How Neighbourhood Holdings is ensuring a smooth appraisal process in unpredictable times

CMP Featuring Jared Stanley October 17, 2023

How Neighbourhood Holdings is ensuring a smooth appraisal process in unpredictable times

This article was originally published on Canadian Mortgage Professional.

Shifting market conditions and the unpredictable path of home prices have made appraisals a difficult business for lenders in 2023 – but at Neighbourhood Holdings, a diligent and detailed approach has helped weather that storm, according to the company’s senior director of originations Jared Stanley.

Speaking with Canadian Mortgage Professional, Stanley said the company had taken a number of steps to ensure accuracy on the appraisal front, allowing it to gather information that’s as precise and reliable as possible despite the market’s ups and downs.

“We’ve developed processes to make informed decisions and critically evaluate appraisers’ opinions on market value, which has made navigating the current market smoother,” Stanley said. “With the availability of multiple data sources, we can anticipate property values fairly accurately before issuing quotes or commitments.”

Lenders across the board have grappled with the challenge of how to handle appraisals since the housing market began to turn last year as interest rates ticked upwards. For Neighbourhood, Stanley said the focus has been ensuring that a property is habitable and marketable – and, vitally, that it retains its value after funding.

“Marketability, a crucial factor, is evident in how a property appeals to buyers,” he said. “In appraisal reports, we meticulously look for elements that might reduce marketability, whether these relate to the property’s condition, function, design, or external factors like nearby highways or factories.”

How underwriters can help create a more efficient appraisal process

Especially important for lenders in the current market when it comes to appraisals has been clear and constant communication between underwriters and appraisers to clarify any questions or concerns about reports.

Stanley said it’s common for Neighbourhood’s underwriters to inquire about specific features of the property or its surrounding area if those are not mentioned in the report, particularly where concerns arise following their initial due diligence.

One notable instance saw the company’s underwriters notice that a property was located near a commercial area, something which wasn’t mentioned in the initial report. Stanley said that communicating with the appraiser in that case allowed the company to receive valuable insights on the local market and how that development positively impacted the value of the property.

For brokers and agents, not much has changed in terms of what they need to know about lenders’ approach to appraisals, Stanley said, with prudence “essential” in any market.

Still, he highlighted the challenge that arises when appraisals come in lower than originally expected. “Since most alternative lenders require an appraisal, we advise brokers and borrowers to order approved appraisers early in the process,” he said. “This approach not only provides a clear understanding of the property’s value, but also secures some level of commitment from the borrowers.”

Managing client expectations, a key part of the appraisal process, is something that brokers can take charge of by understanding the appraisal’s potential outcomes from the onset and communicating that effectively to clients, Stanley said, resulting in a smoother all-round transaction for all parties.

What’s coming down the line where appraisals are concerned?

Unsurprisingly, the value of technology is becoming increasingly apparent in assisting the appraisal process at present – and for Stanley, further technological integration in that journey is inevitable in the coming years.

“The introduction of AI can be particularly transformative,” he said, “serving as a valuable tool for double-checking reports for discrepancies, thus minimizing the need for corrections and streamlining the process.”

Ultimately, the importance of accurate appraisals for lenders, brokers, and borrowers alike has never been greater – and Stanly paid tribute to the professionals Neighbourhood works with on the appraisal side that help ensure an effective process even in a difficult economic climate.

“Appraisals are crucial, especially on the alternative side,” he said. “At Neighbourhood, we handle rush transactions that require both accurate and prompt appraisals. A huge thank you to all appraisers for their contributions. With nearly 4,000 transactions closed, each one was supported by an appraisal report.”