Enhancing Efficiency in Appraisals: Jaro's End-to-End Ecosystem with Gareth Borcherds of Jaro
[David] Listeners, really excited about today's podcast. We're going to be interviewing someone who is into innovation and his bring some new technology to the industry. It's old area of appraisal, but what he's doing is pretty exciting. So, we have as our guest, Gareth Borcherds I want to make sure I pronounce it.
[Gareth] It's like orchards with the B on the beginning. Borchards.
[David] Gareth is the managing director of Ascent Software Group, and we're going to be talking about today called Jaro. And we're going to get into why that is so innovative. Gareth, Thank you so much for being here. Appreciate you joining us.
[Gareth] Thanks, David. It's great to be here.
[David] You bet, you started the company in 2018. And you have done a number of innovative things. Give us a little insights into your background and what is it about you that sees the opportunities when others may not?
[Gareth] Yeah. So I've been in and out of the appraisal space since really 2011 and worked on an appraisal management platform when I was running a web development company and actually went and worked for an AMC worked in the industry, tried to get out and much like the lending world it's a little bit like the mafia. You can never really get out of this industry once you're in it and got the invitation to come back in and start this company with some funding to try and go solve this problem of appraisals My other career was in retail e-commerce consulting which is also another industry that is traditionally had really crappy technology. Obviously the tech innovative companies in that space have a lot of great technology, but a lot of the legacy retailers didn't have great technology and I've spent my entire career just in the space of trying to bring technology into the hands of people that aren't used to it and when it comes to appraisals. When you want to talk about the actual appraiser that's doing these appraisals, you want to talk about people that aren't used to having technology that's pretty much the key group there and so it's a good challenge. I believe that technology can improve people's lives and it's our job as technologists to bring that technology into their life to make it better, make people more productive, give people the opportunity to make more money with the less effort.
[David] There's been one particular player that's dominated the appraisal area and I'm not sure that has been updated much since that thing was really written. So there is a huge opportunity when you look at the appraisal industry. Let's talk a little bit about that. One of the issues is certainly an aging appraisal industry, the barrier to entry. Love to get your thoughts and where you see the appraisal process, everything related appraisals going as we look into the future here.
[Gareth] Yeah, thanks, David. I think first off, think it's important to stay right off the bat that we need appraisers regardless of what we think how technology is going to come in and do this, appraisers play a critical role in the collateral review process, especially when you're looking at a collateral risk evaluation for a borrower that needs to have the most accurate value and appraisers are best suited to give us that most accurate value for one. We need that value to be extremely tight. And the appraisal industry has not done itself any favors. Because the way that we train appraisers today is very much an apprentice model still, there are some new initiatives coming out like PAREA appraiser diversity, trying to get people the opportunity to do more in school type learning and certification, but the reality is that it's still largely an apprenticeship industry and most of the other industries that practice that model have all changed. This is one of the legacy ones in the United States from a licensing perspective that still does that and because of that, it makes it really difficult for us to come in and scale the appraising industry. And if we're going to change that we're going to have to figure out ways to get more appraisers into the industry. We're gonna have to figure out how to make appraisers more productive. And we're going to have to figure out how to get them better tools. And the, appraising population that's out there today, they're not really interested in bringing on more call them cadets or trainees or whatever language you want. They don't want to have somebody. You have to spend typically 2,000 hours with your supervisor. I don't know very many people in my own life that I'd want to spend 2,000 hours with riding around in a car, going and inspecting houses. Never mind where a lot of them think that they're training their future competitors. It's just a bad place. And it also prevents big companies from coming in and formalizing and creating programs that allow us to train people and ensure quality across the board and doing it. So we just have this very fragmented difficult industry.
[David] Yeah, it's so true. So how is Jaro solving for this problem?
[Gareth] First and foremost, it's important to understand that Jaro itself and what we set out to do with this is that we wanted to build an ecosystem that was more than just serving one party in that ecosystem. Most of the platforms out there today target one specific group whether that's going to be order management on the lender side and all the compliance that goes into that or if it's going to be AMC software for the appraisal management company or the appraisal writing software that the appraisers actually use to write their report there, it's still a fragmented industry and everybody's going after just that one segment. We set out to build something that was probably a little audacious at the time, which was an end to end ecosystem that included all parties and the ability to service an order from a loan officer who requests that an order be placed all the way through to an appraiser fulfilling that order, doing all the inspection work typing up the report and getting it back to the underwriting team at the lender without it ever leaving one ecosystem. And so we have in the JARO suite, we have this full suite of products that enable us to do that all the way from start to finish. And we're probably the only ones out there that are trying to do that entire ecosystem to make it so that we can just do things that other people can't, because it's all within one technology system.
[David] Yeah. One of the things that you're doing is Jaro inspect, which has LIDAR which I've been playing around with the LIDAR more just with the recent home improvements we've been doing in our own home. It's really interesting. Talk about how you see LIDAR playing a role, and specifically how you're doing with Jaro InSpec.
[Gareth] Yeah. So if you think about the traditional inspection of an appraisal, or even if you think about the new GSE appraisal modernization products for the PDR or PDC depending on the GSE there, the ability to scan a house get accurate measurements, data all of these things is something that has traditionally taking a long time. And a lot of appraisers still use a wheel where they walk around the house to get measurements of it. And LIDAR is just, it's an amazing piece of technology. Apple has done a great job of investing quite a bit of money in that tool and bringing it to their devices. And we've been able to tap into that and build a significant amount of code on top of it that allows us to scan a home, better than most I feel like our app actually works better than any of the other LIDAR scanning apps that are out there that really just use kind of the off the shelf tools from Apple. We've done a whole bunch of other things on top of it that allow us to stitch things together, auto calculate missing gaps identifying the rooms as you're going, there's a lot of image AI that goes in there. And the sum total of what it is, I, as a sample, I went and did a house, I did a full PDR PDC product on a 2,200 square foot home, one level. But I did the entire thing start to finish in 22 minutes. It takes most appraisers about 15 to 25 minutes to do their inspection on a house that size anyway. But in addition to me, not only just collecting the data that I needed, I actually completed the entire report at the exact same time in that 22 minutes which I could have delivered directly from my iPad back to the lender before I even left the property. That's the kind of speed that we're after where appraisers are able to actually complete the reports in the field and lenders are getting their data, within minutes of the appraiser being done at the property.
[David] How much is AI playing into what you're doing?
[Gareth] AI plays a big part into everything that we're doing and there's a lot of different reasons for that. First of all, I think that it's going to be interesting to see what the MLS systems out there do with all the lawsuits and everything that's going on. The value propositions being questioned. I think there's some really good groups out there that are trying to show the value of an MLS without it being the hub for these agents to talk to each other. But as an appraising industry, we rely on MLS data almost exclusively for most everything that we do. And I think anybody that's ever spent any time looking at that data will tell you that it's some of the crappiest data that exists out in the entire world and without AI. I don't know how we get data cleaned up and working well enough that an appraiser can actually use it. So AI, from our perspective, is being injected into almost every part of the process, whether that's analyzing the data that's coming in from the MLS and auto calculating values on a massive amount of data or if it's in our inspection app where it's auto identifying and placing labels of rooms and identifying features like fridges and oven ranges and dishwashers, whatever it is, anything that we can use AI to essentially automate what an appraiser would be doing manually themselves we're going to seek to do that. Now, appraisers are going to have to be required to look and validate that data and do it. But I think AI has its best ability in the industry as a whole, where it is simply classifying and organizing data because there is going to be a lot less I think problematic things that come up with AI and some of the concerns that are around that. But really our end goal with all of the AI that we're doing is just to inject it, to give the appraiser a better starting point before they start doing their analysis.
[David] Does AI actually get involved in the calculations and work in that part of it, or is it just helping you write it because it seems like the entry level part is just to help write and create that aspect but we're seeing more and more evidence that this AI is actually getting in and intelligently doing calculations and really in speeding up the process and adding horsepower to what the appraiser already is doing.
[Gareth] Yeah there's definitely speed advantages to letting the AI write parts of the report for an appraiser we can train these large language models to sound exactly like the way that the appraiser wants to sound and let them take the data and turn it into an analysis of text that speeds them up from doing it. The funny thing is that most appraisers really don't actually write a lot for their reports. I think when we get into the QC side of things, you end up finding appraisers that they're most of their mistakes are because they accidentally inserted the wrong template into the report. And so they've got data in there that's incorrect for that particular report. But they're really largely using the same language over and over again anyway an1d, I can speed that up, but to your point, I think where we get the most value in it is the upfront cleaning up of the data before they do their analysis and then also augmenting their analysis. For example, if you take condition and quality, now condition and quality is a hotly debated topic. If you were to talk to Freddie and Fannie about this, they would tell you that one of their biggest concerns is the inconsistency of which appraisers rate these properties and some of that inconsistency doesn't really matter too much cause it's a relative scale, but if an appraiser is going to overvalue something it's Probably 9 times out of 10. The way that they get away with that is by manipulating these quality and condition scores that go into the reports for the comps because if you have, let's say you have an average home, that's a C3Q3, right? Which is a condition of three and a quality of three. And you want it to hit a slightly better value than it actually is. What I would do is as an appraiser, I would find a comp that is a Q2, a slightly better quality home. And I'm going to call it a Q3 in my report and not adjust for that quality adjustment. And all of a sudden my value range now has gone up because I'm giving a higher starting point. The other part is you know, to be fair to appraisers, actually figuring out conditioning, quality scoring in certain markets can take a lot of time because you have to look at every listing and determine that. So we have AI that we run on all of our comps. As we look at the data, we run all the images through these condition and quality models that we have that auto calculate for every comparable, what the condition and quality should be based on that model. So when an appraiser is searching for comps in our system before they even leave or before they even start choosing a comp, they actually know that they're looking at similar properties based on condition and quality, not just bathroom count or bedroom count or some of the other things that MLSs provide. They're able to narrow it down and do that. And what ends up happening is any modeling that you do in terms of value after that, because we're giving you a better sample size or a better data set that's more similar to the property in the first place, is going to result in better math in general, right? Because there's less variables to control for. So that's really, that's one of the key ways that we're doing it. Now there's a lot more to it in terms of, going through every MLS and actually figuring out how to calculate things like it's pretty interesting cause you take a market like Chicago where there's a lot of basements but agents don't put the basement as a separate square footage that's in there. Even though an appraiser actually has to value the square footage below grade differently than the above grade. So when you're looking at comps and you're saying, okay, I'm looking for 3,000 square foot homes. An entire above ground 3,000 square foot home is valued very differently than a 1,500 square feet below and 1,500 square feet above. And even though most buyers don't think that way, that's how the appraising industry works and even that can skew your numbers quite a bit in terms of the value and some of these other things that come in there. And we're building a lot of AI around taking these data and taking the listings and essentially massaging and cleaning up the data to give the appraiser a better guess as to what the actual attributes of that home are.
[David] Amazing. Where do you see AVMs going? Is that going to be something that is could be playing a bigger role in the appraisal process on lower LTVs? Where do you see AVMs?
[Gareth] Yeah. I think first of all, a call out to all appraisers out there, if you want to protect the industry you got to do things to get more volume out because the more we become a bottleneck in the lending process, the more people are going to look to replace appraisers in that process.
[David] Great point. Yeah.
[Gareth] And second thing is AVMs, they are going to be accurate up to a certain point. There's a lot of data modeling and things that you can do on large scale and I think the GSEs have been doing this with all the appraisal data they've been collecting. And really these new appraisal modernization products value acceptance plus PDC, that type of concept really is an AVM plus verifying the property, right? So AVMs are going to be a central part to everything that we do. The questions that we have to ask ourselves are one, are we doing our due diligence to make sure when we use it as a collateral risk decision? are we doing it the way that it should be done? Which is ethically measured, controlled, understanding exactly how that goes in there? And if we are, I feel like there's no reason why we shouldn't be doing that for well qualified buyers, right? Because again the example I always use is if I'm only financing 50% of the value of the home, does it really matter if the home is worth $1million or $900,000 when I'm only going to be taking out a loan for $400,000? It probably doesn't matter at all because the lender is making a credit risk decision, right? And the collateral risk and I think sometimes appraisers pretend like lenders are collateral lenders when they're not. They're credit lenders, and they care more about the borrower than they do about the actual collateral behind it.
[David] Yeah, that's really good. Yeah, man. It's fascinating. You're so articulate about the space and we have not paid enough attention to what's going on in the appraisal. So it's fascinating. Overall automation, what's your prediction? Are we going to see the mortgage process, which is so still so archaic? Are we going to really see in the future some pretty major shifts in automation from your perspective.
[Gareth] I think we have to you want to get into kind of generational things and I'm technically a millennial and in my age and sometimes the stereotypes that come with being a millennial upset me, but at the same time, like the experiences that I crave are probably more on the digital side than the preceding generation and I might be even higher up or closer to a Gen Z when it comes to the digital experience. And I think what's interesting, right? Is the mortgage industry as a whole and really all of real estate is essentially a sales gig, right? It's a sales driven process. It's all about the relationship and your ability to drive a sale to that borrower and how you handle that relationship is going to be a hundred percent up to you as a loan officer or as a lender and, you look at companies out there like Rocket, who is, spending a ton of money on figuring out how to use AI to speed up this process of identifying the borrower. There's a lot of forward thinking things that we could talk about where, it would be cool to see the industry go this way. But the reality is that no matter what happens, people are humans that expect the exact same type of thing. They want to be taken care of, they want to be safe and secure, and they want to get the best value for whatever it is that they're doing. Now, if I can use technology to do that better and faster than anybody else, I'm going to win. What is automation going to look like? It's going to look like automate while making sure that we're treating people fairly. We're helping them understand that they are safe and secure with their own data and that they have confidence that what they're getting out of us is going to be the best value that that they can get and if you continue to focus on those fundamental principles, I think anything that you can do to reduce costs and be faster is going to be something that's going to have a winning strategy.
[David] Jaro is a product of Ascent. And do you have any other products that is associated with Ascent?
[Gareth] So. no not anything that's public at the time we do have a couple of things behind the scenes. All definitely valuation appraisal related in those things that we're going to be testing out and doing. We've got some review products, quality review, post completion type things that are in there. We've been toying around with our own AVM type concepts and a lot of our own kind of report writing or custom report solutions that are out there, I think one of the challenges that we all tend to face and, There's a lot of emphasis on this, right? Because most of the loans out there are conventional or FHA or VA, right? One of the big three government backed or government controlled products that are out there, but there is a whole other suite of collateral risk evaluation that needs to be done that's outside of those. And most of the lending companies that we talked to or, those types of things they forget about those unless they live in those spaces and that's really the space that I think you'll see us continue to get into is just helping the non QM space be able to evaluate things a little bit faster. How can we help agents or investors evaluate flip and fix and all these other concepts that are out there and how do we take everything that we know from appraising and apply it into the rest of the collateral risk industry.
[David] Man, very interesting. How can people learn more about you? Get to connect with you and learn more about you?
[Gareth] Yeah. you can visit our website at tryjaro.com. You can always connect with me on LinkedIn. I'm always looking for people that are looking to talk about collateral risk and how we can improve the process. We have different contact forms that are out there and I attend quite a few of the mortgage shows and real estate expo.
[David] You were just at the housing wire. Yeah.
[Gareth] Yeah. Housing wire was fantastic. They're the gathering there. I think they did a really good great job. MBA does a lot of great things. I'll be at the Chairman's Conference in June for the MBA. It's just interesting as we, we get into this industry as a whole and keep thinking about collateral risk and thinking about what can we do to make this better? The appraisal process is like this necessary evil, I think is how a lot of people in the business actually look at it from an underwriting loan officers, there's nothing that can kill a deal faster than the collateral risk portion coming back and being a problem and I just don't think it needs to be that way. And we're always looking for lenders with some of our service provider partners. Who are looking to find ways that they can really change how we look at that part of the process to make it not the squeaky wheel. We don't want appraisal to be the long pole in the tent or whatever it is to whatever that these lenders are trying to do. But it's going to take partnership with the service providers, technology, and the lenders to come together to figure out how we make those improvements and get things working a lot better.
[David] It's been wonderful interviewing you. I'm very encouraged. I'm so glad that one of my staff reached out to you and connected you because as I hear you talk, I have a hope and anticipation that we're going to be seeing you on the landscape in a much bigger way. So congratulations on the success and what you're doing with Jaro, I encourage everyone to go to our website look for it there, or take a look and you can go try J A R O dot com and learn more. Gareth, thank you so much for being here.
[Gareth] Yeah, David, it was a pleasure speaking with you and being able to talk a little bit about our wonderful industry here.
[David] You bet, appreciate it.
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Gareth Borcherds is the Managing Director of Ascent Software Group, a position he has held since founding the company in 2018. With his leadership, Ascent has thrived through a commitment to continuous innovation and growth. In addition to his professional achievements, Gareth has a passion for golf, a sport he enjoys playing whenever he has a moment of free time. Gareth holds a Bachelor of Science degree in Business Management from Penn State University and earned his MBA from Purdue University.