Guest Post by Tony Pistilli, Certified Residential Appraiser and Vice-Chair, Minnesota Department of Commerce, Real Estate Appraiser Advisory Board, Minneapolis, Minnesota
Approximately 30 years ago the automobile industry began to introduce computers into cars and since that time they have never been the same. What was once considered a rather simple procedure – tuning up your engine or even changing the spark plugs – has become an almost impossible project for anyone, except the highly trained automobile technician.
Today nearly every aspect of your car is aided or controlled in some manner by a computer. Digital radios with CD players, climate control systems, cruise control and pollution control devices are just a few of the components that are aided by computers. Computers now control the engine functions and other systems within the vehicle where mechanical components once ruled.
The introduction of these new technologies into automobiles required mechanics to learn new ways to maintain cars. They needed to become proficient in computer analysis of the new, non-mechanical systems and they learned new terminologies. In addition to the ratchets and wrenches they have always used, they were now using computers to help them do their jobs.
At the time, this must have seemed like a huge change. However, the auto mechanics that embraced the new technology, seeing it as a way to enhance their current core skill sets, were greatly rewarded. The mechanics that didn’t adapt and learn the new technologies… well, they are now picking up the phone and calling to make appointments to have their cars maintained by the highly trained – and highly paid – automotive technicians! And by the way, those mechanics who didn’t adapt and learn the new technologies are also no longer earning a living maintaining cars.
Technology Will Transform the Appraisal Process
This same transformation of an industry that occurred in the automobile industry in the ’80s has been under way for many years in the appraisal industry. With the average age of an appraiser approaching his or her mid-’50s, I know many of us have been around long enough to see what we thought, at the time, were some pretty big changes over the years. It might have seemed almost revolutionary when we went from two-sided tape to glue sticks, or from carbon copy FHA appraisal forms and tractor-fed forms printed by the first-generation computers to appraisal form software – not to mention the industry’s effort to enter into a “paperless” environment with digital cameras, online mapping, electronic sketch programs and digital signatures. With all of these changes, appraisers are certainly more productive today as a group of professionals, but as significant as they may have seemed, these changes are merely incremental improvements on an existing process.
Technology has allowed us as a profession to reduce the turnaround time for delivering reports while reducing the costs associated with preparing them. Email has eliminated the need for faxing and mailing reports. We are no longer bound to photocopying and collating reams of paper to create multiple copies of our reports for our clients. We buy fewer printer cartridges and have been able to eliminate our photo processing and mailing expenses. We have become more efficient and more productive and this has, in a small way, made it more understandable why appraisal fees haven’t increased in the last 20 years. We all know it is a far more complex environment to be appraising today than it was just five years ago. But the technological changes that have occurred over the years haven’t addressed that issue. All these changes haven’t really altered the way we do things and how we value real property. We can do reports quicker but not necessarily better.
At a time when the banks and financial institutions are all clamouring, and rightfully so, for more reliable appraisal reports, we have responded by routinely providing a fourth or fifth comparable sale and occasionally a few comparable listings. We are essentially still doing things the same way we always have and as a result it now takes longer to complete an appraisal report than it ever has, despite all of the efficiencies that have been introduced through technology.
In the flight to create more reliable and accurate appraisal reports, the agencies have introduced a multitude of requirements on how appraisals are done: comparable listings in declining markets, the 1004MC form and most recently the inclusion of interior photographs of the subject. Again, these have not necessarily proven to produce more reliable appraisal reports, just ones with more pages and addendums. What we need today is real change that will in turn produce a dramatic result.
Real change is affected when new systems or technologies are introduced that alter the entire process and ultimately the way things are done. Real change produces a totally different result, not just a polished version of the same old thing. Compared to what is about to happen over the next few years, what we have experienced to date has been a “buff ‘n’ shine” of the appraisal process. The real change that is about to occur will transform the way we do things and bring about a new era in real estate appraising!
Whether you know it or not, a new frontier in appraising is upon us and the change it is bringing is unlike anything we have ever seen before. Right now there are many very intelligent and creative people working to develop the next generation of valuation tools and processes that will catapult appraisers into the role of highly trained and well-paid valuation analysts. I use the term “valuation analyst” to describe this new breed of appraisal professionals, however, my friend Mark Linne has coined the term “econometricians,” and others have used terms such as “trusted advisors” and “valuation technicians.”
Regardless of what they will be called, the members of this new era of valuation professionals will be highly trained and will possess a thorough understanding of statistics and regression analysis. They will have scores of data and analytical information available to them at the front end of the process that up until now was either unavailable or very expensive for the individual appraiser to obtain. They will be highly trained to understand how to collect, manipulate and interpret large data sets. They will use tools and processes via the web to present data in visually understandable graphs and charts. They may complete their reports on the Internet rather than using traditional appraisal software and the time to complete the reports will be reduced to a fraction of what it is today. In addition, their reports may look very different than they are today, much more visual and graphic, but they will also be much more transparent and objective to the end user.
This combination of upfront analytics, greater data collection, and increased transparency and objectivity, delivered in a more graphic and understandable format, is exactly what lenders and financial institutions are searching for in their quest for a more reliable valuation of the collateral in the lending process. Much like the transformation of automobiles in the 1980s, the process of performing an appraisal in the near future will be much different. Those appraisers who choose not to learn and adopt the new technologies will be left behind, like the mechanics who chose not to change with the times, and will be left looking for a new way to make a living. This change should be viewed as an opportunity to appraisers. This change should be embraced by appraisers
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