Industry experts foresee a growing demand for alternative valuation products (AVPs) and limited scope appraisals. Last month we asked our appraisal community, “Which alternative valuation products do you offer in your business model?” A significant number of respondents (42%) reported that they do not offer any appraisal alternatives as part of their current business model. Among those who do provide such appraisal products, the top three most commonly-offered alternatives are: desktop appraisals, evaluations, and tie-outs.
Which alternative valuation products do you offer in your business model?
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Desktop appraisals (32%)
About one-third of survey respondents said they offer desktop appraisals. The appraiser performs these without making any inspection of the subject property. Instead, you complete the appraisal assignment using the info that’s available at your desk. Information regarding the subject’s physical characteristics may be sent to you by an inspector, or you may research the property yourself using public records or other available sources.
Nearly one-third of respondents reported that they offer evaluations as part of their current appraisal business model.
According to The Dictionary of Real Estate Appraisal, 6th Edition, an evaluation is defined as: “A valuation permitted by the appraisal regulations of the [Federal Financial Institutions Examination Council] agencies for transactions that qualify for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.”
An evaluation is ordered for a federally-regulated lender for real estate-related financial transactions, both commercial and residential. By definition, it cannot be used for purposes other than mortgage lending (e.g., divorce, estate, assessment appeal, etc.).
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A tie-out refers to the review and reconciliation of multiple valuations on the same property. The assignment may require you to reconcile two appraisals, or it may require you to reconcile multiple combinations of valuations—such as an AVM, a BPO, and/or a traditional appraisal.
One survey respondent said, “My practice is limited to appraisal review and risk management consulting. I provide USPAP compliant appraisal reviews. I also provide quality control audits. Finally, I provide risk management consulting services to financial institutions, reviewing their policies and procedures to ensure regulatory compliance while providing cost effective and efficient valuation services.”
Appraiser-assisted AVMs (6%)
When you take the output of an automated valuation model (AVM) and use it to develop an appraisal, this is called an appraiser-assisted AVM. It’s a combination of a rules-based valuation model and your professional expertise.
Interactive valuation models (6%)
Interactive valuation models (IVMs) typically use integrated tools for comp selection and adjustments (e.g., regression-based adjustments). These products may aggregate comparative elements from data, such as market conditions, property characteristics, and time.
Hybrid/bifurcated appraisals (3%)
A hybrid appraisal or bifurcated appraisal is an AVP that combines a property inspection by a non-appraiser (often a licensed real estate broker or salesperson) with the valuation expertise of an appraiser. Typically, the non-appraiser performs an exterior or interior site inspection, completes a property condition report, and provides photos. The appraiser then completes the actual analysis—using additional data as needed—and develops the value opinion.
As previously stated, 42% of respondents reported that they do not offer any appraisal alternatives as part of their current business model.
Another respondent insisted, “You don’t go, you don’t know.” This points to the notion that some appraisers avoid alternative valuation products because they’re somewhat controversial. AVPs are sometimes viewed as less credible than a traditional appraisal, since the appraiser does not complete an on-site inspection in many cases.
One appraiser who currently offers all three of the top alternative valuation products—desktop appraisals, evaluations, and tie-outs—stated, “Thinking outside the box while staying within regulations is necessary in this field to produce credible results.”
Learn how to complete USPAP compliant limited scope appraisals. Enroll in our CE course: Evaluations, Desktops, and Other Limited Scope Appraisals.
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