1. In the example above, the appraiser has used a condition adjustment that is “…smaller than peer and model adjustments.” In our office, we attempt to interview as many agents as possible to find out the true condition of our comparables and other insight that only the agent knows. It is common that when talking to an agent, we find out that a property is presented one way in the Realtor’s multiple listing, but is really something completely different. Our fear is that appraisers, like us, who are doing more due diligence than our peers could be harassed by Underwriters (more than now) or worse yet, could be placed on secret do not use lists. Could it be that a system like CU could further incentivize appraisers doing lender work to not do more thorough research than their peers?

    

2. In the example, the appraiser provided comparables that are “…materially different than the model-selected comparables.” This warning is something that is deeply disturbing to many residential appraisers. In recent years, appraisers have become accustomed to banks submitting large lists of comparables that are selected by an automated valuation model (or AVM) and asked to comment on each. Those lists of comparables tend to be useless because they typically omit very important features that the market participants are focusing on. For instance, I received a list of sales produced by an AVM from a bank. All of the properties were located near the subject property in Portland’s West Hills, but none of the AVM comparable sales included panoramic views like the subject property. Importantly, all of the comparable sales that I had originally analyzed in the report did include views (the focus of the typical buyer).

    

   Appraisers often spend hours researching and commenting on lists of AVM comparables, without any additional compensation, because responding to lender stipulations is required when accepting the assignments. Admittedly, CU should have better comparable data than most AVMs, because the data comes from actual appraisals and includes things like condition, quality, basement finish, and view. However, the typical appraiser has had bad experiences with past AVM data making them nervous about CU’s implementation.

    

3. The example includes a warning that, “The appraiser’s reported GLA is different than the GLA reported by other appraisers.” For me and other conscientious appraisers, this is concerning because we often find things about properties that may lead many other appraisers to measure incorrectly or to analyze incorrectly. Experienced appraisers are left with the following questions:

    

   1. What if I am the only appraiser who is taking the time to exclude areas of finished attic below five feet in height from the GLA, remove two story foyers, or include staircases in above and below areas, when other appraisers might exclude these areas mistakenly or carelessly?

       

   2. What if I am the only appraiser who is cross-checking the comparable GLA in the multiple listing service with county records and subtracting out areas that the Listing Agent might have advertised as area, but should not be included because of lessor quality, detached areas, or unpermitted areas?

       

   3. Could I be punished for doing the right thing?

       

   4. Should I do what I think my peers are doing and try “fly under the radar?” Many appraisers already try to fly under the radar of constant lender stipulations. One example of appraisers avoiding notice is that many make small adjustments for a particular feature (when a larger adjustment might be warranted) because a smaller adjustment will raise fewer red flags by the lender client. In our company, we use statistical analysis to support many adjustments and the result is that our adjustments are sometimes much higher than our peers and this sometimes results in our appraisals getting greater scrutiny from reviewers.

       

4. Last, the example shows that the appraiser has reported “…materially different…” quality and condition for one of the comparable sales “…in one or more appraisal reports.” For instance, the appraiser used one specific comparable sale before and called it a C4 condition but now calls the same address property a C3 condition. This is an easy mistake for a conscientious appraiser to make and does not mean that the value opinion is wrong. Many properties fall on the border between one condition rating and another. The gray area is particularly large between C3 and C4. The important thing is that the appraiser makes the appropriate size and direction adjustment to the comparable as the market data suggests. Most software for appraisers has not caught up with this issue of reusing a comparable sale and does not warn appraisers about contradictions with data presented in past reports.

All of the above issues touch on the anxiety that appraisers currently feel about the implementation of Fannie Mae’s CU.  These examples are based around the fact that data is being used by Fannie Mae and lender clients to judge an appraiser’s work, without the appraiser having access to similar information during the appraisal process.  If Fannie Mae truly wants to improve appraisal quality, the agency should work to find a way to provide CU information or warnings to appraisers during the appraisal process so that appraisers can work to improve the quality of their work before submitting a finished product, and/or address issues that the automated system will flag.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

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Gary