The Hybrid Appraisal Is All The Rage
Have you heard about the new trend in appraisals? Lenders have started requesting what is known as a bifurcated appraisal.
A bifurcated appraisal, also known as a hybrid, involves dividing the appraisal process up among multiple individuals in an effort to save time and money. It usually looks like this: someone other than the main appraiser visits the property and collects information which is then passed along to the appraiser who completes the market analysis and finishes the report.
The cost savings is supposedly passed on to the borrower, however, the jury is still out on that as I have heard that even when alternate appraisal products are ordered the borrower is still charged the same amount even though the cost to the lender is less.
A Change in the Process
So you may be wondering exactly how different a hybrid appraisal is from a regular appraisal. In a traditional appraisal, all parts of the process are completed by the same person who is required to be a licensed and certified appraiser.
In a hybrid appraisal, the person collecting the property information could be someone like a real estate agent or property inspector. As I mentioned previously, this information is then passed along to the appraiser to complete the assignment.
One thing that is interesting to me is that most lenders will not accept property inspections from trainee appraisers that may have more knowledge than a real estate agent or property inspector that is used in a hybrid appraisal.
It seems they will accept an inspection for the hybrid appraisal by an individual who may not be totally familiar with what an appraiser looks for but may not accept an inspection from a trainee appraiser who does know what an appraiser looks for.
Because the person performing the observation may not be familiar with exactly what an appraiser looks for this could result in an appraisal that is based on inaccurate information.
In addition, on a more technical note, there is concern that the person performing the inspection is performing significant appraisal assistance without having an appraisal license. This would be a standards violation and could jeopardize the reliability of the report and weaken the public trust in the appraisal process.
Moving Forward
Hybrid appraisals with third-party inspectors are still relatively new so it will be interesting moving forward to see how they pan out. We’ll have to wait to see if they will actually save time and money and be as accurate as an appraisal done by an experienced and licensed appraiser.
With anything that is new and untested, it is important to keep in mind what the desired outcome should be. With appraisals, it’s critical that the data used to arrive at an opinion of value is reliable because as the old saying about goes when you put garbage in you get garbage out.
As more hybrid appraisals are done it will be important to monitor the results to make sure that bad data does not threaten the reliability of the appraisal process and the financial systems that our country’s economy is built on.
Here are 3 things to consider with hybrid appraisals:
1) Does the valuation reflect the market value of the property? Exposure to the market is the true test and if the initial appraisal provided a high value it will be revealed if the bank takes the property back and then attempts to resell it. It won’t take long for the bank to see if they can sell the home for the appraised value.
2) Who performed the appraisal and are they licensed and qualified to provide this type of service? If the appraisal was not inspected by the main appraiser we need to make sure that whoever does it that they are familiar with the appraisal observation process and what appraisers look for. This process goes much deeper than a quick walk through while snapping a couple of pictures.
3) Does the appraisal contain accurate data about the property? This question is very important for #1 above because market value is tied directly to accurate data. Why do you think the Zillow Zestimate is so wrong? It’s because the property data they use is not very accurate which has made the Zestimate a joke and the subject of numerous lawsuits.
Conclusion
I hope that I have given you good food for thought. As we move forward in the evolution of the valuation process it’s important not to be distracted by what is the cheapest and easiest route because that does not always produce the best results.
If you need a Birmingham, AL home appraiser or if I can answer any questions please call me or leave a comment below and I’ll get back with you. As always, thanks for reading.
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I have been a real estate appraiser for 45 years. Over this time, there have been various attempts to “water down” the product. These include “Drive By” appraisals, “Exterior only” inspection appraisals, etc. I put a lot of thought into each appraisal. If the industry wants to go in the other direction, so be it. I won’t participate, however.
I tend to agree, Craig.
Thank you for pointing out that clients can refuse this kind of appraisal. Perhaps it would be prudent to have clients confirm up front that it is a traditional appraisal vs: the bifurcated?? I’ve not heard of this in our market place as yet but as you know things change in a second.
Yes, that would be good to know if the appraiser is looking at the home or another individual. After all it is important for them to know that their appraisal is as accurate as possible.
I’m puzzled Tom…how can hybrid appraisals be valid when there are other important people who don’t have a proper appraiser license do any part of the appraisal. This is really risky in my opinion. Thank you for your blog. I always learn something. Kimberly Bagni, Realtor in MASS.
You ask a great question, Kimberly. In fact, that is the exact question that appraisers are asking. In an effort to lower costs, banks are trying to take shortcuts that are not prudent. An appraisal is based on accurate information but when other non-appraiser trained individuals are brought into the picture it can degrade the quality of the appraisal. It is very important for those involved in the home buying or appraisal process to refuse these types of products when they are used because they can produce inaccurate appraisals and effect sales transactions.
Thank you for informing the public about this process. Truly mind-bending
I agree, Rachel, and thanks for sharing your take on things.
Great article Tom. It is curious indeed how trainees were restricted but these other unlicensed parties can be so trusted. Often times dangerous words “Policy” and “Compliance” used to manipulate what’s right.
Thanks, Gynell for your take on this subject. I agree, it seems that policy is getting in the way of appraisers providing an accurate and reliable appraisal.
I am an appraiser , and have done about 20 or so of these hybrid appraisals. The same guy -a realtor did the “inspection” and sent pictures. In all 20 of these he put “average “for condition although I though some of them were a stretch, but I went along with them. The last one I did for this company , the guy put avg. for condition, although the picture clearly showed rotting wood , tarp on roof, windows all boarded up. In my report I called the condition poor – and got a call from the company to change it to avg. since that is what the inspection called it. When I pointed out the deferred maintenance, she agreed with me and it stayed “poor”. I have not gotten another report from them since!!!!
Wow, that is interesting! That is exactly why these hybrid appraisals should not be allowed. Thanks for sharing.
I’m really concerned about hybrid appraisals. In my mind seeing the property is a huge part of collecting data. In other words, analyzing the property is about much more than just sitting behind a computer. So I’m very concerned when we begin to split the appraisal into the inspection (not data / analysis) vs crunching numbers / writing a report (analysis).