Have you heard this phrase before – “the good is the enemy of the good”? Or “has become the enemy of the whole”? I hear these phrases often when it comes to product and software development, but I think they apply very well to solving complex problems like changing the asset valuation process so that it’s better for every stakeholder. Work can be done.
Thank you for reading this post, don't forget to subscribe!Recently held an Appraisals Subcommittee (ASC) hearing and the premiere of “Our America: Lowbold” Brookings Institution An in-depth look at the many concerns, history and opinions on needed reforms within the appraisal industry. Specifically, the incidents focused on patterns of discrimination and prejudice against minority borrowers and homeowners.
Each event clarified current open questions that needed answers and hopefully convinced most that there was a problem worth fixing. The main question of them all is whether there is a solution. Finding the right solutions may take a long time, but perhaps there are ways to make immediate progress in addressing the concerns now.
Like any good product practice, we need to define pain points before we can talk about solutions. Pain points are well documented by the PAVE Action Plan and supported by numerous research papers, so I won’t spend too much time here except to exemplify the range and complexity of pain points.
Concerns of racial bias, a lack of standardization for consumers in rethinking the pricing process and unclear rights in the governance structure all exist amid growing requests from lenders for a more efficient process that provides price certainty sooner. Perhaps all this can be summed up as a growing demand for an evaluation process that is more equitable, efficient, accurate and objective.
It is clear that language such as “elimination” or “elimination” in the context of evaluative bias is used to convey the importance of not compromising on having the same process for everyone. And we shouldn’t compromise on that end result at all.
However, it takes many, many iterative steps to reach that end goal. The use of absolute terms can sometimes be discouraging to find iterative solutions. Is “better” good enough as a starting point?
For example, in a conversation at the ASC hearing on using automated valuation models (AVMs) as a viable, non-subjective tool to understand price accuracy during underwriting, concerns were raised about whether bias could be present in the data. was brought Removing all bias from the real estate sales data that the entire industry uses to value properties (be it appraisers, AVMs, lenders or investors) has been a multi-year endeavor. But if precision AVMs help overcome forms of bias now, it seems like a worthwhile development.
Sometimes the best way to keep the pursuit of perfection from preventing short-term progress is to find common areas that everyone agrees on and start attacking those areas first.
For example, I’ve never heard anyone say they don’t want more complete, official property data. But the slow adoption of GSE desktop appraisal requires digitized property data and floor plan preparation before loan application.
Perhaps more promising is the work being done by the two agencies to create a property data gathering standard and what fannie mae indicated on its new valuation modernization website. The idea of value approval (no more pins and needles for borrowers waiting for appraisals) should be enough to get lenders interested. And it’s great to know that lender adoption will use mobile technology that builds a more complete picture of the home through continuous data gathering. No more clipboard.
Another common theme is reducing the amount of subjectivity within the assessment forms and data standard. While the commentary on their desk may provide useful context to someone who hasn’t seen the asset before, a better data standard will reduce the need for commentary and provide more structure to ensure that the analysis supports value. .
An initiative to redesign the new Uniform Appraisal Dataset (UAD) and form is underway, and the UAD specification is expected to be published this year. This means development could begin this year, so the industry is set to introduce new variants in 2024.
And as a bonus, the imagery provides a home for digital captures of properties to include. Why not bring the entire home to each stakeholder virtually and use AI to hide any items that should not be included in the appraisal, such as family photos.
I was not able to travel to attend the ASC hearing in person, so I participated in the hearing online, which gave me access to live public comments. It was clear in the comments that not everyone agreed with the problems identified by the hearing’s witnesses, let alone the proposed solutions. Some comments have rightly pointed out that the task of eliminating racial bias from American housing cannot be accomplished by focusing solely on appraisals.
Regardless of our ability to find the right compromise or the right solution, there are now many opportunities to improve the appraisal process for the benefit of everyone who relies on effective, accurate home values. Today’s home owners and home buyers deserve continuous, iterative improvements and a relentless march toward the goal of equality for all. So let’s embrace the progress before us, and not grab the good for the sake of the good.
