A hybrid appraisal (HA) entails a number of E&O risks due to its potential conflict with USPAP rules. Extreme caution should be taken prior to performing an appraisal based on information collected by an anonymous field inspector, especially if the intent of the appraisal is not clear.
What’s a Hybrid Appraisal?
A hybrid appraisal involves valuing a property that you haven’t physically inspected. These are sometimes called “desktop assignments,” where photos, droid videos or other documentation are taken by a field inspector, who is usually not an appraiser. The real estate appraiser receives the information and completes a comparison grid that contains the value of the property. Hybrid appraisals are cheaper than traditional appraisals where the appraiser also walks the property.
Who Requests Hybrid Appraisals?
Hybrid appraisals are typically also limited scope appraisal requests. Most lenders who order them on a regular basis do so for specific products, such as a second appraisal, home equity line of credit or asset management. In cases where these orders come from someone other than a mortgage lender, it’s important to ferret out the intended use before you take the job. Remember that intended use speaks to the validity of the valuation, so a clear statement of intended use is critical.
Accepting an HA assignment without understanding the intended use could open you up to compliance or errors and omissions claims.
How does a Hybrid Appraisal Request Work?
There are two parts to the hybrid appraisal process. First, the subject inspection is completed by the signing appraiser. The actual inspection is completed by an unknown field inspector, who uploads the photos and information to the client’s site, where they are made available to an appraiser. Second, the property appraiser gets the inspection information collected by the unknown party and is required to agree to the accuracy and validity of the information. From here the steps are typical and include pulling MLS comps, loading them into an online report, making adjustments, stating a value and delivering the signed HA back to the requesting party.
What are the Potential E&O Issues?
Two USPAP compliance issues could lead to E&O problems down the line.
- As defined by USPAP, the field inspector is disputably performing an appraisal practice. Without the field inspector’s information, no appraisal can be completed after all. The problem is that many field inspectors aren’t licensed appraisers, so real estate appraisers can’t verify the validity of the information they provide. If this is reported, an appraiser could lose their license for a USPAP violation.
- When someone contributes significant appraisal assistance but isn’t identified in the report that may be construed as a USPAP violation by the signing appraiser.
Is It Worth It to Conduct Hybrid Appraisals?
The unsatisfying answer is that it depends. There’s considerable risk associated with using an anonymous field inspector and attesting to the validity of data you haven’t collected yourself. However, it seems that more and more of these requests are flowing in from lenders trying to save money. This may be an area that USPAP should look at more closely in future revisions. In the meantime, it’s a matter of personal comfort with the process and an educated acceptance of the associated risks.
The bottom line is that, as the signing appraiser, you have to ensure that the inspection yields enough information to create a credible appraisal. In cases where the data is inadequate information or comes from sources you don’t believe are reliable, you may wish to withdraw from the assignment.
Read more about Norman-Spencer’s appraisal errors & omissions coverage here.