Sins of the Past Are Back to Haunt Appraisers
Fannie Mae Takes A Closer Look at Appraisals
By Richard Hagar, SRA
In the recent past, when appraisers were swamped
Even with the Collateral Underwriter program review, appraisers were overwhelmed. Every lender and AMC were seeking and hiring review appraisers in order to keep up with demand. Due to the shortage of review appraisers (exacerbated by low fees and time pressures), tens of thousands of poorly created appraisals were accepted without receiving adequate review.
Unfortunately, because many appraisals were rarely rejected or required corrections, appraisers developed the false notion that poorly crafted appraisals were okay to turn in. Many appraisers were bragging about their ability to fill out two or three appraisal forms a day and receive no call-backs from lenders.
However, time and time again we’d review appraisals, that were accepted by lenders, but had failures such as:
• No highest and best use analysis (as if vacant and improved).
• Failure to make appropriate time/market adjustments (positive or negative).
• Using only a single approach to value.
• Incorrect land values.
• Square footage costs and depreciation based more on opinion than reality.
• Unsupported adjustments (adjustments based on “my 30 years in the business” instead of facts).
• Failures to personally inspect and photograph comparables.
What’s happening now
FNMA indicates that their 2022 lending volume is down 47% from 2021 and is expected to drop by another 50% in 2023. So, it’s pretty safe to state that the “appraiser shortage” of yesteryear is over, and reviewers now have more time on their hands.
Which appraisers are going to survive when the loan volume is down 75-85% and the poor appraisals of the past are catching up with the appraiser today? Well, for the most part, it’s based on the quality of the appraisals delivered to lenders over the past five years.
Do you believe that the quality of your work ranks you as a tier 1 appraiser or do you have a little concern about your rating? Tier 1 appraisers have little to fear but tier 2 and 3 appraisers…
What you can do today
Today, you likely have more time on your hands, so slow down and take more time improving the quality of your work. Superior quality appraisals can set you free.
Learn how to accurately determine adjustments. Follow the ANSI standard when measuring the subject (even if you disagree with the method — it’s the requirement). Take more classes! Don’t stop taking classes just because you have enough CE credit to meet your next renewal; that mentality is for the bottom tier of appraisers.
I typically obtain double the CE credit hours necessary to renew my certificate…double! Why? Because I want to do things better, obtain higher fees, and survive the purge that is coming. Lenders have more choices, and you need a way to stand out from the bottom tier and low fee appraisers.
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My comments: Worth reading. Hagar is one of the best residential appraisal instructors. I have known him for over 30 years and have taken many of his classes. Richard can be a bit negative but states what is really happening and what you need to do. Many thanks to Ryan Lundquist’s 2020 blog post for the very appropriate image above!
I also think that now is the time to increase your appraisal skills by taking classes and seminars. I also have always had more CE hours than I need.
I am an appraiser because it is challenging and never boring. I quit working in labs because it was boring after 7 years but have never been bored appraising. I want to be the best appraiser I can be. (I have always been an over-achiever).
Consider doing non-lender appraisals. I have been doing them since 1986 and writing about them in my monthly newsletter since 1992. No CU, UAD, reviews, many pages of differing AMC requirements etc. Your requirements are in USPAP.
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NOTE: Please scroll down to read the other topics in this long blog post on State board complaints, non-lender appraisals, mortgage forecast, real estate market changes, unusual homes, mortgage origination stats, etc