Appraisal Buzz – By now, most appraisers are aware that Fannie Mae and Freddie Mac (GSEs) have embarked on a complete overhaul of the Uniform Appraisal Dataset (UAD). UAD originated in 2010 and since then we appraisers are accustomed to using codes like “C4,” “N;Res,” and “1200sf0sfin” in our mortgage appraisal reports to communicate the results of our analysis. These codes, or language, make sense to appraisers but confuse uninitiated readers of our reports. To bridge this barrier, appraisers include addenda in their reports that translate these codes into human interpretable language. It seems it would be better just using descriptive terms that our intended users could understand rather than needing to translate. How did we get here?
It all starts with the standard appraisal forms used in the mortgage process. There are 12 principal forms used for a mortgage origination appraisal. These forms have been around since the early 1980s with a few revisions over the years. The original forms were designed before the digital age, to be completed on typewriters. These forms became fixed in the mortgage industry and have remained the standard for decades. Appraisal software companies have innovated the process of “filling out “these forms, but they are still constrained with the original typewriter design. The UAD “codes” that we use as appraisers are a result of restrictive nature of the “forms,” there is only so much space available on the forms. As a result, saying that a site location is residential in nature, and neutral in terms of surrounding influences becomes “N;Res;” to fit in the legacy form field.
It has been four decades since the forms originated, and nobody uses typewriters anymore. All our forms are generated by software packages that transmit our reports via Extensible Markup Language (XML). But we are still stuck with the “form” functionality. The abbreviations we use in our forms are in fact, data points for the GSEs. Using the form structure, GSEs have been ingesting these eclectic abbreviations to develop a large database of residential valuation. If typewriters are no more, it is time for forms to be retired as well. Really, appraisers have always thought this way. We produce appraisal “reports” not appraisal “forms.”
That is the perspective that Fannie Mae and Freddie Mac are taking with the new version of UAD. No longer will there be forms; there will only be a “report.” The new data set is all encompassing for every property type (residential) that were traditionally divided into 12 separate forms. The appraiser will be led through a process, defined by the scope of work. This scope of work is determined by the type of property and the characteristics of the property. Appraisers will be presented with the data elements needed to report the characteristics of the subject property, and analyze the market, comparables, and other necessary parts of the appraisal process. Only those data and report elements that are important for the scope of work will be presented to the appraiser.
Data will be emphasized and made more discrete. The intention is to make the appraisal more objective and less reliant on subjective language and commentary. Data fields that were once abbreviated will be displayed in human understandable text. There may be more data points, but there will be less narration necessary by the appraiser. Appraiser can focus on analysis and less on commentary. Objective data and appropriate analysis of that data will reduce the overall liability for the Appraiser. The output will be a report, just as Uniform Standards of Professional Appraisal Practice (USPAP) requires. USPAP only addresses “forms “beyond the Standards required of appraisers. When USPAP speaks to forms, it is usually in the context of problems that arise from the use of forms. In terms of compliance, the new process-based approach may be advantageous for appraisers, reducing subjective language and reinforcing compliance with commentary as necessary. Again, Scope of Work, required by USPAP, is central to this new methodology.
This all sounds great, but the road of innovation ahead will have some curves that need to be negotiated. There are many stakeholders in the mortgage process that these changes will impact and require significant resources for change. Lenders, Lender Technology Providers, Appraisal Management Companies (AMCs), Appraisal Software Providers, and Appraisers will need to devote time and resources to this evolution. In this list of stakeholders, I am most closely aligned with Appraisal Software Providers and Appraisers themselves. How will the new UAD standard affect these two stakeholders?
First, let’s talk about Appraisal Software Providers. Appraisers have grown accustomed to the appraisal software they utilize and are reluctant to change. There are numerous reasons for this hesitancy. In their software, appraisers have historical files that they may want to refer to, they have extensive template language already developed, and frankly they’re just used to it. Because of these and other factors, appraisal software companies have had “sticky” subscribers. Most software companies have a static number of users; very few appraisers change software vendors, and there have been a very low volume of new appraisers entering the industry.
With the introduction of the new UAD standard, appraisal software companies can expect a reshuffling of their subscriber base. The new output going to the GSEs will be highly commoditized into a singular report output. The legacy way of “filling out forms” and providing efficiencies for this matching the requirements of these forms is going away. Because of the dynamic nature of the new dataset, the way of producing a report will be completely disrupted. No longer will appraisers find the right field and check the right box. Reports in the new standard, will be dynamic, expanding and contracting, based on the scope of work for that appraisal assignment. Software vendors will be challenged to build this process flow in the most efficient manner possible while adhering to the strict data standards set out by a new UAD. What will set one software vendor apart from another is how efficient they make this process for the appraiser.
The introduction of the new appraisal standard creates an environment where all software providers, both established and emerging, must develop solutions that adhere to these updated requirements. This necessitates innovation and adaptation, potentially narrowing the technological and market advantage that existing providers might have had. Newer companies can enter the market on more equal footing, offering fresh perspectives and innovative features. This could lead to increased competition, driving improvements in software functionality, user experience, and customer service. Ultimately, this scenario benefits appraisers, as they will have access to a wider range of improved software options tailored to the new standards.
Astute appraisers will enjoy this champion-challenger environment the new data standard brings. Rather than sticking with their “old standby” software vendor, they will be able to evaluate what all software companies are bringing to the table. All the barriers to change will fall away. There will not be historical files in the brand-new systems, it is a fresh start. Templating language will be a thing of the past with more discrete data points and less narration. And certainly, nobody will be used to the “old way of doing things “in this new dynamic report environment. Appraisers who have been with one software company, most of their careers, might find themselves continuing their practice with a completely different vendor.
Mortgage appraisers will benefit from these software changes for the reasons described above, but there are some other things to consider. Most appraisers have diversity in their business channels. In addition to mortgage work, they may do legal work, estates as well as many other channels of business. The UAD standard is for mortgage work only and specifically for Fannie Mae and Freddie Mac. Appraisers will want to make sure that their software vendors can accommodate non-lending work in their new platforms. Hopefully, some of the software vendors will embrace the “scope of work” concept and design alternative appraisal reporting with a similar process. Appraisers will want to avoid having two software platforms, one for lending, and one for non-lending. Again, appraisal software companies will compete for meeting these needs as well.
There are other concerns as well. Some appraisers will express apprehension about adapting to the new standards, particularly regarding the shift from narrative descriptions to more discrete data input. This change could potentially impact the appraisal of complex properties, where nuanced details are crucial. Additionally, the need for technology upgrades and training to adapt to these new systems poses a challenge, especially for smaller firms or individual appraisers.
The comprehensive overhaul of the UAD by Fannie Mae and Freddie Mac marks a significant milestone in the evolution of the real estate appraisal industry. By moving away from the limitations of traditional forms and embracing a more adaptable, descriptive reporting format, this initiative promises to enhance the accessibility and quality of appraisal reports. While the transition demands significant adaptation and investment from all involved, the potential benefits—increased transparency, efficiency, and understanding—make a compelling case for embracing this change. As the industry navigates through these transformations, the focus must remain steadfast on the ultimate objective: to refine and improve the appraisal reporting process for the benefit of all stakeholders involved.
This article was written by Ernie Durbin and originally appeared in Appraisal Buzz.