Welcome to the third and final blog in our three-part series, “Automated floor plans and digital GLA — the key to unlocking appraisal modernization.”
Our first post examined the recognized limitations of the traditional hand-drawn floor plans and gross living area (GLA):
- Inconsistent application of GLA principles
- Limited visual fidelity of traditional floor plans
- Learning to measure and sketch homes with accuracy is hard
- An interested party can’t provide GLA
Our second post explored what a new “digital GLA” should look like to address traditional GLA limitations. We highlighted technology from an exciting new Finland-based company — CubiCasa — and their magical new technology. As a reminder, our readers can try this technology themselves at no cost, courtesy of Clear Capital (details at the end of the post). This brings “digital GLA” to life in the real estate industry as we speak, including being integrated into Clear Capital’s own ClearInsight™ mobile property data collection app.
This final post focuses on the really fun and exciting stuff! We’re going to explore the massive implications of this new “digital GLA” approach on our industry and the real value it will unlock for consumers, appraisers, and lenders.
What automated sketch and digital GLA technologies will unlock
#1: Rapid expansion of the hybrid appraisal model
In the growing hybrid appraisal model, the appraisal process is segmented into two functional roles: 1) property data collection (PDC), and 2) value conclusion. Pilot programs are clearly demonstrating that, in addition to appraisers, individuals with an understanding of real estate can effectively produce accurate, high-quality, and objective results in the PDC process. However, the single-most challenging part of scaling out a non-appraiser group to support PDC is training them to successfully perform the traditional measuring and hand-drawn sketching process.
Take it from us — we’ve successfully certified more than 800 data collectors nationwide in how to do it! We’re extremely proud of the high-quality work they do in measuring, but it’s taken a multi-year, “all hands on deck” effort to hit this scale and coverage.
Technologies like CubiCasa have eliminated that barrier. They can unlock our industry’s ability to capture elite-quality property data for the appraisal process at a scale and low cost that open up massive pathways to growth in modernization.
#2: Securing a long-term role for homeowners in data collection
The COVID-19 pandemic forced the test of a hypothesis: Could a homeowner be guided to accurately provide property data, and could that data be relied on by an appraiser to perform a credible appraisal? The answer has been a resounding “yes.” The flexibilities afforded due to the COVID-19 pandemic have shone a light on alternative approaches that may have been previously considered taboo.
When the GSEs relaxed certification #10, thereby allowing appraisers to consider information from an interested party, some believed appraisals would suffer — but that has not been the case. The rapid development of smartphone-based apps that homeowners could use to provide accurate, verifiable information about a home’s interior was first met with skepticism by some. But as these tools showed improvement with user-friendly features and fraud-detection capabilities, their acceptance increased dramatically.
However, some major limitations of the “homeowner inspection” process are:
- There is no way to objectively validate the home’s GLA
- There is no way to validate functional obsolescence of the home, if present
Today, appraisers are forced to make assumptions on these matters. With technology that empowers anyone — even untrained homeowners — to produce an unbiased and accurate floor plan with GLA, this limitation is erased.
With technologies like CubiCasa and Clear Capital’s OwnerInsight application creating value, we’d like to see GSE policies allow for data collection from interested parties to continue even after the COVID pandemic is over, on certain targeted, lower-risk loans and properties.
#3: Improving the traditional appraisal process
If appraisers were to use digital GLA technologies like CubiCasa, it would also keep them indoors out of the sometimes harsh weather elements or unforgiving landscape grades while providing a higher-grade floor plan and GLA calculation.
And since even a homeowner can produce an accurate sketch themselves with CubiCasa, the appraiser could have the home occupant produce the sketch before the appraiser even arrived on site, so the appraiser could spend time validating the information rather than producing it from scratch. Appraisers are often frustrated when they believe they know the characteristics of the subject property and perform preliminary data searches prior to inspection, only to find out when they get to the property that it is markedly different. This often necessitates a trip back to their office to perform an entirely new data search based on these newly discovered property characteristics. With a homeowner providing the subject property characteristics in advance, this issue disappears.
As we established in prior blog posts, the current hand-drawn approach to sketching and GLA creates inconsistent results that new Digital GLA technologies like CubiCasa can resolve.
|Two different appraisers hand-measuring the same property||Two different untrained homeowners scanning the same property with CubiCasa|
|Sample size of properties||285||43|
|Average GLA variance||3.9%||4.0%|
|Percent of properties with significant GLA variance*||4.9%||0.0%|
|Standard deviation of variance||8.0%||3.5%|
*Defined as a variance of 15 percent or greater
GLA is one of the most essential data elements to the critical property databases and risk models that GSEs and other investors use to make critical decisions pertaining to waivers, loan eligibility, and more. Accuracy and consistency of application need to improve to protect against the risk to the housing finance system.
So what comes next in digital GLA?
The benefits of floor plan automation and digital GLA are so significant to all parties in the transaction that we think our industry should implement them immediately.
At Clear Capital, we’re integrating CubiCasa’s technology directly into our cutting-edge ClearInsight mobile app, which is used at scale today to support burgeoning appraisal modernization programs. This will enable us to build a nationwide and instantly-scaled set of qualified and competent property data collectors to power the future of the property valuation process and license our data collection technologies to other participants in our industry.
We’re incredibly excited about what lies ahead.
Thank you for reading!