Appraising the Appraisal

Editor's note: This story first appeared in the November issue of MReport, out now. 

Data and analytics are critical to any successful mortgage lender’s
operation. Lenders analyze origination data closely, as well as their
own performance analytics to improve operations and compete in an
evolving origination market. However, there are other key indicators
lenders should also consider: appraisal data and analytics.

When it comes to appraisals, lenders in the nation’s hottest markets
are waiting longer for completed reports, may have limited visibility
into appraisal fees, and have problems committing to closing
schedules. What’s happening in today’s hot markets may be a sign of
what is to come across the rest of the nation, as originations make a
sustained comeback.

Improved valuation modeling is a key area where you can focus by using
data and analytics to drive information and decision making. Mortgage
lenders now have new, readily available data at their fingertips that
can help mitigate common appraisal issues.

Watching the Bottom Line

While many lenders track their own appraisal costs, they are likely
seeing only a sliver of the overall picture. For the more complete
vantage point, it is also important to learn what the rest of the
market is paying for completed appraisal reports in all communities
being served.

Access to appraisal fee data and analytics will help in several ways.
First, analyze whether the appraisal fees being quoted on the loan
estimate are competitive with those fees that the borrower will pay
with other lending options. If fees are substantially higher than
other lenders’ fees, origination is at risk before it even gets
started.

Second, if appraisal fee quotes are lower than the actual fees in the
area, there is a risk of absorbing expenses to cover the difference
between the quote and the actual appraisal fee.

According to industry surveys, lenders are quoting inaccurate fees on
11 percent of loan estimates, with an average cost of $105 per
incident. Current, accurate appraisal fee data is one solution to
avoid these unnecessary expenses.

If there is an “appraiser shortage” in a particular area, see how
appraisal fees stack up to what other lenders and AMCs are paying in
those markets. If your fee proposals are low or just average, it may
be more challenging to find high-quality professionals with acceptable
turn times in that market.

Measuring the Marketplace

Smart lenders monitor housing market data and analytics to find
communities with lending opportunities. But if you’re just watching
the standard data based on closed sales, you will be late to the
party. If you’re watching the same data every lender watches, how
strong is your competitive advantage?

To identify hot markets before your competitors, you should also watch
appraisal orders. Home sales lag behind appraisal orders as a leading
indicator of growth by at least a few months because the data is
reported from public records postclosing.

If you can determine where appraisal orders are increasing and where
they are decreasing, you will have an indication of supply and demand,
as well as a valuable clue for hyperlocal and regional lending booms.
With appraisal data and analytics, you can identify and leverage those
upswings in real time.

If you’re watching appraisal orders rise in a particular market, you
will have valuable insight much earlier than anyone else. When other
lenders start flooding the latest hot market, you will be months
ahead, already entrenched with efficient operations to more
effectively leverage the opportunity.

Tracking Performance

If you’re on top of appraisal fees and turn times in your communities,
you can use the data to benchmark your own operations against
competitors. Many lenders use this insight to improve their vendor
relationships and appraisal operations. Developing a stronger
appraisal process may aid in recruiting top-producing originators.

The appraisal is always a hot-button issue for loan originators (LOS).
If you can provide a far-better appraisal experience for your
production staff and your borrowers, you can use it as a real
differentiator in your marketing efforts.

To build an appraisal process for the benefit of both LOs and
borrowers, track these important appraisal data points:

Appraisal fees: Monitoring and paying competitive fees to your
appraisers will keep them interested in quickly accepting your
appraisal orders. When you’re using highly qualified, experienced
appraisers with geographic competency, your production staff will be
grateful and deals are more likely to close without unnecessary
hassle.

Order acceptance rates: In competitive markets, the process of
assigning orders to the best appraiser for the job can take days or
even weeks. If you monitor your vendors’ order acceptance rates, you
can offer assignments to the appraisers most likely to accept them,
instead of wasting time with appraisers that don’t usually accept jobs
quickly. Finding an appraiser for your assignments will be much more
efficient and you won’t waste time reassigning time-sensitive reports.

Average turn times: Monitor each of your vendors’ average turn times,
as well as the average turn times for the area of your subject
property. With this data, you can set appropriate deadlines for
appraisers and you can communicate realistic closing dates to avoid
disappointing your borrowers and your production staff.

On-time rates: Your appraisal vendors will have a deadline for each
assignment, but you should track their on-time rates, too. Things
happen and reports are sometimes delayed. If you have data and
analytics around each vendor’s on-time rates, you can assign orders to
ideal candidates and minimize your risk of closing delays and
frustration.

Rework rates: For each of your vendors, track rework rates. Rework
describes the percentage of overall assignments that need to be sent
back to the appraiser for revisions. For vendors with high rework
rates, you can expect to add a few days to the overall turn time on
the completed report, plus increase administrative burden on your
staff requesting the revisions and checking them. Vendors with low
rework rates should be preferred for your assignments.

Revision request cycles: Appraisal revision cycles are notoriously
time-consuming and expensive, but lenders can significantly reduce
these hassles by measuring and monitoring the quality of a vendor’s
previous work and the speed with which they return revised reports.
Measure the time your staff takes in communicating revisions, as well
as the time it takes for your vendor to return the revisions.

Appraiser capacity: Some appraisal management software platforms will
give you insight on a particular vendor’s capacity so you can
automatically assign reports to appraisers with availability. Again,
this dramatically lessens your assignment burdens and the extra days
it can take to find the right vendor to accept your order.

A robust data and analytics approach to appraisal operations will
significantly improve your overall operations and your competitive
standing. Use your appraisal operations data to improve your own
efficiency and identify opportunities before other lenders have time
to take action. Instead of the traditional bottleneck, your appraisal
process can become a strategic advantage.