25 Common Errors in Appraisal Reports
Excerpts: As a real estate appraiser, much of your success relies on your reputation as a competent professional. Unfortunately, certain appraisal violations are quite common—including errors in appraisal reports. Make sure you’re aware of these mistakes so that you can avoid them. Here’s a compilation of the most common errors and deficiencies found in appraisal reports by reviewers, regulators, and appraisal boards.
- Not stating the report option utilized.
- Not providing enough analysis for the intended user or reader to understand the report properly.
- Inconsistencies between the description of the subject property in the improvements section and the photographs, sketch, sales comparison grid, and other areas in the report.
- Inappropriate use of boilerplate commentary in the appraisal report to describe the neighborhood or to explain the reconciliation of the sales comparison approach.
- Failure to summarize the support and rationale that supports the highest and best use opinion.
- Not complying with the most current USPAP.
- Failure to explain the exclusion of the cost and or income approaches.
My comments: This was originally published by McKissock in 2019 and updated in 2020. We can always use these reminders. We know them, but sometimes forget to do them, update templates, boilerplate, etc.
Fannie December Newsletter – bias, trainees, deferred maintenance on condos/co-ops
Excerpt: In this edition, we tackle some tough topics that have been in the news lately.
First, we look at the results of our recent survey of appraisers about bias and share suggestions from survey respondents on how to increase your credibility.
Our profession is experiencing its own version of supply chain issues, so we review when a trainee can, and must, sign the appraisal report. We also share some analysis of the quality of work done by trainees.
Finally, we touch on recent changes to our requirements for addressing significant deferred maintenance, unsafe conditions, special assessments, and reserve requirements when appraising condos and co-ops.
My comment: The full newsletter is short and worth reading. Six pages. Topics include trainee stats and signing on the left—finally, some information on condo problems. Many states have minimal requirements on them. Appraisers have to ask. I have always reviewed reserves, special assessments, condo newsletters, and looked for problems. Hopefully, this will clarify the appraiser’s role for lenders.
Fannie New notice 12-14-21: Requiring ANSI on 4/1/22 – Using sales outside condos and co-ops projects
Excerpt from email notice: You’re hearing from us for the second time this week because there’s lots of news! Today Fannie Mae updated the Selling Guide with a couple of things appraisers need to know about.
First, appraisers will be required to use the Square Footage-Method for Calculating: ANSI® Z765-2021 (American National Standards Institute®) Measuring Standard for measuring, calculating, and reporting gross living area (GLA) and non-GLA areas of subject properties for appraisals requiring interior and exterior inspections with effective dates of April 1, 2022 or later for loans sold to Fannie Mae.
For more information, click here to watch the video
click here to read the PDF fact sheet.
Second, we’ve updated our requirements on comparable sales for properties in newly built or recently converted condominium projects, subdivisions, or PUDs that have two to twenty units. If there are no settled or pending sales available, the appraiser is now permitted to provide three comparable sales from outside the subject’s project or subdivision, provided the comparable sales are also from a similar type project, subdivision, or PUD.
See the Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDs in Selling Guide B4-1.3-08, Comparable Sales for all the details. Click Here to read.
My comment on ANSI – ANSI does not work well in my city and other nearby cities with many homes built before 1930! I have never used it. Glad I don’t do any lender appraisals or reviews!
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Cube House Rotterdam, Netherlands
These slanted cubic abodes are a creative if odd solution to a zoning pickle.
Excerpts: In the 1970s, the city planners of Rotterdam in the Netherlands had a problem. Small pieces of land on both the northwest and southeast sides of Blaak Street were zoned as residential, but they had to be somehow connected. Thinking on its feet, the city consulted architect Piet Blom to devise a way to build a housing complex overtop a busy road.
Blom’s answer was the Cube House. With 38 regular units and two “super-cubes”, each slanted cubic residence is held up by a hexagonal pillar, some of which are located atop a pedestrian bridge spanning the four-lane Blaak Street. While it solved the urban planning problem, it created some highly odd residences in the process.
Living in the cube house is quite awkward to say the least. Although each cube house contains about 1,080 square feet of floor space, only a quarter of this, approximately 270 square feet, is usable due to the sharp angles of the architecture. Even worse, this 270-square-foot area is spread out across four floors. After entering on the ground level, residents must take a narrow staircase to reach the first floor, a tiny, triangle-shaped room which features a living room and kitchen.
To read more and see interesting photos, click here
FHFA: Reducing Valuation Bias by Addressing Appraiser and Property Valuation Commentary – 12/14/2021
Excerpt: Ongoing failure to address appraiser consideration of prohibited factors like race, as indicated by prohibited basis commentary within the free-text form fields of appraisals, may result in valuation bias.
Market participants must ensure that appraisals and other property valuations are compliant with fair lending principles, including in free-form text commentary. Appraisals are to be fair and free of bias, providing a supported value for a family’s future or current home that reflects respect and equal treatment of the community and neighborhood in which the home is located.
Examples of racial and ethnic references we found in appraisals include:
– A town was described as having a “Black race population above state average.”
– Noting that “Koreatown is considered ‘highly diverse’ ethnically,” listing the percentages of residents from various races and nationalities and describing that the number of foreign-born persons was “considered high compared to the city as a whole.”
– The ethnic groups that have immigrated to a neighborhood over the course of many years and noted it was “one spicy neighborhood.”
– A reference to a neighborhood being originally “White-Only,” before becoming a “White-Flight Red-Zone” to explain why the neighborhood is mostly “Working-Class Black” now.
– A neighborhood described as “predominately Hispanic” and that the residents have “assimilated their culture heritage” into the neighborhood.
– A neighborhood populated by African Americans characterized as leaving an “overcrowded” area for “greater housing opportunity” in the neighborhood.
– Noting that “there is more Asian influence of late” buying the market.
– Noting the area’s first Asian mayor.- Noting an area’s “decline in population, which transitioned from being predominately Eastern European to having a substantial amount of Black and Hispanic people.”
My comments: What is very interesting is that these are examples from appraisal reports that have racial and ethnic references. The report is short and easy to read with good examples. I would have really liked including samples of correct comments. A webinar or class on this topic would be good.
Market Value: Who Says What It Is?
By Steven W. Vehmeier
Excerpt: Many years ago, an appraiser friend (Ben was his name) asked me to go along on a challenging appraisal assignment to aid in data collection. On the way he needed to drop off an appraisal report to a lender client.
He handed the report to his client who quickly turned to the bottom of page two, and said: “Wow Ben, I was sure this one would have come in at least $20,000 higher.” Without the slightest hesitation, Ben pulled his chair a little closer to the client’s desk and said: “Me too…I thought it would be higher, but that’s what the market said!” He went on to explain how the market had said that, placing all the blame on that darned old market.
I can’t begin to count the number of times I’ve used Ben’s successful technique.
A sales contract price on a subject property is just an agreed upon amount for the pending transaction between that buyer and that seller. It may or may not have anything to do with that property’s market value.
My comments: Worth reading. Good reminders of what we should be doing, plus some good examples. Short and understandable from a practicing appraiser.
Mortgage applications decreased 4.0 percent from one week earlier
WASHINGTON, D.C. (December 15, 2021) – Mortgage applications decreased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 10, 2021.
The Market Composite Index, a measure of mortgage loan application volume, decreased 4.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 6 percent from the previous week and was 41 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 9 percent lower than the same week one year ago.
“Applications to refinance fell over the week, despite the 30-year fixed rate remaining at 3.30 percent. With rates more than 40 basis points higher than last year, applications were down 41 percent on an annual basis. Fewer homeowners have a strong incentive to refinance at current rates,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase activity increased slightly, as a 1.7 percent rise in conventional applications offset a 1.6 percent decline in applications for government loans. The strength in conventional purchase activity continues to support higher loan balances, which moved back over $400,000. Housing demand remains strong as the year comes to an end amidst tight inventory and steep home-price growth.”
The refinance share of mortgage activity decreased to 63.3 percent of total applications from 63.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.4 percent of total applications.
The FHA share of total applications decreased to 9.6 percent from 9.9 percent the week prior. The VA share of total applications decreased to 10.6 percent from 10.7 percent the week prior. The USDA share of total applications remained unchanged from 0.5 percent the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.30 percent, with points remaining unchanged at 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate remained unchanged from last week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.32 percent from 3.33 percent, with points remaining unchanged at 0.30 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.37 percent from 3.35 percent, with points increasing to 0.34 from 0.32 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.58 percent from 2.62 percent, with points increasing to 0.34 from 0.31 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for 5/1 ARMs decreased to 2.75 percent from 2.98 percent, with points increasing to 0.28 from 0.21 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
Please Note: MBA’s office will be closed Friday, December 24, 2021, and will reopen on Monday, January 3, 2022. Due to the holiday, the results for the weeks ending December 24, 2021, and December 31, 2021, will be released on January 5, 2022.
The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100.
Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501