Have you heard this phrase before — “perfect is the enemy of good”? Or “perfect is the enemy of done”? I hear these phrases quite often when it comes to product and software development, but I think they apply very well to solving complex problems like transforming the property appraisal process to work better for every stakeholder.
The recent Appraisal Subcommittee (ASC) hearing and the premiere of “Our America: Lowballed” hosted by the Brookings Institution delved deep into the numerous concerns, history and opinions on needed improvements within the appraisal industry. In particular, the events zeroed in on patterns of discrimination and bias for minority borrowers and homeowners.
Each event made plain the current open questions that need answers and hopefully convinced most that there is a problem worth fixing. The chief question of them all is whether there is a solution. It might take a long time to find the perfect solution(s), but perhaps there are ways to make immediate progress on addressing concerns now.
Like any good product exercise, we need to define the pain points before we talk about solutions. The pain points have been well documented by the PAVE Action Plan and supported by numerous research papers, so I won’t spend a ton of time here except to marvel at the range and complexity of pain points.
Concerns of racial bias, a lack of standardization for consumers in the reconsideration of value process and unclear authority in the governance structure are all present amidst increased requests from lenders for a more efficient process that provides value certainty sooner. Perhaps this can all be summed up as a growing demand for an appraisal process that is more equitable, efficient, accurate and objective.
It is obvious that language being used like “eradicate” or “eliminate” in reference to appraisal bias is chosen to convey the importance of not compromising on the process being equitable for all. And we absolutely should not compromise on that end result.
However, it will take many, many iterative steps to reach that end goal. The use of absolute words can sometimes be discouraging to finding iterative solutions. Is “better” good enough as a starting point?
For instance, in the conversation at the ASC hearing on using automated valuation models (AVMs) as a viable, non-subjective tool for understanding value accuracy during underwriting, concerns were brought up about bias being present in the data itself. Extracting all bias from real estate sales data that the entire industry uses to value properties (be it appraisers, AVMs, lenders or investors) is an overwhelming multi-year effort. But if accurate AVMs help remove forms of bias right now, then that seems like a worthwhile evolution.
Sometimes the best way to keep the goal of perfection from stopping short-term progress is to find the common areas that everyone agrees on and get to work attacking those areas first.
For instance, I have never heard anyone say that they don’t want more complete, authoritative property data. But the slow adoption of GSE desktop appraisals that require digitized property data and floor plans to be generated before the loan application has been surprising.
Perhaps more promising is the work that is being done by both agencies to create a property data gathering standard and what Fannie Mae has hinted at on their new Valuation Modernization website. The idea of value acceptance (no more pins and needles for borrowers waiting for the appraisal) should be enough to get lenders interested. And it is great to know that lender adoption will drive the use of mobile tech that creates a more complete picture of the home through consistent data gathering. No more clipboards.
Another common theme is reducing the amount of subjectivity within the appraisal forms and data standard. While commentary can provide helpful context to a person at their desk that didn’t see the property firsthand, an improved data standard would reduce the need for commentary and provide more structure to ensure analysis supports the value.
The new Uniform Appraisal Dataset (UAD) and forms redesign initiative is underway, and the UAD specification is expected to be published this year. That means development can start this year, so the industry is ready to roll out the new forms in 2024.
And as a bonus, the spec provides a home for digital captures of properties to be included. Why not bring the whole home to each stakeholder virtually and use AI to mask any items that should not figure into the appraisal, like family photos.
I was not able to travel to attend the ASC hearing in person, so I attended the hearing online, which gave me access to the live public comments. It was evident in the comments that not everyone agreed with the problems the hearing witnesses identified, let alone the proposed solutions. Some of the comments rightly pointed out that the task of eliminating racial bias from U.S. housing cannot be accomplished with a focus on appraisal alone.
Regardless of our ability to find perfect agreement or perfect solutions, there are multiple opportunities to make the appraisal process work better now for the benefit of everyone that relies on efficient, accurate home values. Today’s homeowners and homebuyers deserve continuous, iterative improvements and a consistent march toward the goal of equity for all. So let’s embrace the progress in front of us, and not hold up the good for the perfect.