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Unacceptable Appraisal Practices from Freddie Mac

12 Unacceptable Appraisal Practices from Freddie Mac

10-5-22

 

 

Here are 5:

  • Reliance in any appraisal analysis on inappropriate comparable sales, or the failure to use comparable sales that are more similar to or nearer to the subject property without adequate explanation
  • Use of unsupported or subjective terms to assess or rate, such as, but not limited to, “high,” “low,” “good,” “bad,” “fair,” “poor,” “strong,” “weak,” “rapid,” “slow,” “fast” or “average” without providing a foundation for analysis and contextual information
  • Use of comparable sales data provided by interested parties to the transaction without verification by a disinterested party
  • The use of inordinate adjustments for differences between the subject property and the comparable sales that do not reflect the market’s reaction to such differences, or the failure to make proper adjustments when they are clearly necessary
  • Development of value and/or marketability conclusions that are not supported by available market data

To read more, click here

My comments: From Freddie Mac’s Selling Guide with links to more information. Nothing new, but good reminders.

Review appraiser liability

Appraisal Business Tips 

Humor for Appraisers

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Posted in: appraisal how to, Freddie, non-lender appraisals, real estate market

Practical Tips for Working With AMCs

Appraisers Share Their Best Tips for Working with AMCs

By McKissock

Excerpts: In a nutshell, our survey respondents recommended that you should:

1) do your research and get to know the AMCs,

2) build a relationship with them,

3) treat the relationship as a partnership, and

4) prioritize communication.

Build a relationship

“Be personable so they remember you.”

“Make yourself known by being efficient as well as timely with your reports. Be friendly—even when you feel like the UW’s question may be redundant or was already answered in the report. I promise you that this will make you known in your area.”

“Have a very responsive credo. Keep them up to date in every step of the report so that they can keep the Lender (and the Buyer/Seller/Realtor/Closing Attorneys when applicable) all in the loop on the progress of the report. Remember when they look good and trust you—you look good

Communicate, communicate, communicate!

“Update the orders quickly.”

“Keep them informed.”

“Over communicate!”

“Always communicate—even if it feels like too much. Our office updates AMCs on every scheduling attempt with details, every inspection appointment set and completion, and any materials needed ASAP in the assignment. They really appreciate it, and it ensures you can complete assignments on time as you had planned (no one likes waiting for a legal description only to have it show up on your day of 4 inspections!). It’s truly a win-win.”

“Stay in communication. Appraisers tend to get annoyed with constant emails from the AMC about inspection date, completion, report submission, etc. I make it a point to update them and answer their emails ASAP. In my opinion, that’s good business. And if you do need more time, more info, they are more willing to oblige.”

To read more, click here

My comments: Read this blog post with practical tips from practicing appraisers. It can help you get more business from AMCs (and other lender clients). Savvy appraisers I know who mostly do non-lender work also have a limited number of carefully vetted AMCs they work for, plus a few local lenders and “private” lenders.

Advertising Disclaimer: McKissock is one of my regular email advertisers. I keep my advertising clients and this newsletter’s content separate. But, McKissock’s blog posts are short, well written, and popular with readers, so I include them regularly.

LIA runs an informational ad at the top of each email newsletter. The ads regularly get the largest number of “hits,” indicating that readers like them. We all like free Liability advice!

Practical real estate appraisal writing tips for AMC questions

Reconsideration of value and Appraisers

Appraisal Business Tips 

Humor for Appraisers

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Posted in: adjustments, AMCs, liability, non-lender appraisals, ROVs

VA Update for Appraisers

VA Update for Appraisers

Interview with VA’s Chief Appraiser

By Isaac Peck

Excerpts: …the United States Department of Veteran Affairs (VA), is known throughout the valuation community for respecting the work of appraisers and maintaining reasonable fee schedules.

The questions:

  • Fannie Mae and Freddie Mac are making desktop appraisals a permanent fixture in their valuation offerings. Is the VA looking at these types of valuations and what are some of the considerations?
  • There’s been a lot of buzz about measuring homes to ANSI standards in the appraisal industry–what can you tell us about the VA’s stance on ANSI? Do you anticipate requiring ANSI on VA appraisals in the future?
  • There is a lot of concern about discriminatory appraisals—what is the VA doing to protect Veterans from discrimination and what are your thoughts on the topic?
  • What’s new at the VA? Any final thoughts?

To read the answers and more, click here

My comments: I have always strongly recommended doing VA appraisals, especially since AMCs took over other lenders’ appraisal management. VA wants you to help veterans. Lenders want to make more money. I wrote a long article about VA in the past, available to paid subscribers. I interviewed VA appraisal employees, fee appraisers who liked VA, and other appraisers who did not want to work for VA.

Appraisers and local market analysis

Appraisal Business Tips 

Humor for Appraisers

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Posted in: adjustments, future, real estate market, va

Appraisers and Local Market Analysis

Appraisers and Local Market Analysis

By Woody Fincham, SRA, AI-RRS, ASA

Excerpts: Social media and the mainstream media make a mess of these markets even in the best of times. They do not have the bandwidth to cover local markets. When you are in a metropolitan statistical area like Charlottesville and Waynesboro/Staunton you get some reporting from the local news. Still, if it is not driven to get online clicks from hyperbole it usually is not worth reporting. National data simply does not apply to the local real estate market and the closest large markets are Richmond and Washington DC. Neither are not great metrics for what our local markets are doing.

I think everyone has heard the old saying, “You can’t see the forest for the trees.” And that is true. We are in the middle of a market transition and exactly how it is transitioning is extremely hard to predict. The best market analysis is always retrospective, as they say, “Hindsight is 20/20.” Until we get past this period over the next few months it may be hard to say definitively what is exactly happening. As an appraiser, it is super important to understand how to gather and analyze relative data.

So, what metrics are worth watching?

  • Inventory levels
  • Absorption rates and marketing times
  • Actual days on market (DOM)…

To read more and see the graphs, click here

My comments: Read this article, including the case study. See if there are data types and graphs you can use in your appraisals. Your clients count on you to let them know the market today, not in the past. Of course, I agree with this. Appraisers have the most valuable data and analyses in a changing market: listings, pendings, price changes, etc.

Appraisal Neighborhood Analysis

Appraisal Business Tips 

Humor for Appraisers

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Posted in: ADUs, appraisal business, E&O, humor, real estate market

Appraisal Risk, Reviews, and Revisions

Appraisal Risk, Reviews, and Revisions

By Ken Dicks

Excerpts: This is part three of a three part series on appraisal review – Read parts one and two. I am often posed with the following question “How do you know when you are looking at a “good” appraisal?” The reality is there is no universal acceptance of a single method of measurement to differentiate “good” from “bad.” After many years of reading appraisal reports, my response is “One that leaves the reader with few unanswered questions, allows the data to tell the story, keeps appraiser interventions to a minimum and is able to present a case for what a property is worth, as well as what it is not worth.”

Today, while there still remains some stickiness to the QC revision process, a recent survey completed by The STRATMOR Group commissioned by appraisal management technology company Reggora, indicates 25% of appraisal reports require some form of revision. While that number may seem high to some, in the context of lending and property complexities, that is a 54% improvement in performance cited earlier in this article (from 35% 10 years ago). Is there room for more improvement? Of course, there is always room for process improvement, but on the face of it, some process improvements appear to be yielding results.

Consistent application of both quality control and quality assurance processes for appraisal review may also be in part a reason for improvement, as appraisers have a better understanding of what is needed by their client. Additionally, the tools available to both appraisers and appraisal reviewers have undergone iterative process changes and users have advanced further up the learning curve. Lastly, many lenders have progressed beyond the initial risk identification stage, or the “gotcha stage” to a holistic and strategic approach that accepts risk into their business objectives. Today lenders and stakeholders have the ability to gain risk insight beyond the initial transaction stage and utilize pattern and trend identification.

To read more, click here

My comments: Links to Part 1 and 2 are in the first line of the post. View from the AMC/Lender side. Good that reviews and reconsideration requests have gone down. Appraisers and AMCs spend less time and have fewer hassles.

Appraisal Business Tips 

Humor for Appraisers

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Posted in: adjustments, AMCs, appraisal business, lender appraisals, non-lender appraisals, real estate market, Reviews

NAR Appraisal Survey 2022

NAR Appraisal Survey 2022

Excerpts from NAR Report (link below):

In May 2022, NAR Research conducted a survey of all 9,700 appraiser members and 50,000 randomly-selected non-appraiser members.

54% of appraisers report that appraisal management companies (AMCs) have been among the greatest challenges in their businesses in the past year; 30% cite expanding regulations.

The typical appraiser reports a 40-mile radius in which they conduct appraisals. 68% report practicing within a radius of 20–59 miles.

Virtually all appraiser respondents (97 percent) have conducted an in-person appraisal, and 79 percent have done so by desktop/drive-by appraisal. Eleven percent cite evaluations (non-appraisal opinions of value). The eight percent who cite other valuation methods most often explained that they use a hybrid approach or mostly an exterior appraisal.

Two-thirds of appraisers (66 percent) are asked monthly or more often to conduct appraisals outside of the geographic area or the property type in which they feel their expertise is. Close to one-third conduct an appraisal outside their area of expertise on a weekly basis. Twenty-three percent of appraisers report never having to conduct an appraisal outside of their geographic area or area of expertise.

Appraisers are significantly more likely than other members to say that the most competent are not being selected most of the time (22 percent vs. nine percent) or at all (16 percent vs. six percent) and much less likely to say they are being selected most of the time (12 percent vs. 23 percent).

A few comments:

  • “Appraisal Management Companies are destroying our profession.”
  • “Appraisers are the “truth tellers” in this process. While agents can “puff” we cannot! If a property is listed at $315k, with an offer of $345k, do not harass the appraiser when the appraisal comes in at list!! If it had a market value of $345k, it would have listed at $345k!”
  • “AMCs are a significant issue for not only appraisers but for the consumer. They bid out each appraisal to maximize their profit, usually harming turn times and passing on costs to the appraiser and to the borrower.”

To read the report, click here

My comments: Read the PDF report. Easy to read with good graphics, similar to the graphic above. Since it was done in May, it focuses on appraiser shortages and delays, mostly from the non-appraiser respondents.

It has both appraiser and non-appraiser survey questions, which is a bit tricky to read. Some of the questions are relevant today, such as AMCs. Other questions are not as relevant, such as fees, as the appraisal market in many areas is not as strong as in May when the survey was done.

How much appraisers travel was interesting. I only work in my island city, 1 mile by 3.5 miles. I hate leaving the Island! Island mentality, I guess ;> I used to work in a much larger area, of course.

What is the farthest you have traveled to complete an appraisal and still be considered geographically competent?

Appraisal Business Tips 

Humor for Appraisers

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Posted in: appraisal business, Bad lenders, Fannie, real estate market

Appraisers: How and Why To Check Carbon Monoxide Detectors

Killed by Carbon Monoxide: Appraiser Blamed

Read this article on how to check CO detectors. You may save someone’s life!!

by Kendra Budd, Associate Editor, WorkingRE

Excerpts: For decades, appraisers have been gently reminded to pay careful attention to smoke alarms and carbon monoxide (CO) detectors—especially noting when they are absent altogether. Many experts advise that the state and federal standards requiring these important systems exist for a reason.

A recent case in which a young couple died from carbon monoxide poisoning while they slept highlights the life and death importance of these simple alarms—and brings this issue front and center for the real estate appraiser community as a whole.

Lawsuit

As you might expect, it didn’t take long for both John and Suzy’s parents to hire a law firm and start going after all the real estate professionals involved.

As it turns out, both the appraiser and the home inspector had each independently inspected the home 18 months prior and both mistakenly reported a few of the smoke alarms present at the home, as CO detectors.

Consequently, both the appraiser and home inspector ended up on the receiving end of a “wrongful death” legal claim.

The legal team for the parents of the deceased young adults (plaintiffs) alleged that the appraiser, Darcy Doe (name changed for privacy), had negligently appraised the Smiths’ home and had reported the presence of a CO detector when in fact, none were present. Unfortunately for Doe, she labeled her photograph inaccurately in her own appraisal report to the lender.

CO Detector vs Smoke Alarm

One important lesson in these cases is that it can be extremely difficult to tell the difference between CO detectors and smoke alarms. This is a reminder to appraisers to take a second look at all CO detectors and smoke alarms—and to test them as well.

Rick Bunzel, home inspector and Washington firefighter was able to give us some tips on how to not only tell the difference between the two detectors, but offers additional safety tips on smoke alarms and carbon monoxide detectors as well.

For starters, the difference between a smoke alarm and a CO detector is quite simple. “The item will be clearly labeled, written on the exterior shell of the device, so you’ll be able to see it easily,” advises Bunzel. However, this can be hard to read because the signage could be the same color as the shell, so it’s incredibly important for you to get close enough to the alarm or CO detector to read it clearly (and test it!).

Bunzel was also able to provide some helpful tips for appraisers as far as how to communicate with their clients about CO detectors. For example, Bunzel says that appraisers and home inspectors should make it clear to their clients that they do not warranty if the device is working, just that it is there. “The test button doesn’t test the workability of a device—only the alarm. Just because it squeaks doesn’t mean it works,” reports Bunzel. This disclaimer language should be included in the appraiser’s report.

Another tip is to check the date of a CO alarm and smoke detector

To read more, click here

My comments: Read this article, especially how to identify and check CO detectors. The disclaimers are useful. I have CO and smoke detectors in several locations in my house. CO is much riskier than smoke as you can’t smell it.

Humor for Appraisers

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Posted in: appraisal how to, Fannie, real estate market

Appraisal in Changing Markets

Sellers Chasing the ball down the road in real estate

By Ryan Lundquist

Excerpts: Commentary from a (Ryan) appraisal: Here is a bit of commentary in one of my recent appraisal reports. This is only part of what I say because I’m a man who needs a few paragraphs. One box just isn’t enough.

“At the least we ought to describe the market as showing a downward seasonal shift, though it’s possible we can call this a downward cycle if the trend persists over time. For now, it is most reasonable to categorize the market as having growing uncertainty and blatantly inflamed downward seasonal price declines compared to a normal seasonal trend. At the least, properties are clearly selling for less than they did several months ago. The regional median price has ticked down about 7% since May, which is $45,000. This doesn’t mean every property is worth $45,000 less, but it’s been clear buyers have been resisting paying higher prices.”

Okay, one last thing about size: During the beginning of the pandemic there was a blatant spike in home size due to a greater focus on larger homes at higher prices. This spike basically peaked one year ago as size has started to normalize. Now let’s keep watching to see what happens to size. Will we see smaller homes more often as first-time buyers flood the market? Will we see fewer sales at the highest prices? To be determined.

To read more, click here

My comments: Scroll down the page for more comments from Ryan. Markets are changing in many areas, but are complicated by price range, size, etc. I remember the easy days of market condition adjustments 1% per month up or down, for example, to apply to all detached home appraisals. Ryan has been writing about the ups and downs of his market for a long time. Maybe you can use some of his ideas, graphs, and/or explanations in your appraisals.

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Navigating a Changing Market

by Isaac Peck, Editor

Excerpts: … senior leaders at AMCs, lenders and the GSEs have noted that slower appraisal volume will favor those appraisers who can stay in communication with their clients and provide faster turn times. “During the heyday of 3 percent interest rates, it was acceptable for appraisers to take three to four weeks to complete an appraisal and forget to update the client. Now that volume has declined to normal levels, those appraisers who aren’t providing good customer service may see their businesses suffer,” remarked a senior executive at a major bank.

At the end of the day, (Ryan) Lundquist says his goal is to report what is happening in the market right now—accurately and without sensationalism. “I’m constantly changing what I say in my appraisals, and I’m very careful of boilerplate and canned statements. A quick change in interest rates has led to a quick change in the market. My appraisals talk about more stable prices in my area but also about uncertainty regarding the future. Pending volume is softening, available listings are skyrocketing, and it is taking longer to sell—but there are still stats that suggest there is heavy competition for certain homes. It changes by the week. There’s no easy way to quickly do this, it takes effort. There’s no such thing as being a market expert without putting in the time to be an expert,” argues Lundquist.

To read more, click here  

My comments:  This article uses AEI data, graphs, and reports from June. Some are out of date in September. I follow AEI (American Enterprise Institute), which has excellent data and reports. For more info on AEI, click here 

The MBA data, loan application volume (see below) is the future of appraisal volume. Using recent September data, loan applications are below the levels in 2019 and still dropping. I have a graph of this every month in my paid monthly newsletter. Loan applications went up this week but are still below 2019 levels.

The upcoming October issue of the monthly Appraisal Today has an article, “Which are your best current and former AMC/lender clients? What do they want?” The Big Three: Turn Time/Quality/Fee. I discuss what lenders want and how to provide better service and get more business. Number 1 for lenders (AMCs’ clients) has always been turn time.

Humor for Appraisers

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Posted in: appraisal business, non-lender appraisals, va

Appraisers: What should you have in your car?

Appraisers: What should you have in your car?

Excerpt: Here are a few items:

  • Screwdriver: A screwdriver has many uses. You can use it to take the cover off a crawl space entry panel, check wooden structural members for rot or insect damage, remove an electrical outlet cover to check for insulation in the walls, etc.
  • Voltage detector: To determine whether wires are live.
  • Ice pick: To check for termites or wood rot.
  • Magnet: To determine whether old pipes are made of iron or lead.
  • Mace or pepper spray: To defend yourself, especially if you’re appraising REO and foreclosure properties.
  • Bug spray: To protect yourself from mosquito bites, ticks, etc.
  • Spare clothes and footwear: Including an extra coat or jacket, hat, and boots—especially if you work in rural areas.

To read more, click here

My comments: Good tips! I definitely need to add some of the items to my car, especially dog repellent, which is not on the list. I have been bitten by dogs. I left the homes and contacted the lender. Don’t know if they got their loan and did not care. Once two large Dobermann dogs broke down a trailer door. I barely got into my car in time.

This was originally posted on McKissock’s Appraisal Blog, but that link was not working.

Appraisers – The Past and The Future

Appraisal Business Tips 

Humor for Appraisers

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Posted in: appraisal business, appraisal management company, non-lender appraisals, real estate market

Reconsideration of Value and Appraisers

How to Respond to ROV Requests: Updated Guidance

By Greg Stephens, SRA, AI-RRS

Excerpts: Suggested protocols for responding to Reconsideration of Value requests

When you receive an ROV request, some recommended steps to take include:

1. Maintain USPAP compliance – Confirm the ROV request came from your client, either directly or through the client’s AMC, acting as an agent for the client, or other party designated as an agent by the client. The importance of this cannot be overstated. Appraisers are still required to comply with USPAP when responding to an ROV request, including the confidential nature of assignment results.

2. Identify ROV content to determine next steps – take the time to analyze the content of the ROV to determine what specifically is being requested of you (the appraiser) and what level of information will be needed to respond to the requestor of the ROV. This is an opportune time to maintain a professional demeanor and not react to an ROV request as if it is an affront to your competency or experience. After receiving an ROV request, send an acknowledgement of receipt and advise the client that the ROV request will be analyzed and responded to in a timely manner.

To read more, click here

Click here to listen to Tim Andersen, MAI’s podcast, “Reconsiderations of Value: Satan’s Own Seed, Right?” (Podcast 9.5 minutes) on ROVs, included in a 12-21 issue of this newsletter, so it may look familiar to you.

My comments: ROVs are a PITA for many appraisers. Very well written and practical. Greg Stephens is a very experienced appraiser and reviewer. He worked in management positions for several large AMCs.

Reconsideration of Appraised Value

Appraisal Business Tips 

Humor for Appraisers

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NOTE: Please scroll down to read the other topics in this long blog post on Value Reconciliation, non-lender appraisals, liabililty, USPAP, unusual homes, mortgage origination stats, etc.

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Posted in: appraisal business, Appraisal Foundation, appraisal how to, liability, USPAP