The Emergence of Alternative Valuation Products
The days of a one-size-fits-all solution are in the past. Over the years, many things have changed in the real estate industry. That rings true for valuations as well. With the advent of the appraisal management company (AMC) and changes in regulatory compliance, your valuation options may seem limited. However, there are many alternative valuation products available. Many offer lower costs, faster turnaround times and robust data sets to support their accuracy. Conventional appraisals are still required for some transactions, but some of the newer products are backed not only by powerful data sets but also by valuable human expertise. Growing user base sophistication and the dissemination of property data has challenged the status quo of the conventional valuation methodology. This development has ensured that valuations don’t remain stagnant but continue to evolve so that needs are met in an ever- changing environment. This commitment to create customer-centric valuation products that meet needs has been interesting to watch. The various elements of a valuation report are being spliced in order to create something new yet familiar. Valuation Cascades The introduction of the valuation cascade, built on risk factors users set up to account for tolerances based on complexity, allow users to choose the right valuation product for any given asset. That means the user has several options, ranging from a lower- cost desktop valuation all the way to a conventional appraisal. Many different types of hybrid products exist and are suitable for a wide range of needs. Some offer additional sales and active comparables in the immediate area, providing insights into the broader market and giving the user a better understanding of local activity. This is valuable in the investment space because of the unique nature of acquiring and strategically remarketing assets. If you have a low-risk asset with a few repairs located in an extremely homogeneous data-rich area, you may need a desktop valuation. On the other hand, if the area is a little more complex, due to the nature of the asset or the location, a full appraisal may be necessary. Not all properties are the same, and not all deals require the same product. Let’s explore some of these products so you can determine whether any might give you an edge. Bifurcated Appraisals The first of the new wave of products to review is the bifurcated appraisal. Bifurcated appraisals provide a lower-cost option while leveraging appraiser expertise. This streamlined tool allows for an option when a traditional appraisal is not necessary and leverages local market appraisers for both the inspection and the valuation. Considered just a step down from a conventional appraisal, a bifurcated appraisal is a great option to use in many lower-risk scenarios and when a sketch is necessary. Hybrid Appraisals Hybrid appraisals are similar to bifurcated appraisals. The difference is they rely on a non- appraiser to supply the inspection. This allows for a lower cost and often a faster turn-around time while still leveraging the valuation expertise of a local market appraiser. Additional Expertise Types Another change in evaluation options is the entrance of additional expertise types in origination transactions. Evaluations can be completed by local market real estate agents and other valuation professionals in the space. These products come in a variety of options. The requirements are standard, but the forms are not universal, allowing for custom options. Evaluations can be used for value determination in conventional lending transactions with less risk in many states. They can be used for any portfolio lending you perform. They exist in traditional form with the local market expert performing the inspection and valuation component. Or, they are available in a hybrid fashion that leverages a local professional performing the inspection while a specialist at the desk completes the valuation. These options provide a variety of price points, giving borrowers more economical solutions. This kind of flexibility allows the user to make decisions on what works for them and their portfolio. Combining Products The other interesting thing occurring in the valuation space is the combination of different products. In the world of investment projects, whether it be fix-and-flip or long-term rental, understanding the potential value of a property is critical. Not all projects are the same, and valuation professionals are not always well-versed in repair costs. This has historically presented a problem in the valuation space. That’s why additional options that rely on consuming external data have become more and more important. Being able to combine repair bids with valuation products has increased the ability to estimate an asset’s “as-is” value. This has been the largest challenge when it comes to assets that need significant rehabilitation. Combining multiple products and providing valuable insight to the valuation specialists allows professionals to focus on their expertise without having to fill in the blanks. This kind of consolidation means users aren’t left making decisions based on a valuation that doesn’t have all the necessary information. Other hybrid products that are offered consume the repair bid/property inspection as the means of seeing the property for the purpose of the valuation. This affords users even further reductions in price and allows them to pay only for what they need. Having options for managing your cost, time and portfolio needs is important for creating a competitive edge and getting accurate data for analysis and decision-making. The days of a one-size-fits-all solution are over. To stay ahead of the curve, you must discover different means to achieve the same or better result. Doing so can make all the difference. As times continue to change, your options will continue to evolve as well. Be diligent about reviewing your needs and staying on top of the tools that are available. Challenge the norms to discover what works best for your organization.
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