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Alternative Appraisals Are Becoming the New Normal for Lenders
In spring 2020, following the onset of COVID-19 in the U.S., record-low interest rates created a housing boom in the midst of the most disruptive period in recent history. Increased home sales combined with nationwide lockdowns created a unique challenge for lenders who needed to determine the value of homes without physically being onsite to conduct an appraisal.
Industry adjustments to social distancing restrictions (including eased federal guidelines) paired with a desire to reduce costs and increase the efficiency of the appraisal process led to the increased adoption of alternative valuation products among lenders. This was a drastic change for the industry. In a very short period of time, financial institutions across the country discovered that these products provide an elegant and cost-effective alternative to the traditional appraisal process.
Hybrid appraisals are one tool in the alternative valuation product toolbox that lenders are now using regularly. In this blog post, we’ll discuss how this flexible alternative to traditional home valuation could save your institution time and money during the appraisal process.
Hybrid Appraisals
The hybrid appraisal model acts and performs the same way traditional appraisals do, while also maintaining the look of a traditional appraisal product as much as possible. A hybrid is a restricted-use appraisal defined by the Uniform Standard of Professional Appraisal Practice (USPAP); is dated and signed by a licensed or certified appraiser; clearly shows how the appraiser researched and analyzed all the data necessary for credible assignment results.
Gathering Data for Hybrid Appraisals and Other Alternative Valuations
An appraiser collects both general and specific data to determine a home’s value. General data includes all real estate information on a macro level, encompassing information from market value to social and economic forces affecting the listing. More specific data focuses on the property in question and can include details about the home. These two types of data are collected through the appraiser’s first-hand knowledge and other information collected by third-party sources, with a heavier emphasis on the third-party sources.
For a hybrid appraisal to be successful, it must obtain the subject and comparable sale data from a variety of data sources including:
- Public Records
- MLS
- Appraiser Files
- Photographs of the exterior and interior of the house by a third party
- An independent party’s interior inspection
- Curbside viewings of the property
- Interior home tours conducted via video chat
The Inspection Process for Alternative Property Valuations
SWBC Lending Solutions uses only licensed real estate professionals who understand the inspection process are utilized for alternative property valuations, such as hybrid appraisals. State-of-the-art apps have been created to increase the accuracy and efficiency of this process. The inspector can upload all required photos, including interior, exterior, repair, and upgrade pictures. While inspecting the property from the outside doesn’t offer a full picture, it indicates to the appraiser whether the home seems well cared for, how much curbside appeal it has, and the quality of the neighborhood in which it is situated.
Accurate property value information is key to minimizing lending risk. For efficient, accurate valuation options that keep your financial institution fully compliant, rely on SWBC’s suite of valuation services. Learn about SWBC Lending Solutions' Valuation options.
Chuck Mureddu
Chuck Mureddu has more than 30 years of combined mortgage lending experience, including appraisal management, institutional risk, loss mitigation, and whole loan exit and securitization strategies. As the Chief Valuation Officer for SWBC Lending Solutions, Chuck is responsible for all valuation policy and process, quality assurance, and regulatory compliance.
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