Desktop Appraisal to Become the New Norm
by Isaac Peck, Editor
Sandra Thompson, Acting Director at the Federal Housing Finance Agency, indicated that desktop appraisals will become a permanent part of Fannie Mae and Freddie Mac’s (the GSEs) valuation product offering as early as 2022.
A desktop appraisal is a valuation where an appraiser completes the assignment from, you guessed it, their desk—and doesn’t personally inspect the subject property.
Desktop appraisals were first introduced into the mainstream mortgage process as part of the COVID-19 appraisal flexibilities offered by the GSEs from March 2020 until the early summer of 2021, when the flexibilities were discontinued.
However, at the October 2021 Mortgage Bankers Association Annual Convention and Expo in San Diego, Thompson announced to a room of cheering and applauding lenders that desktop appraisals were going to become a permanent fixture of GSE valuation strategy going forward.
The crowd’s response is indicative of the growing frustration amongst lenders around longer appraisal turn times over the last two years—as appraisers nationwide have struggled to keep up with the exploding transaction volume brought on by record low interest rates.
Thompson acknowledged this frustration in her comments, citing “friction” in the appraisal process that slows down mortgage transactions. By allowing desktop appraisals, FHFA is hoping it will alleviate some of the volume bottlenecking that traditional appraisals are creating by allowing more valuations to be completed by the same number of appraisers. FHFA is also hoping it will provide some relief in rural communities where appraisers can spend a good part of their day “driving from property to property.”
“This will help each appraiser complete more loans in a day, and also help rural communities more readily obtain a necessary appraisal when the borrower is purchasing a property,” says Thompson.
When the flexibilities were first adopted back in March 2020, many lenders did not integrate either Desktop or Exterior Only “drive-by” appraisal products into their valuation processes. Or if they did, it was only in cases where it was absolutely necessary, i.e. a borrower who didn’t want to allow an appraiser inside the premises, etc.
Part of this aversion to adopt new appraisal products came, in part, from the lenders’ uncertainty surrounding how long these “alternative” appraisal products would be accepted by the GSEs. Some lenders were obviously more nimble than others—but for those with large, clumsy, and inflexible IT infrastructure, making a quick switch over to a new valuation process (and then the prospects of switching back at a moment’s notice) was simply not in the cards.
Thompson acknowledged this concern as well, saying that the permanent integration of desktop appraisals will provide the stability the market needs. “This certainty should allow lenders, borrowers, and appraisers alike to take advantage of the efficiency gains that desktop appraisals can provide,” Thompson says.
Following the announcement, a Senior Executive at Better.com, commented in a LinkedIn post that FHFA’s rule change will likely be “far less exciting” than what people are predicting.
“My guess is a small percent will be eligible. And an even smaller portion will actually be able to take advantage. Fannie and Freddie need to provide more detail. The devil will be in the details,” wrote the executive.
Sketch vs. Floor Plan
One notable requirement that is expected of the Desktop assignments is that they will require a floor plan instead of just a sketch. A floor plan takes the sketch a step further by including interior walls and room labeling, in most cases
The obvious question is how are appraisers going to get these floor plans?
At the Appraisal Summit in November 2021, some senior industry stakeholders suggested that floor plans will likely be available on most new construction assignments, where the builder could theoretically provide the floor plan to the real estate agents and appraiser to be used for a desktop appraisal assignment. It is also possible that in some jurisdictions, the local tax assessor or other municipal authority may have a floor plan that the appraiser could rely upon, although this is likely to be the exception rather than the rule.
Ultimately, the requirement for a floor plan in the desktop appraisal strongly suggests that appraisers will be required to work with real estate agents and/or the home seller and have them use a third-party tool to walk through the house, take pictures, and use advanced mobile app to generate a floor plan based on the agent or seller walking through the house.
For example, Incenter Appraisal Management has developed RemoteVal, a tool that uniquely allows appraisers to control the inspection using the agent or homeowner’s smartphone. The appraiser directs the individual around both the exterior and interior, conversing with them while snapping geo-verified, time-stamped photos of all the rooms. In addition to photos, RemoteVal also has a built-in digital measuring tape that incorporates 3D scanning technology and video recording, which allows the appraiser to get gross living area measurements of the interior the home, produce an exterior sketch, “revisit” and review the layout, and create a floorplan with the built-in tools or their own software—all without ever driving to the property! Given the GSEs floorplan requirement for desktop appraisals, appraisers interested these assignments will no doubt begin exploring RemoteVal in 2022.
A number of questions remain regarding how the GSEs will establish the eligibility criteria for what types of loans, transactions, and loan-to-value (LTV) ratios will qualify for these desktop valuations. For example, Thompson’s comments that such a move will provide relief on rural appraisals runs contrary to most conventional appraisal experience in the industry where appraisal waivers, hybrid appraisals, and other “alternative” valuation products have primarily been used in cookie-cutter, tract home neighborhoods where model-match comps are more readily available. In fact, over the years many senior executives at the GSEs and at major lending institutions have acknowledged the need for traditional appraisals on rural properties—which are much more likely to have unique features and require more complex analysis.
There is also the question of whether the introduction of desktop appraisals will potentially lead to a broader range of alternative appraisal products into the mix. Given that some senior executives at Fannie Mae were predicting that hybrid appraisals would become mainstream by 2022, it is actually a little surprising that desktop appraisal assignments are the first alternative product to get a permanent place on the GSE’s valuation roster. Appraisers will just have to wait to see what the future holds!
Lastly, as part of the COVID-19 appraisal flexibilities introduced by the GSEs, appraisers had a unique set of assumptions and limiting conditions that they were adding to their reports. They were also required to gather information from all available sources, including interviewing the homeowner, in order to produce credible results. Some appraisers ran into trouble with their use of “Extraordinary Assumptions” in lieu of actually conducting interviews of the stakeholders involved (Visit WorkingRE.com, search Fannie Mae Issues Warning Letters). How this new integration of desktop appraisals will modify or adopt these requirements also remains to be seen.
About the Author
Isaac Peck is the Editor of Working RE magazine and the President of OREP, a leading provider of E&O insurance for real estate professionals. OREP serves over 10,000 appraisers with comprehensive E&O coverage, competitive rates, and 14 hours of free CE for OREP Members (CE not approved in IL, MN, GA). Visit www.OREP.org to learn more. Reach Isaac at firstname.lastname@example.org or (888) 347-5273. CA License #4116465.