Here Comes the Sun (It's Alright)

In a podcast recently, the guest asked the host an interesting question that went something like this: “If you walked into a local coffee shop and you saw a 50-year-old woman with thick-framed glasses and greying hair pulled back into a bun, would you think she’s a librarian or a sales person?” The host, while he knew he was being set up for something, said, “Naturally, my mind would immediately go to librarian.” The guest went on to explain that this is the natural presumption based on appearances and our predisposition toward certain images we as a society have of particular occupations. Then he added, “There are over 300,000 sales people here in the United States, while there are probably around 30,000 librarians. Statistically, the likelihood that the woman you see in the coffee shop is a sales person rather than a librarian is ten times greater.”

Interestingly, the guest used this example not to make a point about how we need to shed our prejudices and join hands to sing along to a Joan Baez record. He actually used it to set up the following point: while there are times when our presumptions are dead wrong, quite often they’re right on the money because they’re based on a wealth of past experiences. This caused me to think about something I had read that same day about appraisals.

It was recently announced that housing giant Freddie Mac plans to dispense with traditional appraisals on some loan applications for home purchases, replacing them with an alternative valuation system that would be free of charge to both lenders and borrowers. The folks at Freddie Mac confirmed that they could begin the no-appraisal concept as early as next spring. You read that correctly, ladies and gentlemen: NEXT SPRING!

What does this have to do with the example with which I opened this week’s newsletter? Instead of using professional appraisers, Freddie plans to tap into what it says is a vast trove of data it has assembled on millions of existing houses nationwide, supplement that with additional information related to valuation, and use the results in its assessments of applications. In other words, they’re going to use their wealth of past experiences.

For consumers, the company believes, this could not only eliminate appraisal expenses – which typically range from $350 to $600 or more (some areas are seeing these costs bumping up against the $1K mark) – but could cut down on current closing delays that are related to the appraisal process.

The spring is still a number of blizzards and a long thaw off from today, and it remains to be seen how all this will take shape, but it’s a breath of fresh air to see things in this industry evolving with the times – sort of like the card catalog at the library going computerized!