Tools To Support Appraisal Adjustments

What Tools Do You Use to Support Your Appraisal Adjustments?

By McKissock

As part of our monthly survey series, we asked our community of real estate appraisers, “What tool(s) do you use to support your appraisal adjustments?” Respondents were allowed to make multiple selections and write in their own answers as well.

Popular tools include Synapse by Spark, Solomon Adjustment Calculator, and Redstone by Bradford Technologies. The majority of respondents said they use a combination of various tools and methods, such as paired sales analysis.

We’ve included “paired sales/matched pair analysis” in the list as well, even though it’s a method rather than a digital or appraisal software tool, because it was mentioned by so many appraisers.

A few sample appraiser comments:

“I am capable of determining the adjustments without any software. I look at the MLS data and am able to determine appropriate adjustments. I would need to know all of the assumptions the software takes into consideration before I would trust the adjustment with my signature.”

“I use Synapse by Spark for typical property adjustments and Solomon for more complex properties.”

In addition to the top answers, we received many other write-in responses. Sample responses:

Allocation method

Depreciation

Cost to build

Sample appraiser comments

“Due to rural location, there are no algorithmic tools to be utilized for adjustment data. I utilize paired and grouped data analysis and experience and knowledge.”

To read more, Click Here

My comments: Short, well written, and Very Interesting, especially the appraiser’s comments! I quit doing adjustments a while ago. I always do market conditions adjustments (or explain why not) and for views and other factors that significantly add to value.

I have never used any of the appraisal software listed above. I use Excel and MLS data. I often go back in time for comps with views, etc. I also interview agents to see what they say. Not for a number, but about marketability.

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Basement Issues and Values

Understanding Basement Contributory Value

By Jo Traut

Excerpts: Determining how a basement contributes to a residential property’s value requires an appraiser to determine what type of basement the home has, its level of finishing, and take into account common concerns, like evidence of mold or signs of structural concern.

By following best practices, including separating the basement from the above-grade finished area, understanding the intended use of the space, and completing comprehensive research, you can evaluate the basement’s contributory value more accurately.

Topics

  • Know your basic basement types
  • How is the basement finished? Determining levels
  • Best practices when appraising a basement
  • Know the intended use and client requirements
  • Common problems in basements
  • Environmental hazards: One of the most significant issues appraisers run into is mold.

To read more, Click Here

My comments: This is one of the best discussions of basements I have read. It is worth reading. In my area, there are few fully underground basements, as we have a mild climate. Most homes were built prior to 1930, and there are many types of “basements.” They are not easy to determine added value, if any. I research, check with agents, check permit histories, try to get comps with the same type of basement, etc. The type and level of finish are critical.

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Appraisal Institute Counters Flawed Appraiser Bias Narrative

Appraisal Institute Counters Flawed Appraiser Bias Narrative

Excerpts: In reality, appraisers have a great story to tell, but we have a long way to go to refocus the terribly flawed “appraiser bias” narrative onto facts and science.

Last week’s email from Cindy Chance, the CEO of the Appraisal Institute, marks an important and long overdue shift in the organization’s approach to addressing accusations of bias in the appraisal profession. For too long, appraisers have faced sweeping claims that their valuations are biased against certain groups, despite appraisers’ ethical standards, rigorous training, and lack of financial stake in transactions.

As Chance acknowledges, the Institute should have done more to advocate for appraisers and make the public aware of their professionalism. This public acknowledgement of an obligation to counter the flawed “appraiser bias” narrative is an encouraging first step. Appraisal organizations like the Appraisal Institute should advocate for appraisers, as advocacy is a key membership benefit. Industry groups should also step up to support appraisers.

Importantly, Chance points out that claims of appraiser bias contradict what appraisers actually do. Their role is to provide impartial, data-driven opinions of value. She explains how pioneering research in psychology revealed that all humans have cognitive biases, but professionals like appraisers are trained to minimize bias through rigorous methodology. In fact, appraisers’ discipline protects homebuyers and the industry from irrational biases.

Chance suggests the Institute will undertake communications grounded in facts and science to reframe the false narrative around appraiser bias. With their scientific expertise and ethical standards, appraisers have a strong basis to counter the accusations. Chance’s leadership in publicly addressing the issue and committing to advocate for appraisers represents an encouraging change of direction for the Institute.

To read more, including the full document, Click Here

My comments: Read it. Note: it can be “dense” with very long paragraphs. This is, by far, the best writing I have seen on bias related to appraisals. I have been saying for a while that all humans are biased in some way. It is human nature.

When I read it last week, I was going to put a link to it in this newsletter. Now that appraisersblogs has published the full document, you can read and make comments.

For a long time, since AI dropped out of the Appraisal Foundation, I have said, “I am a 35-year member of AI. I stay because my MAI is very, very valuable (similar to CPA).” Plus, I have an excellent local chapter.

I have been reading Cyndi Chance’s emails to members and following her activities to reach out to local chapters since she started last fall.

I am so glad that AI is now taking on the bias issue. I recently took USPAP plus two California bias classes in a two week period. After I finished them, I thought of giving up my license (CA is not a mandatory state) and maybe quitting appraisal. After a rough weekend, I decided not to leave. Finally, I now see there is hope!

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Desktop Appraisals: Who, When, and Why

Desktop Appraisals: Who, When, and Why

Excerpts: The ability to identify property characteristics without a personal inspection is not a new concept. Retrospective appraisals, drive-by (exterior inspection) appraisals, and valuations from plans and specifications, are all valuation assignments where an appraiser develops an appraisal opinion without personally inspecting the property.

Similarly, while not identical, appraisers generally use the cited sources above to identify the physical characteristics of comparable sales in their appraisals. Thus, it’s fair to say that identifying the physical characteristics of the subject property in a desktop appraisal is a similar process to verifying comparable sales.

While they won’t replace a full appraisal for a majority of property transactions, desktop appraisals can offer a more efficient and cost-saving alternative for all involved parties and are often used in low-risk scenarios and non-GSE appraisal assignments, such as:

  • Helping sellers determine a price: A desktop appraisal provides sellers with valuable insights into their property’s market value, helping them make informed decisions when determining an appropriate listing price.
  • Home equity lines of credit (HELOCs): When homeowners apply for HELOCs, lenders may request desktop appraisals to ascertain the property’s value and determine the credit limit without requiring a full appraisal.
  • Tax Appeal Support: When there is a challenge to a tax assessment, a desktop appraisal may be used to provide a current market value.
  • Insurance purposes: Lenders or other clients may order desktop appraisals for insurance purposes to determine the property’s replacement cost or insurable value.
  • Managing Investments: For investors who own multiple properties, desktop appraisals provide rapid updates on property values.

To read more, Click Here

My comments: Although the web page title includes “for new appraisers,” this post has ideas for all appraisers. The list of non-lender uses is very good. I have done drivebys for estate appraisals when the home had been sold and I had no access.

Desktop appraisals okay for some Fannie Loans March 2022

Fannie Wants Desktop Appraisals

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Appraising Historical Homes

Historical Properties and Their Unique Appraisal Approaches

Excerpts: Appraising historical properties involves a complex interplay of factors, making it a specialized field within real estate valuation. This article provides an insight into the appraisal process of historical properties, emphasizing the role of market data, potential buyers, specialized databases, appraisal methods, and the significant impact of preservation restrictions.

The appraisal process begins with a thorough analysis of market data, focusing on sales of properties that share historical or antique characteristics. This comparative market analysis extends beyond standard parameters like size and location to include age, architectural style, and historical significance. The scarcity of historical properties often requires appraisers to expand their search to find comparable sales, both geographically and over longer time frames.

The distinction between a historic property with preservation restrictions and an old house without them is crucial in the appraisal process. Preservation restrictions, often governed by the National Register or local historical commissions, can add value by ensuring the property’s integrity. However, these restrictions may also limit modifications, potentially affecting the property’s market appeal.

To read more, Click Here

My comments: If you don’t want to appraise a historic property, be sure to check it out before accepting the assignment!

Worth reading. A good summary. I suspect that a company based in Boston, MA sees lots of historic homes!

For many years I appraised in the nearby city of Berkeley, CA. There were definitely adjustments for homes built by famous, widely known, architects. Fortunately, their names were listed in the MLS.

In my small city, there are a few homes by famous architects. One was sold about 20 years ago by a famous architect, Julia Morgan. She designed more than 700 buildings in California during a long and prolific career. She is best known for her work on Hearst Castle in San Simeon, California. No effect on value. I was surprised. If it was in Berkeley, there would be a substantial adjustment.

Some cities have large historic buildings, such as the City Hall in my city, built in 1895, twenty years after the city charter in 1872. The Gold Rush in California started in 1848, which brought many people to Northern California.

But, in my city, there are many restrictions on what can be done with older homes, such as Victorians. For example, window replacements must replicate the original windows, plus some other restrictions on exterior modifications. Restrictions are from the city, the county, and the state. In my city of 78,000 population, there are over 10,000 buildings constructed prior to 1930, including many classic Victorians.

Many downtown mixed-use buildings (retail and apartments) are in my city. I appraised many of them, but never noticed any effect, plus or minus, for historic designation.

Knowing what modifications are allowed is very important for the appraiser. Many people don’t like them. You need to know the market. Sometimes buyers like them and sometimes not.

See how many historic homes and buildings are where you do appraisals and where you live. You may be surprised!

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Appraiser Has Very Big Problems With Borrower

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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Appraisal Time Adjustments Underutized

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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OK to average adjusted comps on appraisals?

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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Appraisals: Using Comps Across a Freeway?

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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2024 USPAP For Appraisers

2024 USPAP

Source: Appraisal Foundation

The 2024 Uniform Standards of Professional Appraisal Practice is now available for purchase in physical and digital formats.

This year, for the first time, you can purchase just the book of USPAP standards for $35. This covers all Definitions, Rules, and Standards.

We also have a new product launching this year. All Advisory Opinions, Frequently Asked Questions and the recently launched Reference Manual will now be part of a standalone publication called the 2024 USPAP Guidance and Reference Manual.

This change reflects the maturation of USPAP, resulting in longer effective dates. The ASB will continue to review USPAP for changes when necessary but will shift much of its focus to providing more guidance to the marketplace. Appraisers can now buy one set of USPAP standards and keep that publication on their bookshelf for as long as that edition is effective and purchase just the Guidance and Reference Manual as needed for coursework and updates.

If you like having the USPAP standards and guidance material linked, we still have you covered. You can also purchase a linked digital version of the eUSPAP and Guidance and Reference Manual and get seamless access across both documents.

To read the full letter, click here

My comments: USPAP 2024 is effective January 1, 2024. I’ve been waiting for a very long time for longer than 2 years between effective dates. Also, there is no ending date for the 2024 version.

When USPAP started, it was very exciting as appraisers had to decide what needed to be changed or added. Lots of people wanted to be on the ASB. Over time, I quit following the updates as there were few significant changes.

2024-2025 USPAP 7-Hour Update Course is being approved or is approved, in the states. I assume a new class will be required every two years in the future. Gotta keep that money coming into the Appraisal Foundation, I guess…

I really hated the classes when there was not much to say except a rehash of the past. I taught USPAP before the ASB told you what to teach. It was my favorite class as we could focus on issues in our current market. Of course, now there is appraiser discrimination, the current hot topic. Personally, I think there is very, very little intentional discrimination by appraisers, compared with the intentional discrimination by lenders (and others). “Red Lining” still exists, some are in the same locations.

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