Appraisers - Bifurcated Appraising



Bifurcated Appraisals

by Isaac Peck, Editor

Leaders within the appraisal community have long prepared appraisers that “change is coming,” and that the role of the professional appraiser is going to evolve in the coming years. Today, that change is here.

Fannie Mae has been extensively testing a new bifurcated valuation approach that breaks the appraisal process in two: data collection and then an analysis, if required.

Fannie has spent the first half of 2019 detailing its plans to roll out the 1004P, a new desktop appraisal that will be based on a Property Data Collection report that is prepared by a third party inspector; this is part one. Fannie has indicated that it is currently testing appraisers, appraiser trainees, insurance inspectors, real estate agents, property preservation service professionals, and smart home service professionals as potential Property Data Collectors to determine “which labor force can best collect data,” including a “robust and accurate set of data elements, photos, and floor plan.”

The more impactful revelation is that Fannie aims to replace the appraisal requirement completely where it can. In these scenarios, a property data collector, not necessarily a licensed appraiser, will inspect a home and report back on the condition of the property. Then, based on that property inspection report, a desktop appraisal may be ordered or the appraisal requirement might be waived altogether.

Fannie is calling its solution Value Verify, with the goal to separate the property data collection (PDC) from the appraisal process. Under Fannie Mae’s proposed plan, after a property data collector submits a report on the property’s characteristics and condition, Fannie Mae will decide if it wants to (A) accept the loan without any appraisal whatsoever, (B) require a desktop (hybrid) appraisal that uses the property inspection from the property data collector, or (C) seek out more information and perhaps order a full appraisal.

Figure 1 (page 8) is a slide presented by Lyle Radke, Director of Collateral Policy at Fannie Mae, at the ACTS Conference in April, hosted by the National Association of Appraisers and Appraiser eLearning. It contrasts the conventional appraisal process, i.e. what is happening now, with the Value Verify model being proposed by Fannie.

While Fannie is currently testing a myriad of professions, in its June 2019 Appraiser Newsletter, it writes that “Appraisers are a natural fit for property data collectors. Let’s be clear: in our testing, appraisers are the primary providers of property data collection services, and we anticipate that will continue.” For those appraisers who are interested in getting work as a property data collector, Fannie writes that its process “requires new technologies (e.g., mobile apps, QC platforms, API connections) so appraisers need to have a technology partner. Several industry service providers have built the technology and are participating in the test. The best way to get involved is to affiliate with these companies. They are actively recruiting appraisers to provide property data collection services.”

We sat down with Radke to learn more about what Fannie is thinking, and what’s coming next

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WRE: What role does Fannie Mae see for licensed real estate appraisers, now and in the future?

Fannie Mae:
Historically appraisers spend much of their time collecting data rather than developing a value opinion. With the enormous amount of data readily available today through the Internet and other sources, we anticipate the appraiser’s role will evolve into more of a market analyst and less of a data detective.

Many of Fannie Mae’s latest initiatives, such as Appraisal Waivers, Property Data Collection, and Hybrid Appraisals make it appear there is a drive to minimize or eliminate the role of appraisers. Yet Fannie Mae has also recently launched initiatives (such as work with the National Urban League) to recruit individuals into the appraisal profession. How do you hope to recruit new appraisers while trying to minimize their role? Why would anyone want to be an appraiser when their role and income are obviously under such pressure? Is minimizing a step toward replacing?

Fannie Mae: In our June 2019 Appraiser Update newsletter, we discuss the role of a property data collector and how appraisers can fit into that role, given that they already perform property data collection as part of the traditional appraisal process. Appraisers already collect property data as part of the appraisal process, and many already have this skillset. Our intent is to raise the bar on the quality of collected data. Appraisers will be asked to collect data using more consistent standards than in the past. New technologies will help appraisers do this quickly and efficiently with fewer errors. We see tremendous opportunities in the future for appraisers who are quantitative, tech savvy, and nimble.

WRE: Fannie has said in the past there are around 40,000 appraisers sending appraisals through the CU/UAD system. Is that number about right?

Fannie Mae: When we look at data submitted through the Uniform Collateral Data Portal (UCDP), we see that the number of active appraisers fluctuates with demand. The biggest drivers of demand are seasonality, interest rates, and economic conditions. At peak volumes, we’ve seen about 45,000 active residential appraisers in UCDP while the trough is in the upper 30,000s. That range has remained stable over eight years since we launched UCDP. While we have not seen any large, persistent decline in the number of active appraisers during that time, we do see some flexible capacity. For example, some appraisers may specialize in other property types or other assignment types but, when demand is high, they pick up some residential work.

WRE: Do you foresee Fannie Mae (or the market) needing more than the current number of appraisers as the aging appraisers retire? Fewer? Why encourage new entrants?

Fannie Mae: The Appraisal Institute lists the median age of today’s appraisers at 60 years old, so we should expect substantial retirements in coming years. With fewer people entering the profession, we have to figure out how to attract a wider range of people to the field. With partnerships with other organizations, such as the National Urban League and the Appraisal Institute, we hope to raise awareness of career opportunities in the industry. We anticipate the nature of the residential appraisal will evolve to adopt emerging technologies and advanced analytics. New entrants will be expected to come up to speed with new technology and analytics.

WRE: What percent of all mortgages currently qualify for Appraisal Waivers, and how do you see that percent increasing or changing in the years ahead?

Fannie Mae: The appraisal waiver offering has not changed substantially in the past few years, but we are taking a very careful, deliberate approach in examining how technology can enhance the appraisal process, and we will closely examine any opportunities to responsibly achieve more efficient collateral risk management.

WRE: There has been a lot of discussion around the 1004P, Property Data Collectors, and hybrid appraisals. What is the objective of these initiatives? Who does it benefit?

Fannie Mae: Industry adoption of new technologies and processes can improve the quality of appraisals while providing substantial consumer benefits.

Examples of immediate benefits to the appraiser include enabling appraisers to specialize and become more efficient. Appraisers who prefer analysis over field work can choose to focus on valuation, while appraisers who prefer field work can specialize in that. There will still be many traditional assignments for the generalist as well.

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WRE: One of the common arguments is that hybrid appraisals are faster than a traditional appraisal. Has your testing supported that hypothesis? By how much? Why do you think it’s faster? Do you think the business model of many AMCs to shotgun blast appraisal orders, sometimes shopping for a week or longer for the lowest fee appraiser, has something to do with delays in appraisal turn-times?

Fannie Mae: In the Value Verify framework, there are two possible outcomes: Data & Done and Data & Appraisal. When the process results in Data & Done, it reduces the cycle time by several days. That said, our purpose in requiring property data collection and appraisals is to help us manage our collateral risk exposure. The feedback we share with lenders about their appraisals is framed around quality, accuracy, and risk management. That is the purpose of Collateral Underwriter, our post acquisition loan reviews, and our Appraisal Quality Monitoring program. They enable us to hold lenders accountable if their business model results in inferior appraisal quality.

WRE: One of the criticisms of hybrid appraisals is that, by driving to and from the subject property and the comparables, appraisers often learn about the respective neighborhoods, construction types, community boundaries, as well as observe other factors which influence value, such as power lines, proximity to certain positive or negative sites or landmarks, etc. Fannie Mae currently requires appraisers to inspect all comparables used in the 1004. This not only helps keep the appraiser informed about the geographic area generally, but also provides specific information about what might be influencing value and what is comparable or not. Will Property Data Collectors be required to drive comparables or know the neighborhood?

Fannie Mae: The volume of information available to appraisers from the office has expanded enormously in recent years, including aerial imagery, street level imagery, three dimensional tours, and GIS maps. These sources show neighborhoods and properties from a variety of angles inaccessible to the appraiser in the car or on the ground. Some tools include the ability to measure distances, angles and areas. Others combine visual data with invisible network information, such as utilities, or with property data, such as age distributions. Combined, this information can make the virtual realm a more powerful option for the appraiser to analyze a location than a physical site visit. I should also clarify a misconception implied by your question. Property data collection does not involve comparables in any way. It is strictly limited to observing and describing the subject property. The task of analyzing markets, comparables, and value—of drawing conclusions—will remain entirely in the realm of the appraiser, not the property data collector.

WRE: Will an actual person be reviewing the PDC Report and deciding whether to order an appraisal, or will this decision be made by an algorithm?

Fannie Mae: We communicate minimum requirements to lenders through Desktop Underwriter® (DU®). The DU messages are generated through our automated models and logic, but ultimately the lender decides whether to exercise the minimum or exceed it. What this means is the decision is derived from a combination of algorithms generating options and people making decisions about those options. We have established business rules for the DU offerings. If a property data collection report identifies features that suggest a complex property or certain other risk factors that triggers a Data & Appraisal decision—in which case a desktop appraisal informed by the property data package is the minimum requirement. People are involved in creating the rules, testing the rules, and monitoring the model that generates the offers to ensure their reliability. Your question seems focused on the decision mechanism, but I should add that we have aggressive quality control requirements for the property data collection. Lenders are required to have eyes-on quality control like what our Selling Guide requires for loan files and appraisals. In addition, Fannie Mae specialists look at a large sample of the property data files that we receive daily.

WRE: Do you anticipate any licensing for property data collectors, certifications, or background checks? Why or why not?

Fannie Mae: In many cases the property data collector is a licensed appraiser. We are testing other labor pools to see how accurately they collect property data. Whether or not they are licensed depends on the legal requirements for their respective professions. For example, one group we are testing is insurance inspectors. To the best of my knowledge, states do not license insurance inspectors. But, insurance companies have a powerful market incentive to ensure their inspectors are knowledgeable about residential construction. In some ways, their knowledge goes much deeper than the typical appraiser. For Fannie Mae, the skillset is most important. Mechanisms such as background checks, liability insurance, and performance monitoring can substitute for licensing in situations where licensing is not available.

About the Author

Isaac Peck is the Editor of Working RE magazine and the Vice President of Marketing and Operations at, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 50 states. He received his master’s degree in accounting at San Diego State University. He can be contacted at or (888) 347-5273.

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One Comment

  1. More than enough has been written by informed expert practitioners of real estate appraisal to refute the validity and ethical, if not legal propriety of performing so-called third part (bifurcated) appraisals.

    FNMA (once they are released from government oversight) can generally do what they want in terms of undermining investor confidence in the security of investments sold by them. They do not have the right to undermine an entire profession simply because they drank the technology kool-aid.

    The American Guild of Appraisers urges their members not to perform either hybrid inspections or appraisals. The best possible outcome is that they undermine their own profession.

    A more probable outcome is that on top of the best-case scenario, they also lose their licenses, incur heavy fines, and suffer diminished reputations professionally among their peers.

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