The relationship among builders, developers, and appraisers can be complex and adversarial. Bad numbers sent to bankers can squelch a deal in a heartbeat, but, in certain situations, having a good appraiser in the contact list can be an asset.

Although appraisers are usually hired by lenders interested in safeguarding whatever they are financing, there are non-financing situations including due diligence issues, feasibility studies, and consulting scenarios that put appraisers and developers on the same side of the fence. Appraisers can help identify demand for certain housing types, price points, and absorption rates. How do they do all that? They train for it.

“Appraisers begin as trainees,” says Stephen S. Wagner, president of the Appraisal Institute, which is based in Chicago. “After compiling a certain amount of experience hours, which varies by type of practice, and completing a required amount of valuation-related education, trainees may pursue a license from a state regulatory body.”

Stephen Wagner, Appraisal Institute Stephen Wagner, Appraisal Institute

While professional appraisers are licensed and educated, they face competition from automated value models (AVMs). The shortcuts to commissioning formal appraisals can be seen in the iBuyer business models and the instant calculations available on Zillow and Redfin that will tell you what a house is worth as fast and you can type in the address. While looking online and “pulling comps” offer quick gratification at a low or no cost, they may not be telling the whole story.

“An AVM is basically a software program that can generate an opinion of value based on its algorithms,” says Wagner. “It sifts through large amounts of data—such as public records—to compare the subject property with recent comparable sales. AVMs typically lack an on-site property inspection by a qualified real estate professional.”

The question of whether an on-site inspection is needed helps illustrate the robotic system’s weaknesses and strengths, especially in terms of what a production builder might need. “One example would be a relatively new subdivision in which the properties are nearly identical in age, style, square footage, acreage, number of bedrooms and bathrooms, and other features,” says Wagner. “Then an AVM for a single-unit residential property might be a tool to consider.”

An appraisal done by a licensed and trained human is still considered the gold standard in the industry for figuring out what a property is worth. But that time-honored notion is taking heat from a get-it-done-instantly marketplace that is putting the squeeze on bread-and-butter appraisal work.

The U.S. Treasury, Federal Reserve, and FDIC recently teamed up to change the law mandating when an appraisal must be done. The magic number that triggered an appraisal for a mortgage used to be $250,000 but has now been raised to $400,000. The inherent danger to loosening mortgage requirements echoes back to the housing crisis and appraisers are already raising concerns about the move.

“Those increases will result in fewer appraisals being required, as more and more loan or transaction amounts will fall outside the threshold levels,” says Wagner. “Reducing the number of appraisals creates concerns about the safety and soundness of commercial and residential real estate lending.”

Builders and developers who want an informed opinion about the value of what they are buying or building don’t have to worry about what happens to the data unveiled by the process—as long as they are paying.

“An appraisal is developed for the intended user, typically a builder, developer or architect,” says Wagner. “The client can share the appraisal report with whomever they wish, but the appraiser is bound by client confidentiality rules outlined in the Uniform Standards of Professional Appraisal Practice.”

Numbers derived via algorithms are available to anybody who can access the website they are listed on. It’s fast and can be free but there is still value in doing your homework while checking all the boxes.

“Technology can’t yet reliably and consistently address markets with limited data and unusual or unique situations,” says Wagner. “It can’t go beyond traditional appraisals for lending purposes and provide a wide range of other services, like consulting. Only a qualified, competent appraiser can perform those functions.”