What’s next for valuations

Maleesa Smith: Hi, HousingWire listeners. My name is Maleesa Smith, and I’m managing editor of content solutions here at HousingWire. Today I’m joined by Mike Sklarz, managing director of Collateral Analytics division of Black Knight, and Damien Weldon, vice president of real estate analytics at Black Knight.

In this sponsored episode of “HousingWire Daily,” we’ll be focusing on what’s next for valuations. It’s so nice to have you both here today. Thank you for joining us on “HousingWire Daily.”

Damien Weldon: Thank you for having us, Maleesa.

Mike Sklarz: Thank you.

Maleesa Smith: Jumping right in, I know both of you have extensive experience in real estate valuation. Could you share a bit about yourselves and how you got to where you are today? Let’s start with you, Mike.

Mike Sklarz: Yeah, thanks. So I know we had our previous podcast, and as I mentioned, at that time I’d been working in automated real estate valuation in the analytics space for many years. My initial work in this area involves setting up a new research department for a large residential real estate brokerage company, and one of the first things we did was actually build an AVM to help the agents identify undervalued new listings.

And then using this AVM, we also did a lot of consulting work at that time for developers of houses and condos and used the AVM to help them price their new units and new houses. So it was quite an exciting time using this technology, using data, and using it in ways that turned out to be quite helpful for these various groups.

Damien Weldon: I’ve been working in U.S. real estate and mortgage analytics for, gosh, over 20 years now. My initial focus was on areas such as collateral risk, namely the risk and the valuation of the collateral, the real estate, that underlies the mortgage asset. [inaudible 00:01:56] pretty widely adopted collateral risk score, and then later oversold the reignition of one of the industry’s leading on price indices.

And currently, for Black Knight, my focus is on AVMs, Automated Valuation Models, their building, testing deployment, and really their optimal use in an end-to-end appraisal and collateral workflow. Nowadays, as well as traditional, classical, statistical methods that we have available to us, a vast range, wide range of artificial intelligence, machine learning, modeling technologies.

But our choice of a particular analytic methodology is always driven by our objective of maximizing the performance, the accuracy, and hit rates of our models along with their explanatory power so that they can form to our clients’ regulatory requirements. That’s always our goal.

Maleesa Smith: That’s great. And every aspect of our industry was affected by the pandemic and valuations were certainly no exception. Can you give us a sense of how the process was impacted?

Mike Sklarz: Yeah, this is Mike. The most obvious was the inability of appraisers to enter people’s homes to do their appraisal assignments due to the lockdown and the social distancing. This immediately led to greater use of desktop appraisals, and AVMs, and this has actually been an evolving and increasing trend in recent years with the utility of these products and the pandemic actually served to significantly accelerate this process.

During the pandemic, FHFA instituted more flexibilities in the appraisal process by temporarily allowing the use of desktop appraisals as a substitute for full appraisals. And then last month at the Mortgage Bankers Annual Conference, they came out with the announcement that the use of desktop appraisals would be now a permanent feature of the valuation industry for the GSEs. So that was quite significant.

Damien Weldon: Maybe I would add to that is that during the pandemic itself, and, in particular, this year, we saw an unprecedented increase in real estate values across the nation as measured by Black Knight on price index, for example, and that more than ever emphasized or re-emphasized the necessity for very robust model and analytics surveillance. So the continuous performance monitoring of our AVMs, so that they continue to perform at very high levels of accuracy and hit rate.

Maleesa Smith: Well, that’s a great segue into our next question. Just looking over the past few years, we’ve seen Black Knight deliver innovations across the real estate and mortgage continuum. Can you give us a sense of how that’s translated to advancing the valuations process in the wake of the pandemic and how those changes are impacting the housing industry today?

Damien Weldon: Sure, I’m happy to. We’ve got a very wide range of automated valuation solutions, that includes our industry-leading AVMs, automated desktop BPO products.

Products to determine the complexity of our home, to help price and assign the appraisal, products that automatically do QC, Quality Control, on appraisal, products to help the appraiser automatically define the market condition of the surrounding neighborhood of a home, and it also…a mobile inspection app for the appraiser to use at the beginning of assignments to acquire detailed data on the home being appraised.

We also have a platform to automatically serve up historical and current market trends and prices, sales activity, market indicators, and so on, at any level of geography and property type. And overall, our goal at Black Knight is to provide that very wide range of solutions to meet valuation needs, whether it’s a lender, servicer, capital markets professional, and you go over their specific focus lies.

It could be marketing, it could be underwriting, it could be portfolio review. That’s the three examples all within an overall enterprise framework that provides the maximum flexibility for our client needs. And, Mike, I don’t know if you want to add anything to that.

Mike Sklarz: No, I think that covers it very well. Thanks, Damien.

Maleesa Smith: All right. Moving on then, what advice would you give to mortgage professionals as they decide whether or not to integrate technology into their appraisal process? Why is it important?

Mike Sklarz: Well, there’s been significant progress in the past 10 years in accessing and delivering the most current and accurate real estate data and information in general. As Damien mentioned, this data is now being used at a large number of powerful products to automatically determine home values and real estate market conditions. And they can greatly contribute to making the current appraisal process more accurate, more efficient, and economical.

We know that the appraisal process has been a key bottleneck in the mortgage approval and delivery process, and particularly so in the very strong market of the past year, year and a half, and the adoption of these tools and products will be an important factor in helping solve this.

Damien Weldon: Yeah. Really about that, we see an extraordinary opportunity to drive greater efficiencies, transparency in the appraisal process, and that’s because we view it within an overall collateral management framework. And that includes, by the way, enabling property inspection by homeowners themselves through around scout application as well as newer inspection-type workforces.

And [inaudible 00:07:31] very well positioned already with integration of our valuation solutions, for example, they’re already integrated into our MSP servicing platform, and that includes our front-end servicing digital app platform as well as our Empower Loan Origination System.

Maleesa Smith: That’s great. And just looking ahead, do you see the role of automation increasing in 2022? And if so, what does that mean for the future of appraisers?

Damien Weldon: Mike, do you wanna kick off on that one?

Mike Sklarz: I’ll take that, yeah. So one thing I think that’s fairly common knowledge is that the number of active appraisers has been steadily declining now for many years. And this is further adding to the bottleneck problem that we previously mentioned. The automation, the appraisal process will enable the appraiser to perform many more appraisals per day and week than they currently are able to do and thus make more money and spend their time more efficiently.

For example, the inspection app that we mentioned can be used by an inspector. It doesn’t necessarily have to be the appraiser or even the homeowner to provide information on the house, which can maybe immediately be sent to the appraiser at his office to a desktop appraisal and not have to spend time driving from one house to another, and which is very time-consuming and not at all productive.

So in general, we really see this as an important solution both for the demographic issue with appraisers, and then the most recent bottleneck in appraisal times and performance.

Damien Weldon: You know, when you look at it, that entire process that Mike has just outlined there, it really very closely aligns with the digital mortgage, right? From origination right through to the servicing, right? And that has been here and automation as well as transparency to the borrower.

We know borrowers are more informed than ever, and they’re keen in many cases to be an active participant and indeed have a rich understanding of the value of either their existing or their new home. So we feel an alignment retro of this process and that’s a big avatar of our current and future work in this space.

Maleesa Smith: That’s really interesting. And I’m looking forward to seeing how it pans out over the next year. Mike, Damien, thank you so much for joining us on “HousingWire Daily” and sharing your insights. Listeners, we’ll see you back here tomorrow.