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The responsibility for determining an appropriate collateral valuation method and determining the risks associated with those methods lies squarely on the financial institution. —Tami Rund, Asset Valuation + Marketing to select the most appropriate and comparable sales and apply market-supported adjustments for all material differences between the appraised home and the comparables. An appraiser must be familiar with all factors influencing property values and marketability in the defined subject neighborhood and measure the specific impact on the subject property's value for each. For example, any external influences on a property's value such as proximity to a major arterial street or nonresidential property use in close proximity (i.e., a gas station or shopping center) must be addressed and accurately measured insofar as its impact on value. All this must be done without bias or advocacy whatsoever. Plus, the appraiser assumes liability for the accuracy and reliability of his or her appraisal for many years after the report is delivered to the client. All of these factors combined result in a level of reliability of a competently prepared appraisal typically much higher than that reflected in an AVM or BPO but, again, at a higher cost and longer turn time. Ultimately, the intended use of the valuation should determine which valuation method is relied upon. The more accuracy and accountability required, the more human involvement is needed. If there is a situation when human involvement is needed, it is usually better to spend more time and money on a full appraisal. To most, the cost of the appraisal is insignificant relative to the risk of potentially losing thousands of dollars or more as a result of reliance on something less. No single valuation tool or method is always the best or worst, and many lenders utilize a combination of all three in their lending-related decisions each day. Often, the method is not as important as the person behind it. As in any profession, there are competent and incompetent participants. I have seen BPOs as well as AVMs that were more reliable than full appraisals on the same property when the appraisal was performed by a poorly 58 trained appraiser. Valuations come down to experience, skill, and ethics. In an industry where accuracy, reliability, and accountability are more pronounced than ever, these qualities are more important than ever in assessing value in today's marketplace. Brokered Assessments By Ernie Durbin, Valuation Vision Valuation products are arrayed on a continuum of collateral risk assessment. There are many factors that determine where a product belongs on this continuum; the most important, however, is human judgment. Generally speaking, the more human judgment involved in a valuation product the lower the risk. Human judgment, however, comes at a premium both in terms of dollars and time. In the continuum of valuation products, BPOs are somewhere in the center. The lowest-cost alternative is clearly a fully automated product such as an AVM. However, relying on the value of an AVM, which assumes average condition and no particular external influence, is risky in the default space. At the other end of the spectrum is a full interior appraisal by a certified real estate appraiser. Although possibly the least risky, appraisers are expensive and can take a long time to complete their reports. Quicker and less expensive, BPOs provide an opinion of price from a local market real estate professional. These professionals may not be as highly credentialed as an appraiser, but they know the market and the appropriate price point to sell a property. BPOs provide the professional human touch absent in automated valuation products and are usually faster and less costly than a certified appraiser. BPOs are a main staple of valuation in the default and servicing space. In this arena collateral decisions must be made quickly on hundreds of properties simultaneously. Full interior appraisals are ideal, but they can take weeks to receive and cost three or four times more than an agent's price opinion. BPOs are demonstrably faster and less expensive than an appraisal but still involve a local real estate professional. Real estate agents are not trained valuation professionals, but they have a keen sense for price. With their local market knowledge, agents select recent comparable sales and competitive listings from the subject's immediate marketplace. While appraisers typically use comparable sales that occurred in the past, agents include the sales and emphasize properties currently competing with the subject. This results in a forward-thinking product versus a historical value. Distressed properties will need to be sold in the future, making forward-thinking valuations critical. Agents also have access to market metrics delivered by the local multiple listing service (MLS). These professionals include this data in their reports, detailing local market trends such as housing supply and market direction, for example. Local market expertise and the interpretation of market direction are foundational to the default decision-making process. When this local MLS data is gathered by a real estate professional, it is head and shoulders more valuable than automated metrics provided on a regional basis. A picture is worth a thousand words, and interior BPOs typically have numerous photos. These photos support agent commentary regarding condition and marketability. Pictures reveal repairs needed to make the subject marketable or highlight attributes that make the subject stand out. Agents also image external influences that may impact the property's marketability. In addition, some BPO vendors supply aerial photographs of the subject and all of the comparable properties. When triaging hundreds of default properties at a time, recent photos are vital to assessing collateral risk. Some BPO vendors are leveraging the local market knowledge of the real estate professional and enhancing his or her input with technology. Enhanced BPOs are enriched with additional data streams from AVMs, repair estimators, cost services, and rental data. These "super" BPOs provide agent opinions supplemented with analytical data, reducing the overall risk by

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