Digital Transformation of the Appraisal Industry

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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.

Change Coming
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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Comments (14)

  1. I imagine that even Domino’s Pizza still takes the same amount of time to actually MAKE a pizza. Millennial targeted digital options to order and track a pizza order did not cut down the amount of time it actually takes to make and bake a pizza. Quality work can’t always be instant, and shouldn’t be expected to be. My appraisal report isn’t a T-shirt ordered off of Amazon to get delivered quickly. I’ve ordered that Amazon T-shirt before, and it was crap. Rather than comparing me to a pizza joint, how about comparing me to an attorney? A doctor? Do you really want their fastest answer? Or would you rather have their best quality answer even if that takes a little longer? Their professions have altered due to technology as well, for scheduling, online appointments, access to medical records, etc. But you still go see a doctor when needed. I would never expect a doctor to see me via Facetime to determine if I’m having a heart attack or if it was just reflux from that Domino’s Pizza.

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  2. The first thing no longer needed in the digital age is Appraisal Management Companies. They, with the help of Appraisers, ruined the appraisal business with unrealistic demands and low, low fees.

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  3. by Wayne A Herget RPA,

    Appraisals are not round widgets with options attached. If you want a sound financial industry based on Real Estate transactions the industry will have to deal with Legacy type work as each property is its own unique entity and requires a professional to inspect and ascertain the quality and condition to produce a credible report based on comparables viewed by the appraiser. Sure, there are many cookie cutter subdivisions. But, it is the altered, updated, improved or rundown property which makes it essential to have an appraiser inspect and appraise each property.
    Amazon, Google and Dominoes can sell their widgets at lightning speed. You might want to slow down and take some time to properly evaluate your most expensive purchase and the backbone of the financial industry or learn to live with frequent periodic meltdowns of the world economy.

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    • Amen ! My mechanic still does a tune-up with his well seasoned ears, a screwdriver
      and a can of Gum-out. He adjusts the carburetor better than any of these modern
      doofangles with 100 wires running from a diagnostic machine. I’ll put my gas consumption bill up against anybody’s afterwards.

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  4. Fortunately, I don’t let millennials define my life any more than I let my 12-year-old daughter do my long term business planning. They lack the long term life experience necessary for wisdom.

    MISMO has admitted long ago that they intend to completely do away with both residential and commercial real estate appraisals (aside from those that are fully automated anyway). That’s not millennials speaking. That’s vested interest commission compensation special interests speaking.

    “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.” Last August Little Timmy proved yet again, or still that he doesn’t know a damn thing about what it takes to produce a good (credible) real estate appraisal. Then again, he’s been proving for quite some time that doing his own job seems to be beyond his capabilities.

    FNMA did not invent and does not / should not determine what a professional appraisal is. They may define what THEY are willing to accept, but not what professionals int eh filed consider necessary to produce credible results.

    Bradford has developed many things to make appraising easier. “Cloud” computing is not one of them. Cloud computing benefits only the software vendor. No one else once ALL the trade-offs are measured.

    Just remember, as more and more lenders abandon meaningful appraisals, thee are more and more appraisers joining the litigation sector where defrauded borrowers can still find honest, detailed, competently performed real estate appraisals and expert witnesses when its necessary to sue the lenders and online sales ‘platforms’ that defrauded them.

    The difference between us old “legacy” fogeys and young digital know-it-alls, is that WE still know where to serve a summons and complaint when we have to go after a brick and mortar defendant. Try doing that in the cloud.

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  5. by Lawrence A. Walsh

    Yeah, I’m all for this concept. But there are two things I’d like to mention. In the late 1990’s my ex-wife had a function at our house for physicians. A group of doctors happened to come up to my office and were amazed to see the technology I was using, digital photos being transferred via the internet, laser measurement,, file sharing and transfer etc… From a field to office perspective appraisers have always been on the cutting edge of technology. We had trainees helping with gathering data, office assistants helping with paperwork, a real team process. Then the “banks” made up their own rules and virtually got rid of any scaling of the business or team concept. They implemented AMC’s who took so much from the appraisers pay, we could no longer pay a team. My point is, I think appraisers have always been cheerleaders of what you propose, but we’ve had the big, bad, greedy bullies, create their own rules and take complete control of the process, without asking any appraiser for any input! Oh yeah, except the ones who went to work for the bullies and knew that if they didn’t agree with any of the bullies rules, they would lose that bi-weekly paycheck!

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    • by Lawrence A. Walsh

      I forgot to mention. Like I’ve been saying for the past 10 years, if everyone is all for technology, why not give the boots on the ground appraiser access to the same review technology, the UAD data, the AMC’s and underwriters use. Then we can eliminate the AMC middleman and pay the appraiser more money to hire a second set of eyes to audit appraisals before they go out!

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  6. Finally a voice of reason and logic. Since the inception of Bradford Tech, I will also give Clear Capital a shout out, I have alway believed that company’s like Bradford will lead the Appraisal Industry out of the DOS/Fax world of the 20th Century into a fully digitized new world of digital valuation. There will be push back from the old guard but it’s time to put these folks and their forms out to pasture and embrace the future. Bravo from a former Zaio owner.

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    • What about the data needed? Like Zoning. The typical rural Borough, Village or Township only has one person who answers zoning questions and he only works part-time. Are you going to be allowed to leave that line blank? I just did one where they ordered a 2055 Ext with an REO addend. They told me to use the interior BPO for the condition rating and as a source . When I saw the way the realtor costed the repairs I was appalled! My doctor wouldn’t even use another’s x-rays , yet accept his diagnosis. If this is so great, why isn’t mine or the 5 appraisers who work for me E & O premiums not going down?

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      • Mr Toma: You must not do much court work or are hired as a professional witness. When on the witness stand, during cross examination, your digital world is going to get smashed to smithereens. You’re going to be asked questions that only finely tuned
        appraiser skills can answer. Your laptop will not save you. The judge and jury will know “if you paid your dues”.
        When a

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  7. Producing a credible report takes about 4 hours. Review sometimes another hour, however, the inspection from homeowner contact to the actual inspection still takes between 2-3 hours. The primary appraiser is required to inspect. How can I get an appraisal down to 4 hours total.

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  8. The cloud business is great but when will the “Millennials,” the Real Estate Industry start to pressure AT&T and the other high speed internet companies to serve everyone not just metropolitan appraisers. I live in the country and Hughes Net with their 20 GB monthly data allowance doesn’t work for Cloud business.

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