This is the final article in Ernie Durbin’s three-part series on the new UAD. The first article on April 15, 2024, was “From Forms to Reports: A Look at the UAD Overhaul.” The second article on July 15, 2024, was “The New UAD: Don’t Borrow Trouble.“
Appraisal Buzz – In my articles “From Forms to Reports: A Look at the UAD Overhaul” and “The New UAD: Don’t Borrow Trouble,” we explored the fundamental changes brought about by the new UAD standards and addressed common concerns within the industry. In this final article, we will look more closely at the practical implications of these changes. How will lenders order appraisals without standard form numbers? How will appraisers price their services based on the dynamic nature and the scope of work concept? How should appraisers prepare themselves now for the upcoming changes in UAD? And how can we be ready for the champion-challenger selection of software?
“A rose by any other name would smell as sweet,” is a famous line from William Shakespeare’s play Romeo and Juliet. In this context, Juliet argues that the name of something does not affect its intrinsic qualities. The essence of a rose remains the same regardless of what it is called. This line highlights the idea that the nature of an object, person, or concept is not altered by its label or name.
We can learn from this beautiful prose. For years, we have referred to our appraisal reports as “forms,” but they have always been appraisal “reports.” Our results have been expressed on specific forms provided by Fannie Mae and Freddie Mac. These forms are known shorthand by their numbers, like Form 1004 or Form 70. Each property type had its own number and respective form. The shorthand was easy to remember, and our pricing was based on the amount of time it takes to complete the scope of work for the specific forms. But “a rose by any other name would smell as sweet,” they are still appraisal reports.
One of the most perplexing issues arising from the new UAD is how lenders will order appraisals without the traditional “form” numbers. The current system provides a structured way for lenders to request appraisals and for appraisers to complete them. However, with the introduction of a dynamic reporting system, the absence of form numbers may create initial confusion.
To address this, lenders and appraisers will need to adapt to a more flexible ordering system. This will involve using property characteristics and scope of work as the primary identifiers rather than relying on form numbers. We do not know exactly how this more nuanced approach will work yet. To complicate things, appraisal management companies will also have to deal with this new complexity. There is a lot to iron out and effective communication between lenders, AMCs, and appraisers will be crucial during this transition to ensure clarity and efficiency.
The dynamic nature of the new UAD and the scope of work concept also present a challenge for appraisers in pricing their services. Traditionally, appraisal fees have been somewhat standardized based on the type of form used and the complexity of the assignment. With the new system, each appraisal may require different data elements and levels of analysis, making it more difficult to establish a uniform pricing model.
Appraisers will need to develop a more flexible pricing strategy that considers the specific requirements of each assignment. This could involve tiered pricing based on the scope of work, with different rates for simple versus complex appraisals. Additionally, appraisers should clearly communicate their pricing structures to clients, emphasizing the scope of work and the time required to complete that scope credibly.
Lenders have a problem with flexible pricing because they must comply with TRID. TRID is a set of regulations that combine the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Implemented by the Consumer Financial Protection Bureau (CFPB), it aims to provide clearer and more understandable loan disclosures to consumers. Within three days of loan application, lenders must provide accurate estimates of appraisal costs in the Loan Estimate and ensure these costs are disclosed in the Closing Disclosure. Excluding complex assignments, traditional forms used today are priced in advance of the appraisal order, making this disclosure easier.
Most likely, assignments under the new system will be based on scope of work “containers.” These containers will be similar to the existing scope of work that is represented by the “forms” we currently use. As noted in the previous articles, although the new data set is all-inclusive of different property types, each assignment will be a “subset” or “container” of the data elements necessary for that appraisal assignment, and scope of work. Pricing for our assignments, whether single-family, condominium, multi-family, or otherwise, will be standardized around a similar scope of work that we experience today. This will meet the requirements of the CFPB and TRID and provide for some form of standardized pricing we are accustomed to.
Appraisers will probably not see these new types of assignments until sometime in 2025. Between now and then there are some steps we can take to prepare ourselves for what is coming.
The software solutions for the future UAD will be optimized for on-site data collection. Although it would be possible to take detailed written notes in the field and translate those notes to the software at the desk, this process is highly inefficient and provides too much opportunity for errors. There will be many more data elements related to the inspection. If these are not captured in field notes or photographs, it could result in returning to the property for more data collection. Using a mobile device for inspections will be a must in the future.
Appraisers can prepare for this change by using those tools right now. All the major software vendors have mobile applications for the current forms and process. Appraisers should start using mobile devices in their practice right now to become familiar with the technology. Frankly, it’s a much more efficient process anyway. Appraisers can reap the benefits of these efficiencies in their current practice and prepare for the requirements of the future UAD data set.
Mobile data collection not only involves the specifics of the subject property but also an opportunity to measure the property with new technologies. Rather than hand-drawing measurements in the field and transferring those to the software back at the desk, appraisers should experiment with scanning technologies that are available right now. There are numerous platforms that will “measure” the subject property by scanning the interior. Most, if not all, of these meet the ANSI requirements Fannie Mae and Freddie Mac. You can also expect more software solutions for scanning properties to emerge soon. Start getting used to those right now. Again, they can add efficiency to the current process and ready you for what is coming in the future.
Appraisers have always been reluctant to change appraisal software. There is a learning curve to deal with and current software is already set up with saved commentary and data from previous reports. If an appraiser’s software does the job and they are used to it, why change?
Those obstacles to change are null and void when every software vendor must reinvent the process. Very soon, appraisers will be presented with many options from numerous different appraisal software vendors. The new UAD standards will create a “champion-challenger” environment among appraisal software providers. Appraisers will have the opportunity to evaluate and choose from a range of software solutions, potentially switching from long-standing vendors to new entrants offering innovative features. When selecting software, appraisers should consider flexibility, efficiency, and support.
As the appraisal process transitions from rigid forms to dynamic reports, the need for software that can efficiently handle both lending and non-lending work is essential. Flexibility is crucial; appraisers should seek software that does not focus on mortgage assignments only. Software packages should apply the same mobile process for other types of assignments that are outside the mortgage space. Appraisers don’t want to have multiple software platforms.
Efficiency is key to selecting the right software. Appraisers should prioritize solutions that streamline the data entry process, minimize errors, and enhance overall productivity. This efficiency can significantly reduce the time spent on each assignment, allowing appraisers to handle more work without compromising quality. Given the dynamic nature of the new UAD system, software that can adapt to changing requirements and provide real-time updates will be particularly valuable. Furthermore, the ability to integrate market information from MLS and other data sources directly into the software will enhance the appraiser’s ability to perform accurate and timely analyses.
Robust support and training are quintessential for a smooth transition to the new UAD standards. Appraisers must ensure their chosen software provider offers comprehensive training programs and reliable customer support to navigate any challenges during the implementation phase. This support is crucial, as the initial learning curve may be steep, and appraisers will need assistance to fully understand and utilize the new system’s capabilities. With the right support, appraisers can quickly adapt to the new system, leveraging its full potential to deliver high-quality, credible reports more efficiently. This competitive environment will ultimately drive innovation and improvement in appraisal software, benefiting the entire industry by providing appraisers with a wider range of superior tools tailored to the new standards.
The transition to the new UAD is a significant milestone for the appraisal industry, bringing both challenges and opportunities. By addressing the perplexing issue of appraisal orders without form numbers, developing flexible pricing strategies, preparing through education and software upgrades, and navigating the champion-challenger environment, appraisers can position themselves for success in this evolving landscape.
As we move forward, it’s crucial to remember the wisdom of not borrowing trouble. Instead of fearing the unknown, appraisers should focus on the opportunities for growth and improvement that the new UAD standards present. With the right preparation and mindset, the appraisal industry can embrace this transformation and continue to provide valuable, credible services in a dynamic, data-driven world.
This article was written by Ernie Durbin and originally appeared in Appraisal Buzz.