Over the past five years, the combination of technological change and an unprecedented focus on collateral value has created a great deal of tumult in the financial services industry. For many, this situation was long overdue. But for residential appraisers, who were caught squarely in the middle of this change, there is much work to be done. The goal of today's appraiser is to adapt to changes in data availability, analytics and the pressures of the status quo in order to provide meaningful products and effectively meet clients' needs. But this is not easy. In fact, appraisers are entering a world where data is more prevalent and more accessible than ever--yet interpreting that data in ways that foster understanding requires a greater level of expertise. Because of the remarkable change in how data is now analyzed and presented to clients, many are calling the evolution in the appraisal and collateral sector Valuation 2.0. Valuation 2.0 involves new analytics and products that empower appraisers. It is about data mining, data refinement, and profiting from a better understanding of the market. It is also about recognition of the forces that are driving change--data standards, data availability, new tools for data analysis and new reporting standards. More than ever, accumulating and analyzing data is the critical foundation for the work that a valuation professional performs.
A growing number of appraisers are exploring new ways to work with data and how they can better understand and apply the results of their analyses. And yet, many others have failed to adapt to these changes and implement innovations in their own practices.
The status quo in valuation
How do we account for the lack of appraiser involvement in Valuation 2.0?
Some appraisers simply lack the necessary skills, software and automated tools, even though the software and the automated tools are actually available.
Some lenders, meanwhile, are reluctant to compensate appraisers appropriately for providing services that are more sophisticated. In some cases, the isolated nature of appraisal work results in some professionals having trouble connecting the dots.
But perhaps the biggest reason is the almost universal use of certain appraisal report forms that are currently involved in the bulk of today's loan originations.
In fact, many compare residential appraisals to merely "form-filling." Ever since the introduction of fixed-format appraisal report standards by Fannie Mae more than 25 years ago (the so-called Green Hornet form), appraisers have migrated to a single appraisal report format--the Uniform Residential Appraisal Report (URAR) for most assignments.
If a lender wanted to sell its mortgage loans to Fannie Mae or Freddie Mac, it must use the URAR form. Gradually, appraisers came to use the...