The New UAD and What It Means for Appraisers

A Q&A with AeL Partner Hal Humphreys about the New UAD Redesign and Changes in the Industry

If you’re reading this, you probably know by now that appraisers are bracing for a sea change in how they build appraisal reports. But in case you’ve missed it, here’s a news flash: the 1004 form is going away, and appraisal reports as we know them will soon change forever. 

Why is this happening? The simple answer is that big organizations like Fannie Mae and Freddie Mac are leading a shift away from rote form-filling and toward an appraisal process that’ll be more focused on understanding and analyzing data. 

AeL partner and Appraisal Buzzcast host Hal Humphreys is a veteran appraiser and instructor who’s been paying attention to the industry chatter on social media and in CE classrooms and conferences nationwide. He’s gotten an earful from appraisers who are apprehensive about the industry’s future. Our new employee Heidi sat down with Hal via Zoom to ask what kind of resistance he’s seeing among fellow appraisers to the coming changes, what the implications of these changes are for the industry, and how appraisers can adapt their expertise to thrive as analysts in a quickly evolving valuation market.

This interview has been edited for length and clarity.

 

Appraiser eLearning: With the GSEs phasing out the 1004 form, what are the implications for appraisers? 

Hal Humphreys: I’d characterize the shift as colossal. It’s a whole new sport. With this new UAD rollout, appraisers will have to show their work in lending reports, requiring proficiency in analytics — a departure from their previous practice. This could involve methodologies like paired sales analysis or using statistical software. 

I believe it’s crucial for appraisers to enhance their data analytics skills and their ability to articulate statistical analysis. Ultimately, these skills are essential for drawing precise conclusions from sampled data.

AeL: What challenges do you anticipate appraisers might encounter as they transition from standardized form-based appraisal practices to a more nuanced analytical approach?

Hal: Having just returned from the ACTS Conference in Colorado, I noticed the appraisers that show up to conferences are the appraisers getting their heads around this shift. The data analytics stuff is not gonna be difficult for them because they’re already trying to do it. 

Some appraisers are still under the misconception that the new UAD is just another version of the 1004 form. The thing is: it’s not a form, and it’s not just learning how to do a new thing. It’s going to be a 6- or 8-month learning curve to get their head around how this works.

AeL: Can you elaborate on the importance of analytical skills in the future of real estate appraisals?

Hal: The basic math appraisers are expected to do is not terribly difficult — I don’t think anyone is expecting appraisers to do multiple linear regression analyses. What they want is for appraisers to look at a piece of property and determine if the market is increasing and to have support for the increased adjustment to the sales. I believe it’s going to be a matter of better understanding how to use factual verified data. It has to be verified. USPAP uses the word “must” a grand total of three times, always in the same context. Every time it says, “An appraiser must collect, verify, and analyze all information necessary for credible assignment results.” We must gather the information, we must verify it, and we must analyze it. 

There are a number of ways appraisers can use data analytics to extract adjustments from market information: They can use a depreciated cost analysis to identify specific adjustments for different items such as a deck versus a concrete patio, one fireplace versus two fireplaces, etc. Scott Cullen teaches how to do that at Appraiser eLearning, and has a software product called Solomon Adjustment Calculator that relies heavily on the depreciated cost.  

I’ve spoken with folks at different GSEs, and they’ve identified plus or minus 35 tools to help appraisers with data analytics. But the appraiser has to understand the basic theory and math behind the tool they’re using, and they’re responsible for what the software kicks out.

This data-driven approach opens up a whole world of appraisal work appraisers could do without fear and trepidation. If I were an appraiser solely focused on lending work, and then the market began to slow down, embracing data analytics and statistical analysis could revolutionize my practice. 

AeL: Do you foresee potential resistance or reluctance within the appraisal community to adopt these new changes? And if so, how might that resistance be addressed?

Hal: Yes, I do. But we are going to be switching to the new UAD. We do not have a choice. And it’s a perfect opportunity to learn how to integrate some of these tools. I’ve heard that some of the software providers will be providing an interface to build a report that then goes to the UAD. They’re all working on various tools to either integrate directly into their product or have an API handshake. 

During a recent conference, there was some resistance to the tune of: “USPAP doesn’t require me to show my work. Why are you asking me to show my work?” The answer came from the chief appraiser for the VA, who said something like: “You’ve done the work. You’re saying it’s in your work file, then show your work. It doesn’t take any more time.” 

What to say to appraisers who have concerns? We simply have to roll up our sleeves and adapt because change is inevitable. Appraisal work, especially in the lending sector, is undergoing shifts to meet the requirements of entities like Fannie Mae and Freddie Mac. And it’s worth noting that there’s a vast landscape of appraisal opportunities beyond lending, many of which demand even more rigorous documentation and explanation of methodologies. Rather than viewing these changes as obstacles, they could be opportunities to enhance the professionalism and credibility of our field. 

AeL: What do appraisers stand to gain from beefing up their analytical skills and embracing a more data-driven approach to valuation?

Hal: This data-driven approach opens up a whole world of appraisal work appraisers could do without fear and trepidation. If I were an appraiser solely focused on lending work, and then the market began to slow down, embracing data analytics and statistical analysis could revolutionize my practice. 

By integrating these skills into your reports, you transition from merely meeting minimum requirements to becoming a more proficient appraiser. This data-driven approach not only enhances lender work but also opens doors to diverse appraisal opportunities, such as divorce or litigation cases. Currently, the only people taking divorce or litigation assignments are the ones already comfortable showing their work and using data analytics to validate their conclusions. Understanding data analytics equips you to handle a broader range of assignments with confidence, even during market slowdowns. While the adjustment may be challenging for some initially, it ultimately leads to significant professional growth and expanded opportunities.  —Heidi Reuter