Why it’s time to rethink the appraisal default in home equity lending 

With mortgage rates still hovering near multi-decade highs, homeowners are opting to hold onto their ultra-low first mortgages. Instead of refinancing, they’re tapping into their equity through home equity loans and HELOCs to finance renovations, cover tuition, or consolidate high-interest debt. 

Lenders are stepping up with a broader menu of second-lien products to meet this growing demand. But while the products themselves have modernized, the valuation process that underpins them often hasn’t. One outdated holdover? The routine reliance on the traditional “full” appraisal, even in cases where it adds more friction than value. 

As we navigate 2025 and face both an appraiser shortage and capacity issues, it’s time to challenge that default and embrace a smarter, more flexible approach. 

Full appraisals have their place — but not in every case 

To be clear, there’s nothing wrong with the traditional full appraisal. It’s comprehensive, reliable, and for many loan types it is still indispensable. But in the context of home equity lending — where loan amounts are smaller, the lender bears much of the cost, and speed is critical — defaulting to a full appraisal can create more drag than value. 

Traditional appraisals average around $600 in many states and can take up to 1-2 weeks to turnaround. Waiting two weeks for a valuation might be justified for a high-stakes purchase or a major cash-out refinance. But for a $50,000 HELOC on a well-understood property with plentiful comps and a low-risk borrower with a strong credit and repayment history, that approach introduces unnecessary cost, delays, and frustration for borrowers and lenders alike. 

The better news is that we now have faster, data-driven alternatives that can deliver the same confidence without the slowdown. 

AVMs have evolved, and they’re already delivering value

Automated valuation models (AVMs) aren’t new, but today’s versions are vastly improved. Modern AVMs leverage real-time MLS feeds, recent transaction data, property condition reports, and machine learning to produce faster, smarter, and more reliable results. They’re no longer just approximations; they’re decision-grade tools. 

Confidence scores (the AVM’s confidence level in its model accuracy) in the 80–90+ range are increasingly common. Those scores correlate with final appraised values within a 10% to 15% range of appraisal results from traditional reports for a wide range of properties. That’s well within tolerance for many second-lien lending scenarios and provides a high level of risk mitigation. 

In fact, AVMs are already playing a central role in servicing portfolios, securitizations, and post-close valuations. The next step is simple: Utilize them earlier in the origination workflow, especially for lower-risk home equity transactions.   

Borrowers expect digital speed, and your process should deliver

Today’s borrower expects speed, clarity, and convenience — not because of what their local lender offers, but because of what companies like Amazon, Uber and Instacart have trained them to expect. 

A home equity loan isn’t a life-altering mortgage refi. It’s often a tactical move — to upgrade a kitchen, pay tuition, or consolidate and manage high-interest debt. Today’s borrowers don’t want a long process full of paperwork and waiting. They want a “yes” or “no,” fast. 

AVMs and hybrid valuations deliver that. When deployed within defined guardrails, they accelerate turn times, reduce fallout, and enhance the borrower’s experience without compromising credit risk. The goal isn’t to replace the appraiser; it’s to apply their expertise where it adds the most value. 

It’s not about removing appraisals — it’s about using them smarter 

There will always be a place for full appraisals. Unique homes, rural properties, agency loans, and high-dollar or high-complexity loans benefit from the deeper analysis appraisers provide. But the default use of a full appraisal on every transaction, regardless of size, risk, or data availability, is increasingly outdated. 

The smarter approach is a valuation cascade: 

• Start with an AVM plus a Property Condition Report. Here you get an eye on the property and value range very quickly.  
• Escalate to a hybrid or desktop appraisal if needed. 
• Use a full appraisal only when complexity or low confidence in the value from the previous two options warrants it. 

This structured approach, known as a valuation cascade, gives lenders agility, balances risk, and delivers borrowers the seamless experience they expect, all while maintaining underwriting integrity. 

Regulation allows for more flexibility than many assume 

Here’s something many lenders overlook: Federal regulation doesn’t require a full appraisal for home equity loans under $400,000. Alternatives are allowed. Often, the “requirement” for a full appraisal is self-imposed — a legacy policy, not a legal mandate. 

That means the barrier isn’t regulatory — it’s operational. Lenders can, and should, revisit their internal policies to better align with modern tools and borrower expectations. 

Used within clear risk thresholds and accompanied by thoughtful escalation protocols, AVMs are well within regulatory guidelines and capable of supporting sound credit decisions. Regulators recognize this. The question is: Are lenders ready to streamline the consumer lending process and utilize these tools? 

The technology is ready and rapidly advancing 

AVMs aren’t standing still. Advances in artificial intelligence are accelerating their ability to interpret property photos, read listing language, analyze market dynamics, and assess conformity. Today’s advanced AVM models can flag whether a property blends into the neighborhood or stands out and adjust accordingly. 

The pace of improvement is only increasing. As these tools mature, the case for modernizing the valuation process becomes even more compelling, not just in theory, but in real-world practice. 

Modernization isn’t disruption — it’s evolution 

Modernizing your valuation strategy doesn’t mean upending everything. It means making smarter decisions about when and how to deploy the tools you already have. It’s a shift in mindset from “prove the AVM is sufficient” to “show me when we need more.” 

This won’t happen overnight, but it starts with some key decisions on the part of a lender to examine why you are defaulting to the full appraisal. Often, lenders have legacy policies created years ago under different assumptions, and these policies have remained in place without considering the advancements in valuation technologies. Challenge why those policies and assumptions are in place within your lending institution, and encourage thoughtful review of these advanced valuation capabilities.    

In home equity lending, the real edge will belong to those willing to modernize with purpose and confidently lead. Similar advancements are manifesting themselves in the secondary market lending side as well. Lenders that step into that modernization workflow will be best positioned to capitalize on the market opportunity.  

Mark Walser is the Senior Vice President of Class Union & Digital Valuations at Class Valuation.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: zeb@hwmedia.com.