In their March 2023 Update to their Selling Guide, Fannie Mae shook up the real estate industry in the name of ‘modernization’. In case you missed it, or just have no idea what’s going on in the appraisal world right now, I’ll attempt to share some of the news, along with my perspectives on it, in this blog.
You can check out the entire update here.
In their March statement, Fannie Mae said the Selling Guide Update was “part of valuation modernization,” which includes a “transition to a range of options to establish a property’s market value.”
This new ‘range of options’ will allegedly help everyone “manage collateral risk more effectively, while also benefiting consumers via greater appraisal accuracy, lower costs, and increased speed of loan decisioning.”
Perhaps the time it takes to complete ‘loan decisioning’ (I didn’t even know that was a term) will be decreased. I’ll give you that. Appraisals take time – as they should. But ‘greater appraisal accuracy’ and ‘lower costs’? Here’s my quick take on that. How can a computer program, or someone who isn’t trained as an appraiser produce an ‘appraisal’ with greater accuracy than a traditional appraisal completed by an appraiser? Let that just sink in a bit. And sure, the overall cost may be cheaper in the short run for the borrower. But why should it? Why should the cost of developing an opinion of value of your largest asset be cheaper and completed by someone or something who isn’t an appraiser?
Ok, so now that I’ve raised some questions, here’s what Fannie Mae said, in part.
For this blog, I’m only going to look at three key terms from Fannie Mae’s announcement. All three of these products are part of Fannie’s new ‘range of options’.
Value acceptance: What many of us have come to know as ‘appraisal waiver’ is now being replaced by the term ‘value acceptance.’ Look for ‘appraisal waiver’ to be phased out soon, but the same process will be accepted in certain circumstances that do not call for an appraisal. Appraisal waivers have been around for a long time, so I’m sure most of you are familiar with them.
Value acceptance + property data: This is new for the industry, and it “utilizes property data collection by a third party, who conducts interior and exterior data collection on the subject property,” according to Fannie Mae. There’s still a lot to be learned about this process, but generally speaking, these property data collectors, or PDCs, will go through some sort of training process and will have to pass a background check. As for the training, though, we don’t know what that training will look like yet, but I had to work for a minimum of a year, log thousands of experience hours and take over 200 classroom hours to get my certification – just to put this in perspective for everyone. For this program, there is no requirement for an appraisal, as long as the property is eligible.
Hybrid appraisals: If for some reason the value acceptance + property data option was started, but perhaps changes in the loan resulted in that transaction no longer being eligible for the value acceptance program, enter hybrid appraisals. A hybrid appraisal is when a PDC collects both interior and exterior property information, and then provides that to an appraiser who completes some type of appraisal without ever setting foot on the property. These have also been around for some time.
Here’s what I want everyone to keep in mind. We don’t know how this will all shake out. It seems like something new comes out every day about this announcement, and no one has all the answers. This change is developing, and I would assume it may take quite some time for everyone to figure out what’s really going on.
But what I really want to do is speak to four different groups of people as everyone will react to this news differently. I’ll speak to loan officers, Realtors, homeowners and appraisers.
First, if you’re a loan officer, my advice to you in all of this is to be extremely careful. How this will be sold to borrowers is that “it will save you hundreds of dollars by not getting an appraisal, and we can do just as good a job with our computer program.” Now, I’ve always said, if I lend someone money, I get to dictate the terms of repayment. If there are any other conditions of the loan, that’ll be up to me as well, as ‘the bank’. Same goes for any lender working with Fannie Mae. If Fannie Mae is going to purchase their loans, then the purchase of those loans come with terms. They can dictate whatever they want, and that’s fine for them. But consider your borrowers. If I were in the lending industry right now, with so much talk about changing the valuation process, or leaving valuation up to non-appraisers, or even computers – I’d be scared to say the least. I wouldn’t be comfortable telling anyone that a computer program is sufficient to value their home. But all is not lost, as you can always refer your borrower to an appraiser so that they can still have their home appraised.
Second, for the Realtor representing a buyer who qualifies for such alternative products, I recommend an equal amount of caution. Remember that you are charged, even as you represent a buyer, with looking out for their best interest. Which scenario do you think will be providing adequate fiduciary duty to your buyers: encouraging them to just accept the new alternate products, or encouraging them to go ahead and have their home appraised? I know if I’m buying a home and qualify for an appraisal waiver, or hybrid product, or any other alternate product, and my buyer’s agent says “You know what, let’s go ahead and get that home appraised. It’ll only cost you a few hundred bucks, but it’ll protect your largest investment. Here are a few names of trusted appraisers you can call”…that agent will be getting all my referrals.
For the homeowner who is refinancing their mortgage and qualifies for one of these non-appraisal products, you’re probably going to be ok. Yes, you read that right. You’re probably going to be just fine. Especially if you live in a neighborhood with lots of recent sales, and if the homes are all fairly similar, and if you have a ton of equity in your home. But that’s a lot of ‘ifs’, isn’t it? I know a lot of appraisers may fight me on this, but that’s ok. It’s true and we all know it. I’ve always said it’s best to have an appraisal, and I still stand by that. I don’t think anyone or anything can replace an appraiser. But there are some instances when not getting an appraisal completed may be good enough. Not the best option, but good enough.
However, if you live in a more rural area, or have a unique home, or sales are limited, then those computer programs are going to have a harder time estimating your home’s value. And if your equity position isn’t really strong, these alternate products become a huge risk. So let’s hope for homeowners everywhere, that properties like that still get appraised. By appraisers.
Appraisers, I’ll speak to us last. If you’ve been following other blogs and podcasts, and reading social media comments, you’ll see a pattern emerge. The pattern I’ve noticed is that appraisers are falling into two groups, for the most part: some say the sky is falling and this will be the end of the profession as we know it unless we band together and refuse to take any alternate appraisal assignment. Others are saying that it won’t impact us as much as some are saying and that this will all blow over once Fannie Mae realizes what a huge mistake they’re making.
Here’s my perspective, and what I’m doing about it – for what it’s worth. I think both groups are partially correct. Like many appraisers, I’m a second-generation appraiser, and we’ve seen it all. We’ve seen the ways our profession has changed for the better, and for the worse. But the one constant has been change. Most appraisers don’t like the kind of change that affects their pocketbooks. They like the low-hanging fruit, and as long as they can continue doing easy mortgage-related appraisal work, then they’re happy. Now don’t get me wrong. I like that work as well. And I do a lot of it. But that’s part of what I want to change, and I’ll get to that in a minute. So I do see the industry changing, moving forward, modernizing – whatever you want to call it. But I don’t see it going anywhere. I believe this will be a bit of a ‘refining fire’ time for a lot of appraisers. Either stick it out, find ways to pivot, find ways to continue bringing value to your clients, or you’ll be essentially forced out of the business.
There will always be a need for appraisals, for that I’m sure. But advancements in technology and other processes are part of life. We can either embrace advancements, or be left behind. Just think of how many appraisers are still using pen and paper and a clipboard. Sure, they can get the job done alright, but by using a simple laser and iPad, the job can get done even easier and quicker with no loss in quality. Most appraisers have embraced this change in technology, just like most aren’t using a 35mm camera with printed photos anymore.
So in closing, here’s what I’m going to do. Actually, it’s four things I’m going to do and one that I’m not.
I’m going to keep working hard. Some of the reasons everyone is trying to ‘modernize’ appraisals, is that sometimes they take too long, or are too expensive, or are just full of boiler-plated language that anyone with an 8th grade education could compile. So let’s fight back. Let’s actually analyze. Let’s show our clients how valuable an appraisal is. Let’s do good work. Let’s turn our reports in in a timely manner, and on time. Let’s serve our clients well.
I’m going to look for ways to diversify my business. This has been talked to death pretty much everywhere, so why write anything else here? You know what this means, and I hope you’re doing the same.
I’m going to embrace the future. We’ve all heard the stories of the veteran appraiser who – like my dad – started using forms, a typewriter, and double sided tape for their Polaroids. Then came the one-hour photo, then digital photo and appraisal software. Then came the iPhone and iPad and lasers. Now, we’re talking about Lidar and virtual inspections. With every shift or change or advancement, you have some who embrace the change, and others who do not. Some take the time to hang it up. Some press on. And then there’s always the provider or an antiquated product or service or company that gets pressed out of business. When’s the last time you saw a one-hour photo place in the mall? So what I’m going to do is embrace the future, not fight it. Now, admittedly, I don’t know what that means just yet. But I’m young, I have a young team, and there’s no way I’m ready to hang it up. Not for this. I feel like now is the time to fight for my job, to stand up and embrace change, yet at the same time, remind everyone around me of the importance of the appraiser and appraisal.
I’m going to pray. Here’s where I might lose a lot of folks, and that’s ok. I’m a man of faith, and prayer is a huge part of my faith. I don’t really talk about it much here for whatever reason, but maybe I should! As a Christian, I believe we have an incredible gift in that we have access to God through prayer. And it’s not access to an impersonal God who doesn’t care, but we have access to a living God who wants to give his children good gifts! So I’ll pray. I’ll pray for my family, my team, my profession. I’ll pray for my fellow appraisers, and my clients. And that means I’ll be praying for you, reading this blog.
I’m not going to worry, complain, or judge. What’s the point of worrying? What can we change by worrying? In Luke 12, Jesus asks “Which of you by worrying can add a single hour to your life?” What good will it do me or others around me if I get on Facebook like so many appraisers, and complain? Maybe it gives me 30 seconds of relief to get something off my chest. But that’s it. Has it moved me forward? No. Has it helped my business? Provided food for my family? Helped out my fellow appraisers? No, no, and no. So I’m not going to worry. And I’m also not going to judge anyone for the decisions they make. If you want to go take a job collecting data for use in hybrid appraisals, then go for it. If you want to stick your heels in the ground and say “I’m not changing, I’m not doing anything other than a traditional appraisal” that’s fine. You do what’s best for you and your family. Outside of USPAP, there are no rules, really. Don’t let anyone tell you differently.