reviews, combining automation with professional expertise.
Partnering with outside organizations, such as an AMC, provides lenders with access to licensed, certified appraisers who can assess an appraisal in a way technology simply cannot, reconciling variances from personal knowledge and experience. The advantages of having a state licensed or certified appraiser audit every single review, often knowing the ins and outs of that particular market, is invaluable. It is also likely impossible to accomplish without a partner that has a national reach.Â
Additionally, having an AMC partner assist with appraisal reviews is important, given that these organizations typically stay ahead of the curve when it comes to compliance. They keep their pulse on current and forthcoming regulations and not only understand, but can also help lenders implement the necessary changes in their appraisal and/or review processes.
The appraisal review is becoming almost as important as the appraisal itself. As scrutiny of the entire process increases, so does the pressure to streamline reviews and comply with tighter deadlines. The good news is this: Technology and partnerships are proving to support lenders' efforts, giving underwriters the tools they need to more quickly evaluate and refine appraisals and, thus, avoid risk and maintain today's higher standards for appraisal quality.
George Paquette is manager of valuation for USRES, a provider of valuations services and technology.