Hybrid Valuation Tools Are Making Remote Appraisals Easier for the BTR Market
Cost Effective Alternatives for the BTR Investor
by Kade Clark
Historically low interest rates and thin inventory of available homes to buy have pushed up home prices, creating a hurdle for Americans who want more space for working from home, remote learning, and maybe a treadmill to stay in shape. This combination of factors has attracted investors to the single-family rental market and forced some to create their own opportunities in the burgeoning build to rent (BTR) segment of the market.
In the third quarter of 2020, construction started on roughly 14,000 rental houses, according to the National Association of Home Builders. That’s up 27% from the 11,000 homes built in the third quarter of the previous year.
Accelerating BTR activity has put pressure on obtaining valuations at a time when social distancing requirements make in-person property inspections especially problematic. Fortunately, there are new and compliant alternative valuation tools that are making remote appraisals more efficient and reliable for the BTR market.
Using Artificial Intelligence to Evaluate Value
The Radian Real Estate Services Inc. suite of digital valuation services available from its Red Bell Real Estate, LLC subsidiary uses artificial intelligence to draw insights from nearly two billion real estate images to more accurately and quickly evaluate the value of residential real estate across the country.
BTR investors typically shy away from ordering traditional appraisals due to the expense and turn time. The introduction of hybrid appraisals in the BTR space now fills that gap and provides other valuation alternatives that are cost effective. Through Red Bell, Radian offers interior and exterior Amplified Appraisal Reports (AAR) and Appraiser Reconciled Broker Price Opinions (ARBPO). The difference between the two is that the AAR includes a property inspection completed by a local real estate agent while the ARBPO begins with a Broker Price Opinion (BPO) completed by a local agent. An appraiser then reviews the information and determines the market value using Radian Interactive Value (RIV) which is integrated with the products.
Radian’s subsidiary Red Bell is a member of more than 400 MLSs nationwide, most of which update their feeds every 15 minutes for close to real-time information. The RIV runs the subject property through a similarity index and provides the appraiser with 20 of the closest comparables in terms of property characteristics, distance, etc. for three categories of property—sold, listed and under contract—for a total of 60 comparable properties, if available. The appraiser has the ability to review all photos associated with the comps as well as their listing history and choose those that best align with the subject property. The appraiser can also expand or reduce the market area and enter specific filters in order to narrow the comparable selection.
These hybrid appraisals are both Uniform Standards of Professional Appraisal Practice (USPAP) and The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) compliant and are completed by appraisers who are licensed and/or certified in the state of the subject property’s location. The turn time for hybrid appraisals is similar to that of a regular BPO—about five business days—and priced in line or just slightly above that of a BPO depending on the product.
Unique Challenges with BTR Valuations
In the BTR space, appraisers are well equipped to handle the valuation for properties that have yet to be built because their rigorous training allows them to identify comparable market alternatives that are similar in quality of construction, design, location and overall
characteristics. They have the knowledge and ability to review builder floor plans, build-out amenities, and locational influences in order to select the most appropriate comparable sales.
In some instances, the client is the sole development in a community and doesn’t market the properties for sale but instead creates a rental market within the community. As a result, identical development market transactions are not available.
When that is the case, an appraiser completing the ARBPO and/or AAR can look to adjacent developments in the area for market data. They can locate and utilize sales with similar locational appeal, similar access to retail, commercial development, and recreational activities.
Additionally, they can select sales that are comparable to the subject property in characteristic similarities. In most cases, they are able to bracket main features/amenities in a pair-sales analysis approach with positive/negative, and weigh consideration for differences that impact value.
With large-scale BTR communities popping up across the country, the challenge for investors and appraisers is in accessing the enormous range of information necessary to make an accurate property valuation. This challenge is compounded by the public health crisis that makes in-person analysis difficult or impossible.
Fortunately, the new digital valuation tools available now can streamline this process and make alternative appraisals accurate and cost effective even when done remotely.
