Let’s raise a situation that jumbo lenders know all too well. A high-net-worth deal stalls, not because of data issues, but due to an emotional deadlock between sellers wanting peak pricing and credit managers looking for prime market fundamentals. But what is the current solution for these deadlocks? Some non-agency investor guidelines indicate ordering two full appraisals to mitigate risk on luxury properties. However, what is intended as a safety measure creates another standoff between appraisers that often paralyzes credit committees.
Doubling the Confusion
Luxury real estate is vastly different from the remainder of the housing market. One of the reasons for this is that comparable properties are few and far between, with key differences often surrounding unique architecture, expansive acreage, and custom amenities. Because of this, when two appraisers are tasked with looking at the same estate, they will likely always pull different comparable sales, risking creating disparity and confusion in the process.
The reality is that ordering two full appraisals doesn’t always reduce risk or double the certainty. It simply forces credit committees to mediate between two contradictory reports between the appraisers as opposed to relying on one supported valuation.
Ordering two full appraisals also increases the expenses for both lenders and borrowers and often tests the patience of private banking clients who naturally expect a seamless experience. Finally, the two-appraisal process often slows transaction times, turning what should be a sprint into a crawl. This then begs the question, why do these processes remain in place?
The Objective Referee
There is no need for additional information from a second appraisal. This only adds confusion to the process. Instead of commissioning a second full appraisal, which often introduces competing opinions, lenders can anchor the file with a single, high-quality traditional appraisal, supplemented by an expert desk review to validate it. This “second look” approach shifts the focus from producing a second valuation to evaluating the strength of the first.
The desk reviewer’s role is not to search for comparable properties or to produce a secondary value of the luxury estate. Rather, they are performing a forensic review of the original appraisal, including:
- Reviewing the appraiser’s logic regarding comparable sales
- Examining whether adjustments are reasonable or well-supported
- Determining whether the market narrative accurately reflects the local conditions
Introducing the Different Approach
The answer is not additional valuation noise, but a hybrid approach, such as ValREVIEW Value. The hybrid approach then serves as the required objective referee for institutional portfolios.
This hybrid model is straightforward. Proprietary analytics analyze over 160 data points to flag risks, including comparable sales, adjustments, and reconciliation of Government-Sponsored Enterprise (GSE) Submission Summary Report (SSR) flags. Next, a licensed appraiser steps in to provide candid, human commentary on potential risks.
With this process, the return on investment is clear and profound. Deals move at three times the speed at half the cost of producing a second appraisal, with a quick turnaround to top it off. On top of this is the Appraisal Quality Score (AQS) and Uniform Standards of Professional Appraisal Practice (USPAP) compliance available with ValREVIEW Value, which helps easily satisfy secondary market rating agencies, including KBRA and Fitch. Ultimately, these benefits make a hybrid approach quite compelling for jumbo lenders.
Conclusion
The benefits of this approach know no bounds. The local expertise of one appraiser is recognized, rather than two differing valuations. Simultaneously, underwriters get exactly what they need: a single, defensible valuation narrative.
It’s also worth noting that lenders will be able to keep their collateral integrity intact and remove potential friction from high-net-worth transactions, all in the interest of saving time for all parties involved.
There’s no more time to wait on conflicting reports from multiple appraisers. Contact Valligent today to streamline your jumbo pipeline.
