Traditional appraisals are extensive and typically involve an experienced appraiser. What if that method isn’t the right fit for the property you need appraised? Sending an appraiser out to assess every property regardless of loan type can be expensive and time-consuming. That’s where alternative valuation products can help.
Learn More About the Different Options to Help You Complete Valuations
More and more lenders are looking into different valuation types to streamline their processes. Often, it’s because the traditional appraisals aren’t serving their needs regarding tasks such as due diligence or portfolio management. Above all, the key reason lenders are looking elsewhere is that they need appraisals that are completed faster and cost less money.
This desire for something different has created a market for new types of alternative valuation products, and they each come with their own benefits and disadvantages. Products like Broker Price Opinions (BPO), automated valuation models (AVM), and even some variations of desktop appraisals have been around for a while, but their limitations have left clients wishing for something better.
How can you be sure that what you’re paying for will actually help you improve your current processes? Not every alternative valuation product is going to be the right fit for your business — but the right one can be incredibly useful.
Let’s dive into a few options that are currently available, and how they can benefit your operation.
Bifurcated and Hybrid Appraisals
You’ve probably heard the buzz about bifurcated, or hybrid, appraisals. This type of alternative valuation is being talked about left and right as one of the best new ways to lower costs and shorten turnaround time. Essentially, bifurcated appraisals are an elevated form of desktop appraisals, which we’ll cover later. The full appraisal report is still completed by a licensed or certified appraiser, but the inspection is done by someone else.
The main benefit of this type of appraisal is that the appraiser will be able to have more time to focus on the valuation of the property. On top of this, they’ll be able to complete more bifurcated appraisals throughout the day. In one day, an experienced appraiser may be able to complete five or six bifurcated appraisals, compared to two full 1004 assignments.
However, all the buzz has stirred up a lot of consideration toward the risk that comes with splitting your appraisal assignments. Many lenders are concerned that with a bifurcated appraisal, you won’t be able to fully understand the experience of the person doing the inspection. Meaning, they might not be able to perform at the same level that an appraiser would, and there’s the potential that property and neighborhood information might go overlooked. Measurements, repairs, and communication are pulled into question when you don’t fully know the person who’s executing the work.
The appraiser will be responsible for analyzing and verifying the appraisal information that they receive, but measurements, repairs, and communication can be pulled into question when you don’t fully know the person who’s executing the work.
So, while a bifurcated appraisal might be able to save time and money, you might not be getting the same level of work that you receive when you request a traditional appraisal. If you want to try using bifurcated appraisals, think about how you’re going to use the info. These alternative valuation products can be good replacements for exterior appraisals, or even as a more accurate replacement for BPOs or an AVM. A bifurcated appraisal might not suit your needs as well if it’s replacing an interior inspection. Consider trying them on a trial basis first for properties with completed valuations to determine the comparisons.
Desktop Appraisals
A desktop appraisal is when the work for the appraisal is done entirely from the appraiser’s desk. Unlike a traditional appraisal where the appraiser will visit the property and complete a full inspection, desktop appraisals are completed based on the property’s tax records and data within a multiple listing service, or MLS. An appraiser might be working off information that has been sent to them by an inspector, or they might be compiling research from an MLS system, public records, and even Google Maps.
Lenders tend to use desktop appraisals for homes that are in urban or suburban markets or considered “average” condition. Desktop appraisals might not be the right option rural markets, unique or complex properties, or for properties with known deficiencies. In situations like these, traditional appraisals often present a better solution. Like a bifurcated appraisal, costs and turnaround times are less significant because the appraiser won’t be performing any fieldwork.
As with any appraisal, the quantity and quality of information an appraiser has on hand determines how accurate and efficient the overall appraisal will be. Since they won’t be on site measuring, taking photos, or evaluating, they have to trust that the data they have will be sufficient to complete the report. That’s why desktop appraisals are typically only used for average homes because there’s less risk that important information is going to be left out.
Broker’s Price Opinion (BPO)
A BPO is an estimation of the value of a property and is usually performed by a real estate agent. Typically, clients use these to get an idea of what a property’s value is before a sale. BPOs can be completed by an appraiser, but they would then be considered an appraisal under the Uniform Standards of Professional Appraisal Practice (USPAP). Because of this appraisers will often turn BPO requests down.
The main difference between a BPO and traditional appraisal is the amount of information that is provided. Traditional appraisals are much more extensive because the appraiser spends time in the home looking at everything, taking measurements, and making sure that everything that needs to be recorded is recorded. With a BPO, the appraiser will usually do a drive-by or sometimes an internal walkthrough of the property.
With a BPO, the agent will examine the property at a high level. And since they’re completed by someone within the subject market, they can provide more insight than an automated report, like an AVM. For example, real estate agents can provide valuable information regarding the local market and buyer tendencies. They’ll look at the basic statistics of the structure and surrounding neighborhood information to develop an estimation of what they believe the value to be based on their experience in the area.
Although they are quick, BPO’s have the potential to be biased. Since they are completed by real estate agents, the agent will likely be interested in securing the listing, so they may adjust their estimation to make it more appealing for the seller. BPO’s shouldn’t be considered the final say on an appraisal, they’re better used as a tool to understand where you stand.
Looking to gain a stronger grasp on how alternative valuation products work? We can help. Start a conversation with the Dwellworks Lender Appraisal Management team today to learn more.
Automated Valuation Model Appraisals
With an Automated Valuation Model or AVM, there is typically no appraiser involved in the process at all. This type of valuation is completed by data-analysis software and relies on public records information to base its value opinion. These computer models look at similar home sales in the property’s area and use an algorithm to generate a value estimate in just a few minutes. AVMs are the fastest way to get a valuation on a home, and they have received more interest since they have been backed and implemented by Freddie Mac and Fannie May.
With AVMs, lenders are able to achieve the speed, efficiency, and low cost that they’re looking for. AVMs provide a bird’s eye view of a property’s value. So, an AVM doesn’t take into consideration the interior/exterior improvement of the property and therefore may be missing on property value from those improvements. These are often used in Home Equity Line of Credit (HELOC) decisions, to verify another valuation, or as a starting point before moving forward with a different valuation option. One thing to keep in mind — software can’t always discern qualitative information and it might end up affecting the final valuation. Overall, technology makes a big difference in speeding up the appraisal process, but AVMs might need an inspection report to accompany them to verify a property’s condition.
How to Choose the Right Alternative Valuation Product
Whether you want to use an alternative valuation product, or you’re still on the fence, having the right partner on your side makes all the difference. At Dwellworks, our Lender Appraisal team provides high-quality service, quick turn times, and gives you the best tools necessary to meet your appraisal goals. Interested in learning more about the services that we offer? Get in touch with our team today to learn more or set up a trial period.
