What’s Driving the Appraisal Industry’s Move to Modernize?

A Conversation With Shawn Telford

The appraisal industry is undergoing its most significant transformation in decades, blending innovation with tradition to reshape how appraisers value real estate.

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Shawn Telford:

It is an exciting time in the appraisal world for sure. I mean, it’s the biggest change that we’ve seen in the many years that I’ve been in the industry. It’s going to affect everything, like I said, from the application, how appraisals are ordered to how they’re completed, to how they’re delivered, to how they’re underwritten, and that’s exciting.

Maiclaire Bolton Smith:

Welcome back to Core Conversations: A CoreLogic Podcast where we tour the property market to investigate how economics, climate change, governmental policies and technology affect everyday life. I am your host Maiclaire Bolton Smith, and I’m just as curious as you are about everything that happens in our industry. Appraisal modernization efforts from Fannie Mae and Freddie Mac are going to dramatically alter the way appraisers and lenders handle collateral valuations over the next year. From an overhaul of traditional processes to the introduction of new technologies, adopting a new appraisal data standard is bound to be a challenge. However, it is a challenge worth rising to along with business impacts. This change will also bring possibilities, think desktop appraisals or the appraisals of short-term rentals or even appraisal waivers, whatever the focus a lot is coming. So to talk about these monumental changes and how appraisal modernization will have consequences across the property industry, we welcome back CoreLogic’s Chief Valuation Officer, Shawn Telford. Shawn, welcome back to Core Conversations.

ST:

Thank you. Happy to be here.

Erika Stanley:

Before we get too far into this episode, I wanted to remind our listeners that we want to help you keep pace with the property market. To make it easy, we curate the latest insight and analysis for you on our social media where you can find us using the handle at CoreLogic on Facebook and LinkedIn or at CoreLogic Inc. On X and Instagram. But now let’s get back to Maiclaire and Shawn.

MBS:

All right, well, happy to have you back again and our guests definitely know who you are. So let’s just start off with an explanation of what appraisal modernization is and how did we get here?

ST:

This is a good place to start. I think the definition of appraisal modernization is frequently misunderstood, to be honest with you. In the industry. It’s really two distinct parts. The first part is new ways to do collateral valuation. Think of this in terms of the, you mentioned waivers or desktop appraisals. They’re not really new, but they’re newly allowed by the GSEs, so that’s something that is lumped in that appraisal modernization bucket. The second part of modernization is about a new data set and a new way of reporting appraisal findings. So that’s what we will touch on it in a bit. Dynamic forms, new standardization around data points, new enumerations to help simplify the process of understanding the data and analyzing the data.

MBS:

Okay. Okay. And you use the acronym GSE. So just to clarify that is the government sponsored entities, which are traditionally Fannie Mae and Freddie Mac, so that’s who we’re talking about here.

ST:

Yep.

MBS:

I guess the question is what’s the timeline both of, I guess the timeline to overhaul the system and then a timeline for implementation of any new data standards

ST:

With respect, again to modernization? There’s two parts, the new ways of doing appraisals that has been ongoing for several years now. covid really gave it a catalyst and

MBS:

Pushed, right. I remember you and I did a podcast on how things were changing.

ST:

It was an opportunity to use some of the technology that had been only experimented on to use it in production, and the industry saw that it worked, and so that kind of pushed forward the modernization of allowing those new ways of doing appraisals and collateral valuation using the existing process, the existing technology and data standards. In about 2018, the GSEs actually started the modernization effort around the new dataset and the new way of reporting appraisals. And so that’s been underway for some time now. They had a lot of industry outreach with appraisal community, the other stakeholders, lenders and so forth. And so they’ve been pushing that since 2018, and that’s moved into the current timeline, which is underway.

MBS:

Okay. And what do we expect the impact of all of this to be, whether it be benefit or not to both, whether it’s a business lenders or investors or even to homeowners,

ST:

It’s going to be to the industry itself is going to be a significant impact to carry forward. A little more of the timeline. The first production for lenders will start in the second half of 2025, and so lenders have to get themselves ready

MBS:

Soon

ST:

By that timeline. So it’ll be limited production then, but in 2026, the GSEs intend to open it up to all lenders, and then sometime in late 2026, there’ll be a date. I’m sure they’ll put out a date for when you have to make the switch. And so to get the industry ready, to your question about how does it impact the industry, there’s a lot of work that has to be done by the whole industry to change that. And because of the broadness of the impacts, it affects everything from the loan origination scenarios to the delivery of the appraisal, to the underwriting of the appraisal, to the secondary markets, activities and servicing as well. Because there’s such a broad impact around the new data standard and the new way that the appraisers will report their findings instead of using the traditional standardized forms. This dynamic approach that we can certainly we’ll jump into later.

ES:

It’s that time again, grab a cup of coffee or your favorite beverage, we’re going to do the numbers in the housing market. Here’s what you need to know. The COVID-19 pandemic was a defining moment that changed many things, including construction costs. While there were always regional differences in home reconstruction prices, the pandemic period between Q2 2020 and Q2 2021 saw unprecedented growth in material prices with some areas spiking by almost 25%. San Francisco had the smallest average growth at 10.6% in reconstruction costs in New York had the largest increase at 22.7% during the pandemic period. However, although the growth span the two extremes, both cities were among the top three most expensive areas in terms of overall pricing. After prices spiked between 2020 and 2021, they then declined until 2023. Reconstruction costs finally stabilized to slightly above pre pandemic levels between Q2 2023 and Q2 2024. And that’s the sip. See you next time.

MBS:

Okay. Now, I do want to get more into the data standard side of things. It sounds like it’s going to be a really big deal, but I guess before that, when we look at some of the big changes is uniform appraisal dataset, which is something that really is quite a dramatic change to what the industry currently has been for hundreds of years because it’s been around for a very long time. What exactly is going to change and how is it going to impact things?

ST:

So about 10 years ago, Fannie and Freddy implemented the uniform collateral data portal, and that was a first step to trying to standardize appraisal data. And so it kind of retrofitted some appraisal data standardization into the current appraisal forms. And that was a good thing for the industry in that we started to see the benefits of standardized data in understanding what’s going on with appraisals. We’ve seen a lot of the benefits of that over the last five years. As the industry’s kind of focused in on the appraisal world, this new UAD will take it to the next level with even more uniform ways of communicating the appraisal information in ways that are more efficient. And at the same time, they’ll be more standardized and there’ll be less. There’s a lot of free text today where appraisers will write addendums and narrative commentary, and there’s important information buried in those narration. And without the standardization, it’s really hard to pull the information out of that text. And so this will eliminate a lot of the need to do that and just allow the appraisers to communicate more effectively.

MBS:

I guess. That sounds like a really big deal. And I guess the thing, obviously having better standardization and better communication across the industry is important. How standardized are things? Now? You’ve kind of alluded to things have changed over the last five years, but it sounds like there’s still quite a ways to go. How standardized, how big of a change is this going to be?

ST:

I think the standardization is a little bit less of a change than the move to the dynamic appraisal reporting formats.

MBS:

Okay.

ST:

So today, if you order, for example, most appraisals are on single family homes, and that utilizes the Fannie Mae 1004, Freddie Mac 74. It’s been roughly the same since 2005. And so by what this new data standard will do is it will allow the GSEs to essentially communicate to a lender, we need an appraisal on this property and we want you to do a desktop. So they limit the scope of work. And then when the appraiser goes out, instead of having a specific form, the appraiser would simply report what they observe in the appraisal, or if they’re doing from a desktop, they’ll report what data they find from the sources. And based on that data, they can have a different format. So for example, if a home were to have an accessory dwelling unit, the appraiser would simply indicate that in the dataset, and that would trigger some additional data fields that were specific to the A DU. So kind of like an if then type thing. And so today, if an appraiser goes out and it happens, they thought it was a single family, but it’s actually a PUD or a condo, the appraiser would’ve to change forms and all that. Today, they would just simply indicate that it was a condo, and then they would fill out the appropriate accompanying data fields that are tied to a condominium project and so forth. And so that’s what we mean by dynamic is that each time you do an appraisal based on the physical characteristics of the property or the neighborhood, there may be a slightly different output, so to speak, in what data fields you collect. I think of it in terms of the new UAD will be a super set of data, and then depending on the scenario, the appraiser will utilize some of the data points.

MBS:

Gotcha. Okay. You did use the acronym PUD there when you referred to condos and PUDs. That’s just a plant unit development, is that correct?

ST:

Yeah, planned unit development. Yeah. So think of it as a single-family home that might have a homeowner’s association, but it’s not a condominium style

MBS:

Ownership. Right. Yeah, I’ve lived in those, which is why I know what the acronym means. You bet. Yep. They’re

ST:

Fairly common.

MBS:

Yeah, they’re pretty common in a lot of areas too. Okay. So I guess I mentioned this kind of at the beginning, and if we look at some of the specific updates that the GFCs are bringing, one of them happens to be appraisal waivers. I want to talk about this a little bit too, because I know you and I have chatted previously when you’ve been on the podcast of, especially during the Covid era, when there was a lot of refinance activity going on, appraisal waivers became really common. So can we talk about now and how this fits into all of this?

ES:

Maiclaire references a previous podcast that she did with Shawn during the pandemic. This episode is called “How is Automation Affecting the Appraisal Industry?” It aired on January 6, 2021. A link to listen is in the show notes.

ST:

So as you mentioned, appraisal waivers are not new. They’ve been out there for some time, and the GSEs use them. They’re based on different loan types, right? The prevalence is based on different loan types. So refinances, they’re more common then the Nana purchase, for example. And in order to offer waivers or other types of products, the GSCs analyze the data that they have. And so again, the more the data is able to be utilized, the better decisions the GSCs, Fannie, and Freddie can make as to what the risk associated with the collateral valuation. And thus, they can instruct the lenders regarding the type of appraisal analysis that’s appropriate based on the risk of that collateral. And ultimately, the goal is to make a risk-based decision.

It’s beneficial for consumers and ultimately for everybody. If you don’t need a full blown appraisal because it’s a low LTV loan to value, and the property is well documented and there’s lots of data out there about it, you don’t need to do a full appraisal, but you still may want the opinion of an appraiser. And so you might order a desktop or you may not order an appraisal at all using a waiver. Or the GSEs have introduced waivers that are combined with a property data collection. And so they may have some data about the property, and they think they understand the risk associated with it, but they need more current data. And so rather than an appraiser going out, they send out a property data collector who could actually be an appraiser. Interesting. But they might collect that data and they would augment the information they have about the property and then either decide to go forward with the waiver or potentially have an appraisal of some sort done.

MBS:

So really showing the value of having accurate, robust property data available.

ST:

Absolutely. I mean, as we all know, the more information you have, the better decisions you make. And so it’s not a one size fits all scenario.

MBS:

Absolutely.

ES:

The better data you have, the more effective decisions you can make. CoreLogic data creates the blueprint for the property industry. Be curious, be inspired, be more with CoreLogic data, find out how data changes everything. At the link in our show notes.

ST:

Prior to covid, there were very limited alternative appraisals being utilized. It was pretty much a full appraisal every time, and so it was kind of a one size fits all. And so by taking this approach, lenders are able to utilize a risk-based approach, which just makes more sense.

MBS:

I guess. Are there any other sorts of, I mean, we talk a lot about the importance of property data, but are there any other sorts of alternative appraisals that this modernization will help support?

ST:

The goal of the modernization really is to simplify the appraisal process, to bring it current. I mean, the current form-based approach was really designed around typewriters. It’s that in concept now they’ve modernized it a little bit, it’s retrofitting data-based worlds into a form designed for the typewriter. And so there’s so much more technology available that can use the data to help lenders, to help appraisers, to help all the stakeholders in the process. And so by bringing this new data standard together, you really allow the modern technology to be utilized. I mean, it’s just time to move forward and move past some of the constraints that are on the industry. Now because of the legacy approach.

MBS:

I want to talk a little bit about appraisal underwriting specifically, and then the collateral view as well as part of the underwriting process. So does the modernization process affect this as well?

ST:

Absolutely. Today, when an appraisal is completed, an underwriter or review appraiser looks at that information and makes decisions about it, there’s often the use of technology to speed the process up and automate that, right?

MBS:

So

ST:

You’re using your underwriters to look at the most risky appraisals or the most risky collateral, and that’s an efficiency process. And so the more you standardize that process, the more effective you can be in pointing your resources at the right loans.

Now, probably the biggest impact is that the appraisals will not look the same every time. So today, if you’ve been an underwriter exactly what a 10 0 4 70 appraisal form looks like, and you’ve been looking at the same form for 15 years. And so it’s really easy to look at that in the new world, the dynamic report, while a portion of that, the first page will always display the same, the remainder will vary in its presentation depending on the data that the appraiser presents as part of the analysis. And so learning to look at the appraisal differently will be a change for underwriters and review appraisers at the same time.

One of the main reasons that they’re doing this is to provide all of the information pertaining to a certain portion of the home together in context. So when I’m looking at, for example, a description of the exterior of the home and a swimming pool, I will see the description of the pool, the type of pool, other information about the pool, and then I’ll see the pictures of the pool right there. And then below that I might switch to another section that might be the neighborhood or something like that. I don’t know that there’s a sequence to it, but the point is everything about the pool or the exterior will be together today. It’s spread out all over the appraisal. It could be part here, in a addendum, and then the photos attached at the back. And so it’s very discombobulated. So

MBS:

Sure,

ST:

A big benefit will be bringing all that together in a more usable and efficient manner.

MBS:

So as you’re saying all of this, Shawn, my brain instantly goes to generative ai. Is this something that when we’re talking about data, improving data, getting more property data, is generative AI and things like chat, GPT and such being used in the appraisal industry, is that part of this or is that just too scary for this industry to take on right now?

ST:

It is funny you bring that up. The appraisal standards board, which is the governing body for the appraisal regulations, they held a forum on artificial intelligence and how that is going to be used. And part of the reasons they did that is they’re trying to answer some of these questions like, how should it be used? Where are the risks? What’s an appropriate use? And I was able to be one of the presenters on there and share some of the thoughts that I’ve had over the years in my positions to how that technology can be utilized. In my personal opinion, it’s absolutely critical that we figure out how to use that technology in this industry. While it can certainly be scary and appraisers probably need to raise the bar a little bit on their ability to understand it, it’s critical that we use it. And the other side of that is, if we do use it, the governance process and the involvement of appraisers in how you govern it and use it and screen it and how you look at the output, that’s very important as well, that there be a thoughtful approach on how that all works. But to your question, artificial intelligence and things like that aren’t necessarily new,

But the more we can standardize the data, the more useful all these tools can be. And that’s just good for everybody.

MBS:

Yeah, absolutely. And something, I mean, that’s not abnormal across the entire property industry across many industries. It becomes all about standardization, how it’s being used, understanding, so things are not being abused in many ways too. The world is endless and where we’re going in this chat, GPT world. So it’s really interesting to hear, and I’m excited to hear that for something that traditionally has been quite low, technology has really kind of evolved in the last five years in a very short period of time.

ST:

There’s a lot of progress and there’s a lot of opportunity that remains. It’s another important component in all this is the appraisers coming along for the ride, so to speak. As you can imagine, the advent of technology and the change and the standardization of the data in many ways makes the appraisers uncomfortable, and they can feel threatened by the change in that. And I think that’s appropriate and normal to feel that way. We all do when change is upon us, and there’s a lot of enthusiasm, so to speak, to embrace the change.

MBS:

Yeah, that’s great.

ST:

And there’s not, but at the end of the day, the appraisal process is going to remain in place. What we’ll see is the value of an appraiser will be in analyzing the difficult and challenging properties and partnering with technical solutions and AI and analyzing the output of those solutions and helping to make sure that they’re working appropriately and are able to deliver the value that they intend to.

ES:

Before we end this episode, let’s take a break and talk about what’s happening in the world of natural disasters. CoreLogic Hazard HQ command, central reports on natural catastrophes and extreme weather events across the world. A link to their coverage is in the show notes after a relatively quiet hurricane season. October brought two major storms, hurricane Helene and Hurricane Milton. Although Hurricane Milton missed worst case scenario projections, the storm, which was the fifth US land following hurricane this season still devastated the state of Florida. Wind and storm surge losses across the state, including on the East coast, will be material. The total amount of damage, including losses to uninsured property, will be between 21,000,000,030 4 billion. Hurricane Helene also made landfall in Florida just over a week before Milton, this storm highlighted the insurance gap in the us CoreLogic estimated Hurricane Helene industry insured loss at between 10.5 billion and 17.5 billion. Uninsured losses are estimated at between 20 billion and $30 billion.

MBS:

Yeah. Well, this kind of leads into my final question here, Shawn, because as you know, I often like to say if we looked into our crystal ball, what does the future hold? And I kind of feel like the future is here right now for a lot of things of where this industry is, but where are the limits? Are there any challenges ahead of us, or where do you think we’re going?

ST:

It is an exciting time in the appraisal world for sure. I mean, it’s the biggest change that we’ve seen in the many years that I’ve been in the industry. It’s going to affect everything. Like I said, from the application.

Our appraisals are ordered to how they’re completed, to how they’re delivered, to how they’re underwritten, and that’s exciting. And so I think there’s a lot of, with change means that there’s going to have to be a lot of effort to educate and create awareness and help people come along and understand the value of this and find the value that they bring to the equation, even though the playing field may have changed a little bit.

MBS:

Sure.

ST:

But with all things, I think that will have the time it takes to move through this process isn’t going to be overnight. It’s going to be years. It’s been years in the making. And I think over the next 10 years is where we’ll really start to see the movement. If you and I had this conversation in 2034, I think we’d be having a really interesting conversation about how much things had changed. But I think it will take many years before we really start to see a lot of the significant changes come to the surface.

MBS:

I can’t wait to see where it does go. But I also think too, Sean, if you and I had had this conversation in 2014, I’m not sure we would’ve thought we’d been where we are now.

ST:

Oh my gosh. Yeah, absolutely. It’s not even funny to think of how far we’ve been moving. So yeah, who knows how fast the rate of change will increase between now and 10 years.

MBS:

Yeah, it’s true. Well, Shawn, always great to have you on the podcast and we will definitely be having you back again. And thank you so much again for joining us today on Core Conversations: A CoreLogic Podcast.

ST:

Thank you.

MBS:

All right, and thank you for listening. I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when you episodes are released. And thanks to the team for helping bring this podcast to life producer Jessi Devenyns, editor and sound engineer Romie Aromin, our facts guru, Erika Stanley and Social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.

ES:

You still there? Well, thanks for sticking around. Are you curious to know a little bit more about our guest today? Shawn Telford currently serves as the Chief Valuation Officer for CoreLogic. Telford has been active in the real estate appraisal industry since 1993 and has deep experience in mortgage lending, collateral management, and valuation technology. Telford is passionate about driving innovation in the valuation industry. After joining CoreLogic in 2007, Telford successfully led several initiatives to create and implement software as a service in automated risk-based collateral review solutions, Telford is a member of the Appraisers Qualifications Board and a past member of the Appraisal Standards Board.

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