If you’re involved with the mortgage appraisal industry, you’ve heard about hybrid, or bifurcated, appraisals. This type of appraisal goes by a variety of names, but they’re all referring to the same type of product. Bifurcated appraisals are a type of alternative valuation product that is gaining popularity because of their supposed ability to streamline the appraisal process. But not everyone agrees.
So, what is a bifurcated appraisal anyway? Where one appraiser is the sole owner of the traditional appraisal, two people split a bifurcated appraisal. Typically, the appraiser will complete the report, but a third-party inspector will complete the inspection.
The third-party inspector might be another appraiser, a property inspector, or a licensed real estate agent. With a bifurcated appraisal, the form is usually shorter than a traditional appraisal, since the appraiser won’t actually be visiting the property. They’ll work off the information given to them by the third-party inspector who will either just do an exterior observation, or an external and internal walkthrough.
The reason why these appraisals are being considered the hottest new thing on the market is their suggested ability to cut down on turn times and the overall cost of the appraisal. They’re also helpful for lenders who are trying to manage the shortage of qualified appraisers. With bifurcated appraisals, some lenders are trying to take advantage of the resources they have to speed up the appraisal process. Most lenders are currently using bifurcated appraisals to update the value of a loan or see how a loan is performing. If a loan happens to go into default, foreclosure, or pre-foreclosure, lenders can use bifurcated appraisals to get a general idea of the subject’s market value.
What makes bifurcated appraisals so efficient? While they're not as speedy as desktop appraisals, the field work is outsourced, so appraisers can complete more appraisals per day. There is also a cost benefit, since field inspectors can complete multiple property inspections each day and for less than what an appraiser costs.
Some people have expressed concern over the bifurcated process because they believe the appraiser’s inspection is a critical component to the valuation. While this may be true in some cases, there are plenty of situations where a bifurcated appraisal is all that’s needed.
It’s important to remember that all of the information passed on to the appraiser from a field inspector must be treated the same as any third-party information collected. It’s the appraiser’s responsibility to analyze and verify all data and information being used in the valuation of the property. In this respect, the field inspectors information must be treated the same as MLS, public records, or any other source of information being used in the appraisal.
While most bifurcated appraisals are being used for exterior-only inspections, there are times when a bifurcated appraisal is used for a full interior inspection.
If you have a third party complete the full inspection, it can raise some questions. Is the field inspector as qualified as a licensed appraiser? Are they able to accurately measure a property and calculate the Gross Living Area (GLA)? Are they trained to recognize potential problems that could affect the safety, soundness, livability, or marketability? Do they understand how to do a site inspection and identify any potential issues? These are just a few things that you might want to consider when deciding whether or not to use a bifurcated appraisal.
Another factor you’ll want to consider is whether the third party is trained to interact with those who have a vested interest in the transaction. Appraisers are unbiased, so disinterested third parties and the information they gather and share must never be construed in a misleading way. Even innocent comments can lead to major problems down the road for everyone involved.
It’s also important that the inspectors can maintain proper communication with the property owners. Appraisers are not allowed to comment on the state of the inspection and provide them any assurance that the value of their home is what they want it to be. If an inspector gives away information ahead of the final appraisal, it can disrupt the loan process and potentially damage the reputation of the lender.
If you’re working within a tight timeline, or the information you need doesn’t require a full appraisal, you might find that a bifurcated appraisal has the more appealing turn time. For many, the jury is still out on the bifurcated process because it breaks with traditional practices, meaning taking the appraiser out of the inspection process. However, it’s important to remember that a bifurcated appraisal is still an appraisal. It’s still subject to all of the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP) and applicable laws.
If you’re interested in trying bifurcated appraisals, it’s important that you understand what you’re asking for. While it’s not a perfect fit for all scenarios, the bifurcated appraisal does have a place in the valuation realm — and it may not be long before they become commonplace. If you’re not sure where to start, try one on a trial basis to see how it works with your current processes. At Dwellworks, our experienced lender appraisal management team can help you identify the right alternative valuation products for your needs. Reach out to our team today to see how our products and services can help you.