Who Benefits & Who Pays the Price?
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Why does a hybrid appraisal work better? What are the benefits? Who benefits? Who pays?
A hybrid appraisal, as it has been proposed, separates the field work from the desk work. The assumption is that an appraiser is good at filling out the forms, while another “cheaper faster” person can do the property inspection. Also, we presume that the client would be the one to select the field inspector. For this post, we also assume that the property inspector is a real estate agent.
This is the third post considering “hybrid appraisal”. I had intended it to be no more than two or three parts. It appears that each aspect I consider seems to generate two or three more, like a hydra. You chop off one vicious venomous head – and two more appear. A data scientist would call it a “multi-dimensional” problem. We will take one view, one dimension at a time until all the heads are chopped off, and the goal of common good is visible. One bite at a time.
And, we have a lot of issues here. Let’s look at the benefits, and who gets the benefits, and who pays the price? To answer this, we need to be clear on the “players.” Who are the players? We have: appraisers, lenders, investors, regulators, legislators (state and federal), and the public good. Quite a list – not easy.
For lenders we have four elements of desired service: cost, speed, quality, and borrower satisfaction.
Reportedly, loan losses and “appraisal defect” levels are similar for hybrids as for appraiser-inspected properties. However, it’s important to note that this comparison has been controlled through pre-screening of the property. Such as a maximum site size, “jumbo” loans, or other pre-screening parameters. One caveat: the hybrid experience is less than two-years old, so longer-term losses may be different. Borrower satisfaction appears to show no subjectively-judged difference.
The cost to the client is reportedly nearly half for exterior-inspection hybrids, and the “turn-time” also nearly half the “traditional” appraisal turn-time. What I have not found as a control for this comparison is whether AMCs were involved in the traditional appraisals. I would guess that AMC involvement slows the process from directly-ordered appraisals.
Also, it’s not clear whether the “cost” includes the additional administrative burden of the pre-screening process. Is this fully automatic (an ASM – Automatic Screening Model)? Or does it involve another human pre-screening non-appraiser person? (Now we have a three-headed appraisal process.)
And also, also: do “turn time” elements include the processing time within the lender’s administrative staff? Do any of these include work normally expected of the AMC? I.e., when does the clock start running, and when does it end?
So, it appears that hybrids (with the above caveats) have the advantage of speed and cost, and similar “quality”. So why do we care? The problem, as I see it, is that there are unintended consequences. Especially long-term. We’ve heard complaints of “appraiser shortages” and poor quality.
The most critical appraiser training takes place out in the field. Hybrids will reduce or eliminate a critical training ground. This is a long-term negative impact. Also, will appraisers, with forms to fill and E & O insurance – will their ability to apply good judgment degrade as they never go out in the field. I suspect that will also happen. A human, form-filler automoton.
Alas, who cares? There will be so little judgment left, a good algorithm will speed the process even more. Even cheaper. The end is near. No need for a desk jockey.
Until appraisers learn to also evaluate asset risk (not just a point value last week), others will fill in the real need of our clients: risk scoring and investment prospective.
Stay tuned. We will further approach the risk topic. Stuff to sell. Expanded services by those most competent to do so: appraisers.