Appraisal News and Business Tips

Bracketing – lenders gone wild!!

Filling up an appraisal report with “comps” that “support” adjustments is a hassle for appraisers and often does not contribute to the accuracy and reliability of the subject’s value. Note that the “comps” are sales, but not necessarily comparable sales.

Sure, it often works fine when you are appraising a typical home in a conforming tract with few adjustments. But, what if you work where I do, where most homes were built prior to 1930 and many Victorians were modified over the years? I am hearing about appraisers being asked to use sales from 2-8 years ago for “bracketing”. What if you have an “oddball” home in a conforming tract, such as a home with a large addition or an “inlaw” space?

One of my first appraisal clients was a local lender who still has an appraisal department, is very savvy and treats their fee appraisers as professionals. They specialize in Fannie Mae loans. I recently spoke with an appraiser who does appraisals for them. She said they were asking for “bracketing”, including asking their appraisers to consider using very old sales if necessary.

Why are lenders asking for “bracketing” of adjustments? The same reason we have been hearing since 2008. They don’t want Fannie to require buybacks of the loans they sold to Fannie. They are also worried that Fannie will not buy a loan. I have noticed that lenders are often like sheep. When one does it, or says it should be done, they all do it.

Perhaps they are doing this in order to have some sort of “support” for adjustments. I guess they finally figured out that putting “adjustments done using matched paired sales” in an appraisal doesn’t mean much.

More important, state regulators want to see “support” for adjustments. I don’t know how to “support” all the adjustments in many of my appraisals. I know what buyers will pay more or less for. But, the exact dollar amount can be very difficult to determine. I don’t think it is right to conclude an incorrect value just because I cannot prove the exact dollar amount. Matched paired sales and statistical analysis doesn’t work for many adjustments. Matched paired sales can be manipulated and statistical analysis often does not work due to lack of data.

Market conditions is the easiest adjustment. Square footage and number of bedrooms, lot size, can often be supported statistically. If I spent many, many hours I might be able to “support” some of the other adjustments. But, would my appraisal be more accurate? Does my scope of work agreement with my client include spending 2 weeks or much more on a home appraisal for a loan?

Appraisers should consider what affects value. I worry about appraisers not making adjustments that are indicated by the market because “support” can be very difficult resulting in a less reliable, or inaccurate, value.

I have been thinking about not using any adjustments in my non-lender residential appraisals. Instead I could just use plus or minus signs. Why? I can’t “prove” most of the adjustments for my state regulator. I worry about losing my appraisal license. My clients don’t care about dollar adjustments.

What’s the answer? The only answer I can think of is to carefully pre-screen appraisal requests so you only accept appraisals of conforming homes in conforming tracts.

Should you do bracketing when the sales you use are not comparable? Some appraisers refuse and others do it. In my business, when requested to include information that is not relevant to the value, I always put “Included at client request. Given no weight.” Only you can decide what works best for you.

I am writing an article for the August issue of the paid Appraisal Today about making more money increasing your hourly billing rate. Working in conforming tracts is Number 2 of my primary suggestions.

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16 Comments
  1. Re : Bracketing. If you’re not bracketing ALL the improvements then you’re saying that whatever you’re not bracketing is an under or over improvement for the market area. Not bracketing is just plain lazy. Bracketing could be done, in the case of say a large 6 bay shop, with a swimming pool and hot tub, large barn etc. If you can’t bracket an item exactly, then bracketing by the cost of the improvement says that over-improvements are typical for the area. You did your job. Don’t be lazy.

    • This is incorrect appraisal practice and maybe you should think about changing careers – READ THE FANNIE FREEDIE APPRAISER’S CERTIFICATION. You should also take class regarding “under or over improvement” to understate the correct principle – it has nothing to do with “bracketing”.

  2. To Ann O’Rourke and all appraisers. Please be aware that when an appraiser signs the Fannie/Freddie 1004/70 URAR form they are CERTIFYING (Under APPRAISER’S CERTIFICATION – PAGE 5 ITEM 7) “The comparables that are locationally, physically, and functionally the most similar to the subject property were selected and used in the appraisal report.” NOT – The comparables that BRACKET THE SUBJECT FEATURES THAT are locationally, physically, and functionally the most similar to the subject property were selected and used in the appraisal report. AT A MINIMUM, APPRAISERS WHO USE BRACKETING TO SELECT COMPARABLES ARE VIOLATING “APPRAISER’S CERTIFICATION”. Appraiser’s must educate Lenders/Underwriters/whomever they may be. READ THE “APPRAISER’S CERTIFICATION” BEFORE DOING A URAR APPRAISAL.

    • If you’re not bracketing all the features of a home and the improvements then you are saying that whatever you’re not bracketing is an over-improvement or an under-improvement. Are you adjusting for that market atypical factor in the market or cost approaches? No? Then you’re not doing your job. Simple as that.

  3. I deal with a lot of AMC’s in a rural area. Before I quote a fee, I ask for the engagement letter (sometimes 20+ pages). If the AMC requires listings, smoke detector photos, everything bracketed, etc I raise my standard fee accordingly. I have charged double and triple my normal fee and they pay it. I don’t mind the ridiculous revisions when I know it is built it into the fee. My suggestion is that if your doing extra work, get paid for it.

  4. I stopped paying attention to “lender” requirements nearly 20 years ago when those requirements are unreasonable and violate USPAP. The only requirements I adhere to are those of USPAP. With regard to FNMA, I follow their guidelines when possible. They are guidelines not “rules”. Bracketing is not a requirement. If a lender or AMC tells you they “require” bracketing of anything, whether it be the unadjusted sales prices of the comps, the age, the GLA, etc., then that is the same as attempting to influence the appraiser’s value opinion. Recent example: After reviewing an appraisal by an associate, I did not agree with his value conclusion. I questioned him about it and the response was something like this: “I don’t agree with it either but this AMC requires that the value be bracketed by the unadjusted sale prices but there no comps in this condition, in this neighborhood. I considered using an older sale but could not find one within the last 2 years”. Hence, this bracketing requirement was resulting in an inflated value so that the appraiser could satisfy the AMC’s “requirements”. This is typical of many appraisers that are so hungry and reliant on AMC work they forget that the AMC is not their boss nor are they an appraiser. Don’t let the AMCs and Lenders tell you how to do your job. You don’t take a broken car to a mechanic then tell them how to fix it do you? Appraisers need to start standing up for themselves. I’ve been doing that for nearly 30 years and I have more work than I can handle. I don’t accept work for unreasonable fees just to stay busy. That hurts everyone.

  5. I’ve said it before and I’ll say it again: “The only people that have NO say so in the appraisal process for lenders are the appraisers!” Unqualified or inexperienced underwriters and processors, reviewers and AMC staffers have more say so and leverage. FNMA has a rigid bureaucratic mind set geared to placating their benefactors, i.e. lenders, banks and Wall Street. Fannie keeps coming up with nonsensical tripe detached from appraising but which is oriented and skewed to keeping their butts out of congressional ire or committee appearance lines of fire. Examples are their magical datasets like UDP, STD, DOD, DOJ, STP and good stuff like that. It’s called pigeon holes, one size fits all, do not swerve and no passing under penalty of double fines or death, whichever is more lasting and painful.

    These are the reasons appraisers continue to be subjected to inane bracketing requests, adjustment support, redundant follow-ups to what is already in the reports but not read or understood by unqualified staffers @ AMC’s, lenders or banks. This is why appraisers continue to be asked to delve, comment on and verify or certify items or issues appraisers have no business being involved in, let alone qualified to render opinions or judgments on. ANYONE who knows ANYTHING about statistics knows this is a fool’s paradise, a quagmire of slop that invites delusions of non-existent support given its’ inherent weaknesses, i.e. reliability/accuracy of data, the source of the data, the manipulation of the data, the relevance of the data and the interpretation of the data. In short, relying on non-meaningful additional comparable information or statistics is a nice exercise guaranteed to expend time, effort and require additional addenda. Doesn’t do a damn thing for the reliability of the fundamental issue: Accuracy of the Value, but damn as long as it ‘satisfies’ FNMA or the investor who cares? It also shows them nasty regulator types the lender/AMC is on the job being diligent and tenacious and making sure them ne’er do well appraisers do their job proper.

    Start saying NO to this browbeating. Push back. And start getting back some control of the appraisal gig. Otherwise, the appraisal gig will in fact continue to its’ relentless push and march into oblivion. And oh yes: ASK FOR FAIR FEES, DAMMIT !!!

  6. Wonder if it will ever come a time again when appraisers get to appraise? I’m close to retirement, I feel for the rest of you.

  7. I always fall back on AO-19 when the client asks for something rediculous in the scope of work.

  8. Doesn’t it occur to anybody that FNMA (a bankrupt quasi-govt institution) could restore a modicum of sanity to the appraisal profession with one carefully worded letter to its lender clients emphasizing common sense and traditional appraisal theory?

  9. OK, so we are to bracket by using two groups of comparables: inferior and superior. If we are looking for similar comparable property (as mandated by the gov. seller guides) doesn’t the practice contradict the purpose?

  10. Folks!

    Please note, this bracketing and other requirements that fit the “cookie cutter” markets that Ann calls conforming is coming down from Fannie Mae through the lenders and on to the appraisers and ultimately to the regulators. I became aware of early in this career since I work in a highly “non-conforming” market. Indeed, there are seldom what most appraisers would consider comparables that have sold in the preceding five or six years. Now if you want to see an AMC go nuts give ’em a six year old sale.

    You should be aware that there is an effort to cut appraisers completely out of appraising houses by making requirements that have little to do with value and everything to do with uniformity and computerized review. I have noticed many efforts, Zillow being the latest, to produce valuation products and them claim that they are superior or at least equal to what an appraisers can do. But, put Zillow in a non-conforming market the results are laughable. What Fannie et al’s plan is for residential mortgages in on-conforming markets is as yet obscure.

    I think Ann is correct from an appraiser point of view, if you continue to do secondary mortgage market work, the only thing that makes sense is to limit your work to conforming markets with lots of recent sales to analyze. Otherwise you are extremely vulnerable.

    Maybe it is darkest before the dawn, but I have a feeling we haven’t seen anything yet.

    And quality and condition are not absolute. Both are judgment calls and are subjective. Ask any two brokers with different objectives. Considering either absolute is yet another Fannieism that not only doesn’t make sense, but is flat wrong. But, nobody can effective deal with an 800 pound gorilla that makes its own rules and you can’t fix stupid.

    Thanks Ann.

  11. “I have been thinking about not using any adjustments in my non-lender residential appraisals. Instead I could just use plus or minus signs. Why? I can’t “prove” most of the adjustments for my state regulator. I worry about losing my appraisal license. My clients don’t care about dollar adjustments.”

    Indeed, there was a popular multi-use form available back in the 70’s and early 80’s that employed just such a process among the “three approaches”. In the market approach, the appraiser would put a check mark under “superior”, “equal”, or “inferior,” as appropriate, but would also have to explain these differences in a short narrative, and then reconcile approaches as we do anyway.

    Part of why this or similar forms may have fallen out of favor is that lender demand for appraisal services soared from that time, with newer people in the residential appraisal business not knowing anything more than the federally-related forms. The appraisal associations, too, and for most of their histories, have insisted upon supported or supportable dollar adjustments.

    While using dollar adjustments might be good practice, it is not required in all places at all times. And, as you point out, such is not too often practical outside of “cookie cutter” assignments.

  12. there is one management company i am considering dropping because lately they want every adjustment bracketed and supported in the appraisal so much that i have to add 2-3 non relevant comparables. It is the management co asking for these comparables before the appraisal goes out to the lender i believe and i find it not worth the frustration in putting a sale in the report that is definitely not a comp!

    • I’m about to drop several AMC’s that don’t have a clue in regard to appraisal reviewing and lately they are making more and more ridiculous revision request. I don’t want to name them specifically but one is linked to the streets somewhat and the other isn’t very clear on capitalizing things. I have been appraising for 24 years and have been on most AMC panels since they came into existence but they seem to be getting worse instead of better.

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