How to create efficiencies in the real estate valuation process

The Mortgage Bankers Association recently reported per-loan production costs were at their third-highest level in its survey’s history.* With a focus on margins, costs and profits, technology providers need to continually innovate and deliver solutions that will help maximize efficiencies and lower origination costs.

One of the more promising areas where technology can help is in the real estate valuation process. With traditional property valuations ranging anywhere from $400 to $1,500 and taking up to a month to complete, determining a property’s value often contributes to high origination costs and extended turn times.

While there are faster and more cost-effective valuation options than a traditional appraisal, they may not be appropriate for certain properties or adhere to regulatory guidelines. In those cases, traditional appraisals will continue to play an important role in mortgage transactions.

Where efficiencies come into play is when a lender is aware in advance how complex a property valuation will be and, as a result, knows which valuation method to use upfront.

Take for example the case of a property situated in a stable local market and surrounded by strong comparables. For this type of property, an automated valuation model (AVM) would be a suitable option. Knowing this information upfront – before ordering a traditional appraisal – would enable the lender to save considerable time and money by selecting a faster, less expensive valuation method.

In situations where properties are more complex – if they have extensive amenities or no acceptable comparables for instance – a traditional appraisal is the best option. Armed with this knowledge in advance, the lender is able to move forward with ordering an appraisal, instead of spending time deciding if an alternative valuation method may be more suitable.

Appraisal management companies (AMCs) can also benefit from this type of knowledge. On the more complex properties, an AMC could assign an appraiser with the requisite level of experience and set appropriate fee expectations. Knowing this earlier in the process will help minimize delays and create a better experience for the borrower.

Selecting the right valuation type

To help deliver process efficiencies, ICE recently launched Valuation Selector℠. This cost-effective, automated solution analyzes property data and local market conditions to determine the level of effort needed to provide a credible value and recommend the appropriate valuation method to use.

The solution leverages public records, assessor and listing data, then applies advanced logic and analytics to generate a valuation method recommendation. It selects from one of the following valuation types for each given property: full appraisal, desktop exterior, desktop interior, AVM with inspection, or AVM.

Valuation Selector generates a comprehensive report that includes the recommended valuation method as well an explanation of why it was chosen. It also provides other important information, such as subject property complexity score, AVM confidence score, neighborhood value range, local market condition and more.

Valuation Selector not only benefits lenders but can help mortgage servicers as well. The solution is especially useful in cases where a previously delinquent homeowner becomes current on payments after a traditional appraisal was already done. In those cases, the servicer could have used an AVM, if appropriate, which would have cut costs considerably.

When AMCs use Valuation Selector, they help lenders accelerate origination turn times. The AMC can assign the appraiser with the right level of experience to the right property – helping to expedite the origination process.

Knowledge is power

Valuation Selector does the decisioning work upfront, providing mortgage stakeholders with knowledge that will help them create a better, more streamlined process to address the enormous challenges the industry faces.

To learn more about ICE’s new Valuation Selector, click here or reach out to your ICE representative.

* IMBs Report Net Production Losses in the Third Quarter of 2023