You’re selling your home, and you’ve scheduled your appraisal appointment. Except for one problem. The person who shows up at your door isn’t an appraiser at all, but an inspection specialist. She’s there for a hybrid appraisal, she tells you.
Hybrid? Like the car?
Not quite. A hybrid appraisal is a type of alternative appraisal where a third-party (a second appraiser, real estate licensee, or another authorized person) performs the field inspection for the home valuation — not the assigned appraiser.
Unlike a traditional appraisal, where the appraiser completes both the field inspection and market data analysis, an appraiser following the hybrid process uses the third-party’s observations in the final valuation. By outsourcing the fieldwork, appraisers can focus on analyzing the local market and comparable sales instead of juggling homeowner appointments and driving to assigned homes.
There’s some debate among the real estate industry as to the accuracy of hybrid appraisals. To learn more about how hybrid appraisals could impact your property valuation, we spoke with Swapnil Sharma, a top Texas-based real estate agent who sells homes 44% quicker than the average agent in her area, and Pia Loeper, a certified real estate appraiser, based in California.
What’s a hybrid appraisal?
A newer appraisal type, the hybrid format emerged in the mid to late 2010s as a faster method for property valuation. While used primarily for loan servicing and defaults scenarios, Sharma says she’s seen a rise in lender use of hybrid appraisals for refinance loans. Less so for purchases.
One factor driving the new format: a shortage of licensed appraisers. According to the Appraisal Institute, the number of licensed appraisers in the U.S. dropped by more than 10% between 2014 and 2018. With fewer available appraisers, the faster hybrid reports could help mitigate long turnaround times caused by fewer available appraisers.
Fannie Mae first began working on its own hybrid appraisal form in 2018, a sign of the hybrid appraisal’s growing acceptance in the mortgage industry. When the 2020 pandemic hit, government restrictions such as stay-at-home orders forced the real estate industry to rely more heavily on technology. The emerging hybrid appraisal became a more widely adopted alternative as lenders adjusted to rapidly changing market conditions.
The hybrid appraisal process
As the seller, your role in a hybrid appraisal is the same as in a traditional appraisal: You simply give the appraisal representative access to your home. The hybrid model deviates from the conventional model when a professional other than the appraiser valuing your home completes the in-person appraisal. Let’s explore the process:
1. The lender decides what type of appraisal it wants to order
Based on underwriting guidelines, the lender chooses which type of appraisal to order. For example, if the buyer is putting down a substantial down payment, the lender could decide that the buyer’s risk of default is low. Instead of the traditional route, the lender could opt for a faster, less expensive alternative, such as the hybrid appraisal.
2. The lender orders the appraisal
The appraiser generally doesn’t receive the request directly from the lender. Instead, the lender may use the services of an appraisal management company. This appraisal company maintains a pool of licensed appraisers and assigns the order to an appraiser within its network.
3. The appraiser accepts the order
The appraiser works on the in-office, or desktop, portion of the appraisal. Like the traditional appraisal process, the appraiser reviews recent sales data, researches public records for details such as the home’s age, square footage, and number of bedrooms and bathrooms. They compare your property to these comparable homes, adding and subtracting value based on property differences.
4. The appraisal management firm also hires a third-party field inspector
With a traditional appraisal, the appraiser who creates the appraisal report also completes the property’s field observation. But with the hybrid model, the appraisal management company hires a third-party to view the property, take measurements, and photograph the interior.
The data collector may be an appraisal trainee, a real estate licensee, home inspector, or another party authorized by the lender or appraisal management firm. The mortgage and real estate service company Radian, for example, states that it may use a real estate licensee for the physical inspection. On the other hand, Nationwide Appraisal Network employs licensed home inspectors to collect appraisal data.
5. The appraiser receives the field inspector’s property data and integrates it into the final appraisal report
The appraiser uses the third-party inspector’s findings to complete the hybrid appraisal report and provide an opinion of the home’s value. According to LIA Administrators and Insurance Services, an errors and omissions insurance company for appraisers, an appraiser working on a hybrid appraisal isn’t usually given the identity of the in-person property data collector.
Appraiser vs. data collector: What’s the difference?
In 2020, the Fair Housing Finance Agency (FHFA), which regulates Freddie Mac and Fannie Mae, invited feedback from real estate and mortgage organizations. The topic? Changes in valuation practices, including hybrid appraisals. In its request for input, FHFA noted potential risks with the use of third-party inspectors, including the potential for negatively impacting the quality of the appraisal valuation.
To explore how an appraiser and third-party inspector differ when it comes to hybrid appraisals, let’s compare the qualifications of an appraiser to those of a data collector, such as a real estate licensee or home inspector.
To become a licensed residential appraiser, the Appraisal Qualification Board (AQB) requires:
- 1,500 hours of experience as a trainee under the supervision of a certified appraiser
- 150 hours of core appraisal curriculum, which includes appraiser site valuation
- Successful completion of an AQB-approved exam
In contrast, a real estate licensee may receive some appraisal education — but not always. Licensing and educational requirements vary by state. For example, a California salesperson isn’t required to complete a real estate appraisal course, although it’s an option. Also not a requirement: prior real estate-related experience.
California brokers, however, must complete a college-level real estate appraisal course. And while California brokers require at least two years of full-time real estate experience, appraisal-related experience isn’t a requirement. Both types of licensees must pass a real estate examination.
According to the American Society of Home Inspectors a home inspector’s primary role is to investigate a home’s condition, not factors specific to valuation. And not all states regulate home inspection licensing. Pennsylvania, for example, doesn’t mandate licensing for home inspectors, but does require membership with a home inspection association.
States that regulate home inspector licensing may require both supervised experience and educational requirements. In Texas, a real estate inspector licensee must complete at least three months of active experience as an apprentice, along with 90 hours of education hours.
Benefits and drawbacks: The real estate industry weighs in
While some organizations embrace the technological advancements that can streamline the appraisal process, detractors warn against inaccuracy and the potential for fraud. The crux of the debate? Whether a third-party data collector can accurately assess a home and skillfully relay the pertinent information to the assigned appraiser.
Loeper, a staunch opponent of hybrid appraisals, refuses to accept hybrid assignments. She doesn’t agree that a third-party observation benefits the process. Loeper believes the model negatively impacts the integrity and accuracy of the appraisal:
“The problem is … the possibility, and probability, that the third-party misses condition, quality of construction, and floorplan issues which need to be incorporated into the appraisal.”
One example: Data such as square footage measurements can impact a home’s overall value. If an improperly trained inspector measures the home incorrectly, “the appraisal value can be off substantially.”
NAR expresses a more neutral stance, but also points out the risk and importance of who collects data during the appraisal inspection. “Having these different valuation options can be beneficial to the real estate market, but only if the proper risk management is put into place for each type of alternative,” NAR says. The organization also notes that “when an entity allows use of a hybrid approach, of paramount importance is the selection of a third-party data collector.”
Sharma believes that hybrid appraisals have a place in the market, citing the faster turnaround time as a consumer benefit. She notes that identifying inconsistencies and mistakes in any appraisal is vital, and Sharma considers it beneficial to have a second party assisting with the appraisal. “It’s kind of [like] having a second set of eyes,” says Sharma.
The American Bankers Association (ABA) supports alternatives such as the hybrid appraisal but echoes concern about ensuring proper training for data collectors. “To promote the hybrid appraisal model and qualify individuals to become data collectors, we suggest implementation of a new certification or licensing training program at the state level.”
Finally, the National Consumer Law Center (NCLC) voiced concerns about non-appraisers evaluating homes, particularly professionals who may have a conflict of interest. The organization points to real estate agents, who often benefit from a higher valuation due to their commission-based income structure, and insurance adjusters, who benefit from a lower valuation. “We believe it may be hard for real estate agents and adjusters to ‘shift gears’ from their normal role to that of an impartial party,” says the NCLC.
Pros of hybrid appraisals:
- Faster to complete than a traditional appraisal
- Less expensive than a traditional appraisal
- Can help overcome appraiser shortages that cause delays
Cons of hybrid appraisals:
- Third-party data collection could impact value accuracy
- Potential for conflict of interest for the third-party data collector
- Concerns about homeowner privacy and liability when allowing an unlicensed or uncertified inspector into your home to collect data and take photos
How a hybrid appraisal could impact you as a homeowner
The hybrid appraisal process shouldn’t look much different from a traditional appraisal, at least from your perspective as a homeowner. Just like a traditional appraisal, someone will make an appointment to walk through your home to measure the structure and take photos.
If you’re selling your home or refinancing, Loeper suggests preparing for your appraisal appointment by tidying up your space and making sure you don’t have a stack of boxes or other belongings blocking access to any rooms. You can also prepare a list of recent home renovations (with the amounts you paid and completion dates) and your home’s key selling features. Offer the list to the data collector, who can pass it along to the appraiser who’s completing the final valuation.
Since the buyer often pays for the appraisal in a home sale, you probably won’t receive a copy unless the value is lower than expected. If you disagree with the valuation, you can request a copy of the report from the buyer and examine it for any inconsistencies. Is the square footage properly stated? Did the appraiser use the most recent sales comparables that reflect a rising market? If so, the buyer could choose to appeal by asking their lender to review the appraisal or by asking for a second appraisal.
With the increased use of technology and rising demand for appraisers, the hybrid appraisal isn’t going anywhere, despite concerns about potential drawbacks. And as the seller, you won’t have a choice about whether the buyer’s lender orders a traditional appraisal or hybrid. The most important factor? Ensuring the appraiser receives the correct, relevant information about your home to make an accurate valuation.
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