Clients are increasingly requesting different types of appraisals in lieu of the traditional “full” appraisal. There are many different types of these non-traditional or “limited scope” assignments—including evaluations, desktop appraisals, appraiser-assisted AVMs, and other alternative valuation products (AVPs). Here we outline common types of non-traditional real estate property valuation services, and explore five specific products that you may be asked to provide as an appraiser.
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Why are non-traditional property valuation services ordered?
A full traditional appraisal may be unnecessary or impractical for:
- Home equity lending
- Default servicing
- Portfolio management
- Due diligence (e.g., audit or quality control)
- Risk monitoring (e.g., assessing market trend changes)
For better or for worse, many of today’s users of appraisal services want the opinions and conclusions to be provided faster, and to cost less money. Hence the growing demand for limited scope appraisals and non-traditional property valuation services.
Common types of alternative valuation products
Alternative valuation products (AVPs) do not fit the mold of a traditional appraisal. Some of the most common AVPs that are not performed by an appraiser include, but are not limited to:
- Broker Price Opinion (BPO)
- Competitive Market Analysis (CMA)
- Automated Valuation Model (AVM)
Some of the other AVPs that do involve the services of an appraiser include, but are not limited to, these five property valuation services:
- Appraiser-assisted AVMs
- Interactive valuation models (IVMs)
- Hybrid valuations
- Tie-outs (review reconciliations)
- Desktop appraisals
When you take the output of an automated valuation model (AVM) and use it to develop an appraisal, this service is called an appraiser-assisted AVM. It is a combination of your professional expertise and a rules-based valuation model.
Some products require you to research comparable market data and choose the most comparable sales and enter it into an AVM. Others require you to set the search parameters, such as distance, time, style, and other elements of comparison. The AVM typically ranks the comparability of the comparable sales to the subject. These products may entail additional analysis and commentary. Of course, geographic competency on your part would be required. You would have to comply with all of the Rules in USPAP (Competency Rule, Ethics Rule, Scope of Work Rule, etc.) as well as the applicable development and reporting standards. Per Advisory Opinion 18, you “must have a basic understanding of how the AVM works.”
Interactive Valuation Model (IVM)
The interactive valuation model typically uses integrated tools for comp selection and adjustments, such as regression-based adjustments. These products may aggregate comparative elements from data, such as market conditions, time, and property characteristics.
Similar to appraiser-assisted AVMs, you need to understand how the integrated tool works and if the tool’s analytics are used in the appraisal, that it produces credible results. Per Advisory Opinion 18, as the appraiser, you do not need to know (or be able to explain) any algorithm, statistical or mathematical formulae. But you do need to understand the overall process and the selection parameters used.
Hybrid Valuation Product
The term “hybrid valuation” may have different meanings to different clients and intended users. Sometimes it refers to an IVM that combines a computer algorithm with an appraiser’s expertise. More commonly, hybrid valuation product refers to a combination of a property inspection by a non-appraiser with the valuation expertise of an appraiser.
In many cases, this non-appraiser who makes the property inspection is a real estate professional (licensed broker or salesperson). The non-appraiser completes an exterior or interior site inspection; he or she typically completes a property condition report and provides photos. The property condition report details condition, observed physical characteristics, any observed external influences (positive and negative), and conformity to the neighborhood.
As the appraiser, you complete the actual analysis—including the use of additional data, as warranted to produce credible assignment results—and develop the value opinion. You do not collaborate with the real estate professional on the final value; you rely only on the salesperson for the data collected during the inspection. You must have geographic competency in the market in which the property is located to complete a credible appraisal. Some vendors partner with national inspection companies to perform the onsite inspection. These products are more commonly known as desktop appraisals.
A tie-out (sometimes called a value reconciliation) is an assignment in which you (the appraiser) reconcile to your own opinion of value when multiple valuations exist on the same property. It may require you to reconcile multiple combinations of valuations such as an AVM, a BPO, and/or a traditional appraisal. You may use additional supplemental information in the value reconciliation process.
Typically, a written report is provided to the client. If you are a licensed or certified appraiser, then the value opinion developed is an appraisal. It must be developed and reported in compliance with Standards 1 and 2.
The term desktop appraisal is commonly understood to indicate an appraisal that you (the appraiser) perform without making any inspection of the subject property.
The adjective “desktop” indicates that you complete the appraisal assignment using the information that is available at your desk. Information about the subject property’s relevant physical characteristics may be gathered by an inspector and sent to you, or you may be responsible for researching the subject property’s relevant features using public records or other readily available sources.
The desktop appraisal is the logical successor of the “drive-by” or “exterior-only” appraisal. Many years ago, when the interior inspection appraisal assignment was the rule, clients began asking appraisers to complete appraisals with an exterior-only inspection of the subject property improvements in certain situations (e.g., pre-foreclosure, HELOCs, or low-LTV refinance loans). Today, clients often ask for desktop appraisals in some of these same types of situations.
For a deep dive into desktop appraisals and other non-traditional property valuation services, take our online CE course: Evaluations, Desktops, and Other Limited Scope Appraisals. Learn about what these different types of valuation products and services are, if and how you can complete them, and how to stay compliant and competitive.
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