Hybrid Appraisal: A New Valuation Model That Can Impact Your Home Value
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Gina Rodrigues, Contributing AuthorClose
Gina Rodrigues Contributing AuthorGina is a freelance writer and editor who specializes in real estate and personal finance. She brings more than ten years of experience as a licensed agent and property investor. When she isn’t writing, she can be found tending to the sheep and chickens at her suburban homestead outside of Seattle. Gina holds a B.A. in English from California State University.
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Sam Dadofalza, Associate Refresh EditorClose
Sam Dadofalza Associate Refresh EditorSam Dadofalza is an associate refresh editor at HomeLight, where she crafts insightful stories to guide homebuyers and sellers through the intricacies of real estate transactions. She has previously contributed to digital marketing firms and online business publications, honing her skills in creating engaging and informative content.
You’re selling your home, and you’ve scheduled your appraisal appointment. Except for one problem. The person who shows up at your door isn’t an appraiser at all, but an inspection specialist. She’s there for a hybrid appraisal, she tells you.
Hybrid? Like the car?
Not quite. A hybrid appraisal is a type of alternative appraisal where a third party, such as a second appraiser, a real estate licensee, or another authorized person, performs the field inspection for the home valuation — not the assigned appraiser.
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Unlike a traditional appraisal, where the appraiser completes both the field inspection and market data analysis, an appraiser following the hybrid process uses the third party’s observations in the final valuation. By outsourcing the fieldwork, appraisers can focus on analyzing the local market and comparable sales instead of juggling homeowner appointments and driving to assigned homes.
There’s some debate in the real estate industry as to the accuracy of hybrid appraisals. To learn more about how hybrid appraisals could impact your property valuation, we spoke with Swapnil Sharma, a top Texas-based real estate agent who sells homes 52% quicker than the average agent in her area, and Pia Loeper, a certified real estate appraiser, based in California.
What’s a hybrid appraisal?
A newer appraisal type, the hybrid format emerged in the mid- to late-2010s as a faster method for property valuation. It essentially combines traditional appraisal methods with technology.
A third-party inspection agent takes photos and measurements of the property instead of the appraiser doing it in person. The appraiser then uses that data, along with other information, to complete the property’s valuation remotely.
While used primarily for loan servicing and default scenarios, Sharma says she’s seen a rise in lender use of hybrid appraisals for refinance loans, less so for purchases. One factor driving the new format: a shortage of licensed appraisers. With fewer available appraisers, the faster hybrid reports could help mitigate long turnaround times caused by fewer available appraisers.
Fannie Mae first began working on its own hybrid appraisal form (Form 1004) in 2018, a sign of the hybrid appraisal’s growing acceptance in the mortgage industry. Meanwhile, Freddie Mac’s hybrid appraisal report (Form 70H) forms part of its Automated Collateral Evaluation (ACE) + Property Data Report (PDR) program, which was launched in 2022.
The program allows lenders to originate eligible loans without a traditional appraisal. If the lender identifies conditions or characteristics from the PDR that warrant further evaluation, they can upgrade to a hybrid assessment.
When the 2020 pandemic hit, government restrictions, such as stay-at-home orders, forced the real estate industry to rely more heavily on technology. The emerging hybrid appraisal became a more widely adopted alternative as lenders adjusted to rapidly changing market conditions.
The hybrid appraisal process
As the seller, your role in a hybrid appraisal is the same as in a traditional appraisal: You simply give the appraisal representative access to your home. The hybrid model deviates from the conventional model when a professional other than the appraiser valuing your home completes the in-person appraisal. Let’s explore the process:
1. The lender decides what type of appraisal it wants to order
Based on underwriting guidelines, the lender chooses which type of appraisal to order. For example, if the buyer is putting down a substantial down payment, the lender could decide that the buyer’s risk of default is low. Instead of the traditional route, the lender could opt for a faster, less expensive alternative, such as the hybrid appraisal.
2. The lender orders the appraisal
The appraiser generally doesn’t receive the request directly from the lender. Instead, the lender may use the services of an appraisal management company. This appraisal company maintains a pool of licensed appraisers and assigns the order to an appraiser within its network.
3. The appraiser accepts the order
The appraiser works on the in-office, or desktop, portion of the appraisal. Like the traditional appraisal process, the appraiser reviews recent sales data and researches public records for details such as the home’s age, square footage, and number of bedrooms and bathrooms. They compare your property to these comparable homes, adding and subtracting value based on property differences.
4. The appraisal management firm also hires a third-party field inspector
With a traditional appraisal, the appraiser who creates the appraisal report also completes the property’s field observation. But with the hybrid model, the appraisal management company hires a third party to view the property, take measurements, and photograph the interior.
The data collector may be an appraisal trainee, a real estate licensee, a home inspector, or another party authorized by the lender or appraisal management firm. Some mortgage and real estate service companies use a real estate licensee for the physical inspection. On the other hand, the Nationwide Appraisal Network employs licensed home inspectors to collect appraisal data.
5. The appraiser receives the field inspector’s property data and integrates it into the final appraisal report
The appraiser uses the third-party inspector’s findings to complete the hybrid appraisal report and provide an opinion of the home’s value. The individual working on a hybrid appraisal isn’t usually given the identity of the in-person property data collector.
Appraiser vs. data collector: What’s the difference?
To explore how an appraiser and third-party inspector differ in hybrid appraisals, let’s compare the qualifications of an appraiser to those of a data collector, such as a real estate licensee or home inspector.
To become a licensed residential appraiser, the Appraisal Qualification Board (AQB) requires:
- 150 hours of qualifying education (approved courses dictated by the state)
- 1,000 hours of experience to be obtained in no fewer than six months
- Practicum course replacing up to 100% of the required experience hours
- Practical Applications of Real Estate Appraisal (PAREA) replacing up to 100% of the required experience hours
- Successful completion of an AQB-approved exam
In contrast, a real estate licensee may receive some appraisal education, but not always. Licensing and educational requirements vary by state. For example, a California salesperson isn’t required to complete a real estate appraisal course, although it’s an option. Also not a requirement: prior real estate-related experience.
California brokers, however, must complete a college-level real estate appraisal course. And while California brokers require at least two years of full-time real estate experience, appraisal-related experience isn’t a requirement. Both types of licensees must pass a real estate examination.
On the other hand, a home inspector’s primary role is to assess a home’s condition rather than factors related to its valuation. Not all states regulate home inspection licensing. Pennsylvania, for example, doesn’t mandate licensing for home inspectors but does require membership with a home inspection association.
States that regulate home inspector licensing may require both supervised experience and educational requirements. In Texas, a real estate inspector licensee must complete at least three months of active experience as an apprentice, along with 90 hours of education hours.
Benefits and drawbacks: The real estate industry weighs in
While some organizations embrace the technological advancements that can streamline the appraisal process, detractors warn against inaccuracy and the potential for fraud. The crux of the debate? Whether a third-party data collector can accurately assess a home and skillfully relay the pertinent information to the assigned appraiser.
Loeper, a staunch opponent of hybrid appraisals, refuses to accept hybrid assignments. She doesn’t agree that a third-party observation benefits the process. Loeper believes the model negatively impacts the integrity and accuracy of the appraisal:
“The problem is … the possibility, and probability, that the third-party misses condition, quality of construction, and floorplan issues, which need to be incorporated into the appraisal.”
One example: Data such as square footage measurements can impact a home’s overall value. If an improperly trained inspector measures the home incorrectly, “the appraisal value can be off substantially.”
The National Association of Realtors® (NAR) recognized the risks involved in hybrid appraisal processes and therefore highlights the importance of a credible third-party property data collector.
“Selection of a third-party property data collector should be based on criteria and due diligence that will assure proper training, liability coverage, and access to necessary data. The individual must be able to provide unbiased information, and there should be enforcement to ensure proper performance,” it says.
Moreover, NAR identified the elements needed for a trustworthy appraisal: “Accurate data obtained through uniform collection methods must be provided to the appraiser to perform a credible appraisal. The appraiser should be able to communicate with the property data collector as necessary. The appraiser(s) must have geographic competency to complete the assignment.”
Sharma believes that hybrid appraisals have a place in the market, citing the faster turnaround time as a consumer benefit. She notes that identifying inconsistencies and mistakes in any appraisal is vital, and she considers it beneficial to have a second party assisting with the appraisal. “It’s kind of [like] having a second set of eyes,” says Sharma.
The American Bankers Association (ABA) supports alternatives, such as the hybrid appraisal, but echoes concern about ensuring proper training for data collectors. “To promote the hybrid appraisal model and qualify individuals to become data collectors, we suggest implementation of a new certification or licensing training program at the state level.”
Finally, the National Consumer Law Center (NCLC) voiced concerns about non-appraisers evaluating homes, particularly professionals who may have a conflict of interest. The organization points to real estate agents, who often benefit from a higher valuation due to their commission-based income structure, and insurance adjusters, who benefit from a lower valuation.
“We believe it may be hard for real estate agents and adjusters to ‘shift gears’ from their normal role to that of an impartial party,” says the NCLC.
Pros of hybrid appraisals:
- Faster to complete than a traditional appraisal
- Less expensive than a traditional appraisal
- Can help overcome appraiser shortages that cause delays
Cons of hybrid appraisals:
- Third-party data collection could impact value accuracy
- Potential for conflict of interest for the third-party data collector
- Concerns about homeowner privacy and liability when allowing an unlicensed or uncertified inspector into your home to collect data and take photos
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How a hybrid appraisal could impact you as a homeowner
The hybrid appraisal process shouldn’t look much different from a traditional appraisal, at least from your perspective as a homeowner. Just like a traditional appraisal, someone will make an appointment to walk through your home to measure the structure and take photos.
If you’re selling your home or refinancing, Loeper suggests preparing for your appraisal appointment by tidying up your space and making sure no stack of boxes or other belongings is blocking access to any rooms.
You can also prepare a list of recent home renovations (with the amounts you paid and completion dates) and your home’s key selling features. Offer the list to the data collector, who can pass it along to the appraiser who’s completing the final valuation.
Since the buyer often pays for the appraisal in a home sale, you probably won’t receive a copy unless the value is lower than expected. If you disagree with the valuation, you can request a copy of the report from the buyer and examine it for any inconsistencies.
Is the square footage properly stated? Did the appraiser use the most recent sales comparables that reflect a rising market? If so, the buyer could choose to appeal by asking their lender to review the appraisal or by asking for a second appraisal.
A modern valuation model
With the increased use of technology and rising demand for appraisers, the hybrid appraisal isn’t going anywhere, despite concerns about potential drawbacks. As the seller, you won’t have a choice about whether the buyer’s lender orders a traditional appraisal or a hybrid.
The most important factor? Ensuring the appraiser receives the correct, relevant information about your home to make an accurate valuation.
Curious about how much your home is worth? Plug in your property address into our Home Value Estimator to get an instant estimate.
Header Image Source: (S Migaj / Unsplash)
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