[ad_1] The waning pandemic in the U.S. is opening substantial opportunities across many housing sub-markets. All of these markets benefit from an accurate understanding of valuation and property characteristics, but the data sources that power them leave out a crucial component: property condition. HousingWire recently spoke with Raj Dosaj, head of real estate at CAPE Analytics, about how CAPE Analytics is providing this data and working with investors to grow their business. HousingWire: Why, in today’s market, is property condition data more important than ever? Raj Dosaj: Whether you’re an individual looking for a new home or an institution trying to finance, lend to, or buy a large volume of homes, the pace of this housing market requires having as much information as possible, as early in the decision-making process as possible. That includes details about property condition, which can significantly impact property value. Unfortunately, the days of getting up-to-date property condition information from an appraisal are over. Due to the rise of new technology solutions and the pandemic, 40% of mortgages are now completed with appraisal waivers. Appraisal turn times continue to suffer, with consumers and lenders bearing the brunt of the impact. All of this means that property condition data is no longer updated as frequently. We are now at a point where computer vision neural networks, like those employed by CAPE Analytics, can “visually” interpret the difference between a good condition home and a bad condition home, instantly, and translate that into objective data for a valuation algorithm to ingest. Not only can this technology be deployed on the property in question, but it can be deployed on all of the comparable homes and, in fact, the entire surrounding neighborhood. Each home can now be compared on a level playing field with proper price adjustments factored in—and it can be done instantly for any home across the country. But there are other reasons why a computed assessment of condition is actually preferable to an appraisal. Recent stories have shined a light on the subjective nature of humans rendering value on a home. This is perhaps the greatest limitation and risk of appraisals. Imagine if credit rating agencies revealed that at the end of their score-generating process, a human was the ultimate arbiter of an individual’s credit! That is what is happening to decide the value of the single most valuable asset many people will own in their lifetime. HW: What are some challenges facing investors as they pertain to valuation and property characteristics? RD: The combination of an economy waking up from the pandemic, historically low interest rates, and a dramatic shift in acceptance of remote work has the real estate market running on hyperdrive. Homes in hot markets are receiving all cash offers the first day they hit the market, with iBuyers and SFR investors expanding both their footprint and the types of properties they are targeting. To date, many institutional buyers have relied on in-person visits to determine property condition. However, these visits take time and, like appraisals, are subjective. They are also costly and hard to perform at the scale iBuyers and SFR investors are now operating, purchasing thousands of properties per month. Loan investors, on the other hand, rely on broker price opinions (BPOs), which are even more problematic. BPO inspections are done by real estate agents from the street, often never leaving their cars when they snap their photos and make arbitrary notes. The limited field of view means a high probability of missing structural issues and the haphazard note-taking leads to a lack of structured, objective data that can inform a decision. Bulk loan traders looking at pools with thousands of mortgages cannot afford to miss the properties that will negatively impact their bottom-line returns. In fact, internal studies at CAPE show that drive-by BPOs miss upwards of 60% of exterior condition issues, primarily with the roof and the backyard. And those missed condition issues can significantly impact marketability and rehab costs—we’ve found that homes with severe roof condition are tied to 250% higher overall rehab costs for a property. So, we have a situation where institutional buyers have to make fast decisions on many properties, but only have access to poor quality data that can take days to generate. What we’re seeing now is a desire for technology solutions that can solve these challenges. HW: How is CAPE Analytics working with investors to solve these issues? RD: CAPE is becoming the “eyes” of both real estate and loan investors. As previously mentioned, iBuyers and SFR investors are competing on both speed-to-purchase and the accuracy of their bid price on properties. While they spend a tremendous amount of time pulling multiple data sources together into their home pricing engines, they are still missing property condition information, and often do not discover these issues until they send someone on-site to the property. This leads to disgruntled homeowners and real estate agents who had expected a smooth selling process—not to mention increased acquisition costs for the investor. With property condition information available instantly, investors can make faster and better pricing decisions upfront. For those managing a portfolio of properties, CAPE’s geospatial property analytics serve as an effective tool for asset management teams, because the property information we provide is up-to-date and available at scale. This can be helpful both in terms of managing collateral risk and in order to determine and precisely target necessary capital expenditures for property maintenance and rehabilitation. Loan investors are faced with a similar issue as they are bidding on a pool of seasoned loans with limited information, while relying on BPOs. When it comes to BPOs, CAPE’s ability to convert geospatial imagery into actionable, structured data has shown a massive lift on the detection of return-killing property condition issues. HW: How can investors use this data to grow their businesses? RD: Real estate investors, like iBuyers and SFR investors, can use CAPE property intelligence to expand to markets more quickly and efficiently, without requiring the same workforce
