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    Lending | 3 min read

    Modernizing the Property Valuation Process: Part 1

    In this two-part blog series, we will cover the history of property valuation process improvements, the challenges the industry faces, and what the Appraisal Qualifications Board is doing to modernize the process for consumers.

    Over the past two years, the housing market has been on fire. We saw consistent price growth nationwide throughout this time and bidding wars were common.

    Some of the main contributors to the upmarket have been:

    • Low-interest rates
    • High demand
    • Low inventory⁠
    • Millennials entering the market
    • Baby Boomer’s downsizing

    At the end of 2022, we are now seeing the market stalling due to lower demand. Many buyers are getting spooked by the higher interest rates, are worried about prices declining, and are wondering whether this is still a good time to buy or if they should wait.

    We're seeing increased market time and the sale price ratios starting to compress. For instance, in 2021, we saw homes closing an average of 8% higher than the list price. That is certainly not the case, today. Concessions on persons and sale contracts are also increasing. Many items that were once waived are now required. These are all key indicators that the market is slowing down.

    Recent Valuation Process Improvements

    The appraiser industry has been challenged to improve for quite some time. There have been many improvements that were triggered by the great recession in 2009 and many of the initiatives in the past are now coming to the forefront in a very big way.

    The first step was ensuring the safety and soundness of the real estate valuation process. Everybody remembers Dodd-Frank and of course appraiser independence, which is very true today. The government-sponsored enterprise’s (GSE’s) standardized appraisal data to improve quality and consistency was a big step toward utilizing data in an efficient and effective way.

    Appraisal waivers were reintroduced in 2017 and they had a much more significant role during the pandemic. In fact, they helped a great deal to relieve the stress on the appraisal workforce in early 2021.

    For instance, appraisal waivers counted for about 45% of the GSE loans combined, and we saw how long appraisals took to complete during that refi boom. So, could you imagine what the turn times would look like if we didn't have waivers?

    Right now, we are in a unique environment. I think we can all say the pandemic not only challenged us significantly, but we had to pivot and adapt quickly.

    We leaned heavily on technology and alternative products, which were met with some resistance, then were quickly accepted to provide flexibility in the wake of a public health crisis. Not only did they work, but they performed quite well. Those positive results triggered the GSC to develop a more permanent alternative solution that is becoming much more widely accepted.

    The Appraiser Shortage

    Today, we hear the phrase “appraisal shortage” constantly. There was a significant increase in the appraisal volume in 2020 and 2021. Appraisals were busier than ever, but we are seeing those submission numbers on a steady decline, consistent with the rate hikes by the Federal Reserve this year and the market shift that will most likely continue well into 2023.

    The current appraiser population is only getting older. We are seeing more appraisers dropping out than those entering the space. This is a huge problem and has been for some time. Building the next generation of appraisers is imperative for the valuation industry. The industry is working harder than ever before on several programs fast-tracking this front. Practical Applications of Real Estate Appraisal (PAREA) was created by the Appraisal Qualifications Board and provides an alternative pathway for aspiring appraisers to fulfill their experience requirements.

    One of the barriers for trainees is finding a supervisory appraiser willing to take them on as an apprentice, either due to liability or logistics, such as cost. PAREA provides another way for appraisers to obtain their experience credit and sit for the exam. They not only make it easier for candidates to enter the profession, but also make it easier to overcome the barriers to entry that have historically limited diversity within the appraisal workforce.

    The Appraiser Diversity Initiative is a nationwide program and a collaborative effort by the Appraisal Institute, Fannie Mae, Freddie Mac, and the National Urban League. This program is designed to attract new entrants nationwide to the appraisal field while fostering diversity in the profession. The appraisal subcommittee has also set up training grants to states that are proactive in bringing practical appraisal training provided by the boards. We have a long way to go, but progress is being made more than ever before.

    Conclusion

    There is a lot of work to be done to move the industry forward to provide a streamlined process for consumers. Don't miss our next post in the series, in which we'll cover alternative valuation options that help expedite the process and current updates made by the GSEs.

    Click here to learn about SWBC Lending Solutions' Valuation options.

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    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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