This is a continuation of the April 15, 2024 article “From Forms to Reports: A Look at the UAD Overhaul”
Appraisal Buzz – I am named after my father, who passed away in 2000. Dad was an SRA who brought me into the business and mentored me back in 1982. I had just returned from college, and back then, there was no appraisal software available. It was my father’s vision that we would “computerize.” We had to do it ourselves in the beginning, developing our own local software using DOS. That’s how I first got involved in valuation technology.
My father and I were close friends, and I sought his counsel up until the day he died. He taught me more than just appraisal; he taught me about life, often through a multitude of enigmatic phrases like “better than a poke in the eye with a sharp stick” or “don’t borrow trouble.” His wisdom was deep, but he communicated it in humorous ways. Many of his memorable phrases continue to guide me today, echoing in my mind, keeping me centered and moving forward.
Reflecting on one of my father’s favorites, “don’t borrow trouble,” I find his advice particularly relevant today. It reminds me to focus on the present and not jump to conclusions about future uncertainties. What he was trying to convey was to trust in my abilities to handle challenges if and when they arise, rather than assuming the worst.
Many in our industry are “borrowing trouble” when they prematurely conclude that the new UAD and GSE report writing requirements will be detrimental. Just as my father taught me to address challenges as they arise, rather than worrying about potential issues, we should approach these new requirements with an open mind, prepared to adapt and find solutions. In this article, I want to address some myths about what the future holds and introduce some possible solutions software providers are working on to proactively address these changes.
Fannie Mae and Freddie Mac are not designing the software for the future, but they have provided the specification for the Uniform Appraisal Data set (UAD) they want to receive. It is up to appraisal software companies to develop solutions to provide this specific data set. All 12 of the existing mortgage appraisal forms will be retired, and a new uniform appraisal report will be produced from the data set. This report will be dynamic and able to accommodate the same types of properties previously reported on the forms.
This multi-year project began in 2018. At the beginning of the effort, the GSEs sought input from appraisers, lenders, appraisal management companies, and other stakeholders. In these early days, they initially published concept specifications and supporting documents that included an example of the new Uniform Appraisal Report. This early example of the appraisal report was intentionally expanded to demonstrate all the different ways the report could be used. Aimed at showing the comprehensive design of the report, the example was intimidating to users of current appraisal forms. Many stakeholders jumped to the conclusion that this was a new “form,” and all these fields would be present and must be addressed by the appraiser and reviewed by the lender. Although well-intended, the early example of the new appraisal report backfired. Appraisers, somewhat accustomed to “scope creep” over the years, saw this example as “SCOPE LEAP!”
The problem is… it’s not a form. The new Uniform Residential Appraisal Report (URAR) is an appraisal report expressed as a form. This may seem like semantics, but it is a very important distinction. Although the UAD data set is all-inclusive of property types, only the data points necessary for a specific property need to be reported. The dynamic nature of the new report will result in “form” outputs that are remarkably shorter than the early examples provided by the GSEs. As an example, if the income and cost approaches are not necessary for credible results, these elements will not be included in the appraiser’s workflow or the final URAR.
Later examples from the GSEs demonstrate this, but it’s hard to unring the bell. Many stakeholders have not seen these later examples, made up their minds early, or still misinterpret the output as an all-inclusive “form.” I believe there will be new examples coming out shortly from the GSEs that demonstrate different renditions of the output based on property types. These new specific examples may diminish some concerns if stakeholders study them. However, regardless of property type and scope of work, there will be more data elements required by the new UAD specifications. How will these increased data requirements affect appraisers? Are we going to be spending a lot more time completing a traditional appraisal assignment? The answer depends on software solutions to be developed.
The new UAD specification is designed to minimize commentary by the appraiser and collect more discrete data points that are machine-readable. There is plenty of opportunity for appraisers to make comments when necessary. Commentary will relate to analysis and not description of the property or comparables. Most of these more discrete data points have enumerations (specific selections), reducing typing and eliminating spelling errors. If implemented properly, this data-centric workflow can be leveraged by software developers to reduce production time by the appraiser.
Software companies will likely take various approaches to assist appraisers in completing their reports. All will have to contend with the dynamic nature of the new report. Gone are the days of simply representing an existing form on screen and adding a few bells and whistles to reduce typing. Since reports will have to be property-specific, appraisers will be presented with different data requirements and analyses depending upon the scope of work. The conditional nature is complex and not an easy assignment for software engineers.
One approach may be to have a scope of work section at the very beginning of the process. This section would define the property type and other characteristics (ADU, investment property, etc.) at the very beginning. Much of this information might be passed on from the client or the AMC. When this initial section is complete, the rest of the screens for data entry and analysis would be dynamically created and then presented as a static “form,” like the way appraisers work today. This sounds great, but remember, the scope of work continues through the appraisal process. If the appraiser decides additional elements are necessary, it could create fields and other sections that need to be revisited.
Another approach might be to guide the appraiser through an interview-style methodology. Following the appraisal process, questions would be designed to first outline the scope of work and then ensure the appraiser follows the necessary steps to meet that scope of work and the USPAP Standards required. The user will be able to view the output at any time during the question-and-answer process. This methodology would skip over whole sections that are unnecessary. For instance, if the property is constructed on a slab foundation, there would be no interrogatories about basement areas. At the end of the process, the whole output as a “form” would be visible and editable by the appraiser. This methodology has its issues as well. If an appraiser wants to refer to previous input, changes in that input would need to be reconciled throughout the report.
The most innovative solutions will involve a combination of both processes. Forward-thinking software design will also incorporate other tools for appraisers to be more efficient, reduce errors, and produce more credible reports. Appraisal software vendors will certainly incorporate mobile technology used for data collection. Whether the data collection is by the appraiser or a third party, this information will be passed directly into the report writing process. Market information from MLS and other data sources will also be available inside the software. Some software vendors will incorporate various methodologies for supporting adjustments, such as simple linear regression, multiple linear regression, depreciated costs, and sensitivity analysis. New technologies will be applied to old problems that appraisers have to solve daily. Appraisers will be able to focus on analysis and reconciliation rather than typing and data entry.
Returning to our question, with these changes, will appraisers spend more time completing a traditional appraisal assignment? In the beginning, yes.
The transition to the new Uniform Appraisal Data set (UAD) and Uniform Residential Appraisal Report (URAR) may initially require appraisers to spend more time completing assignments due to the increased data requirements and the need to adapt to new software workflows. However, this adjustment period is expected to be temporary. As appraisers become familiar with the new dynamic reporting system and the more structured data-centric approach, they will likely find that the time needed to complete assignments will decrease significantly. Over time, these advancements will lead to quicker, more credible appraisals, ultimately benefiting the industry by improving productivity and the quality of reports. The initial learning curve will give way to a more efficient and effective appraisal process, demonstrating the positive impact of embracing new technologies.
On a final note, I have heard many appraisers lament that they believe the GSEs are trying to get rid of appraisers and replace us with technology only. The investment by Fannie Mae and Freddie Mac in this monumental project (begun in 2018) indicates the opposite. They would not move forward with this endeavor if they did not intend to use appraisers in the future. Their commitment, and the subsequent investment by lenders, denotes an ongoing demand for our services. The way we develop and report our appraisals may change, but the need for our professional services will remain.
We know we are part of the valuation future as envisioned by the GSEs. We don’t know exactly what the software solutions will be like or even the final report output. We should not jump to conclusions about what is “new” before seeing it and experiencing it. Durb’s (my nickname for my father) advice rings true here: “don’t borrow trouble.” As appraisers, we have been resilient and adapted to many changes already. Our focus should be on preparing for the upcoming transition, without prematurely assuming the worst.
This article was written by Ernie Durbin and originally appeared in Appraisal Buzz.