Data Analysis Adds Certainty to Home Valuations

MBA Newslink

Appraisal management companies and technology firms continue to traverse new regulations to determine more accurate home valuations.

“It really comes down to what we can do for the appraiser so that they can produce a transparent, irrefutable valuation without having to go through a lot of underwriting, second guessing and everything that goes on today,” said Jeff Bradford, president of Bradford Technologies, San Jose, Calif.

“The issue is that the appraisal today is an opinion of value," Bradford said. "And you could have an opinion and I can have an opinion and the appraiser who is the expert, and a local market expert, has been deemed to have the best opinion. Unfortunately, because of pressure and fraud, that opinion has not really stood the test of time. So that trusted advisor is no longer a trusted advisor. They have lost credibility. That needs to be brought back up, and that is why so much of this geographic competency. Are they really local? Do they really know what they are doing?”

Fannie Mae and Freddie Mac, for example, adopted regulations to relieve pressure on appraisers from outside parties for a true measure of home valuations.

Brian Coester, CEO of Coester Appraisal, Rockville, Md., said lenders adjusted to the GSEs’ Home Valuation Code of Conduct, through hired appraisal management companies, but he said the model does not necessarily correlate to accurate valuations.

“We need to focus on how are we make sure that the appraisal is right and accurate because all the AMCs, all the software companies can theoretically guarantee is compliance,” Coester said. “They cannot guarantee value.”

“History is our best teacher,” said Vladimir Bien-Aime, CEO of Global DMS, Lansdale, Pa. “Looking back, we had this happen before–the savings and loans crisis, for example. It seems like a cycle gets out of hand, things crash, they regulate the heck out of it, and then [regulations] loosen up a little bit after a little bit, a little bit after a little bit until it is engine full steam ahead again, and then we will end up right back where we were. It just needs more checks and balances. We already have this in society, but these things need to be kept in check or they get completely out of control.”

The Uniform Appraisal Dataset, a mandatory initiative from Fannie Mae and Freddie Mac set for September 1, could turn AMCs into data warehouse providers, which could assist in more definitive property descriptions.

Through the UAD, Fannie Mae and Freddie Mac would validate standardized appraisal data prior to loan purchases. Bradford noted that while UAD should increase automation, appraiser property descriptions could narrow.

“In the beginning, it will hinder their productivity but, as they get fast at it, the power users are going to cruise through it,” Bradford said.

“On the lender side, they now need to comply with these regulations on the appraisal review side,” said Arturo Garcia, COO at Platinum Data Solutions, Aliso Viejo, Calif. “When an appraisal comes in, what doyou do with it? Is a lender consistent from one department to the next? Is it consistent from one underwriter to the next? Well, the threat there is that if [lenders] implement a policy, it should include technology because then they can automate many of these processes. They add analytics tied to that, and then it can help them do better quality control in their loan processes and their valuations because now they have data to do it with.”

“And there is going to be quality control,” said Jennifer Creech, president and COO of In-House Inc., Ponte Vedra Beach, Fla. “Even in the UAD, they are going to be seeing if appraisers have over-adjusted properties. And it is going to be important that the lenders know that that appraisal is acceptable before they ever settle on it because it is about a multi-tiered process. Small lenders are selling to larger lenders who are then selling to the GSEs. [Lenders] do not want to have a loan bought back three, four, five months later.”

Bradford said appraisers must look to the future and the past through regression analysis to determine accurate valuations.

“Looking forward, this is where you look at the housing supply, you look at the absorption rates and if that housing supply gets out there and the absorption rate is low, it is a price-elasticity [effect], and so price is going to go down. If you want to move your house right away, price will go down,” Bradford said. “If you can wait nine months or six months, whatever the supply or absorption rate–you might get your price. But it’s all price elasticity, looking at what is out in the future. This is analytics, this is market analysis.”

“That is why UAD is going to be very important,” Creech said. “We are going to become data warehouses of these data sets, and it will be important to assign the appropriate appraiser who has the competency to complete the scope of work.”

For example, in the next year or two, by using acquired data, appraisal management companies could recognize licensed appraisers in different geographic regions with experience in certain transactions.

Creech said a “firewall and separation” between appraiser and lender can complete the scope of work without any undue pressure outside, and analytics and data behind them can help make sense behind the values.

“We want a true value,” Creech said. “Whether it is high, low, down, up, we want it to be accurate.”

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