Class Valuation – Guild Mortgage – Digital Appraisal

Starting Date: 2021-01-01

Our goal is to eliminate all forms of conscious and subconscious bias from the appraisal process. Injecting bias into an opinion of value can falsely drive values both up and down (negative bias can deflate home values, whereas a positive bias can inflate home values). The core idea of the Digital Appraisal is to remove personal preferences from the home value and rely on a standardized, scientific, repeatable process to derive a data-driven value. This means no matter who appraises the home, and no matter what their personal beliefs may be, the same, accurate value is delivered every single time. Increasing representation in the appraisal industry is another important step to reduce appraisal bias. The Digital Appraisal structure has the potential to advance a more diverse generation of appraisers into the appraisal industry.

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What is the geographic reach of your work to date?

Nationnal

What is the core idea of your innovation? How does it increase the value of homes in Black communities?

a.) Our goal is to eliminate all forms of conscious and subconscious bias (be it racial, socio-economic, political, religious, etc.) from the appraisal process. Injecting bias into an opinion of value can falsely drive values both up and down (negative bias can deflate home values, whereas a positive bias can inflate home values). The core idea of the Digital Appraisal is to remove personal preferences from the home value and rely on a standardized, scientific, repeatable process to derive a data-driven value. This means no matter who appraises the home, and no matter what their personal beliefs may be, the same, accurate value is delivered every single time.

b.) Hiring more diverse people into the appraisal industry, is another important step to reduce appraisal bias. The lengthy apprenticeship periods required to become an appraiser has made it difficult to attract new and diverse employees. The professional 3D scanners who visit the properties in a Digital Appraisal structure can be entry level positions with no apprentice period required. The technologies also support the appraiser apprentice process and will help advance individuals more rapidly into full licensure. This will enable the industry to attract and hire a new generation of young and diverse people to better match the communities they serve.

How is your idea new or different from current approaches?

a.) Through our technology, we are separating the appraiser from the data collection – the appraiser cannot choose what data to collect/include, and what data to ignore/omit from the report. The 3D scan captures 100% authenticated source data that is fully comprehensive of every aspect of the property and present 100% of the data on the final report. This means an appraiser is not able to ignore or omit details and they must base their conclusions on the data provided to them.

b.) Additionally, we are standardizing process of data collection – which now makes the process repeatable. We are collecting 100% of the data in a fully comprehensive and transparent way, as opposed to allowing the appraiser to pick and choose what data is included in a report. Using 3D scanning technology, we can ensure all areas of the home are captured and presented. The computer generates highly accurate detailed floorplans, virtual digital twins, inventory of all materials and fixtures and captures the physical characteristics of the property. For all major appliances, year, make, and model match is also provided with quick scans of each serial number. All data is automatically imported into appraiser’s software.

c.) All the data is also available to all downstream stakeholders (borrowers, lenders, etc.) – which is very different than the current approach where an appraiser chooses what to pass along to the rest of the parties. With all data being delivered to all downstream stakeholders, the lenders/borrowers/etc. can review what the appraiser included (and did not include) in their value to better understand how the opinion of value was determined, and if/what was ignored that needed to be included.

What are the primary circumstances that devalue homes in Black communities that you are addressing? What is the impact?

We are addressing any conscious or subconscious bias from the appraiser. Today, when an appraiser is walking into a home and collecting data to form an opinion of value, the data collected is at the discretion of the appraiser. They can choose which items to photograph and which to ignore. The data they collect and present in the appraisal form is then used to determine the value. If this individual has any form of positive or negative bias towards the homeowner, they can selectively choose the data they want to provide to support the value they want to determine. The same goes for the comp-selection. They can choose comps that support their value and might choose to ignore comps that support a higher value. A complete digital workfile can be generated to show all available comparables, how the market and neighborhood were defined and which comparables were ultimately selected providing 100% transparency into the process.

What were your “aha” moments (the key insights) that led you to see how your innovation could work?

a.)It is impossible for any human to walk into the private home of another person and not form some sort of preference about the other person, either positive or negative.

b.)In addition to racial bias, it could also be as simple as seeing that the person is a fan of your favorite sports team, or they enjoy the same hobby, you attend the same church, you have the same favorite food, or you have the same taste in interior decorating.

c.)Even a well-intentioned human who is trying not to be biased could form a subconscious bias.

d.)Any form of bias, conscious or subconscious, positive or negative, is bad for the appraisal industry and bad for consumers.

e.)The only way to solve this issue is to separate the appraiser from any borrower contact and only make an objective review of depersonalized data to determine value.\ f.)Helping the appraiser to generate a completely objective development of opinion of value protects not only the consumers but also the appraisers from forming or injecting unintended biases in their development of opinion of value.

How does your innovation create structural change? What will be different in 5-10 years if you are successful?

A hybrid appraisal (defined as a person other than the appraiser visits the property and collects the property data) should become the industry standard. This process must be supported with advanced tech providing more confidence in the data collected and utilized in the appraisal report

a.) This would reduce/eliminate the ability of the appraiser to form a conscious or unconscious bias regarding the borrower(s).

b.) Adding a separate property inspector/scanner to the appraisal process will speed up the timeline to produce appraisals and reduce the cost to consumers.

c.) Property inspectors/scanners will not require the same lengthy apprentice and licensing period as appraisers, allowing people to be more quickly hired, and allow the industry to more quickly increase the diversity of appraisal companies.

d.) The appraiser will focus on property data only.

e.) This hybrid appraisal process will take the data selection out of the appraisers’ hands – they must determine a value based on data provided. The appraiser will have no ability to manipulate, ignore, obscure, or omit data.

f.) The process will be repeatable and scientific. If 2, 3, or 9 appraisers are asked to provide a value to a property, all appraisers will be evaluating the exact same data set. This transparent, comprehensive, repeatable process gets the industry much closer to a scientific data-driven value than the “opinions of value” that are derived today.

If successful, in 5-10 years, you will see minimal discrepancy of value between appraisers – anyone who appraises a home should have resulting values that are similar in range. Additionally, if/when a value comes back “off,” or very different than what other appraisers are saying, you will be able to clearly review the report to identify what details were included or omitted to come up with that value and make a better assessment of whether the appraiser was biased in their conclusion.

A big challenge today is that every appraiser has a slightly different method of collecting property data. Without a standardized, repeatable process, three appraisers might have three different values and all three could be considered “accurate” or “correct” based on that appraiser’s methodology. However, with a standardized process, everyone will complete the work the same way using the same data resulting in a repeatable, more accurate result.

What is your innovation’s path to (i.e. strategy for) success? What momentum or impact have you achieved thus far?

a.) We have performed thousands of digital appraisers over the last 6 and are currently generating thousands per month. We have seen a 70% reduction in revisions coming from the client or consumer and we go back to the appraiser 50% less of the time. There is a huge impact to quality proven with results.

b.) Focused effort to increase diversity in appraisal companies, particularly with property inspection/scanner positions not subject to lengthy apprentice or licensing requirements.

c.)Test results to measure deviation in value of a subject property by multiple appraisers and “secret shoppers” of minority and non-minority homeowners.

d.)Reduced cycle times in hard to place areas with appraiser capacity issues

What will take your innovation to the next level?

a.)Ensure policy makers require the use of credible technologies to support these processes. There are many tools being used and many are not advanced leaving room for significant errors. Simple mobile aps using Q&A, flat file images and floorplan generators should not be considered. Push the industry to do what’s right. These technologies are readily available and pure cost decisioning should not be tolerated.

b.)Support from influential leaders or organizations to educate, drive need and motivation for change.

c.)Support from HUD, Fannie Mae, and Freddie Mac to expand concept into standard business practice for all appraisals.

d.)Participation and buy-in from all parties (appraisers, lenders, brokers, consumers, etc.) will take us to the next level by giving us more robust data sets and proof-of-concept that can help both a) prove to appraisers that this is a great innovation to support their profession and b) prove to the lending community that this is a viable solution to provide more scientific, repeatable home values. However, to gain buy-in, we must use the appropriate technologies to build and inspire confidence in all stakeholders. Agendas purely solving for speed and cost and using innovation as their guise should not be tolerated or accepted.

How will you involve others to move your initiative forward?

a.)As we grow this innovation and move forward, we’ll be working hard to increase the appraisal workforce and bring young, diverse talent into our industry to better reflect the communities we serve. Through this innovation we can lower the barriers to entry by providing opportunities for prospective appraisers to earn a livable wage while they work toward their license and leverage new and exciting technology that would be more desirable to the younger population than what is typically perceived today.

b.)We will involve more organizations such as NFHA, HUD, PAVE, FHFA, ASC, TAF, etc. to better understand the other parameters that are oppressing home values in minority communities. Once we remove bias from the equation and provide a scientific property value – what will those values look like? Presumably in some cases, they may still be lower than predominantly white communities if taking other things into consideration like inner city school districts vs wealthy suburban schools, or other neighborhood characteristics that are less desirable. So how can we partner with these organizations to make change and improve the “things” that are hurting home values in these communities?

What is the current composition of your team (types of roles, qualifications, full-time vs. part-time, board members, etc.). How do you plan to evolve the team’s composition as the innovation grows?

a.)Both of our teams our composed of seasoned licensed appraisers and lending/mortgage professionals working full time on achieving innovation in the appraisal space. Our Boards of Directors, who are also deeply committed to this evolution. We consult with various stakeholders around the industry including members of DE&I-focused organizations such as NAMMBA, NFHA, HUD, etc.

b.)Our internal staff at Class Valuation consists of roughly 400 full-time employees, 19.5% of minority background and 64.9% women. Our executive board is 22% of minority background.

c.)While the appraiser community at large is predominantly white males, we are simultaneously working hard to grow and evolve this network of appraisers to better reflect the composition of the communities we serve.

d.)By creating exciting job opportunities as 3D Property Scanners and well-paying positions as staff appraiser trainees, we can break down some of the heavy barriers to entry into the market and better recruit within diverse populations, welcoming them into an inclusive culture.

How does your team reflect communities directly impacted by the topic you are addressing? Why are you, your team, or organization dedicated to the issue?

a.)While the appraiser community at large is predominantly white males, we are simultaneously working hard to grow and evolve this network of appraisers to better reflect the composition of the communities we serve.

b.)By creating exciting job opportunities as 3D Property Scanners and well-paying positions as staff appraiser trainees, we can break down some of the heavy barriers to entry into the market and better recruit within diverse populations, welcoming them into an inclusive culture.

Is there anything else you think we should know about your innovation?

Class Valuation and Guild are heavily involved with organizations such as NAMMBA, HUD, PAVE, etc. and recently Class participated in a panel discussion regarding racial bias in appraisals and public & private partnering as we work toward a solution. Here is a recording of that discussion — a follow up discussion to discuss progress is scheduled for March of this year. https://www.youtube.com/watch?v=ONsx6ElWq1A