BLOG VIEW: In January, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac announced that they would include a desktop appraisal option to its sellers. When this took effect in March, it opened the door to a potentially permanent change in the way appraisals are developed and completed.
Many lenders see this as a positive move. However, they may have questions about how the changes will affect them. Let’s look at the potential impact of the new rules and address some of those questions.
Industry Impact
Increased availability of desktops could affect a huge number of loans and impact lender practices. Today, desktops can be used for purchase transaction with up to 90% LTV. This makes them much more widely available than previously expected. As the appraisal profession ventures into more technology-assisted territory, consider the following potential adjustments.
More Efficiency Over Time
Desktops have the potential to be assigned and returned faster than traditional appraisals, which would allow lender deadlines to be met more easily. However, it may take time to get there.
While the industry adjusts to using more desktops, there could be some headaches in the short term. Among them is the fact that the data required to complete desktops isn’t usually readily available for appraisers to rely upon.
The good news is that this problem can be solved through the advanced technology that is available now. As this digital technology becomes more widely used, the robust data it collects on properties will become available to appraisers at the time of listing, continuing to further streamline the desktop process exponentially over time.
While vetting their partners, lenders are advised to learn whether those partners offer digital technologies, such as the following:
–3D scanning technology that produces not only images, but interactive virtual tours and floorplan exhibits that are highly accurate and standardized.
–Comprehensive reporting tools provide geolocation and timestamping, documenting when and where the scan was performed
- –Comprehensive data collection that gathers all property data needed for any type of appraisal, fungible across all enterprises, ensuring that additional scans and/or site visits are never needed
Potential Challenges
As with any other shift, there is bound to be a learning curve with the increased use of desktops. One thing that hasn’t changed is those appraisal partners (whether they are engaged directly by a lender or through an AMC) are still responsible for submitting a credible report.
Ideally, appraisal quality control processes will prevent errors that lead to potential buybacks or other headaches for lenders. Subject to CFPB compliance rules, some errors could become the lender’s responsibility, so this is something to watch closely.
Lenders should seek out AMCs or appraisal partners with advanced QC systems and a clear, demonstrated understanding of the new desktop rules to ensure they are not exposing themselves to unnecessary risk.
New Requirements to Learn
The desktop option comes with new loan requirements to even be eligible for a desktop. Fannie Mae and Freddie Mac outlined several requirements, such as the following:
–A complete subject property address must be included
–The loan must be for a purchase transaction
–The subject must be a one-unit principal residence
–The LTV ratio must be less than or equal to 90%
–The loan casefile must receive an Approve/Eligible recommendation from Desktop Underwriter (DU)
While ANSI standards don’t technically apply to desktop, some providers are committing to the measurement standard and both lenders and appraisers should consider this when aligning with a technology provider, as this may be required in the future.
Common Lender Questions
What follows are some likely questions lenders might encounter regarding the use of desktops.
What’s the difference between traditional and desktop appraisals?
A traditional appraisal requires the appraiser to complete a personal inspection of the interior and exterior of the property. He or she will spend the time at the property, measuring the exterior to create the floorplan, photographing all the improvements, and documenting their personal observations for reporting purposes.
Desktops are completed without the appraiser making a personal inspection of the property. Instead, the appraiser relies solely on the data made available to them through MLS, public records, online photos, personal interviews, and potentially a virtual inspection to complete a credible report.
With either appraisal approach, the appraiser must meet all the requirements set forth by the GSEs. That is always the bottom line.
Many real estate sales agents provide the floorplan as part of their MLS photos. Can the appraiser just rely on that?
As long as the floorplan meets the requirements prescribed by the GSEs then the answer is yes. Exterior dimensions used to calculate the square footage, interior walls, staircases, points of ingress and egress, and room labeling are all required.
Many floorplans provided by builders and agents for marketing purposes will include some of but not all these elements. Some appraisers are being creative and including both the builder’s floorplan and the assessor’s sketch to meet these requirements. Assuming both are even available this can not only be a hassle but time-consuming.
If the appraiser cannot obtain a floorplan that meets the GSE requirements, then they must decline the assignment and pursue a traditional appraisal inspection.
What are the GSEs expectations for the technology used to create floorplans?
The concern of the GSEs is that lenders and appraisers meet their requirements. If a floorplan checks all their boxes and is considered to be reliable, then the technology used to acquire that data doesn’t matter.
This is why appraisers and lenders need to ensure the tools they are using meet GSE requirements accurately and consistently.
Will the increase in desktops generate more Reconsideration of Values (ROVs) or claims of bias?
Maybe not. The main difference between a desktop and traditional appraisal is that with a desktop, an appraiser isn’t visiting the property to collect their own data. Instead, they are simply receiving data and analyzing it to complete the report.
The appraiser and all other parties are reviewing the same set of data. This data is free of an appraiser’s recollection of their personal experience.
How will an ROV work with a desktop?
The ROV process doesn’t change based on the type of appraisal (i.e., desktop versus traditional). However, the difference with a desktop appraisal is that all parties will experience the property in the same unbiased manner.
Ever-evolving requirements for desktops make it even more critical for lenders to have the latest information and technology at their disposal. This can help them ensure accurate valuations that mitigate their risk.
John Dingeman is chief appraiser at Class Valuation.