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

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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.

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Practical real estate appraisal writing tips for AMC questions

Reconsideration of value and Appraisers

Appraisal Business Tips 

Humor for Appraisers

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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 

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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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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 

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Cost Approach – When to Use in Appraisals

Fannie Mae and the Cost Approach

Excerpt: We often receive questions from appraisers regarding Fannie Mae and the cost approach. For example: “I’m appraising a property and have been instructed to comply with Fannie Mae guidelines. I understand that Fannie Mae requires the sales comparison approach, but what if there aren’t enough good comps? Can I use the cost approach as the primary method of valuation?”

Answer: No!

In order to comply with Fannie Mae guidelines, the sales comparison approach must be the primary method used to determine the value. In fact, Fannie Mae will not purchase a mortgage on a property if the cost approach is the primary or only method of valuation used.

Quite simply, if there isn’t enough data for the appraiser to develop a reliable opinion of value by the sales comparison approach, the mortgage will not be marketable to Fannie Mae.

However…

To read more, click here

My comment: I included this article plus the one below, which both address the Cost Approach’s common appraisal questions.

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The Cost Approach: An Underutilized Approach to Value

Excerpt: In residential appraising, the cost approach and the income approach have in many cases become less utilized in favor of sole reliance on the sales comparison approach.

There are occasions when the income approach can be the primary indicator of value for residential properties, such as developments with a high percentage of homes owned by investors.

The fact that Fannie Mae won’t accept reports that rely solely on the cost approach, with a few rare exceptions, doesn’t mean that approach can’t be the primary indicator of value. It just means Fannie Mae won’t buy that loan.

To read more, click here 

My comments: I started with an assessor’s office in the 1970s. At that time, my county was changing from only using the Cost Approach for decades to a sales-based approach. I never liked to use only the Cost Approach when I started doing fee appraisals.

In my area, there are very few land sales. There has not been one for over 20 years in my city. Depreciation is always iffy when appraising Victorian homes built before 1915.

But, I always use the Cost Approach for new construction to determine the financial feasibility of custom homes. I use a few land sales from other cities. If the new proposed home is on a vacant parcel, I go back to when the parcel was purchased, sometimes many years ago, and do a market condition adjustment.

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So Many Appraisal Cost Approach Questions

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Appraisers: How to Spend Less Time on Email

Appraisers: How to spend less time on Email

Excerpts: Many appraisers report that they’d like to spend less time on email. The task of providing status emails eats up time in the workday and tends to be more complex and time-consuming than typing a quick email reply. Status requests from AMCs typically require you to log in to their system and go through the process of updating the order status on their website. Simple enough, but if you are doing this several times a day for multiple orders, it interrupts your workflow and decreases your productivity.

2. Only check email twice a day, at designated times

Set aside two short time windows for email (15 or 30 minutes each). Do not read or reply to emails outside of those time windows. For the rest of the day, turn off email notifications on your phone, etc., so that incoming emails won’t interrupt your work. You can add a note to your email signature letting people know that they can reach you by phone if they need to get in touch on an urgent matter.

To read all 7 ways, click here

My comments: I regularly write about managing your emails in my monthly newsletter, including getting to Inbox Zero. This blog post is the best I have ever read, as it is specifically for practicing appraisers.

How to Manage Your Email

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VA Approves Desktops and Exterior-Only Appraisals

VA Approves Desktops and Exterior-Only Appraisals

Excerpts from the Summary: On August 1, 2022, the Veterans Affairs released Circular 26-22-13 announcing new procedures for alternative valuation methods, effective immediately.

“The use of a Desktop Appraisal may allow an appraiser from outside the market area, but with appropriate credentials for the jurisdiction of the property, to complete the assignment when no local VA fee panel appraiser is available.”

“Appraisal Assignment Waterfall. With consideration for the high demand for appraisal services and limited availability of appraisers in certain local market areas, VA is providing lenders, servicers, and appraisers with a procedural waterfall that clarifies acceptable valuation methods when certain conditions exist. Lenders and appraisers can also refer to Exhibit A for more information. VA continues to explore opportunities for expanding the use of Exterior-only Appraisals and Desktop Appraisals and will update this procedural waterfall, as appropriate.”

To read the full blog post, click here

The summary and Circular are in the blog post.

To read more about the May 2022 proposal to eliminate the fee panel, click here 

I wrote about the VA in my July 8 email newsletter. To read it, click here

My comments: The big push to cut down on appraisal turn times because of the appraisal shortage is Very Old News since mortgage volume has plummeted. I always recommend VA as the best lender client for appraisers. I wrote about it in the past and interviewed VA employees, appraisers on the VA panel, and appraisers who did not want to do VA appraisals in my paid monthly newsletter.

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Where VA loans are soaring. Are you doing VA appraisals?

Appraisal Business Tips 

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VA Appraisals and Fee Appraisers

V.A. as a Model for Appraisals

by Isaac Peck

Excerpts:

Step Above the Rest

It’s not a secret that being on the V.A. appraiser roster is a coveted position for most residential appraisers. So, what exactly makes the V.A. so special?

Rocha (V.A. appraiser) says the V.A. is a step above the rest primarily because of the following criteria.

V.A. wants a good quality panel

V.A. pays higher appraisal fees

V.A. delivers fast turn times to veterans

V.A. doesn’t use Appraisal Management Companies (AMCs)

V.A. has a program that encourages the use of trainees

V.A.’s Tidewater Program is fair to all sides

Fees, Turn Time, and Quality

The first four criteria are certainly related and are worth examining together. For starters, the fact that the V.A. does not use AMCs allows them to pay more directly to the appraiser, according to Rocha. “Instead of AMCs, the V.A. has a Portal which is really streamlined and easy for stakeholders to use. We can communicate in that Portal and it sends it out to all parties and keeps everyone in close communication,” says Rocha.

To read more, click here

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Proposal to Eliminate the V.A. Fee Panel

Excerpt: On May 1,8, 2022 the Subcommittee on Economic Opportunity held a legislative hearing on the Discussion Draft of H.R. 7735, Improving Access to the V.A. Home Loan Act of 2022… It would require the V.A. to consider when an appraisal is unnecessary and when a desktop appraisal should be used and, a move from the V.A. Fee Panel to a lender select program. Mortgage Bankers Association advocated for the proposal. Appraisal Institute opposed it.

To read more, click here

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My comments: V.A. is the best lender client for appraisers. You are working for the veteran to be sure they do not overpay, find out about problems, etc. You are not working for a lender who just wants to make the loan.

Where VA loans are soaring. Are you doing VA appraisals?

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