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Digital Transformation of the Appraisal Industry
By Jeff Bradford, Bradford Technologies
For over 30 years, I have been serving appraisers and during that time I have seen many changes in the appraisal industry. Mostly these changes have been due to advancements in technology, but not all were due to innovations and technology. Some were changes in compliance and regulations, such as the Home Valuation Code of Conduct (HVCC) and Dodd- Frank, or the changes in requirements to become a Certified appraiser.
There were changes caused by advancements in technology, such as dot matrix printers to laser, film cameras to digital, fax to email (if you do not remember these changes, you are very young). Remember when everyone would FedEx the report; then PDF became acceptable, and today we live in a connected world where information is just a click away. All of these changes had an impact on the appraisal profession, but producing an appraisal report is still a legacy business. We all do it the oldfashioned way—manually collecting data, pictures, working the sales grid and then writing the report. It’s definitely easier and faster than it was 30 years ago, but we still follow the same steps.
Well, as you might have guessed, more changes are coming and it’s technological for sure, but it’s not driven by an invention, such as when the digital camera was invented. Today it is demographics that is driving the change. The millennials are forcing businesses to change. It is estimated that at their peak, there will be 75 million of them. They are expected to be a larger force than the baby boomers. The millennials have never seen a fax or dot matrix printer. They only know mobile. They live in a digital world connected by their mobile phones, and they expect everyone they deal with to be digital as well. That includes the mortgage industry.
This group has given rise to the FinTech industry—startups that are out to disrupt the financial industry. Their aim is to make it easy to get a loan, make payments and do anything financial using their smart phone, and they don’t understand why an appraisal takes seven days. They certainly don’t understand why last year there were areas of the country where it took four to six weeks to get an appraisal.
This pressure has caused the GSEs to take notice and to begin to take action. As many of you know, the GSEs are on a three-year mission to remake appraisals into a much more efficient process. Last August, Fannie Mae CEO Timothy Mayopoulous stated, “Appraisers should be at their desks,” not in the field with a measuring tape or making phone calls to track down homeowners. This has led to pilot programs to test the validity of using third party inspectors paired with appraisers at their desks to study if appraisals can be produced quicker without a loss in quality. Many are saying the pilot programs are working well. Additionally, based on the changes the GSEs made to the 1003 (loan application form), the new 1004 will be pared down considerably, with fewer data points, creating a new slimmed down UAD dataset based on the new MISMO 3.3. (The current UAD is based on MISMO 2.6.)
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If the move toward bifurcation of the appraisal succeeds, this could open up some great opportunities for appraisers and the industry in general. Let me explain. Eight years ago, we introduced a product to the market that used a third party inspector. Our reasoning was that teams can do more than individuals. That product was not widely accepted. Why? It was less than successful because the inspector and the appraiser were not teammates. They were just individuals doing a job without regard to each other’s issues or concerns. We had missed the concept of teammates and the need for close collaboration between the two. It did not help that trainees and licensed appraisers were essentially banned from working together on the appraisal for fear that the appraisal would be rejected by a lender.
Fast forward to today. If lenders accept third party inspections, they will also have to accept appraisals completed by teams managed by appraisers. This change will open the door for appraisers to create their own teams consisting of assistants and trainees that conduct those duties, opening the door for trainees to once again be part of the appraisal process.
The key to high performing teams is tight collaboration. It’s the elimination of the distance and time factors between the stakeholders and team members. If the appraisal process is going to become more efficient and accepted by millennials, there needs to be better collaboration between all stakeholders in the valuation (lenders, AMCs, appraisers, inspectors, assistants, reviewers, and anyone else involved with the valuation).
In the past, we collaborated by phone, then email, and today we can collaborate instantly by taking advantage of the digital workspaces that are being developed in the cloud. For example, Google already has 1.4 billion users collaborating using apps on G-Suite. There is Slack, Microsoft Teams, Dropbox, Box and Apple iWork just to name a few others. There is now even a new term to describe people who work primarily in the cloud—Cloud Worker. They log in, do their work and log out. They work from anywhere, anytime and on any device. Companies that want to remain relevant are moving to the cloud. They are becoming digital businesses with an emphasis on allowing their employees to collaborate seamlessly and on delivering their services as quickly as possible with full transparency of the process (think Amazon).
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From Legacy to Digital
An example of a company that made the transition from legacy to digital is Domino’s Pizza. In 2008, its stock was at $3 and they were hurting. Today it’s at $277 and they are thriving. They did two things: 1) made improvements to the quality of their product, and 2) realized they were also in the pizza delivery business. They started thinking of themselves as an e-commerce company that happens to sell pizzas. This revelation led to a commitment to innovate the pizza delivery experience. Today, they have a Chief Officer of Delivery Technology who makes sure you can order a Domino’s pizza from the web, by email, by texting, or by asking Alexa to order you a pizza. They are a digital business catering to the anytime, anywhere and on-any-device millennial crowd. Domino’s is currently experimenting with delivery by drones and self-driving cars. Little Caesars pizza has followed suit with their own Pizza Portal and mobile app for ordering, scheduling and pre-paying for a pizza. The point is that moving from a legacy business to a digital business is not only good for business, it may be the only way to stay relevant in the age of millennials (think Sears).
As I write this article, JPMorgan Chase just announced that they are building a “FinTech campus” in Silicon Valley where it expects to have 1,000 employees focused on building its digital banking business. Chase understands what is at stake.
Appraising is a legacy business and if it’s to remain relevant and not marginalized by appraisal waivers, it must transform itself into a digital business. The GSEs are going to make some structural changes to the process. They will probably simplify the form, remove some fields and reduce the amount of data that needs to be collected. This change will make it quicker to create a report, but it does not transform appraising. It does not transform a legacy business into a digital business. Appraisers are the ones who need to make this transition.
Appraising is at an inflection point. Just like Domino’s, it needs to improve quality (no more silly mistakes, unsupported comps and arbitrary adjustments) and it needs to realize that it’s in the appraisal delivery business. The industry needs to start collaborating to improve efficiency, quality, transparency and delivery speed. The one size (1004) fits all approach is no longer an option. This is primarily why you see so many different alternative valuation products springing up.
What does it mean to be a digital business? It means that you are doing most, if not all your work in the cloud, in a digital workspace. It means that you are connected to cloud resources (data, imagery) simply by plugging them into your workspace. It means that you are working as a team, collaborating via your digital workspace. All the time and distance factors that would slow your appraisal process down no longer exist because all files automatically sync with every team member.
Collaboration is the key and it starts at home. Appraisers should start thinking about how to incorporate team concepts into their workflows and processes and by thinking of everyone as a teammate—not a partner or an assistant—a teammate. If you have one teammate assisting you, think of using Dropbox as your digital workspace for sharing files. It’s good for storage and backup as well. If you want to expand, consider online form processing and the use of a mobile inspection app linked into your digital workspace. At this point, you are starting to empower teammates to work from anywhere, anytime and on any device. At Bradford Technologies we’ve developed a Team Appraising platform to provide that digital workspace for you. It’s a little ahead of its time (like many things we do), but when bifurcation of appraising is accepted by the lenders, appraisers will want to control and manage their own teams to defend their business and outperform the competition.
Like Domino’s, appraisers need to realize they do more than just produce a product, but they are also in the delivery business. AMCs do more than manage the appraisal; they are also in the appraisal delivery business. For the industry to fully transform to a digital business, appraisers need to extend the concept of team beyond their office to include AMCs and to work more cooperatively to produce and deliver a product for their mutual client, the lender. If both do this in a collaborative fashion, working in a digital workspace with all time and distance factors removed, the appraisal industry will be transformed and secure its position as a valuable, highly relevant component of the financial community.
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About the Author
Jeff Bradford is the founder and CEO of Bradford Technologies, providing appraisers with hassle-free appraisal software for over 31 years. Today, Mr. Bradford is focused on providing appraisers with innovative solutions so appraisers can capitalize on the coming changes in the appraisal industry.
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