Remote/Desktop Appraisals – Opening Up Homeownership to More People

By Mark Walser, President, Incenter Appraisal Management

Homeownership is more than The American Dream; it’s “the largest source of wealth among families” as they accumulate equity, according to the National Association of Realtors.

There is a direct correlation between owning the place you live and success, and it spills over into the neighborhood at large, contributing to social cohesion and community growth. 

But as we all know, that dream has been elusive for many. In the first half of the twentieth century, laws such as redlining and other systemic issues created roadblocks to homeownership for minorities. For the past 70 years since the elimination of those laws, the country has undergone massive positive change as rates of homeownership increased across all demographics. However, challenges remain for a number of groups, striated by income and race in some areas of the country.

Many safeguards around Fair Lending practices and creditworthiness of borrowers along with appraisal independence rules are in place that has been very effective at reforming the industry and ensuring that home mortgage loans perform to avoid a repeat of that time. But … there are still issues within the lending and appraisal process that do impact communities of color. 

For example, access to appraisals that are affordable and also readily available has become a greater challenge for these communities. This is largely due to the declining appraiser population which has in turn driven up turnaround times and prices--especially in rural and underserved areas where there are historically fewer appraisers. There are legitimate complications to appraisals in some of these areas that justify higher prices, such as smaller sets of comparables and greater adjustments that require more thought and work. High gas prices, lack of appraisers in these markets, and a recent rise in appraisal costs (in some cases by 15-20%) only exacerbate this situation.

Moreover, the GSEs released studies that indicated there were potentially levels of bias that appraisers were bringing to appraisals in minority communities. While this was not necessarily a widespread phenomenon, there was some indication that because appraisers tend to be older white males, they may as a group lack contextual awareness of minority communities, and the appeal of certain neighborhoods due to limited experience with them. This may, in turn, impact their valuations. 

The American Enterprise Institute also did research on this topic and concluded that some of the issues that were positioned as potential racial bias turned out to lean more toward Socio-Economic status, where the historically lower-income demographics played a more significant role in what was considered low appraisals.

It’s clear, though, that less bias and more access to appraisals is the solution. Facing a continued appraiser shortage, made worse by impending retirements, the profession must evolve. Recent incidents of appraisers and homeowners conflicting with each other have also shone a spotlight on some of the need for retooling the process for the homebuyer.

The other factor that is impacting minority homebuyers is the rise of firms that are “cash buying” available inventory in many cities, locking out the ability of a first-time homebuyer to effectively compete against these offers. Can technology impact this issue as well?

The Impact of Remote Appraisals

The beginning of solving a problem is awareness and recognition. Most appraisers and most lenders recognize at some level that there is a cultural gap that can impact them, but at the same time, they want to fairly appraise the property based on its characteristics and a neutral assessment. Technology provides a bridge to address some of the challenges.

The general idea of a technology-based approach to appraisals involves cutting out the travel time to and from the property for the appraiser. Importantly, the approach must preserve at a high level the ability of the appraiser to observe the property in real-time or close to it and verify its condition. These approaches take a variety of forms including virtual inspection technology, hybrid inspections, and 3rd party data collection. 

In March 2022, the gates for these technologies opened with the GSE (Fannie Mae/Freddie Mac) acceptance of the new Desktop Appraisal (Form 1004 Desktop/70D). This new appraisal type allows an appraiser to use either virtual inspection technology or MLS data sources (or both) to appraise a property without being onsite. This opens up the ability for them to produce an appraisal faster, widen access and eliminate trip fees. This new appraisal type is growing in usage and as the GSEs refine and expand it, it’s a path for other lending agencies to adopt as well.

Some remote Inspection technology solutions allow appraisers to quickly connect with a homeowner on a video-based call using the cell phone they already have. The appraiser can greet the homeowner, use the inspection App to view and photograph the property, and even measure it using advanced 3-D scanning capability. The solutions enable the creation of a floor plan with walls, and illustrate the functional layout of the home, as the GSEs require. The proliferation of fast network data and advanced phones makes this technology accessible in a way that is nearly universal in the United States, and it’s only going to get better. These platforms also further reduce potential bias issues that can arise from personality conflicts created by in-person inspections.

The other exciting technology that will increase access to faster valuations is the advent of blockchain technology into listing data. The blockchain can basically be thought of as a secure, non-tamperable transaction ledger (think of a spreadsheet with all the “facts” about a property, and it can’t be altered or updated without all parties downstream of the transaction knowing about it). A real estate listing can be turned into an NFT (non-fungible token) by the real estate companies and the settlement providers upfront. So in the case of the appraisal data, imagine if the appraisal floor plan, measurements, and data calculations for GLA are embedded upfront into the listing! When a buyer comes along with a mortgage company and the transaction starts, the appraiser will be able to review that data, have 100% trust in its efficacy, and use remote inspection technology to verify that the house has not changed on the date of inspection. Once they do that, they can just use the measurements and calculations in the listing to verify the GLA and create an appraisal. 

One of the major benefits of these technologies to minority homebuyers is the speed of the mortgage transaction. It could very well enable a mortgage buyer to compete with a cash offer, thereby shortening the time needed to close. This could be one of the game-changing steps to allowing individual buyers to purchase homes in their community with greater ease, and build wealth creation by moving from renter to buyer in the neighborhood they grew up in.

To conclude, we are in an exciting and transitional time in our industry where new technologies impact so many parts of the transformation of the home mortgage loan process. Mortgage Lenders can help drive this change by encouraging their investors and employers to partner with companies that are embracing their usage and impact.

Mark Walser is President of Incenter Appraisal Management, providing professional appraisal services and RemoteVal™ mobile appraisal technology to streamline the appraisal process. More information is available at incenteram.com or 866-222-6205. Mr. Walser can be contacted at mark.walser@incenterms.com.