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New 2024 USPAP Q&As

By on January 26, 2024   /  Leave a comment

New USPAP Q&As

January 16, 2024, the Appraisal Standards Board released new Questions and Answers covering important topics in the profession today including:

Demographics

Does demographic information relating to race (such as Census data) constitute “information relating to” a protected characteristic?

Artificial Intelligence

Question:

What is an appraiser’s USPAP obligations when using artificial intelligence (AI) in an appraisal assignment?

Personal Inspection

I recently completed an appraisal on a residential dwelling for Lender A that sells loans to Fannie Mae and Freddie Mac and the report was completed on a GSE form. Lender A decided not to grant the loan and the borrower then engaged Lender B to obtain financing. Lender B engaged me to perform a new appraisal assignment on the same property. Lender B indicated there wasno need for me to re-inspect the home, since my previous inspection date was only a few days earlier.

To read these new Q&As Click Here.

My comments: AI and demographics are “hot topics” now. I am glad the ASB is explaining them.

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NOTE: Please scroll down to read the other topics in this long blog post on forecasts for mortgage rates, a look back at the 80s a very similar mortgage market, appraising in a changing market, unusual homes, mortgage origination stats, etc.

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Appraiser Has Very Big Problems With Borrower

By on January 19, 2024   /  Leave a comment

The Sopranos – Lupertazzi’s Rough Up Appraiser

To watch, click the video above. Opens in You Tube.

Members of the Lupertazzi Crime Family rough up an appraiser who is involved with Tony’s HUD scam.

I will never forget “I’m only the appraiser!” I use the phrase sometimes ;>

It’s one of the few times appraisers are in movies or TV series!

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NOTE: Please scroll down to read the other topics in this long blog post on non-lender appraisals, and types of bias,  Scams on black homes, unusual homes, mortgage origination stats, etc.

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Appraisal Time Adjustments Underutized

By on January 12, 2024   /  Leave a comment

FHFA Report: Underutilization of Appraisal Time Adjustments

Published: 1/8/2024

Excerpts: Fannie Mae, Freddie Mac, and Federal Housing Administration appraisal guidelines require such adjustments whenever market conditions have been changing. However, this blog shows that appraisers frequently do not make time adjustments, even when they are likely to impact the appraised value substantially. This analysis also finds that the adjustments appraisers do make are typically substantially smaller than house price indexes would suggest.

The main dataset used in this blog is a 5 percent sample of single-family housing in the Uniform Appraisal Dataset (UAD) that Fannie Mae and Freddie Mac (the Enterprises) collect.5 The time period covered, the third quarter of 2018 through the fourth quarter of 2021, includes all the UAD data available to FHFA when the analysis began.

…monthly house price indexes for ZIP codes are used to walk forward the comparable sales amounts. For each comparable in the data, the price indexes are used to calculate a predicted time adjustment corresponding to the age of the comparable and local price trends.

To read more, Click Here

My comments: Check out the very good graphs. Maybe the indexes were not as reliable as actual appraisal adjustments, but overall adjustments were lower by appraisers.

When I started my business in 1986, several very experienced local appraisers said don’t make time adjustments for lender appraisals. In a significant drop in prices, in the 1990s, some appraisers who made negative adjustments lost their businesses. I always made them and never had any complaints from my lender clients. I worked for an assessor’s office in the late 1970s where we were making 2% per month time adjustments upward. Since Fannie started focusing on UAD analysis around 2015, losing business because of negative market conditions has almost stopped. They are one of the easiest adjustments to make.

My market is very volatile. The only dollar adjustments on non-lender appraisals that I make on homes are market conditions unless it has a valuable feature, such as an excellent view, that needs an adjustment.

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Online comments by a very experienced and savvy appraiser:

This (price indexing) is one thing that AVMs do quite well.

I’ve seen thousands of appraisals over the years where appraisers made no Positive or Negative Market Conditions adjustments, as though the market is always in balance and prices are always stable, even during periods of rapidly changing prices.

Ignoring market conditions adjustments makes us look incompetent to buyers, sellers, lenders, Realtors, and the general public. I purposely omitted AMCs from this group as they are order takers. It’s not good for Residential Fee Appraisers when FHFA tells the public how poorly we’re performing with regards to what most call “time adjustments”.

 

Appraisal Adjustments Yes, No, Maybe

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NOTE: Please scroll down to read the other topics in this long blog post on 2024 forecasts for mortgage rates and originations, Private Money lending,  unusual homes, mortgage origination stats, etc.

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USPAP Myths for Appraisers

By on January 5, 2024   /  Leave a comment

Five USPAP Myths Dispelled in 2024 USPAP

By Daniel A. Bradley, SRA, CDEI, McKissock Learning

On May 5, 2023, the Appraisal Standards Board (ASB) voted to adopt changes to the Uniform Standards of Professional Appraisal Practice (USPAP), which will become effective January 1, 2024. These represent the first changes to USPAP in four years. Many of the changes will not have a significant impact on the way appraisers practice but are nevertheless important for public trust.

Appraisers and the public have traditionally held several misconceptions about USPAP, and these changes should help to dispel some of those myths. There are five myths and misconceptions that are addressed in the changes to the 2024 USPAP.

  • Myth 1: USPAP Allows Discrimination as Long as the Appraiser’s Conclusions are Supported
  • Myth 2: The Removal of the Definition of Misleading from USPAP Reduces Liability for Appraisers
  • Myth 3: An Inspection of the Subject Property by a Third Party is the Equivalent of a Personal Inspection by an Appraiser
  • Myth 4: Appraisers are not Required to Analyze Prior Non-Sale Transfers of the Subject Property
  • Myth 5: The USPAP Update Course Cycle is the Same as the USPAP Publication Cycle

To read more, Click Here

My comments: It’s worth reading, especially if you do residential lender appraisals. Lender issues are a significant factor in USPAP and Myths 1 to 4. I suppose it is because most appraisals are done (now) for residential lending purposes. Many thanks to Dan Bradley for writing about the 2024 USPAP changes.

2024 USPAP For Appraisers

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Functional Obsolescence for Appraisers

By on December 29, 2023   /  Leave a comment

Understanding Functional Obsolescence in Appraisals

By: McKissock

Excerpts: For appraisers, functional obsolescence can be a challenging concept because the elements that influence property values may not be obvious or immediately apparent. To help you better understand what it means and how to pinpoint it, we’re exploring some examples the different types of functional obsolescence, and how it can influence property values.

Functional obsolescence may or may not be caused by trends in buyer or market preferences, outdated design, or even advances in technology. Let’s look at a few examples:

  1. A home has three bedrooms, but to reach the third bedroom, you have to walk through the other secondary bedroom. Buyers are likely to see this as a flaw in the floor plan regardless of trends.
  2. A home has a separate formal living room, an enclosed kitchen, and a separate dining room. Today’s buyer prefers a more open, casual layout and may find the separate rooms a flaw in the floor plan, though this may change with market trends.
  3. A home with radiator heat and window unit air conditioning may be seen as functionally obsolete, and thus less valuable, as more modern homes have forced air furnaces and central air conditioning.

Measuring functional obsolescence and its effect on a property’s value can be challenging for even experienced appraisers. To ensure accurate reports, it’s essential you stay up to date and aware of market trends, and even code and building updates, as these changes over time do determine both curable and incurable obsolescence.

To read more, Click Here

My comments: All appraisers see functional obsolescence. Making adjustments can be tough. You need to know the market reaction.

For example, there are many Victorians in my market. They were built without closets and used armoires (free standing closets). It is not considered functional obsolescence as it retains a classic feature in many Victorian homes. I always wonder about what appraisers from tract home areas think about Victorians. I assume (hope) they ask local agents. When I started appraising them, that’s what I did.

I regularly tell local agents that “tandem” rooms don’t count as bedrooms. I’m trying not to think about how many listings have an incorrect number of bedrooms!

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Superadequacy Adjustments for Appraisals

By on December 22, 2023   /  Leave a comment

How to Account for a Superadequacy

By: McKissock

Excerpts: What is superadequacy?

Per The Dictionary of Real Estate Appraisal, 6th Ed., superadequacy is defined as “an excess in the capacity or quality of a structure or structural component; determined by market standards.” It’s a type of functional obsolescence in which the structure or one of its components is overly improved to a capacity or quality than a prudent buyer or owner would build or pay.

While we provide more detailed illustrations below, a simple example would be a 5,000 square foot luxury home built in a neighborhood comprised of two and three-bedroom mid-century ranch homes.

Example #1: Superadequate custom fireplace

Example #2: Superadequate 12-car garage

To read more, Click Here

My comments: Although the blog post references luxury homes, this can occur anywhere. Have you ever driven closer and closer to your subject and noticed that the homes are much smaller or have standard designs? You keep getting closer, hoping it is not your subject. It Is! This definitely has happened to me. Large unusual additions, two large kitchens, very extensive landscaping, etc.

Maybe you were busy and forgot to check it out in public records, MLS or speaking with the owner or agent (if a sale) when scheduling the appointment.

Market Your Appraisal Services: 59 Ways to Get More Business Now

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UAD and Forms Redesign Update for Appraisers

By on December 15, 2023   /  Leave a comment

UAD and Forms Redesign Update

Excerpts: Improving the Quality and Consistency of Appraisal Data

Freddie Mac and Fannie Mae (the GSEs) have worked on the UAD redesign since 2018, leveraging extensive stakeholder input to update the appraisal dataset, align it with current mortgage industry data standards (MISMO® v3.6), and replace the GSE appraisal forms with a single data-driven, flexible, and dynamic appraisal report for any residential property type.

To watch the Excellent UAD and Forms Redesign Video (3 min. 47 seconds) Click Here

For more detailed information on web page Click Here

My comments: Watch the short video. On the links list on the right side of the webpage, GSE Experts Answer Your UAD Redesign Questions is short and understandable.

The UAD and Appraisers – Past, Present, and Future

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OK to average adjusted comps on appraisals?

By on December 8, 2023   /  Leave a comment

OK to average adjusted comps on appraisal?
To Mean, or Not to Mean, That is the Question

By Brent Bowen

Excerpts: There seems to be a consensus among appraisal reviewers that the appraiser should not average the adjusted sales prices of their comparables in order to arrive at an indicated value of the subject from the Sales Comparison Approach. Fannie Mae is referenced as the source of this prohibition, although no such prohibition explicitly exists according to Fannie Mae’s Selling Guide.

There is a prohibition on averaging techniques, but that applies in the Reconciliation section with regards to reconciling the three approaches to value. In other words, Fannie Mae does not want you averaging the indicated values from the Sales Comparison Approach, Cost Approach, and Income Approach in order to arrive at an opinion of value. The discussion of the reconciliation of the indicated value of each comparable sale contains no such prohibition.

The conventional wisdom is that the most similar comparable be given the most weight. But that begs a question… similar how? We can fairly easily observe the comparable which is the most physically similar, but what about the one that is the most transactionally similar? In other words, which comparable deviates the least from the mean?

To read more, Click Here

My comments: Excellent analysis. One of the best I have read. Basic Appraisal, but not all appraisers know about this, especially if they “appraise to fit the form” aka form fillers. Worth reading, plus the appraiser comments.

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NOTE: Please scroll down to read the other topics in this long blog post on Non-lender appraisals, dealing with lender hassles, real estate market, unusual homes, mortgage origination stats, etc.

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Appraisals: Using Comps Across a Freeway?

By on December 1, 2023   /  Leave a comment

Pulling comps from the other side of the freeway

By Ryan Lundquist

Excerpts: It can be a REALLY bad idea to pull comps from the other side of the freeway, but not always. Today I have some thoughts about location, comp selection, and lenders freaking out when schools are mentioned in appraisal reports.

I don’t normally pull comps across a highway

In so many cases it’s an awful idea to cross a major road or highway to pull comps because a highway sometimes separates markets that are far different in age, square footage, lot size, architecture, price point, school district, etc….

But, crossing the highway does work here

With that said, I want to show you an example of a local neighborhood where I have zero hesitation about pulling comps from both sides of the highway. The areas north and south of Highway 50 below represent the College-Glen area…

Why it’s no biggie to pull comps like this

A) Prices are similar: Prices are similar on each side of the highway. I’ve found this when pulling comps through the years, and I’ve also shown this when making graphs. I will say the north side tends to have a slightly larger square footage than the south side (same with west vs east), which is something to consider when we compare stats. But it’s still not a major difference.

B) Buyer Behavior …

C) School System …

To read lots more, plus maps and many appraiser comments, Click Here

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Why Comp Photos in Appraisals?

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NOTE: Please scroll down to read the other topics in this long blog post on time saving tips, Waivers, Non-lender appraisals, Tax savings, unusual homes, mortgage origination stats, etc.

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Appraisers Riding the Waves of Up and Down Mortgage Rates 

By on November 24, 2023   /  Leave a comment

The Surfing Appraiser

Riding the Waves of Up and Down Mortgage Rates 

By Mark Buhler

Excerpts: Riding the waves of the appraisal profession can result in a range of outcomes and emotions over time. Appraisers, and surfers, have varying levels of experience, and experiences. Most appraisers have been through some extremely busy seasons that have been very positive. Those same appraisers have gone through droughts, where appraisal orders dried up.

Appraisers have been blessed to have the independence and autonomy to create whatever they want for themselves. Most workers in America do not have the same opportunities for success and advancement that appraisers have. Look at this lull as a time of opportunity. A time to finally work on and execute a plan for your business.

During the refinance boom of the early 2020’s, the majority of appraisers did not have time to come up for air. The waves of work kept them down, and every time they got a chance-they grabbed the next order (or wave) and maximized the opportunity while it was there. Appraisers were busy cranking out appraisal reports. Now appraisers are not busy, but they should be. Do not get out of the water and put your surfboard away. Stay out there, splash around in the calm ocean, there are waves coming.

To read more, Click Here

My comments: Read the full article! This article uses surfing as an excellent illustration. In my 20s, I lived in my van for a few years and parked it near my surfer friends’ house in Santa Cruz, CA. They surfed every morning when the waves were good (Steamer Lane), cold or raining. When the waves were low, they stayed home or went over to see if there were any changes. I watched and listened to them talk about it and learned a lot. A very good analogy to appraising.

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