A shortage of home appraisers is bottlenecking the housing market, delaying closings and putting buyers at risk of missing out on low interest rates.
Backed by millions in fresh funding, one newly launched company believes it can come to the rescue.
Seattle-based appraisal startup Aloft closed a $20 million Series A round led by proptech-focused venture capital firm Fifth Wall, the company announced Thursday.
The Series A brings Aloft, founded last year, to $25 million in total funding, which will be used to invest in its technology and expand its U.S. operations, including its workforce of appraisers and technology engineers.
In addition to Fifth Wall, Aloft’s backers include VC firms Andreessen Horowitz and MetaProp, Zillow and Pacaso co-founder Spencer Rascoff, Built CEO Chase Gilbert and Doordash executive Gokul Rajaram.
“We often don’t see companies with the type of breakout potential that we saw in Aloft, and it really was a perfect fit for Fifth Wall’s continued work around the digitization of the residential real estate process,” said Fifth Wall partner Dan Wenhold.
The appraisal market is ripe for disruption, Wenhold said, pointing to its aging workforce. More than 70 percent of appraisers are 51 years of age or older, according to a report from the Appraisal Institute, with the number of new licensees unable to keep pace with those retiring out of the profession.
“When you layer on the total addressable market size here, you start to understand that this is really a category that is prime for a new technology-enabled entrant to build the next billion-dollar-plus real estate technology business,” Wenhold said.
Fifth Wall trusted Aloft’s co-founders, Travis Soukup and Yongxing Deng, given their background in real estate and technology. The VC firm had previously worked with Soukup while he was the West Coast regional director at Clutter, another Fifth Wall portfolio company.
“Together, they both have a really unique combination of not only understanding the types of technology and systems that need to be built, but also the way that the real estate industry has struggled to find the right technology-enabled solutions provider around appraisals,” Wenhold said.
With capital and the right partners on the strategic side of things, Wenhold said Fifth Wall hopes to build a future with Aloft that will take its services beyond its current markets in the Pacific Northwest, starting with Texas in the first quarter of next year.
“We really think there’s an opportunity here to create a national brand around an appraisal company,” Wenhold said.
The backed-up buying process
As of 2018, there were roughly 78,015 appraisers in the U.S., reflecting an annual decrease of about 2.6 percent since 2013, according to the Appraisal Institute. As low interest rates and high mortgage application volume helped fuel the hot housing market over the past year, the dwindling number of appraisers found themselves unable to keep up with demand.
“It’s basically a shitshow right now,” said Melissa Cohn, a regional vice president at William Raveis Mortgage. “There’s not enough appraisers out there to do the work that we have today, especially in faster moving marketplaces.”
Michael Vargas, who oversees 20 appraisers as president of Vanderbilt Appraisal Company, said hiring new ones is a slow process.
“I would hire 10 appraisers today, if I could find them,” Vargas laughed. “If you have 30 percent more mortgage volume and you need 30 percent more appraisers, there’s a big lag of experience and licensing requirements to staff up.”
It used to take five to seven days to get the appraisal process done for a client. The greater volume of work means it now takes about three weeks, he said.
In some states, including Florida, transactions are typically signed with 30-day closing periods, Cohn said. It takes about a week to order an appraisal, leaving appraisers with three weeks to get a home inspected, receive a report back, correct any errors and have a bank approve the report and close the deal.
“It’s good news for the real estate market that there’s this much activity, but on the other hand it creates a logjam in the mortgage application and approval process,” Cohn said.
One of Cohn’s clients paid three times the standard appraisal fee in hopes of getting the process done in a week for a home that went into contract at $5 million.
Without ample time to research, the appraiser valued the home at $3.8 million, Cohn said. When the client went to another appraiser and gave them enough time to complete the process, the home was found to be valued at $5 million.
Buyers typically have a lock-in period for mortgage interest rates, which can be subject to change if a deal doesn’t close in time, Vargas said.
“They could close at a higher interest rate than they have hoped,” Vargas said. “That’s why it’s important from the mortgage perspective to get it done within two weeks to make sure you have all the documents.”
Aloft’s not-so-secret weapon: Tech
These compounding issues drove Soukup, Aloft’s CEO, and Deng, its head of product, to launch the startup earlier this year.
“The current home appraisal process is inefficient and lacks consistent quality, which creates issues for people trying to close a real estate transaction,” Soukup said.
It’s an issue that Fifth Wall’s partners know well, with Wenhold calling it a chokepoint for direct lenders, homebuilders and single-family rental firms.
While many appraisers operate as sole proprietors, Aloft’s technology seeks to bring appraisers together to standardize data collection and generate faster appraisal reports. Such strategies have helped the startup reduce appraisal turn times by 70 percent, it said.
“The typical appraiser is doing everything themselves,” Soukup said. “[Aloft] decouples some of those tasks.”
As the startup develops more sophisticated tools, its goal is to have engineers help appraisers automate data collection and dispatch inspectors when it’s time to assess properties.
“We typically look at the financial returns profile of the company and we look at the strategic value of a business to our network of limited partners and existing portfolio companies,” Wenhold said. “Aloft really had a strong value proposition to both.”
The company has also been building tech for lenders, including tools that can provide more transparency on the status of a given appraisal.
While Aloft can’t speed up the two-year certification process for new appraisers, it aims to bring new professionals into the industry through Aloft University, an educational program for trainees, according to Soukup.
In the meantime, “We’re hiring,” Soukup said.