The hybrid appraisal is now allowed for real estate transactions and financing. It’s a form of real estate appraisal that’s completed from the appraiser’s desk, using information from the home that came remotely, from a data collector. This is also known as the “bifurcation” of the appraisal work.
Both Fannie Mae and Freddie Mac consider these bifurcated appraisals legit. Maybe that’s a good thing. Hybrid appraisals relieve appraisers from data collection tasks. Their acceptance can mean new opportunities for real estate professionals to earn money in data collection.
On second thought, maybe it’s not so great to outsource the appraiser’s traditional in-person property visit. Stories are already emerging about data collectors who are vetted just once, and have exploited their temporary access to homes.
So, should hybrid appraisals be welcomed, watched, or challenged? Let’s take a look.
Here’s How Hybrid Appraisals Work, and Why the Real Estate World Is Adopting Them.
A hybrid appraisal is not the same thing as a desktop appraisal. As defined by the National Association of Realtors®, a desktop appraisal includes no outside or interior inspection of the home at all. For a desktop appraisal, the report uses listing details, data from tax records, and input from other public information sources
Hybrid appraisals do include on-site inspections to assess real estate that’s put on the market. They use the work of data collectors who perform on-site inspections for use in the appraisals.
Then, the data collector submits the home’s description and specifications, along with photos, to a licensed appraiser. And the appraiser analyzes this information to create the appraisal.
So that’s how we get a hybrid appraisal. In Fannie Mae’s lingo, it’s value acceptance plus property data.
A key justification offered to promote hybrid appraisals? Proponents say a licensed appraiser’s time would be best spent at the desk, reviewing home-specific data and then putting it into the local market context to create the report. The implication is that it’s somehow a waste of time for the appraisers to go on-site and look at the homes, measure things, and snap pictures. That task could simply be relegated to a data collector.
Some in the industry add that the new technique can alleviate appraiser shortages in places where there are backlogs. After all, it’s much easier to become a data collector than a licensed appraiser.
Having data collectors support the appraiser’s job, then, is promoted as a way to streamline appraisal work. The use of remote tech can both speed up the whole process, and make the data collection more precise.
Sounds like progress, right?
But note two problematic issues straight off the bat. First and foremost, data collection people (except in the state of New York, which has a law on this) don’t answer to any certification authority. Yet they get access to people’s homes. And then there is the matter of an assessment of a home based on materials received without a personal visit. Appraisers traditionally like to look for issues themselves — using all their senses, like touch and smell as well as sight. Many aspects of a home just cannot be observed remotely.
For these reasons, appraisers might not feel right about leaving the data collection process to distant people working for appraisal management firms.
What Are Appraisal Management Companies?
Appraisal management companies are the firms that deploy the data collectors. These companies have been embraced as part of the modernization of real estate appraisals. The appraisers themselves might have appreciated the lighter loads, and the work-from-home style.
But some appraisers aren’t so thrilled with these arrangements. Appraisal management companies might be sending people from distant places to get the details for the homes. These people would not know the ways in which local context can shape the significance of what they find.
The actual appraiser might have no contact information for the data collectors these firms deploy. They might not know who’s visiting the home. Yet appraisers have to sign off on the reports. Shouldn’t they know that their data collection source is reliable, trustworthy, and respectful of homeowners and their property?
The practice of home appraisals should follow the industry’s professional standards. Appraisers should know the sources of their data.
Plus, they should avoid conflicts of interest. Yet sometimes, agents for the home sellers are acting as appraisal data collectors. In some cases they are collecting data for their very own listings! Clearly this raises questions about bias, fairness, and conflicts of interest.
☛ Whether you’re selling, refinancing, or buying a home, the appraisal is a critical part of the financial commitment you’ll be making. Here’s how to get a fair home appraisal.
Now You Know. Ask Who Is Producing Your Home’s Details.
Home sellers’ real estate agents need to know who will be in the home they’re listing. Doing an appraisal from a home office may be much more convenient, but it may mean certain key details go unnoticed. Real estate agents should plan to be present during home inspections and appraisal work. Some agents are now being quite vocal about insisting that whenever someone makes a professional visit to the listed home, the agent should meet them there, in person.
Also, real estate agents should steer clear of pitfalls. Look out for conflicts and sources of bias that could call into question the accuracy of a property valuation. For this reason it is best for the agent not to agree, for example, to also play the role of data collector.
As the National Association of Realtors® urges its agents:
Don’t accept a data collection assignment on your own listing. Rather than providing one-time MLS codes [that allow data collectors access to the home], please meet the appraiser or data collector at the property.
In addition, both the home’s seller and buyer ought to be clear on whether the appraisal was bifurcated. Ask whether data was collected by a licensed appraiser, or someone deployed to the home by a data collection firm. Were these people based in the local area?
If you are a buyer, it’s your right to be told how the home you’re buying was evaluated. The National Association of Realtors® has created policy that says appraisers must have “geographic competency to complete the assignment” and that agents must tell consumers when remote data collection is part of the transaction process.
You also have the right to hire your own appraiser to create a report.
Granted, the world of real estate doesn’t stand still, nor should it. Technology is changing everything. The hybrid appraisal are just one example, and it seems to be here to stay.
But at least we should be familiar with the risks.
Rebecca Jones for Realtor® Magazine: The Importance of Getting Hybrid Appraisals Right (Apr. 3, 2023).
Kim Shindle for the Pennsylvania Association of Realtors® via the PARealtors.org blog: Hybrid Appraisals Raise Concerns in Real Estate Industry (May 10, 2023).
The Real Property Valuation Committee of the National Association of Realtors®: “Your Home is an Investment — Know Its Value. Be an Informed Home Buyer” (Dec. 2020, PDF).
And as linked.