Automated Appraisals...If it were only that Easy!

For What It's Worth, Appraisals Go High-Tech(December 16, 2005) --

The growing adoption of automated collateral management systems by lenders and other parties who use valuation reports is bringing down the cost of residential appraisals while accelerating the process.

The technology's reach not only is expanding to more users, but today there also are more varieties. All work around computers, databases, and sophisticated software programs, but some produce evaluations that are accompanied by an insurance policy; while others combine the technology with the human touch of an appraisal professional.

"You're now seeing a blend of insured and cascading models arising to make the systems more reliable," explains a spokesman for MortgageFlex. "Appraiser-assisted programs are a good middle ground, assuming you can get a quality appraiser. The need to maintain the human element in this process is clear. Going forward, you'll see a true blend using a variety of methods like insurance."

The benefits of automated appraisals—the process takes seconds, compared to a minimum of 24 hours even for the fastest conventional appraisal—are clear in a highly competitive industry that flourishes on fast turnaround times. Moreover, the technology provides a quality-control opportunity to flush out live appraisers who are turning in fraudulent reports.

Source: Copley News Service (12/16/05); Woodard, Jim

It will be interesting to see the effect of automated appraisals on such things as the foreclosure rate & accuracy when the properties go to market. I am quite skeptical for one main reason: An appraisal, when performed properly, is not as easy as running a Comparitive Market Annalysis (CMA), which is probably a cousin of these relatively new automated "appraisals". I guess if lenders want to base their decisions on what a computer/software system says the collateral is worth, it's their risk & their money, but I hardly see how a matter of hours difference in turnaround time is worth that risk. More likely, it's a way to cut costs, and this is not good news for appraisers. Even more ironic is that at least in my state (Kentucky), appraisal fees have remained stagnant or even decreased in the last ten or so years! During the refi boom earlier this decade, some banks with high volume were able to cut deals with appraisers at a clip of around $175 per full appraisal report. That's nearly half off of what was the norm prior to the boom. The only way I see appraisers getting back at these new "presto" valuations is to charge through the roof for appraisals of properties that do not conform in such a way that the automated format can even remotely estimate the value. As there will be less appraisers--which I am the first to admit probably would be a good thing--the good (or crazy) ones who persist will could be able to charge a nice fee for their hard work. This is worth keeping an eye on.