Appraisal News and Business Tips

Appraisal adjustments "The Dirty Little Secret"

A Few CU Factoids
– Not all loans go to Fannie – VA, FHA, jumbo, etc.
– Fannie guidelines, including CU, are the minimum. Lenders can add their own, even keeping 15-25% adjustments.
– Lenders are not required to use CU.
– CU sends out appraisal warning messages for adjustments on: GLA, lot size, view, condition, quality, and location. For now.
– Gradual implementation of CU’s web based interface, which has the infamous “20 comps”, mapping, etc. Not available to AMCs.
A few CU comments and opinions from me:
I need a Book of Adjustments!!! Maybe a few of Fannie’s will “leak” – wiki leaks ;>
– AMCs are now asking for adjustment support from non-CU adjustments. More Scope Creep??
– Mass confusion on what gets sent from underwriter to AMC to appraiser – warnings, Risk Scores, etc.
– The recent Fannie Letter to Lenders about CU said that the intent is not to overwhelm appraisers with warning messages. But, are underwriters going to read (and understand) 30+ page appraisals? I’m glad I’m not an underwriter!!
– How to respond to warning messages – not clear.
– Requests from AMCs include CU and non-CU requests. Sometimes hard to tell where they are from.
Adjustments – the “Dirty Little Secret” of Fannie Form Appraisal Reports
I can’t think of any time a client asked me for my support on an adjustment prior to CU. They have been accepting the usual responses, which are in many boilerplates: Based on my many years… or matched paired sales… etc.

A critical issue to me is that the dollar adjustments seem to indicate that residential appraisal values are precise and very accurate, which is not correct. There are lots of factors affecting home sales as compared with income property such as apartments and commercial property.

I have asked many very experienced appraisers how they “support” adjustments. Most use “rules of thumb”, such as using a percent of price per sq.ft. for GLA. But, this number includes land. Or, they use adjustments they were given when they were new appraisers. Of course, if you only appraise conforming homes in conforming tracts built in the past 10 years, it is much, much easier.
For now, CU only sends out warning messages for these adjustments: GLA, lot size, view, condition, quality, and location. This is a very small percent of all the UAD coded data. Plus, some data is not UAD coded, such as pools. But, many state regulators expect to see support for all adjustments in your work files.
We all need a Book of Adjustments ;>
Of course, all of us have adjustments that we have accumulated over the years, or recently developed. But, with CU we are being compared to peer and model adjustments. Of course, no one tells us who or what they are. Sometimes appraisers are given this information.
Regression to support adjustments
Regression will not work for all adjustments. It works well in conforming tracts less than 10 years old. After that, it goes downhill. This has been shown many times for AVMs. I really wish I could just buy regression software and have it calculate them all for me!!
Using qualitative adjustments
I did my first SFR appraisals this week without not making any dollar adjustments when I use form reports for non-lending work. I did make time adjustments (which are very easy to support) as the effective date was June, 2014, when prices were increasing rapidly in my market.
I used plus and minus signs in the grid. I use the 2005 Fannie forms but do not use the Fannie certification or limiting conditions. I use my own.
For awhile in the late 80s or early 90s Fannie had a form with pluses and minuses, so I had some experience. Also I don’t use dollar adjustments in my 5+ unit apartments or commercial appraisals.

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4 Comments
  1. Right on about “accuracy.” It is an adjective that in no way was ever used or intended to be used to describe opinions and yet here we are allowing it to enter our appraisal lexicon to measure the quality of our opinions.

    Fight it and reject it. Get rid of it. It is a Zillow word and it means absolutely nothing. It is nothing more than peddling snake oil when used by those of us who profess expert opinion.

  2. I’ve been doing residential appraisals for years. About a year ago, I started cherry picking the properties I accepted the orders for. If it is an out of the ordinary propertu, I turn down the order. I cannot fit the square peg into the round hole and that is what every lender seems to require. With CU, Unless I can absoiutely provide the support for an adjustment with a regression analysis, I’ve stopped making the small adjustments. I include a detailed list of each comp and what “special” extra they have; I disclose why I am not making the line item adjustment; AND I add that I am giving consideration to these features in the Sales approach reconciliation.

  3. You’re right about regression working well for tracts and for homes being under 10 years old. Actually for those – who needs an appraiser? An AVM will probably do just fine. For my market that’s rather small and varied with homes from 200K to over 2 mil. in value even paired sales is near impossible. I don’t think CU works for my market. Who knows what kind of requests Fannie and AMCs are going to want. I’m afraid this is going to be a mess but I’ll just have to wait and see. And as for Fannie not wanting to “overwhelm appraisers” – they must be joking.

  4. I don’t due residential work for banks but wonder if Fannie allows qualitative adjustments in their forms. I’ve been doing only qualitative adjustment for commercial appraisal for some years now and in many occasions makes much more sense.

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