Collateral Analytics has introduced a new tool used for gauging appraisal accuracy.
The traditional process when appraising a home for purchase is for the appraiser to provide a point estimate of value, the firm says in a press release.
However, recent research by several prominent government entities shows that there is a meaningful amount of uncertainty in the actual value which is masked by the appraiser being provided the contract price of the sale.
“Our research in analyzing the real estate market over the years has found that neighborhood-level home prices typically exhibit quite a bit of volatility on a weekly and monthly basis, not too different from financial markets,” says Michael Sklarz, president of Collateral Analytics.
To help quantify the level of variability in home appraisals, Collateral Analytics has developed a new methodology to estimate this variance which can also be used to provide a high/low range for the appraisal. This is now available in the company’s Risk Profiler automated appraisal quality control product.
In addition, this information could be used for strategic lending and/or better risk management by buyers of mortgages or portfolio lenders.
Still, greater disclosure behind value estimates would enhance and improve the working of the mortgage markets for buyers, lenders and investors and perhaps mitigate the extent of the next housing bubble, the firm says in its release.
For more on the firm’s appraisal accuracy and confidence scoring tools, click here.