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This blog has excerpts from my FREE appraiser email newsletter, sent out almost every week since June, 1994. I started with 6 subscribers on Compuserve. Now it is up to almost 14,000 subscribers!! To subscribe to the free email newsletters and get them them when they first come out,, go to www.appraisaltoday.com and sign up in the big Yellow Box!!

I have been publishing a paid Appraisal Today monthly newsletter since June, 1992 with in-depth articles on topics important to appraisers. Click below for more info!!

Collateral Underwriter and price per sq.ft. adjustments

Fannie is using this to show that appraisers have been using adjustments that are too low, resulting in less reliable values. They are often low “legacy” adjustments. Also, GLA adjustment is one of the few factors that work well in regression.

I suggest using replacement cost new less depreciation. For replacement cost you can use local builders or cost service such as Marshall & Swift, whichever is more accurate in you area. Then take off depreciation. The result is depreciated cost. Divide by GLA. The result is depreciated cost per sq.ft.

Fannie uses price divided by sq.ft. which does not consider land value or depreciation, information which Fannie does not have available.

For example, builders cost on a property is $100 per sq.ft. Your estimated physical depreciation is 30%. Obviously, $25 per sq.ft. adjustment is not correct. There may be functional or external depreciation, which you can include. Be sure to include how you determined your GLA adjustment in your appraisal.

Market based GLA adjustments are better, such as matched paired sales but the method above will work as a guideline.

Why are adjustments low? To comply with the 15/25% adjustment guideline, which Fannie has removed. It was never a requirement. Fannie has never had a 10% per line adjustment guideline. Of course lenders and AMCs can still require the use of the 15/25% adjustment which could be a big problem for appraisers which can result in less reliable values. I never considered the 15/25 guideline in any of my appraisals, but I never worked for lenders or AMCs who required that appraisals conform to it.

Check out the graphs on GLA and 15%/25% adjustments in the FAQ document below. I included 4 of them in this month’s paid Appraisal Today newsletter.

Get the facts about what Fannie is saying, not just rumor and speculation. Subscribe to the paid Appraisal Today!!

https://www.fanniemae.com/content/announcement/ll1502.pdf

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Collateral Underwriter warning messages and Every Increasing Scope Creep from all sources

My latest opinions and observations, as of today

Fannie does not want appraisers to receive warning messages unless a “human” has reviewed the appraisal report. They want to reassure real estate agents mostly that appraisals will not be delayed. Of course, I have no idea how many underwriters have the time to read the 30+ page report. Maybe they can search the report for what they are looking. I am sure this is/will be slowing down loans.

But, I keep thinking that even if appraisers received a few CU warning messages, it is a small, small percent of all the stips from all the review software that AMCs use. No one seems to notice that appraisals take longer the more stips that appraisers receive. Particularly, when all the stips are not sent at the same time. No one seems to notice this, or care about it, except appraisers!!

These non-CU stips are mostly from arbitrary “rules” which CU does not use. Such as: picky UAD stips, “add 2 more comps”, or please review the list of “comps” from the real estate agent or borrower. Some are still using the 15%/25% adjustment rule.

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CU – subject vs. comp data. I want the subject data!!

Fannie says that typically there are around 7 UAD records per property. However, most of them must be from appraisers who used it as a comp. Why should we be compared with appraisers who used the property as a comp?

I want access to CU property data from appraisers who did an appraisal on the subject property, not from appraisers who used it as a comp. I want CU to use this data to compare my appraisal data with “peers”. Comp data is not very reliable as it usually comes from MLS and public records. Fannie says that MLS and public records are not as reliable as data from the appraiser who appraised the property for the sale.
Maybe the appraiser had seen the interior of the comp recently, but this is very unlikely. Also, I go on the MLS tour/caravan almost ever week, but I don’t spend a lot of time at each open house. Well..I do spend more time if there is good food ;> MLS photos are subject to interpretation as they are done for sales purposes. I make brief notes on the flyers and file them in binders, going back to 1990.

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Fannie’s new Collateral Underwriter (CU) FAQs updated

Fannie’s new Collateral Underwriter (CU) FAQs updated - not dated but available on Feb. 25
Why does Fannie keep saying appraisals there will be minimal, or no effect, on appraisal turn times? The real estate agents are worried about delaying closings.
For now, since few appraisers are receiving warnings, the underwriters appear to be slowing down the processing as they are responsible for decided which, if any, warnings to send to appraisers, after reading the 30+ page appraisal reports.
These FAQs mostly clarify what they have said before, but there is some interesting new information.
The first two pages has the new FAQs updates,
Here is some of the new info:
- Fannie Mae does not instruct or suggest to lenders that they ask the appraiser to address all or any of the 20 comparables that are provided by CU for most appraisals.
- (Underwriters) Carefully review the appraisal report before seeking additional clarification from the appraiser based on CU findings.
- Fannie Mae expects lenders to use human due diligence in combination with the CU findings, and will actively follow up with lenders who are reported to be asking appraisers to change their reports based on CU findings without any further due diligence by the lender.
- Fannie Mae encourages lenders to carefully review the appraisal report – including all commentary – before seeking clarification from the appraiser. Don’t assume the appraiser is wrong just because you see a CU message. Taking messages or alternative sales at face value and simply asking your appraiser to address them is neither effective nor efficient. CU is intended to supplement a lender’s human due diligence. After completing a thorough review, lenders should be able to have constructive dialogue with appraisers to resolve specific appraisal questions or concerns. Lenders should not, however, make demands or provide
instructions to the appraiser based solely on automated feedback.
It is also available on the main CU link at www.fanniemae.com/singlefamily/collateral-underwriter

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Collateral Underwriter – appraisal access to data and CU

Should CU be transparent? Poll results
Poll results from ICAP poll – Illinois Coaltion of Appraisal Professionals, a very active appraisal political action group. http://www.icap.com
—————————–
Excerpt:
A few of the results of the 10 questions:
Q1 Should Fannie Mae make CU transparent?
Yes – 89%
No – 6%
Uncertain – 5%
Q3 Will CU risk scores cause Lenders and AMC clients to request appraisers to fit comps to the CU model?
Yes – 69%
No – 5%
Uncertain – 26%
Q5 Do you think the intent of CU is to
replace the appraiser?
Yes – 53%
No – 25%
Undecided – 22%
Download the results
—————-
Online petition to allow appraisers access to CU UAD data
ICAP also has a petition to Fannie Mae that created 11/10/14. “Online Petition to allow appraiser access to data they provided through the Uniform Appraisal Dataset (UAD).”
Excerpt:
The GSE’s have mandated that all appraisals be submitted in the UAD format; however, currently there are no plans to provide appraisers access to this data.
This data needs to be provided to appraisers at the beginning of the appraisal process; ensuring transparency, and improving the process by reducing risk to lenders and the general public.
Sign the petition at http://icapweb.com/petition.php  Plus read the very interesting comments from appraisers!!
————————–
My opinion: I support the petition asking Fannie to let appraisers get the data that we submitted!! CU transparency is more difficult, for various reasons.

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Appraisal adjustments “The Dirty Little Secret”

A Few CU Factoids
- Not all loans go to Fannie – VA, FHA, jumbo, etc.
- Fannie guidelines, including CU, are the minimum. Lenders can add their own, even keeping 15-25% adjustments.
- Lenders are not required to use CU.
- CU sends out appraisal warning messages for adjustments on: GLA, lot size, view, condition, quality, and location. For now.
- Gradual implementation of CU’s web based interface, which has the infamous “20 comps”, mapping, etc. Not available to AMCs.
A few CU comments and opinions from me:
- I need a Book of Adjustments!!! Maybe a few of Fannie’s will “leak” – wiki leaks ;>
- AMCs are now asking for adjustment support from non-CU adjustments. More Scope Creep??
- Mass confusion on what gets sent from underwriter to AMC to appraiser – warnings, Risk Scores, etc.
- The recent Fannie Letter to Lenders about CU said that the intent is not to overwhelm appraisers with warning messages. But, are underwriters going to read (and understand) 30+ page appraisals? I’m glad I’m not an underwriter!!
- How to respond to warning messages – not clear.
- Requests from AMCs include CU and non-CU requests. Sometimes hard to tell where they are from.
Adjustments – the “Dirty Little Secret” of Fannie Form Appraisal Reports
I can’t think of any time a client asked me for my support on an adjustment prior to CU. They have been accepting the usual responses, which are in many boilerplates: Based on my many years… or matched paired sales… etc.

A critical issue to me is that the dollar adjustments seem to indicate that residential appraisal values are precise and very accurate, which is not correct. There are lots of factors affecting home sales as compared with income property such as apartments and commercial property.

I have asked many very experienced appraisers how they “support” adjustments. Most use “rules of thumb”, such as using a percent of price per sq.ft. for GLA. But, this number includes land. Or, they use adjustments they were given when they were new appraisers. Of course, if you only appraise conforming homes in conforming tracts built in the past 10 years, it is much, much easier.
For now, CU only sends out warning messages for these adjustments: GLA, lot size, view, condition, quality, and location. This is a very small percent of all the UAD coded data. Plus, some data is not UAD coded, such as pools. But, many state regulators expect to see support for all adjustments in your work files.
We all need a Book of Adjustments ;>
Of course, all of us have adjustments that we have accumulated over the years, or recently developed. But, with CU we are being compared to peer and model adjustments. Of course, no one tells us who or what they are. Sometimes appraisers are given this information.
Regression to support adjustments
Regression will not work for all adjustments. It works well in conforming tracts less than 10 years old. After that, it goes downhill. This has been shown many times for AVMs. I really wish I could just buy regression software and have it calculate them all for me!!
Using qualitative adjustments
I did my first SFR appraisals this week without not making any dollar adjustments when I use form reports for non-lending work. I did make time adjustments (which are very easy to support) as the effective date was June, 2014, when prices were increasing rapidly in my market.
I used plus and minus signs in the grid. I use the 2005 Fannie forms but do not use the Fannie certification or limiting conditions. I use my own.
For awhile in the late 80s or early 90s Fannie had a form with pluses and minuses, so I had some experience. Also I don’t use dollar adjustments in my 5+ unit apartments or commercial appraisals.

Appraisal Today newsletter

Zillow (in) accuracy

Inaccurate Zillow ‘Zestimates’ a source of conflict over home prices
By Ken Harney
Excerpts: Zillow CEO Spencer Rascoff…says Zestimates are “a good starting point” but that nationwide Zestimates have a “median error rate” of about 8%.
Shoppers, sellers and buyers routinely quote Zestimates to realty agents – and to one another – as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers’ list price of $425,000. Or a seller might demand to know from potential listing brokers why they say a property should sell for just $595,000 when Zillow has it at $685,000.
My comments: Ken Harney is a long time, nationally syndicated real estate writer. Hopefully, people will read this article. Lots of people I know tell me what “values” they are getting from Zillow. Zillow collects lots of sales data. But, I suspect they are using a radius search or something else that does not match a neighborhood at all for their AVM. I do love the Zillow data and graphs though. Look ‘behind” the Zestimate. As we all know, AVMs work best in conforming homes in conforming tracts less than 10 years old, and goes downhill from there.

Appraisal Today newsletter

CU warning messages – grrrr

A few appraisers are reporting getting CU appraisal warning messages from AMCs. Some AMCs get the messages and and some don’t, depending on the agreement with their lender client.

I sorta believed all the “experts” who said CU would not affect appraisers much, except the many us who do not have market based adjustment support in our work files (which we should have always had). “They” said appraisers’ time for responding to AMC questions will not change. Fannie’s reviewers have been using CU for about two years. Some lenders beta tested it. They all liked it. But, I wonder if it was tested with “boots on the ground” appraisers who actually had to respond to the warnings??

In January I wrote up a long CU article for my paid Appraisal Today newsletter. In the February issue I will have another long article, focusing on the differences between the old and new CU warning messages. They are very different. AMCs with access to lender’s warning messages are sending them to appraisers, such as:

Old message (pre-CU): Condition adjustment for comparable property #<comparable number> appears excessive.
New message(CU): The condition adjustment [for comp #X] is smaller than peer and model adjustments
New (CU): The condition adjustment [for comp #X] is larger than peer and model adjustments.

There are other messages about condition ratings different that peers and model.

I don’t know how our “peers” and The Model made their adjustments or ratings and what they are. I don’t know how to respond as to why mine differ.

Now that appraisers are getting the warnings, they are asking how to respond to them. Who are these peers? What is the model? I have no idea how to respond, except to say “I don’t know who the peers are and how they determined condition or what method they used for their adjustment. I am unable to respond.” How do you know what the condition is really like for comps? There are lots of ways to estimate an adjustment for condition. You can explain what you did. But, who is right? You, peers, or model?

MLS is soo reliable (Not) for estimating comp condition. I don’t think they will like “matched paired sales” on all of your responses for the method you used for adjustments.

Looks like maybe there will have to be some webinars for appraisers, not just underwriters, explaining how to respond.

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