Digital White Paper
Embracing new technology to reinvigorate the industry​​

When Polaroid invented the first instant camera in 1948 – taking photography out of the darkroom and into the family room – how many photography purists do you think turned up their noses at the idea? What do you think those people would say now that we have the ability to shoot high-definition video from a small gizmo we casually toss in our pockets and purses?

Property appraisals are facing a similar technology crossroads. An industry heavily dependent on old-school methods, lots of paper and institutional memory can't expect to thrive in our modern era. The good news is that the industry has shown a willingness to adapt to new technology – the question is whether that will become a full embrace as technology advances further.​

Let's examine the current state of the industry and its challenges, then take a look ahead to what appraisals may look like in a few years (and beyond).​​​

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Industry Background


In the U.S., property appraisers are licensed professionals. The requirements vary by state, but they all typically require a college degree, around 2,000 hours of apprentice training and successful passage of a certification test.

An appraisal is required for all loans that are backed by the federal government, which is just about every home in the U.S. – you can't buy, sell or refinance a home without one. The detailed report of property value is based on both the property itself and the characteristics of the surrounding area.

There are three basic appraisal methods:

  • Standard – The appraiser evaluates the property's interior or exterior, including photos, measurements, damage assessment, comparable recent sales, age and size of lot.
  • Desktop – The appraiser makes use of the available cache of public records and other sources that that are now much more readily available through online tools.
  • Hybrid – A combination of standard and desktop.

 


Challenges the Industry Faces


We recently conducted a survey of roughly 2,000 appraisers looking for unique insight into current challenges and future solutions and received nearly 450 responses. Like any industry – especially one that's still embracing new technology – property appraisal has its fair share of challenges, the bulk of which fall into two broad categories.


Supply and demand 

In 2017, more than six million homes were sold in the U.S. and there were more than two million licensed real estate agents. By contrast, there were only about 80,000 appraisers – outnumbered 25-to-1 by real estate agents. There are also about 8 percent fewer appraisers in the U.S. than there were in 2013, and 21 percent fewer since 2008, according to statistics from the Appraisal Subcommittee.

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According to recent Property Solutions data, an appraisal in a remote part of Washington State took nearly four weeks to complete at a cost of $1,800, while an appraisal for a comparably sized home in suburban Illinois took less than a week and cost only $450. The lack of available appraisers drives both prices and timelines upward.

And the problem is likely to get worse if conditions don't change – nearly two-thirds of all appraisers are older than 50, so over the next decade the 25-to-1 realtor-to-appraiser ratio could become even more lopsided. According to a 2017 study conducted by the Appraisal Institute, declines are expected to continue over the next decade due to retirements, fewer new people entering the appraisal profession, economic factors and government regulation. The enthusiasm for training the next generation has dwindled – in the National Association of Realtors 2017 Appraiser Trends Study, less than 20 percent of appraisers said they're currently involved with training apprentices even though more than half had done so in the past.

Of the more than 400 appraisers who responded to our survey, about 65 percent were older than 50, and not one single respondent was younger than 30. And there is additional cause for concern since appraisers apparently don't see the issue – only 25 percent of the same respondents believe that a shortage of appraisers is an issue. 



​Regulatory and Licensing Burdens

Given the requirements associated with becoming an appraiser (education, training and certification), new entry into the industry can be slow – and the 21 percent reduction in the workforce over the last 10 years appears to support this. ​And like any industry that is heavily regulated, change in general moves slowly.

The re​gulatory and supply and demand challenge​s combine in the current low-interest environment in the U.S. The Federal Reserve continues to maintain low interest rates, which results in increasing home sales, but there aren't enough appraisers out there to keep up with the demand.


​The continuing education offered in the Appraisal Industry h​as NOT changed in 15 years! Survey Responder​​

 

Though only about ​​40 percent of our survey respondents support the easing of licensing standards to attract more people to the industry, there was more than 60 percent support for reducing the minimum experience criteria and expanding continuing education opportunities for new approaches to appraisals.

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Meeting the Challenges with New Technology


​​The reality is that the days of exclusively onsite appraisals are numbered. To meet the demand and attract a new generation, new technologies and methods must become the norm. The 2017 Appraisal Institute study found that two of the most important drivers for attraction and retention in the field are having enough appraisals available to make a living and having enough time to perform the appraisal properly – both of which are greatly helped with technologies that can increase efficiency.


Desktop Appraisals

Our survey of appraisers shows an interesting attitude toward desktop appraisals. Since it's a significant change to the way appraisers have done business, there's a natural apprehension toward embracing them, with many survey respondents expressing displeasure at the idea of them becoming the norm – with many even predicting that they will lead to the death of the appraisal industry as we know it. Regardless, there is an acceptance that desktop appraisals will become more common, with more than 50 percent of respondents believing that up to half of their appraisals will be done via desktop within the next two to three years (as opposed to only 27 percent today).

The amount of MLS and property records now available over the internet makes the desktop or hybrid approach much more attractive. A single person can manage several appraisals a day because they're doing analysis on the computer instead of spending a large part of the day driving to and walking a property.


With the good MLS and property condition data available and disclaimers made, a non complex desk valuation is a viable product.​Survey Responder​​







As the tools and resources continue to improve, the amount of appraisal work done from the desktop will likely increase, as indicated by our survey results: 65 percent of appraisers now say that "almost none" of their appraisals are desktop or hybrid, but when asked to look a few years down the line, they believe that number will dwindle to just above 30 percent.

A major step to obtaining widespread acceptance of desktop appraisals is support from federal lending authorities like Fannie Mae and Freddie Mac. The Day 1 Certainty program shows a willingness to embrace technology and other methods to speed up the home loan process. Whether Fannie and Freddie will be of a similar mind on desktop appraisals is a major indicator – the industry should watch carefully for public statements from federal authorities that support the desktop process.

The reality is that the overwhelming majority of homes sold in the U.S. are "generic" – they're standard housing with low- to medium-value mortgages in regions with good records available. With the abundance of data available, the desktop approach makes the most sense although onsite will never go away completely – high-value homes, unique properties and certain locations will always require in-person appraisals – especially since those appraisals command the highest fees.


Tech In Other Parts of the Mortgage Industry

Anyone who has bought a house in the last few years has had a much different paperwork experience than those that came before them. Electronic signatures, which have been available for mortgages going back as far as 2000, have made it easier for buyers and sellers – verification is instant and people can review and sign documents in the comfort of their own home. Fannie Mae's Day 1 Certainty program greatly reduces the timeframe from offer to close by using electronic records and e-signatures.

With other areas of the mortgage industry embracing new technology, appraisers should be looking to do the same.


Looking to the Future

There are certainly modern technologies already being used in the appraisal industry that are making the process easier and more efficient – but they still support the old-school model of appraisals. It's the next wave of technology that will truly change things and bring the industry into the future.​

Sm​artphone applications.

Live video streaming capabilities allow an appraiser to manage multiple jobs at once. And the mortgage industry has shown the willingness to create technology to support and speed up the process (like mortgage application apps). Using smartphone live video for property assessment is already in use in the auto insurance industry. Granted, a house is a larger investment than a car, but the ability is there if the proper tool is developed.

Drones.

A few years ago, commercial drones barely existed in the public consciousness. Now we have Amazon hoping to add them to their delivery network. Applying this technology to appraisals allows for an enhanced onsite appraisal while sitting at a desk – a drone can see things like chimney tops, roofs, and far reaches of large plots of land that are impractical for an exterior or drive-by appraisal.

Cloud-based applications.

Many appraisers use tablets in the field, however, the software needed to complete the work is rarely cloud-based, which means appraisers have to return to their office to complete parts of the process that could be done more efficiently in the field.

Attracting a new generation.

Appraisers earn money based on the number of appraisals they perform. A young, educated workforce isn't going to come to an industry that restricts their ability to earn, so appraisers should be doing everything they can to adopt new technologies that make it possible to conduct more appraisals. The higher the earning potential, the more young people will come to the industry.

Saving trees.

The mortgage industry as a whole is doing a lot to reduce the paper usage, but appraisals are still heavily dependent on paper. Appraisers should support efforts to eliminate as much paper as possible from the process to ease both the administrative burden and the effects on our environment.

Continuing education opportunities.

As study after study has shown, appraisers are an aging population. If they are to change their approach to a desktop/hybrid approach, they need to be given the education and tools to ease the transition. As one of our survey respondents noted, "The continuing education offered in the Appraisal Industry has NOT changed in 15 years!"​

​Desktop appraisal work is my future as long as fees, data gets better and cloud-based appraisal software gets more user friendly and the appraisers ability to filter data more efficiently.​​Survey Responder​​ ​​

 


Appraisals in 2020


In most of the potential future methods, the technology already exists, it just needs to be applied correctly. It's understandable that the rise of new and enhanced technology can be frightening to established, experienced appraisers, but as one of our survey respondents put it in a comment, "I have no reason not to believe that the future holds great promise because systems and devices will only get better. And I believe I will be part of that. I do not fear that machines will edge me out of the business because, with all of the improvements I have seen, it still takes a set of eyes, a brain, experience and common sense to produce a quality appraisal."

In addition to protecting the industry against external disruption, embracing new technology will bring in a new generation that might not otherwise come.

It's not hard to imagine a future where the appraiser's desktop looks much like a stock trader's, crowded with multiple monitors. On one video footage of a drone flying over a property, on another a live feed from an apprentice in the field with their smartphone, and on yet another some documentation, but in electronic form rather than a big stack of paper.

The landscape for home appraisals is shifting. Much like the midcentury photography purists who insisted on staying in the dark(room), resisting the rising tide of new technology in the appraisal industry is unwise. Most importantly, the economics of it are better for everyone.​


You can learn more about joining our appraiser network or the Property Solutions business​ on our website​