This piece originally appeared in the October 2022 edition of DS News magazine, online now [1].
Todd Rasmussen is the President and COO at Equity Valuation Partners (EVP), a provider of home value services, valuation tools, and property value data for the real estate industry.
He has been a residential appraiser since 1990, and he started in the appraisal management company space in 2009. Rasmussen attended Arizona State University.
Aren’t appraisers required to inspect properties?
Not always. It depends on the type of loan and what the lender requires, but more loans are closing today without an in-person inspection by the appraiser. The pandemic was a major factor behind this shift.
Because of COVID-19 health protocols, many homeowners didn’t want people in their houses, and appraisers didn’t want to go into houses, either. The concept of DIY valuations was further pushed along when the GSEs, which have allowed appraisal waivers in certain circumstances.
This has led to new technologies that allow someone to walk around their home with a phone, take pictures, and essentially perform the interior inspection themselves.
Don’t financial institutions have to hire appraisers to value their assets?
Again, it depends. In certain cases, there is a carve-out for banks and credit unions that allows them to perform valuations without an appraiser’s assistance. A growing number of banks are now performing inhouse valuations, particularly for existing loans and home equity loans. There are plenty of reasons why. For one, there is a shortage of appraisers in many local markets, which leads to excessive delays that end up costing lenders time and money. With the right resources, in-house valuations are also more cost-effective than getting a full appraisal with an interior inspection or using an automated valuation model (AVM).
That being said, many lenders continue to use appraisers even if they could do valuations themselves, simply because they don’t have the technology or the staff.
Why haven’t the financial institutions taken more advantage of the carve-out already?
While the carve-out has been available for about a decade, the idea of using it is still relatively new to lenders, especially those that don’t have the resources or staff that large banks do. Most lenders also lack a standardized process for creating consistent valuations, so many have been muddling through the process. Typically, every person who performs a valuation inhouse does it differently and relies on different kinds of data and different data sources. Basically, there are no controls or consistency.
And because every valuation report looks different, anyone reading the report has to spend time deciphering the different formats and data. Many lenders figure it’s just not worth it.
On the other hand, there is new technology available, like our own Inhabet platform, that actually does standardize the valuation process, no matter who is doing the reports. These solutions can pull data from many different sources, even some sources that appraisers don’t even use. They have mobile apps for a home inspection to be completed by the homeowner or someone else other than the appraiser. The lenders who are using these solutions are seeing fantastic results, and their valuation review processes are becoming faster and more efficient, too. As more lenders start using these solutions to bring their valuation processes in-house, I think more will start taking advantage of the carve-out.
What about the possibility of deceiving photos that can make a small place look big or hide damage?
That is a very real concern. In every valuation, credible, accurate house measurements are important, so having the right tools is essential. But these tools do exist. One new technology uses light to measure structures. It’s on a mobile app, and it enables anyone the lender assigns to walk around the property and produce a floorplan with accurate measurements of the home’s dimensions. After the on-site walkthrough, it takes around six to 10 hours to process the results.
But can’t a motivated party tied to the transaction meddle with the application and cause the measurements to be more favorable?
Not really. Because the application is third-party secure technology, and the light technology, the user cannot monkey with it or make any changes. All the pictures are also geocoded, too, so everyone knows where and when they were taken. Of course, not all technologies are the same, which is why it’s important to use a platform developed by appraisers, like ours, who understand the importance of data security and integrity in the valuation process. But the technology exists, and it’s allowing more lenders to implement DIY valuations that are compliant, scalable, and cost-effective.