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Insights
Concerns Over Fannie Mae and Freddie Mac’s New Hybrid Appraisal Policy
On February 5, Fannie Mae and Freddie Mac announced a significant shift in their appraisal policy with the introduction of hybrid appraisals. Beginning March 22 (Fannie Mae) and April 7 (Freddie Mac) lenders who sell their loans to the GSEs will have the option—though not the obligation—to use a hybrid appraisal. Under this new approach, property data collection will be conducted separately and provided to an appraiser, who will then use that information to develop a credible opinion of value. These hybrid appraisals must be completed using the Uniform Residential Appraisal Report (Hybrid) (Form 1004/70 Hybrid) or the Individual Condominium Unit Appraisal Report (Hybrid) (Form 1073/465 Hybrid). Loans eligible for this new appraisal option will be determined through automated underwriting systems, with eligible property and transaction types aligning closely with traditional appraisals, though some will be excluded.
While this policy claims to support appraiser efficiency and capacity, it raises multiple concerns within the appraisal profession and the broader real estate industry.
Potential Risks to Valuation Accuracy
The reliance on third-party data collection creates inherent risks to the accuracy and reliability of appraisals. The quality of an appraisal is directly tied to the integrity of the data used, and if the individual collecting the property data lacks the necessary expertise, errors or omissions could compromise the final valuation. Unlike traditional appraisals, where appraisers personally inspect properties, hybrid appraisals introduce a level of separation that may lead to inconsistencies in reporting and potential misrepresentations of a property’s condition.
Appraiser Independence and Accountability
The hybrid model also raises questions about appraiser independence. Appraisers are required to certify that their opinions of value are credible and based on sound analysis, but under this new framework, they must rely on property data collected by an external party. If that data is incomplete, inaccurate, or biased, the appraiser’s ability to develop a reliable opinion of value is compromised. Furthermore, if issues arise from an appraisal, it remains unclear where accountability will fall on the appraiser, the data collector, or the lender.
Impact on Consumer Protection
A credible appraisal serves as a critical safeguard for homebuyers, sellers, and lenders by ensuring that properties are accurately valued. If hybrid appraisals result in more frequent valuation discrepancies, borrowers could face increased financial risks either by overpaying for properties or by receiving loans based on inflated values. In cases of foreclosure, inaccurately appraised properties could lead to greater losses for financial institutions, potentially destabilizing the market.
Erosion of Appraiser Expertise
The hybrid appraisal model may also contribute to a long-term erosion of appraiser expertise. By shifting a key component of the valuation process, the property inspection away from the appraiser, fewer professionals will gain firsthand experience assessing property conditions. This stands to weaken the profession’s ability to train new appraisers and uphold the high standards that have long defined the industry.
Capacity Concerns
The GSE's shift from traditional appraisals to hybrid appraisals will lead to a substantial increase in the need for property data collectors (PDCs) to meet lender demand. Currently, around 40 property data collection companies are authorized by the GSEs to employ PDCs. Until now, the use of PDCs has been limited to a small set of transactions where the GSE offered an appraisal waiver but still required property data collection. However, with the rapid growth of hybrid appraisals, the demand for data collection will surge. This means that property data collection companies will likely need to quickly scale up their workforce. This tight timeline raises concerns about the training and competence of new data collectors. Additionally, there may never be enough PDCs available to meet the demand, causing potential delays and confusion for lenders who wish to use hybrid appraisals but face a shortage of qualified data collectors.
Regulation of Property Data Collectors
Unlike appraisers, property data collectors (PDCs) are not currently subject to regulation. While the GSEs outline in their Selling Guides the qualifications PDCs must possess and the data they must gather, there is no state-level oversight or accountability for the appraisal-related tasks they perform. Given the expected rise in the use of PDCs due to the transition to hybrid models, the Appraisal Institute has proposed model state legislation to mandate the licensing of property data collectors and the registration of property data collection companies. Under this legislation, data collectors would be required to complete education tailored to their specific duties, undergo a period of supervised work with another data collector, and pass an exam before obtaining a license. Several states are already considering or drafting bills to introduce state-based regulations for data collectors. Furthermore, data collection companies would need to register with a state agency, like how appraisal management companies are required to be licensed or registered.
Trainee Experience Credit for Property Data Collection
Appraiser trainees represent a valuable workforce that could support property data collection, helping to address capacity issues. However, the Real Property Appraiser Qualification Criteria (RPAQC) currently does not allow trainee appraisers to earn experience credit solely for conducting property inspections or collecting data unless they are directly involved in the development and reporting of an appraisal. According to the RPAQC, "quantitative experience requirements must be fulfilled through time spent in the appraisal process." The "appraisal process" consists of five main components: 1) analyzing value-affecting factors; 2) defining the appraisal problem; 3) gathering and analyzing relevant data; 4) applying appropriate analysis and methodology; and 5) forming and accurately reporting an opinion in accordance with USPAP. With the potential rise of hybrid appraisals replacing traditional methods, the Appraiser Qualifications Board (AQB) should consider updating the RPAQC to allow trainees to earn partial experience credit for performing property data collection independently, separate from the appraisal process and without direct supervision.
Your Benefits
TAF PAREA Scholarship Application NOW OPEN
We are thrilled to share an exciting opportunity for aspiring appraisers! The Appraisal Foundation (TAF) has committed $1.22 million over the next three years to fully fund enrollments in an approved Practical Applications of Real Estate Appraisal (PAREA) program through the Foundation Pathways to Success Scholarship. The application for this scholarship, which can be used for the Licensed Residential PAREA Program by the Appraisal Institute is NOW OPEN!
Administered by the Appraisal Institute as part of the Appraiser Diversity Initiative® (ADI), this scholarship covers 100% the enrollments costs for any AQB-approved PAREA program, including the Appraisal Institute’s Licensed Residential PAREA Program, making it easier than ever to begin the journey toward a successful appraisal career. This scholarship is open to all aspiring appraisers who have successfully completed prerequisite education for the Licensed Residential Real Property Appraiser classification in the applicant’s state of residence where PAREA is approved.
Conditions apply:
- Applicants must complete minimum 300 word written essay explaining career goals and professional contributions;
- Provide copies of a high school diploma or unofficial college transcript (as required by state regulatory agencies;
- Confirm eligibility of a state administered background check; and
- Provide a professional referral or recommendation.
Applicants from Alaska, Connecticut, Florida, Illinois, Indiana, Louisiana, Pennsylvania, and Wyoming are not eligible to apply.
Applicants must first complete the PAREA readiness checklist to confirm eligibility for the Scholarship. Click here to start your readiness checklist.
The application for the Foundation Pathways to Success Scholarship is available here.
Have questions? Contact us here.
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In Case You Missed It: Free On-Demand Webinars from the Appraisal Institute
If you were unable to attend live, the Appraisal Institute has made several recent webinars available to on-demand for free. These sessions cover essential topics, including best practices for using extraordinary assumptions, hypothetical conditions, and jurisdictional exceptions; the latest economic trends and interest rate shifts impacting valuation in 2025; and strategies for protecting client data in today’s high-tech landscape.
You can also catch up on a sneak peek at the new dynamic Uniform Residential Appraisal Report (URAR), set to roll out in late 2025/early 2026. This major shift in appraisal reporting is coming fast, and this session provides critical insights to help you prepare. Don’t miss the opportunity to stay informed, register now to access these free, on-demand resources!
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Our Community
The Appraisal Institute mourns the passing of Stephanie Coleman, MAI, SRA, AI-GRS, AI-RRS a respected leader in the property valuation profession and a dedicated advocate for appraisal standards and ethics. With more than 30 years of experience in the field, Stephanie’s contributions to the profession have left an enduring legacy that will continue to shape the industry for years to come.
Stephanie served the Appraisal Institute in numerous capacities, holding the title of Senior Manager of Ethics and Standards, where she played a critical role in upholding the organization’s commitment to excellence and integrity. She demonstrated a deep expertise in appraisal best practices and an unwavering dedication to professional responsibility.
Her influence extended far beyond her work within the Appraisal Institute. A past member of the Appraisal Standards Board of The Appraisal Foundation, Stephanie played a key role in developing and interpreting the Uniform Standards of Professional Appraisal Practice (USPAP), helping to set the ethical and performance standards that guide appraisers across the country. She was also an AQB-Certified USPAP instructor, sharing her knowledge with countless professionals and ensuring that the highest standards of appraisal practice were upheld.
In addition to her leadership and teaching, Stephanie was a prolific contributor to appraisal education and publications. She authored Understanding Limited Appraisals and Appraisal Reporting Options, published by the Appraisal Institute in 1994, and co-developed a seminar of the same name. Stephanie developed the Review Theory General and Review Case Studies General Designation Education that serves as the foundational education for the AI-GRS. More recently, she played a key role in the development of the Appraisal Institute’s Scope of Work seminar, further cementing her impact on the industry’s evolving methodologies.
Stephanie’s legacy is one of professionalism, dedication, and an unyielding commitment to the highest ethical and technical standards in property valuation. Her colleagues, students, and the many professionals she mentored will remember her as an inspiring educator, a thoughtful leader, and a passionate advocate for the integrity of the appraisal profession.
The Appraisal Institute extends its deepest condolences to Stephanie’s family, friends, and colleagues. Her contributions will not be forgotten, and her influence will continue to guide the profession she so tirelessly served.
Until next week,
Team Appraisal Institute
