DISCLAIMER: This presentation was developed by Jared Preisler SRA, and does not necessarily represents the views of DataMaster.
DataMaster does not endorse or promote the use of any specific type of report or report form vendor.
DataMaster is a software program, a tool developed by appraisers for appraisers to more efficiently move data. DataMaster always keeps the appraiser in control of the appraisal process and the data used. DataMaster provides the right data at the right time, so the appraiser can make the right decisions.
What is a Hybrid Appraisal Report?
There are two types of data according to the Dictionary of Real Estate Appraisal (4th Edition).
General Data & Specific Data
General Data pertains to real estate values and information on a macro level.
DATA THAT RELATES TO THE FOUR FORCES THAT AFFECT REAL PROPERTY VALUES- SOCIAL, ECONOMIC, GOVERNMENTAL, AND ENVIRONMENTAL FORCES.
Specific data pertains only to a specific property. Think of Specific Data as data on the specific assignment level.
...DETAILS ABOUT THE PROPERTY BEING APPRAISED, COMPARABLE SALE AND RENTAL PROPERTIES, AND RELEVANT LOCAL MARKET CHARACTERISTICS.
There are two sources of data according to the Dictionary of Real Estate Appraisal (4th Edition).
Primary Data & Secondary Data
Primary Data - the appraiser's first-hand knowledge. You inspect the property, you see the out-dated carpet or the home theater system that will blow your socks off.
INFORMATION THAT IS GATHERED IN ITS ORIGINAL FORM BY THE ANALYST.
Secondary Data - this could be information from the MLS listing or by a property inspector; it's data that someone else collected and you're using.
...INFORMATION THAT IS NOT GATHERED IN ITS ORIGINAL FORM BY THE ANALYST.
Hybrid appraisals rely much more on Secondary Data and require more attention to detail by the analyst to understand the data, how it was collected, what it was originally used for, etc.
What are Hybrid Appraisals Used For?
- Mortgage Servicing/REO Side
- Portfolio Management
- HELOCs
- Non-Traditional Lending Space (not GSE or federally-related transactions)
What are Hybrid Appraisals Used For?
On March 12, 2018, Housingwire published an interview with Lima Ekram, an analyst at Moody's. She reported that Moody's is seeing an increase of loans using alternative methods for calculating property values. The following are excerpts from her interview.
In seeking to reduce operational costs, increase efficiencies and address the shrinking rates of U.S. property appraisers, mortgage market participants are exploring the use of alternatives to traditional means of calculating property values and, in some cases, starting to use them more.
Their [Alternative Valuation Methods] use in tasks that affect the credit quality of the RMBS [or Residential Mortgage Backed Securities] securitization collateral could, however, lead to a weakening of new RMBS transactions.
Highlighting the potential for different approaches to yield different outcomes, some of which are more reliable than others, Ekram continued
Among alternative approaches, the components used in arriving at a valuation will vary, sometimes significantly.
Hybrid appraisals, for example, rely on information from on-site property examinations conducted by a third party, often a real estate agent or broker.
Ekram stressed that it is also important to look at whether a non-traditional appraisal alternative is being used as the primary means of property valuation, or if it used mainly as a means of quality control.
Home Inspections in the Valuation Process
Assurant has developed the Assurant Hybrid Appraisal, enabling customizable hybrid desktop appraisals with an interior inspection.
Nations Lending Service, Inc announced their bundled services offering NATIONSLINK and EQUITYEXPRESS. The integration of the two programs provides their national lending clients with the best winning combination of hybrid appraisal products for HELOCs.
Property Solutions, formerly Computershare Mortgage Solutions has handled BPO appraisals, property inspections and valuations for more than a decade. In 2017, they began using alternative types of appraisals in disaster areas, relieving pressure and stress from the appraiser and property assessors. When asked if technology would replace appraisers, their answer was no. Automation is designed to support the appraiser.
The Home Inspection Industry
Thirty-two states have certification or licensing.
A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. The inspector prepares and delivers a written report of findings to the client. The client then uses the knowledge gained to make informed decisions about their pending real estate purchase. The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components.
A home inspector is sometimes confused with a real estate appraiser. A home inspector determines the condition of a structure, whereas an appraiser determines the value of a property. In the United States, although not all states or municipalities regulate home inspectors, there are various professional associations for home inspectors that provide education, training, and networking opportunities.
A professional home inspection is an examination of the current condition of a house. It is not an inspection to verify compliance with appropriate codes; building inspection is a term often used for building code compliance inspections in the United States. A similar but more complicated inspection of commercial buildings is a property condition assessment. Home inspections identify problems, but building diagnostics identifies solutions to the found problems and their predicted outcomes.
The Home Inspection Industry
- About 5 million home inspections are performed each year
- Most real estate agents recommend home inspections
- FHA & VA recommend home inspections
American Society of Home Inspectors
- Founded in 1976
- 7,248 members as of April 2018
- 3,197 are certified as home inspectors
International Association of Certified Home Inspectors
- Founded in 1990
- 20,800 active members as of April 2018
- 45 different certifications
The Home Inspection Industry
- The Home Inspection industry has many options for training
- No standards, licensing or certification
- Home inspectors use different terminology - for example, average may not describe what you think of as average
- Repairs mentioned in inspection reports may be minor or serious
- Unlike real estate agents, home inspectors are not trying to sell properties; many inspectors try to find issues with the home to justify their fees.
Home Inspections in the Valuation Process
E&O and Risk:
According to Peter Christensen, General Counsel LIA Administrators & Insurance Services
- Review the Engagement Letter
- Be clear about which part of the report is your work and separate it from the work and/or information completed by a third party on which you relied
- Ask yourself "What is this report being used for?" - if it is solely for internal use by a lender, it could be far less risky than a report that will be delivered to a borrower.
- Is the workfile created viable? Can you defend and support your conclusions?
Final Thoughts & Take-Aways
Workfile
1. USPAP Record Keeping Rule requires you to have and maintain a workfile.
2. Review the Limiting Condition, statements and certification - Do you agree with them?
3. Remember your state or professional organizations may have additional certifications.
4. Review the Record Keeping Rule.
- Name of client, intended users
- True Copy
- All the documentation necessary to support your analyses, opinions, and conclusions
- Dated certifications
Reconciliation (Standard Rule 1-6)
- Know the source, limitations of the home inspection, and reliability of any secondary data used.
- Summarize the information you analyzed and the appraisal methods you used.
- Simply describe how reliable the data was or was not.
- Describe the results of any analytical tools you used and their reliability.
- Clearly communicate your role and conclusions.
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