Howell has proposed a unique solution to the appraisal gap problem this country is facing that may just remedy the problem for all underserved communities. But it does involve overhauling the way appraisals are conducted..
Instead of relying on past valuations and improvements done on the house, Howell recommends using all the important components of a house to come up with a valuation.
“The approach is a component-based approach that looks at each piece of the physical structure of the dwelling. So the windows, the framing, the roof, the foundation, those are the components,” Howell said.
The appraiser would then analyze the cost and durability of these materials to determine the value. For example, when was this put in place? How much did it cost when it was actually put in place? Was that a 100 years ago or five years ago? How much did it cost then for both the labor and the natural resources as well as the infrastructure to get it there? How long do we expect it to last?
There are questions to consider when conducting an appraisal with this method, but Eruka is working on pairing this method with technology that has object identification to be able to take a picture or a video of the house structure and help estimate all the answers.
“It's a really radical way of rethinking how we're sharing this cost and how we're passing it along,” Howell said. “But what it does is enable the majority of the cost of housing to shift from paying for a mortgage towards paying for the upkeep of the house. Now you’re looking at what it actually costs to live somewhere.”
Unfortunately, these issues don’t come with a simple solution. But those companies who pioneer the way to change and offer alternative solutions to those who have been ignored or discarded by the rest of the industry will become very valuable.
Peeling An Onion
“Ensuring unconscious bias doesn’t play a role in appraisals and seeking broader solutions to DEI [diversity, equity and inclusion] in housing is a priority for the Appraisal Institute,” said Appraisal Institute President Craig Steinley. “Creating a more equitable housing environment in this country will take solutions advanced by real estate brokers/agents, banks, government agencies, appraisers and others.”
The Appraisal Institute has been amplifying and accelerating diversity, equity and inclusion (DEI) initiatives and partnerships to bring about positive change, Steinley said. The organization is also creating a Practical Applications of Real Estate Appraisal program (AI PAREA), which provides an alternative to the traditional supervisor and trainee model for experience, and they are creating a seminar on valuation bias.
“All of these stereotypes you start uncovering, it's like peeling an onion, right? As you get closer to the core, you're crying,” Atuel said.