Electronic Data Interchange and Electronic Commerce: The Future of Appraising.
Thanks to such vehicles as intranets and the Internet, electronic data transfer has been adopted by a growing number of industries, including manufacturing, health care, insurance, and retail establishments. Such information previously required a paper trail. The primary reason these industries have embraced this technology is due to the large volume of business-to-business transactions (e.g., purchase orders). The elimination of paperwork dramatically reduces the cost of a transaction by as much as 20 times.(1) The savings guaranteed through the electronic transmission of information are so substantial that many organizations are charging significant penalties for paper-based transactions.
Electronic data interchange See EDI.
(application, communications) electronic data interchange - (EDI) The exchange of standardised document forms between computer systems for business use. EDI is part of electronic commerce. (EDI (Electronic Data Interchange) The electronic communication of business transactions, such as orders, confirmations and invoices, between organizations. Third parties provide EDI services that enable organizations with different equipment to connect. ) is the standardization of automating computer-to-computer transactions involving common business transactions. Electronic commerce (e-commerce) is the broader umbrella that encompasses EDI, electronic imaging, email, and other electronic technologies that allow businesses to operate more efficiently by reducing costs and improving service.
The traditional processes of requesting an appraisal and the receipt of the report have been largely paper based and dependent on phone calls, faxes, and courier deliveries. Usually lenders, upon receiving a request for a loan, load the required information into an information system and generate a document requesting an appraisal. Copies of this request are often forwarded to numerous departments, sometimes requiring additional signatures, before being sent to the appraiser A person selected or appointed by a competent authority or an interested party to evaluate the financial worth of property.
Appraisers are frequently appointed in probate and condemnation proceedings and are also used by banks and real estate concerns to determine the market via fax or courier service. Once the request has been forwarded to the appraiser's office, it may be forwarded to many departments before ever reaching the assigned appraiser. Further, upon reaching the appraiser, the request may be re-entered into another information system, with more copies generated.
Once the appraiser completes the request and is ready to return the appraisal report, the paper-laden process begins in reverse. Estimates show that a financial institution spends $20-$35 to process the appraisal manually. These estimates take into consideration the receipt of the appraisal request, processing the request, forwarding the request to the appraiser, receipt of the appraisal report, and report processing (based on hard costs such as average employee salaries, phone, fax, courier service charges, and supplies). These estimates do not take into consideration any indirect costs Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. See also
Technology is assuming an ever-increasing role in every business environment. One form of this technological movement is electronic communication that assumes a paramount position in many companies' daily business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets . Every business organization requires on a routine basis the exchange of information across functional departments as well as with other organizations. The federal government's commitment to e-commerce will affect more than 300,000 business relationships in which the U.S. government is involved.(2) More directly related to the real estate industry is the Department of Housing and Urban Development's (HUD Hud (hd), a pre-Qur'anic prophet of Islam. Hud unsuccessfully exhorted his South Arabian people, the Ad, to worship the One God. ) recent requirement that all claim forms for single-family applications for insurance benefits must be sent using EDI. Lenders have found that HUD's EDI program offers such benefits as faster payment and turnaround times (1) In batch processing, the time it takes to receive finished reports after submission of documents or files for processing. In an online environment, turnaround time is the same as response time. on suspended payments, fewer "lost" mail problems, and better data quality. Further, HUD fines lenders $100 to process paper claims.(3) The Federal Home Loan Mortgage Corporation Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, privately owned, government-sponsored organization that uses private capital to buy home mortgages as a means to help lower housing costs. (FHLMC See Federal Home Loan Mortgage Corporation. ) as well as the Government National Mortgage Association currently require that customers send investor reporting in EDI formats. Electronic communication forces the collapse of barriers both within and across organizations as companies come to the realization that electronic data interchange is a competitive necessity.
ELECTRONIC DATA INTERCHANGE
Electronic data interchange is the computer-to-computer electronic exchange of business documents in a standardized format. This standard has been established and delineated de·lin·e·ate
tr.v. de·lin·e·at·ed, de·lin·e·at·ing, de·lin·e·ates
1. To draw or trace the outline of; sketch out.
2. To represent pictorially; depict.
3. by the Accredited accredited
recognition by an appropriate authority that the performance of a particular institution has satisfied a prestated set of criteria.
cattle herds which have achieved a low level of reactors to, e.g. Standards Committee (ASC ASC Ambulatory surgery center, see there ) of the American National Standards Institute See ANSI.
(body, standard) American National Standards Institute - (ANSI) The private, non-profit organisation (501(c)3) responsible for approving US standards in many areas, including computers and communications. ANSI is a member of ISO. (ANSI (American National Standards Institute, New York, www.ansi.org) A membership organization founded in 1918 that coordinates the development of U.S. voluntary national standards in both the private and public sectors. It is the U.S. member body to ISO and IEC. ). There are 12 subcommittees for EDI standards covering a vast range of business documents, one of which is the finance subcommittee dedicated to the standards of the finance industry, including the real estate appraisal Real estate appraisal
An estimate of the value of property using various methods. industry. The concept of EDI transactions is based on computerizing common business transactions such as purchase orders, invoices, or real estate appraisals. The typical EDI transaction will involve two trading partners, two translation functions, and a telecommunication connection. Electronic data interchange has recently gained enormous attention and wide acceptance across a variety of industries providing such benefits as:
1. Paperless transactions
2. Faster transmissions
3. Data storage and retrieval (information sharing See data conferencing. ) within and across enterprises and
4. Centralized cen·tral·ize
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es
1. To draw into or toward a center; consolidate.
2. monitoring and maintenance of transactions
As with a traditional mail transaction, an EDI/electronic transaction includes an outer "envelope" containing the identification and address of the sender and receiver. Within the electronic envelope An electronic envelope or e-envelope is almost like a postal envelope in function.
A letter or a document is put into a postal envelope, addressed and mailed through the postal system. is a series of segments and standard codes which defines the data being transferred. Businesses that use and exchange documents via EDI are known as trading partners. In the appraisal industry this would most likely be the appraiser and the financial institution or private client. Appraisers and lenders will have to choose software that will convert data from existing software and systems to an EDI format. This translation software will vary in price according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. functionality. Further, an infrastructure for communication between trading partners must be established that might entail trading partners exchanging diskettes or data via a modem, value-added network A communications network that provides services beyond normal transmission, such as automatic error detection and correction, protocol conversion and message storing and forwarding. Telenet and Tymnet are examples of value-added networks. (VAN), or the Internet. The Internet provides the lowest-cost solution as estimates now indicate savings of up to 90% over traditional VANs.
This concept of e-commerce applied to the appraisal industry allows for the electronic transmission of documents, including the appraisal report, as well as a digitized picture of the property and a secured signature of the sender. Data transmitted in an EDI format is referred to as a transaction set (TS). Each TS has been identified by ASC X12 committees usually by a three-digit number. A TS used in the request of an appraisal report is known as a TS261 and the actual appraisal report is known as a TS262. Transaction sets are composed of data elements that make up an EDI document. An example of a data element in an appraisal request might be the zip code zip code
System of postal-zone codes (zip stands for “zone improvement plan”) introduced in the U.S. in 1963 to improve mail delivery and exploit electronic reading and sorting capabilities. of the subject property. ([ILLUSTRATION FOR FIGURE 1 OMITTED] for additional EDI transaction sets used in the financial and real estate industries.)
Although e-commerce and EDI have not been officially addressed by the Uniform Standards of Professional Appraisal Practice Uniform Standards of Professional Appraisal Practice can be thought of as the quality control standards applicable for appraisal analysis and reports in the United States and its territories. (USPAP USPAP Uniform Standards of Professional Appraisal Practice ),(4) issues such as the electronic transmission of reports, electronic signatures, and security have been addressed along with the storage of data in Statement on Appraisal Standards No. 8 (SMT-8).(5) USPAP has acknowledged the electronic transmission of appraisal reports and simply states that such reports must meet USPAP reporting requirements. Statement No. 8 further delineates that an electronic signature to an appraisal report carries the same level of authenticity and responsibility as an ink signature on a paper copy report and that data/record storage of reports is permitted on electronic, magnetic, or other media.
BENEFITS OF EDI AND ELECTRONIC COMMERCE
Electronic data interchange format standards allow for data to be transferred, stored, and used from a database rather than formatted as an image file. There are a number of benefits to EDI as opposed to image-based data. First, image files do not allow data to be stored in a database format and require the needed data to be retyped. In addition, image files require substantially more memory and transmittal times. Finally, image-based data cannot be easily searched, sorted, or analyzed. The electronic transmission of appraisal requests and reports also provides a record of the receipt of the order by the assigned appraiser. Further, electronic communication allows appraisers, management companies, and financial institutions to communicate better with one another without the hassles of missing or returning phone calls, messages not received, or jammed fax machines.
FIGURE 1 EDI Transaction Sets for the Finance/Real Estate Industry 197 Real estate title evidence 198 Loan verification evidence 199 Real estate settlement information Mortgage credit report 201 Residential loan application 202 Secondary mortgage market loan delivery 203 Secondary mortgage market investor report 205 Mortgage note 206 Real estate inspection 208 Income property appraisal report (in development) 209 Condominium appraisal report (in development) 245 Real estate tax service (in development) 246 Real estate listing information (in development) 260 Application for mortgage insurance benefits 261 Real estate information request 262 Real estate information report 263 Residential mortgage insurance application response 264 Mortgage loan default status 265 Real estate title insurance service order 269 Mortgage or property record change notice 775 Broker price opinion (in development) 833 Mortgage credit report order 872 Residential mortgage insurance application
EDI formats allow the completed appraisal report to be stored as data and electronically sent back to the client. After this data has been inputted, numerous statistical and other analyses can be performed on the data, providing both the client and the appraiser with invaluable information, such as compliance or noncompliance noncompliance
failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment.
noncompliance with the rules and regulations of the financial institution, as well as regulatory agency regulatory agency
Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. compliance imposed by the secondary mortgage market.
Although appraisers have not been among the quickest to adopt technology, there is certainly a trend toward the use of e-commerce and EDI. A recent survey of residential appraisers indicates that 85% of appraisers have an Internet account. In fact, an Internet search for "appraiser" yields some pretty impressive and sophisticated homepages. Appraisers' homepages serve a variety of purposes, including providing information, advertising, as well as a forum for placing an appraisal order. Many appraisers use e-mail as a means of communicating with their clients.
Several software companies such as United Systems, Day One, h la mode, ACI ACI American Concrete Institute
ACI Arch Coal Inc
ACI Airports Council International (formerly Airport Associations Coordinating Council)
ACI Automobile Club d'Italia
ACI American Competitiveness Initiative and FNC FNC - Federal Networking Council now offer the capability to order appraisals as well as receive appraisal reports electronically. Although capabilities will differ from software to software, most packages will allow financial institutions to place orders using the TS261. However, due to the variety of forms processing software used by appraisers, none of the current EDI software packages actually transmit the appraisal report (TS262) via EDI. Although many do allow for the electronic transmission of the report, sketches, and signatures, they are typically using a transmission other than, for example, an SMTP (Simple Mail Transfer Protocol) The standard e-mail protocol on the Internet and part of the TCP/IP protocol suite, as defined by IETF RFC 2821. SMTP defines the message format and the message transfer agent (MTA), which stores and forwards the mail. (email). This method of transmission does not allow for database storage or data analysis.
As participants in an EDI program, appraisers, appraisal firms, management companies, and lenders will enjoy a number of benefits:
* Faster delivery of appraisal requests
* Increased savings through reduced fax, phone, and courier charges
* Increased data integrity through reduced data entry
* Reduced storage costs
* Increased accuracy in tracking appraisal return times
* Easy access to data providing for quick analyses of data
Electronic transmission of the appraisal request and delivery process will eliminate the need for faxes, overnight mail, or other more expensive options for data transmittal. The paperless transmittal of appraisals will allow those in the mortgage lending business a means by which to reduce costs while improving overall speed, efficiency, and monitoring capabilities. Estimates show that up to 70% of all data input into a computer had been previously entered. Estimates further indicate that costs of an EDI can be as little as 1/10 of its paper equivalent. An EDI can shorten the time between the appraisal order and the receipt of the appraisal as well as the lag time between the delivery of the appraisal report and the receipt of payment.
Electronic date interchange and e-commerce as a whole provide the appraiser with the means for becoming more competitive, taking advantage of new markets, and refining and redesigning business processes through better communication, increased efficiency and service, and a reduction in costs. Strategic areas like customer service and marketing competitiveness may very well be the greatest value of EDI and e-commerce. In addition, the collection and storage of EDI-transmitted data into a database provides a valuable source of data that can be used for marketing research, forecasts, and a variety of other analyses.
Since the only constant in technology is change, appraisers need to be ready. Some have taken a reactive position to EDI and will not implement the new technology until they are forced to do so. For those, the best advice is to recall the words of Charles Darwin: "It is not the strongest species that survive, nor the most intelligent, but the one most responsive to change."
1. Electronic Commerce Systems, Inc. "The Most Commonly Asked Questions About Internet EDI," 1996. http://ecweb.com.
3. U.S. Department of Housing and Urban Development, Mortgage Letter 97-25, May 29, 1997.
4. The Appraisal Foundation, Uniform Standards of professional Appraisal Practice (Washington, D.C.: The Appraisal Foundation, 1999).
5. USPAP, Standards Statement No. 8.
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-----. "Submission of Single-Family Claims Via Electronic Data Interchange (EDI)." Department of Housing and Urban Development. Directive: 97-25, Washington, D.C., May 29, 1997.
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Of, relating to, or written in dialogue.
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Bennie D. Waller, PhD, is at Francis Marion University Francis Marion University (formerly Francis Marion College) is located seven miles east of Florence, South Carolina, USA. It is a liberal arts university named in honor of American Revolutionary War hero Brigadier General Francis Marion. , Florence, South Carolina This article is about a city in the US state of South Carolina. For the city in Italy, see Florence. For other uses, see Florence (disambiguation).
Florence is the county seat of and largest city in Florence CountyGR6 South Carolina, United States. . He received his PhD in finance from the University of Mississippi The University of Mississippi, also known as Ole Miss, is a public, coeducational research university located in Oxford, Mississippi. Founded in 1848, the school is composed of the main campus in Oxford and three branch campuses located in Booneville, Tupelo, and Southaven. . Dr. Waller's research interests include alternative valuation methods and electronic commerce. Contact: (601) 234-5211. email@example.com.