Appraisal Waivers and Hybrid Appraisals
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In a previous post entitled The Need for Speed, I explained that lenders and Appraisal Management Companies are on a mission to shorten the loan processing time to boost their profits.
Many lenders argue that long processing times are the result of an appraiser shortage. They believe the solution to the appraiser shortage and to reducing processing times is to embrace the use of more appraisal waivers and Hybrid appraisals. By eliminating the appraisal, they can shorten the loan process and boost profits. Hybrid appraisal could be produced more quickly at a big cost saving. Hybrids would shorten processing time and boost profits.
There are numerous errors in this rationale:
- The false narrative from some lenders and AMC’s that there is a shortage of qualified appraisers
- The presumption that buyers, sellers and Realtors want quicker processing (closing) times
- That waiving the appraisal serves the Public Trust
- That Hybrid appraisals serve the Public Trust
- That Hybrid appraisals offer the best solution to shortening appraisal turn times
- That Hybrid appraisal offer the same level of quality
- That the cost savings of Hybrid appraisals would benefit the consumer
- The presumption that consumers are comfortable when no appraisal is done or that a Hybrid appraisal of inferior scope and quality will satisfy the consumer.
Let’s take a close look at these issues:
Is there a Shortage of Qualified Appraisers?
No, there is no shortage of qualified appraisers. There is a shortage of appraiser who are willing to work for low fees and deal with the unreasonable demands of some lenders and AMC’s.
Rocket Closings in 5 to 10 days?
I suspect that few buyers, sellers, and Realtors really want to shorten the closing time frame from the typical three to six weeks to five to 10 days! Is that really practical?
Fannie Mae’s and Freddie Mac’s Programs to Waive Appraisals
If I were a prudent investor, or a credit rating service, I would no longer put any faith in Fannie and Freddie’s promise that they can protect the public trust, and my investment, by underwriting loans without an appraisal. I would not risk my money, or my client’s money, on two companies who failed, are in a conservatorship, and are again loosening their lending standards.
Do Hybrid Appraisals Serve the Public Trust?
Appraiser George Dell likens a Hybrid appraisal to a mule… a cross between a donkey and a horse. A Hybrid appraisal is produced on a short form by a certified appraiser who sits behind a desk and uses the results of a report filled out by a 3rd party, marginally trained, inspector in the field. There are a myriad of hybrid appraisal forms in use by lenders and AMC’s and none of them are USPAP compliant. Unlike the URAR 1004, there is no standardized hybrid appraisal form. Hybrid Appraisal are not the best solution for shortening appraisal turn times!
There are a number of reasons appraisals take time:
- Many Realtors wait until the results of the home inspection are in before allowing the appraiser to inspect the property. This adds days to an appraiser’s turn time. Realtors do not want to obligate their buyer for an appraisal fee on a home that may not close.
- AMC’s shop appraisers for the lowest fee and shortest turn times. Surveys have shown that some AMC’s waste 3 to 5 days trying to find the appraiser with the lowest fee.
- Lender stipulations, that now run 2 or 3 pages, have increased the appraiser’s scope of work. “Scope creep” has increase appraisal turn times.
- Revision request from the lender or AMC after the appraisal is submitted, can take days to satisfy. Many add nothing to improve the quality of the appraisal report.
- Add it all up and the typical appraisal report now runs 25 to 35 pages long and can take weeks to be delivered to the consumer.
Hybrid Appraisals Do Not Provide the Same Level of Quality
The fallacy of those who endorse Hybrid appraisals is their assumption that the appraiser’s field work is less valuable, less important, than their analytical work behind a computer. They feel the task of inspecting the property and driving comps is best farmed out to someone else with less training. The real truth is that the field work is critical! There is no way an appraiser can credibly analyze a property through the eyes of another.
Is it Really the Time and Cost Savings?
I believe that the real goal of many proponents of Hybrid appraisals is to create their own lucrative appraisal mills. They envision the field inspector earning about $25 per inspection and the appraiser earning about $40 to $50 per hybrid appraisal. I think that most proponents of hybrids salivate over the idea of robbing the appraisal industry of most of their revenue. They want to take over the functions of the appraiser and turn them into their own profit center capable of pumping Hybrid appraisal reports out in record time and numbers to produce record profits.
Will Consumers Be Satisfied With No Appraisal or a Hybrid?
I do a lot of appraisals for cash buyers who want the peace of mind of knowing what the property they are buying is really worth. They want the opinion of an unbiased licensed professional. Buyers want an appraisal! The jury is still out on whether Hybrid appraisals will gain widespread consumer acceptance.
What Do You Believe?
So let me ask you… do you really believe appraisal waivers and hybrids serve the public trust? Do you really believe these cost savings will flow to the consumer? Do you and your clients really want to close on properties in 5 to 10 days? Do you believe it is prudent for a real estate broker to advise a client to close with no appraisal or a hybrid appraisal of inferior scope and quality?