We often get asked how COVID-19 impacted the appraisal process and how AMCs are working with appraisers to address these challenges. This is a great question, so let’s dive in!
There are several factors that have affected the appraisal process amid COVID-19:
- State phasing restrictions and PPE standards
- Industry changes to appraisal requirements
- A record number of refinance loans in a short period of time
- A shortage of appraisers throughout the country
Priority #1: Navigating a Pandemic with Communication
Not only were all appraisers overwhelmingly busy when the pandemic hit, but some couldn’t or didn’t want to enter houses for safety concerns once stay at home orders came into play. Not only that, some borrowers weren’t thrilled about having appraisers in their homes, either.
Many appraisers are older and have not felt comfortable entering homes, so they have stopped doing full appraisals. If an appraiser gets sick, they can’t enter homes for a month to protect the homeowners.
Fewer available appraisers has meant that turn times have gotten longer, and the incredible demand because of dramatically increasing refinance applications has also caused challenges. Many appraisers have started charging higher fees to offset that increased demand.
Our first priority was to stay in constant communication with our appraisers about what they were seeing in their areas and to stay informed on phasing restrictions so we could communicate with our lenders and loan officers. We have thousands of appraisers across the country, so this was no small task. Managing appraisers on an individual basis can be hard, but we’ve found ways to stay in touch so that we always know their availability and can make adjustments accordingly.
Throughout the pandemic we’ve focused on staying in closest contact with appraisers in COVID-19 hotspots. At the beginning, this meant that we were working closely with appraisers in San Francisco, Seattle, and New York. As these hotspots change, we’re staying in close contact with appraisers in other areas.
These important conversations with appraisers help us understand all of the challenges that are coming their way so we can better help them and advise our lenders and loan officers so that they can make their businesses as well. At Kairos, we understand that this is a team effort and that we all have to work together to meet the end goal, especially in challenging times.
Priority #2: Addressing Industry Changes & Creating Solutions
If there’s one thing that’s certain, it’s that the COVID-19 pandemic has changed the appraisal industry. As an AMC, we’re trying to make sure that these are changes that are good for the appraisal industry—changes that help us progress and better utilize technology that can make appraisals more accurate and efficient. In doing so, we’ve joined the conversation with industry leaders and lenders about opportunities and creative solutions to help confront the challenges the industry faces.
Besides drive-by and desktop appraisals—most commonly allowed with refinances and home purchases with a substantial down payment—something that’s getting a lot of support amongst AMCs is a virtual appraisal. This is where appraisers could be allowed to video conference with a borrower for a walk-through inspection of their home. The future may also allow borrowers to provide photographs and commentary of their homes and answer questions for appraisers in a way that’s quick and efficient.
We have a Kairos app in development that will allow for virtual home appraisals; it will be rolling out in the next six months. While we are developing a program for virtual appraisals, we are not yet implementing it because lenders are not currently allowing this method of appraisals.
We strongly believe that these virtual methods can be highly accurate. Many appraisers of all experience levels (we’ve talked to quite a few!) agree that they can determine an accurate value virtually.
Virtual appraisals solve a couple of challenges, and the most obvious one is that it’s very safe for everyone involved.
The other thing you will likely see more of in 2020 and 2021 is appraisal waivers. Appraisal waivers are issued on a case-by-case basis but are mostly issued on low-risk loans. The most common scenarios include a rate-term refinance, limited cash-out refinance, a cash-out refinance with a low loan-to-value and purchase transactions with 80% loan-to-value or less.
A Word on Appraisal Waivers
There’s no question that appraisal waivers have helped the market out and have been necessary, especially during this pandemic. But we believe that appraisal waivers can be dangerous.
Here’s why. Fannie Mae and Freddie Mac have been accumulating data from appraisers for years, and they’re using that information to issue waivers for homes. They can be confident about a home’s value without an appraisal right now. But less and less information is getting put into the system due to those waivers, and that could create problems for the market in the future.
Appraisal waivers are a good concept, but we’re progressing into a new market with less information to make decisions on. If there’s a correction in the market, some kind of physical appraisal may be key for borrowers and lenders to ensure the value of homes they’re buying.
Priority # 3: Talent Acquisition
Appraisers have been in short supply around the country for a while now, which was a problem exacerbated by the pandemic. Another issue appraisers face is that licensing has become more difficult, and because of that, we’re not seeing the influx of appraisers entering the industry to replace the ones who are retiring.
As an AMC, we are always recruiting new appraisers to join our top appraiser network with a special focus on growing our talent in cities and states where the real estate market continues to boom. We were heavily recruiting appraisers for the six to eight months prior to the pandemic and haven’t stopped.
We believe technology advancements in the industry will allow appraisers to service more volume while ensuring the quality and integrity of each report. We’ll continue to explore ways to use technology to ensure safety and quick turn times while also making sure that the numbers we get are accurate for the borrower and seller. We’re excited to see how the industry changes and progresses, and you can be assured that Kairos Appraisal will be on the cutting edge of that change over the next few months and years.