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» VISIT US ONLINE @ DSNEWS.COM COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT MARKET PULSE Without question, accurate valuation data is critical to your business, but how do you determine which method to use for the most-conclusive results? V The Value of Appraisals By Steve Albert, Allstate Appraisals When comparing different property valuation methods, a question that is often asked is: When is it appropriate to save time and money at the potential cost of accuracy and reliability? On one end, there are tried-andtrue appraisals that involve a thorough inspection from a licensed or certified appraiser whose opinions are subject to specific and enforceable guidelines. On the other end, there are computer-generated AVMs that produce value indications at a fraction of the cost and practically none of the time relative to an appraisal but provide no recourse to the intended user if those results are not reliable. In the middle, there are BPOs that reflect some human judgment but are less scientific and narrower in scope than appraisals. With BPOs, the user has little to no recourse for incorrect or unreliable valuations. Few disagree that an appraisal prepared by a competent appraiser familiar with the subject property type and neighborhood is the most reliable of these three methods. Unlike brokers or AVMs, certified residential appraisers must complete, at minimum, 2,500 hours of actual appraisal experience in addition to a minimum 200 hours of approved coursework and a state examination; they must also abide by the Uniform Standards of Professional Appraisal Practice (USPAP). In addition to USPAP, they must adhere to other industry guidelines, all designed to help ensure appraisals are developed POINT— COUNTERPOINT aluation is a meticulous and calculated science with multiple facets as well as risks stemming from new regulations, morphing market dynamics, and evolving investor and consumer demands. Despite all the variables that can come into play, proper valuation has never been more critical to the mortgage and real estate markets. Any industry professional can tell you the importance of working with accurate valuation data, but with a number of options to choose from, how can you ensure you're using the valuation method best suited for a particular scenario or transaction and the one that will produce the most accurate results? We called on three valuation experts to help put the industry's principal valuation techniques into perspective—appraisals, broker price opinions (BPOs), and automated valuation models (AVMs). So here's the skinny on the pros, cons, and ideal applications of each technique, directly from the valuation pros themselves. and communicated in a manner that promotes and maintains a high level of public trust by stressing accuracy and mitigating any bias. However appraisals are more expensive and time-consuming relative to nontraditional valuation tools. In fact, that is what drives the shift to faster and cheaper alternatives, circumstances permitting. Appraisals are best used as a valuation tool during first mortgage originations, litigation-support situations, valuation of atypical or outlying properties, or any other time when the valuation is used as a basis to make major financial or other collateral-based decisions. A BPO prepared by a competent and highly experienced broker can be an extremely valuable tool in certain circumstances; however, it is less scientific than an appraisal and is performed by non-appraisers. In addition to an inexpensive value estimate, the BPO is also a good choice for clients who merely want market data, photos, and property condition verification quickly and inexpensively. But a BPO is not an appraisal. It is a less expensive way of gauging residential property values in which the broker does not have to adhere to any appraisal guidelines or hold any certification or formal training in property valuation. The appraiser wears many hats and assumes responsibility for all of them. Beginning with a visit to the subject property, the appraiser must competently measure the home as well as observe and measure the subject's overall quality, condition, functional utility, and market appeal. The appraiser must also be familiar with the neighborhood in which the property is located in order 57

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