Close 20% more loans by better utilizing your appraiser.
By Brian Blanchard, Chief Operations Officer, PROvalUSA.com
Part 2:
Pre-Qualify your borrower’s estimated value on the front end and improve your close ratio on the back end!
In a previous article, we touched on 3 key points to improve your close ratio:
1) Pre-Qualify your borrower’s property collateral (estimated value)
2) Lock out your competition by getting your borrower to commit
3) Follow Through
Today, we will discuss in greater detail the first of these three key points.
Industry wide, nearly one out of three loan apps cancel after the appraisal is ordered and after significant time has been invested by you and/or your firm. A primary reason for this high rate of cancellation is directly related to an unrealistic value estimate of the borrower’s property collateral. This unrealistic value estimate is either from your borrower (high) or from the appraiser (low).
While every lender in the industry pre-qualifies the borrower by running their credit history, this is only Part 1 of what should be a two part qualification process.
When comparing lenders that qualify their borrower’s property collateral, in addition to their credit, cancellation rates are nearly cut in half!
How to pre-qualify? Historically, lenders would ask the appraiser to run comp checks in advance of doing the property inspection and ask to be notified of “any potential value issues”. Not only is this a manually intensive and time consuming process for the appraiser…it is also illegal and the feds are starting to come down hard on this issue.
Thanks to the advances in appraisal related technology, lenders can pre-qualify the borrower’s property collateral from a variety of sources online in seconds before placing the appraisal order and without picking up the phone or sending a fax.
Specifically, AVMs (Automated Valuation Modules) are now widely available online and cover some 80% of the country’s population. Long used by wholesalers for risk management purposes at the portfolio level, AVMs are now main-stream.
Bottom line conscience retail brokers and lenders routinely utilize AVMs, as well as Automated Comp Checks and Data Reports not only to detect potential valuation issues up front prior to placement of the appraisal order, but also on the back end, after the appraisal comes in.
Up front…When the AVM indicates that the borrower’s estimated value is unrealistically high, the lender is given more time to structure an alternate loan package and prepare the borrower for the worst, thus gaining their respect, locking in the sale, and avoiding the wasted efforts of a cancelled loan.
On the back end…If the appraisal comes in below both the AVM and the estimated value, the deal may not be dead. In fact, the AVM may contain information not known by the original appraiser. The appraiser may be pointed to an alternate comparable sale or other overlooked points which would change the appraiser’s opinion of the value. If the appraiser’s opinion of value remains unchanged, the AVM may be sufficient to warrant a second opinion from another qualified appraiser in the local area.
One point to remember, there is a fine line between discussing what you consider to be a deflated value and coercion. The latter of the two is illegal and will be discussed in a future article.
At the end of the day, “an ounce of prevention is worth a pound of cure” at least that’s what Grandma used to say. In our case, a pound of cure equates to 10% to 15% more closed loans. Next month’s article will talk to closing even more.
Brian Blanchard is the Chief Operations Officer of PROvalUSA.com, the source for residential appraisals nationwide. The St. Peters, Missouri based company provides appraisal management with a modern twist. Since its creation in 2000, PROvalUSA.com continues to attract lenders to its unique open approach to appraisal management. For more information about PROvalUSA.com, visit http://www.provalusa.com/ActiveRain/ or call (866)243-7723 ext. 201.
The comments in this blog are solely the opinion of Brian Blanchard and are not necessarily representative of PROvalUSA.com's position on any particular topic.
Major Mortgage USA/Branch Manager - Montrose, CO
I have a great apprasier that on a refi will give me a ballpark estimate for free in 24 hours and it does really help to get the deals done
Jul 10, 2007 03:21 AM
Estimation Nation Corporation - Portland, OR
Portland, Oregon Appraiser
Hi Brian - Are you supporting AVMs? Just curious. At times I'm humored, others daunted by them... Here and here are some of my opinions ... The Zillow group has some good pro and con information on AVMs as well.
Hello Joe - Please see this thread regarding comp searches... It has "interesting" information on USPAP (Appraiser's rule book), etc.
Jul 10, 2007 05:44 AM
Chief Architect / Chief Innovator - Saint Charles, MO
Sara,
As a replacement to appraisal products the answer is unequivocally NO.
However, AVMs do have their place in the sales process and are invaluable in the Quality Control Process.
During the Sales Process:
I would prefer a world in which "Comp Searches" or "Comp Checks" were supported by USPAP during pre and post sale, contained a simplistic documentation format that took appraisers moments to complete, and were completed at a fee comparable to the hourly fee charged to complete a full appraisal. However, this world does not exist today and most likely never will.
Most lenders' are unaware of the burden placed on appraisal firms to complete "Comp Searches" at no charge to the lender or borrower. Further, the use of "Comp Searches" while wide spread is very controversial.
All of that said, having tested most every product on the market, AVMs have proven to have some powerful advantages during the sales process:
1) They provide an estimate of the value of the property being used as collateral that by far exceeds the borrower's best guess.
2) The cost of AVMs is significantly lower than any other product on the market, allowing the preliminary estimate without burdening the borrower at the early stages of loan funding.
3) AVMs can eliminate the undue burden placed on the appraiser to complete Comp Checks
AVM Accuracy
AVMs are never going to consistently provide an accuracy level that exceeds that of licensed appraisers. To gauge the value of the AVM during the sales process, you do not compare it to an appraisal. You compare it to the information the loan officer has at their disposal at that point in time, the Borrower's estimate of value.
According to our analysis of HMDA data, 25%+ of the time the borrower's estimate is grossly inflated. On the orders analyzed, when the appraisal is completed the difference between the appraiser's opinion of value and the borrower's estimate is so great that there is no possible of the loan being funded. At this point in the process, it is impossible for the lender to find a loan package that meets the borrower's elevated expectation. Incorporation of AVMs allows for more accurate initial product selection, and can reduce that 25% to 15% or even 10%. This increase in throughput clearly demonstrates a quantifiable advantage over the borrower's estimate.
The comments in this blog are solely the opinion of Brian Blanchard and are not necessarily representative of PROvalUSA.com's position on any particular topic.
Jul 10, 2007 07:13 AM
ERA Advantage Realty - Sebring, FL
MAI
Brian,
I agree that AVM's may be useful in certain situations. However, they are just not useful in older subdivisions or areas where the homes are not homogeneous.
I've been an appraiser for 20-years, most of my tenure in the Florida Keys, where properties are unique and subdivisions are old! Sometimes comp checks are NOT possible or that easy. A few weeks ago, I got a call from a mortgage broker who wanted to know if I could achieve an estimated value. It just so happened the property is near my subdivision. When I asked if the property was waterfront. He said "I don't think so". Just from the value he needed, I had a feeling it was! When I drove by, out of curiosity, It was the "white elephant" of the neighborhood with extensive waterfrontage. He still pressed for comp. search. That is soooo impossible.
Now, in the market we are experiencing the research is soooo beyond "comp. search"! When was the last time someone went to an attorney and asked him/her to do some upfront research just to "see" if they wanted to proceed with litigation! THIS IS THE REASON WE ARE IN THE LENDING CRISIS OF TODAY!
Someone wanting something for "nothing" and some who are so hungry that they are willing to compromise integrity for a buck! I have been in this profession for 20-years...and I promise, I will be here 20 more, but on a professional level, serving those who appreciate my experience, my expertise, and my opinion!
If not for the reporting requirements, I would be happy to "consult" with a client prior to writing a report for a fee which compensates me for my time! But not to reach a pre-determined conclusion or be held hostage for same. The public should appreciate an appraisers guidance and advice!
After all Hindsight is 20/20! We go to the Doctor for their opinion, We don't always like it--But we ALWAYS PAY FOR IT!
Jul 10, 2007 03:56 PM
First Choice Mortgage - Ocala, FL
I think AVMs are a great tool to utilize but are definitely not the end all. I will usually check 3 different sites to get me in the ballpark. I just had one that was for a million plus, so I called an appraiser I deal with often and she gladly took the time to help out because I dont ask for comps or pencil searches on all of my deals.
Jul 10, 2007 04:24 PM
Chief Architect / Chief Innovator - Saint Charles, MO
Excellent points Elaine.
1) Markets & properties exist in which it is impossible for an appraiser to provide even a comp search. In such scenario's there is no possibility of any tool providing an accurate gauge of value prior to completion of a full appraisal.
2) I couldn't agree more, if an appraisal is completed it should be paid for regardless of value. This is one of many goals I have in creating this series of articles. When the lender and borrower enter the lending process with realistic ideas of a property's value, the doctors opinion be it bad or good is understood. This understanding reduces the likelihood of a lender protesting the cost of the appraisal.
Tom is a great example of these goals. He uses not 1 but multiple tools to gain this desired understanding. When the tools are of no help, he relies on a trusted adviser. I would be willing to bet that if you compared Tom to an identical loan officer you would see his volume of comp checks is most likely 10% of that made by his peer. I would expect his closing ratio to be significantly higher as well. Kudos Tom.
The comments in this blog are solely the opinion of Brian Blanchard and are not necessarily representative of PROvalUSA.com's position on any particular topic.
Jul 11, 2007 03:08 AM
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