The latest announcements from Fannie Mae and Freddie Mac regarding loans with no need for an appraisal are causing quite the stir in the appraisal community. I have personally received numerous emails, tags in Facebook posts, and private messages sharing the information and asking me if I think this is the beginning of the end for the real estate appraiser. In a word; no! Here’s why:
We Have Seen This Before
A similar wave of fear and uncertainty came from my peers about a decade ago with the implementation of the HVCC. Some appraisers feared that was the beginning of the end for their profession, and for some of them, it was. Those who were unwilling or unable to innovate did not survive. Yet, many did. Many appraisers were creative enough to see what was happening and adjust their business models accordingly. Personally, my net income increased after HVCC. It did not come without a whole lot of business redevelopment, however. It did come nonetheless.
Fannie and Freddie Are Not My Only Clients
A big key to survival is to not have all of your eggs in one basket. “But, Fannie Mae is an awful big basket,” you might say. I agree, but if lender finance is your only source of appraisal income, you run the risk that things can change and you are left holding an empty basket. Diversify! I do a fair amount of work on the 1004 form, but not everything. With the latest announcement, you can bet your bottom dollar that I will be diversifying even more.
Most Loans Still Need Appraisers
Though the announcements from the big GSEs do change things, they do not change everything. The loans that do not need appraisals reflect a very small percentage of the overall business that is resold to the big two. I know the fear is not centered on what is, but what this might lead to, but for now – it is not the end of the world. Does this open the door to possible change in the future? Perhaps, but isn’t that even more reason to be smart and begin to diversify?
Data Is Still Coming From Appraisers
Though some loans can get the green light without an appraisal, a valuation still must be done. It is true that some of these valuations are coming from zeros and ones in a computer program, but that data, some of it anyway, is coming from appraisers – at least for now. In other words, the computer models still work best with a human being getting first-hand knowledge of the property. UAD is powerful precisely because the data came from trusted and honest professionals in the field. Fannie and Freddie understand that risk increases dramatically if that spigot were to be cut off.
Fannie And Freddie Are In The Risk Management Game
Speaking of risk, step back and remember why our clients turn to appraisers in the first place. If you think the GSEs see us as valuation professionals, you do not understand their business. They do not look to appraisers for accurate valuations as much as they are looking to someone to help them mitigate risk. That comes in two forms, one is about loan amount (which accurate valuations are a big part of), but the other is blame. Though it is not the best reason to be an appraiser, Fannie and Freddie (as well as our other clients) are looking for someone (notice I said, “someone” not “some computer program”) to point a finger at should it go bad for them. There is a reason many of your clients require you to carry high E&O coverage. For loans with risk, the need for a human being will not disappear soon.
Technology And The Human Touch
“Big data” is a phrase that many appraisers despise. Their loathing comes, at least in part, from a fear that big data will replace them as a valuation professional. Well, big data is here to stay. It does not have to be a replacement for appraisers, however. Many appraisers are seeing big data not as a hinderance, but a help to their work. Clients are increasingly seeing big data and appraisers in the same light. The future of appraising may depend on we, as professionals, embracing big data and offering our clients the best of both worlds.
No One Has Ever Accused Me Of Being Static
“If it worked in the past, it will work in the future.” This kind of thinking can be the death knell for many a professional. We live in a fast-paced world. Technology and knowledge is advancing at breakneck speeds. With that change comes also the need for appraisers to adjust and change as well. The valuation profession is not what it was ten years ago, and the next decade will continue to bring changes. Perhaps, in a few years, the 1004 form will not longer be a thing. Are you prepared to make the adjustments to your appraisal business model to remain relevant into the future? A key to being successful has always been to see where your profession is trending and be able to make adjustments accordingly. Those who are willing and able to make these changes will continue to see success long into the future.
There Is Reason To Hope
I have been accused in the past of being an eternal optimist. I can think of worse things to be called. I do not see myself as an optimist as much as I hope to be a realist with a hankering for a positive outlook on the future. I do not see what is happening to the appraisal profession as reason to panic. Rather, these types of changes are catalysts which cause me to step back, reevaluate, and possible change they way I choose to do business in the future.
Do these announcements from FNMA/FRMC change the game? Sure, I believe they do in at least one important way. It is change like this that remind me I am not invincible. Business is continually evolving. There are appraisers who are just unaware or unwilling to adjust they way they do business. It is those appraisers who may need to be worried. If you want to remain relevant today, tomorrow, and into the future, you need to be aware of what is happening in your profession and be willing to adjust and innovate with the changing times.
As for me, I am not hanging up the buggy whip making tools quite yet.