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Advancements in technology have led many to question the continued role of the Loan Originator in the home financing process. Could it be that the appraiser is the one at risk?
With databases constantly being fed information about property values, market conditions, area employment trends, and other information pertinent to determining property values, will we continue to need a physical inspection of a home to determine its value? Appraiser’s say yes; Fannie and Freddie say no.
Both agencies have loan programs that do not require a standard full appraisal report. In some cases, no appraisal is required at all.
Each has built a major database of property value information they can draw upon when making valuation decisions.
Think about it, how many times does the appraised value vary drastically from the sale price set by the Realtor? Market and property conditions determine value.
Appraisers say without a physical inspection, the property condition cannot be determined. However, property damage would be noted by the Realtor.
Plus, what buyer would purchase a home at full value if it was deficient or in need of repairs?
Will full appraisals be required for all mortgage transactions of the future? Maybe, for some, but surely not for all transactions.
It’s just a matter of time when a property’s value for lending purposes will be satisfactorily determined by technology, without the need for the physical walk through. We already have the AVM’s of today.
We have the technology for home and neighborhood views online through applications offered by such entities as Google and Trulia.
If need be, a lender can get a close up view of the property being financed and its surrounding area and all comparable sales. No need to visit the home.
So, when making a loan decision, lenders will be able to use technology to validate consumer credit, income, and asset information as well as property values.
This is good for lenders and consumers, saving them time and money, reducing the loan costs to both. Not so good for appraisers.
The question is – who and what is next?
A few notes on Property Inspection Waivers:
The current PIWs only apply to non-cash out refinances of mortgages already owned by the GSEs where the monthly payment is dropping. In other words there is no additional risk to the GSE since they already own the loan. This reduces risk to the GSEs as the borrower’s payment is lower.
Zillow has among the best AVM analytics available. How accurate is Zillow? It will be some time before AVMs capture a significant portion of the market. Certainly for high LTV loans they would not be appropriate. Low LTV loans where there is plenty of margin, yes, but how many of those are there?
Owner occupied housing secured with a federally insured loan requires a full appraisal per Dodd-Frank. That would need to be changed too. Interestingly, appraisers would be happy if the entire appraisal section of Dodd-Frank were struck as it would eliminate the need for Appraisal Management Companies.
Finally, it is unlikely that any appraisers will be replaced since they are, on average, 53 years old, and very few new ones are coming on line. As the demand for them dwindles over time they will simply retire at a similar pace. The Appraisal Management Model has assured that appraisers do not get paid enough to justify a young person out of college entering this buggy whip industry.