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New Fannie FAQs – Appraisal and Property Related Frequently Asked Questions (FAQs) including 1004MC guidelines Published September 23, 2014
Fortunately, the document indicates which Q&As are new, as it is often hard to figure out what is new and what has already been sent out in other documents.
If you do lender work, read this document!!
– Comps with accessory units
– C&R ratings
– Comments on adjustments
– Sales over 12 months old and distance from subject – Ok to use
– Legal, non-conforming and proof of rebuilding – not required
And many more relevant and useful Q&As, including guidelines that have been around for a while, such as Net adjustments, etc. Looks like Fannie has figured out many of the topics relevant to appraisers!!
For many appraisers, the 1004MC comments will be very helpful:
Q16. What type of properties are to be analyzed for the data reported in the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report form?
The data regarding trends to be reported in the One-Unit Housing Trends section must be reflective of those properties deemed to be competitive to the property being appraised. Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understanding the overall neighborhood dynamics.
Q17. Are the trends that are reported on the Market Conditions Addendum to the Appraisal Report (Form 1004MC) the same trends that are to be reported in the One-Unit Housing Trends section of the appraisal report (Form 1004)?
Yes. The conclusions regarding trends that are obtained from the Form 1004MC must be the same trends reported in the Neighborhood trends section of the Form 1004. The information reported on both forms must be consistent to provide the lender with a clear and accurate understanding of the market trends and conditions present in the subject neighborhood, based on properties that are considered competitive with the subject being appraised.
Read the additional 1004MC Q&As.
Thanks to appraiser Dave Towne for some great comments on 1004MC:
Ever since the blasted MC Form was mandated in 2011, I’ve been saying the way appraisers have been ‘classically’ trained and used the Neighborhood check boxes on the primary forms did not mesh with the MC Form requirement. (And in fact, I quit doing the ‘classic’ method then, and have been doing what Q16 & Q17 below say.)
I happen to believe one reason why the MC Form was instituted was that this ‘classic’ reporting methodology of reporting overall dissimilar neighborhood property trends (heterogeneous properties) did not (and does not) make sense when the assignment is to appraise a single property using comparable (or competitive) properties.
Dissimilar properties seldom have the same trend components that the comparable (competitive) properties have. As such, they don’t need to be reported…..except as the last sentence of Q16 says …. ”Additional commentary should be provided on the other segment(s) of the neighborhood when segmentation is present to aid in understanding the overall neighborhood dynamics.”
An issue with the ‘classic’ methodology is the “predominate” value of an overall neighborhood with dissimilar properties can be much different than when only comparable (competitive) properties are used in the trend analysis. So, when appraisers use the proper properties as outlined above, there should be no significant problems with that data point, because the “predominate” value will more than likely fall within the price range of the comparable (competitive) properties.
My comment: Finally some guidance on issues that have been driving appraisers crazy with lots of differing appraisal opinions. Now, we can use answers directly from Fannie!!
Hopefully, AMCs and lenders will use these Fannie guidelines instead of making up their own. Particulary, the guidelines that have been around for a long time that are repeated in these FAQs. You can refer them to this document.
Appraisalport poll comments and results on 1004MC (from their Sept. 2 blog posting at www.appraisalportblog.com
“This month, I want to take a closer look at two recent polls – one related directly to the use of AppraisalPort and the other concerning a controversial form. Starting with the form, we asked: What do you think about the 1004MC form? This was a popular poll with a total of 5982 responses. The form doesn’t appear to be well thought of; with 66 percent of respondents selecting the answer “It really doesn’t work well and should be retired.” Another 21 percent answered that “It is OK but in need of some updating or modifications.” It seems that the 1004MC form is going to have some trouble getting a date to the prom because only the remaining 13 percent of voters said “It still gives the client a good idea about current market conditions.”
“I did receive some additional feedback on this poll. Some appraisers just don’t like to use the 1004MC because it’s just something else that has to be done; takes more time out of the day; and may not provide accurate results – especially in rural areas. Others think it really is the first step to a more modern style of computer-assisted appraising.“
Another great commentary from Dave Towne, the appraiser who keeps up on what is happening!! His comments are below this summary of a letter sent by the Appraisal Institute.
Excerpts from AI comments, contained in their Letter about the proposed letter:
Appraisal Institute Lauds FHA for Green Valuation Proposal
The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers on Sept. 2 lauded the Federal Housing Administration’s proposal to allow appraisers to utilize residual techniques – such as cost and income approaches – to analyze market reaction to green and energy-efficiency improvements in the absence of comparable sales.
Under the draft handbook, appraisers would be required to analyze and report the local market acceptance of special energy-related building components and equipment, including solar energy components, high-energy efficiency housing features and components such as geothermal systems and wind powered components. The draft explains that in the absence of sufficient data to perform a paired sales analysis, the appraiser must consider the cost or income approach to calculate an appropriate adjustment.
Direct link to original FHA document:
http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_APPR_PROP.pdf See page 68. Dated August 27, 2014.
NOTE: this is proposed, not final. If you read the full document, I could not tell what is existing and what is proposed. The comment period has closed.
Dave Towne’s email comments, sent to those who subscribe to his emails.
On the surface, this appears to be fair … primarily for the property owner/borrower who has applied for a FHA mortgage loan guarantee.
This appraiser agrees that appraisers who do these kind of assignments must have the appropriate competency, training and experience. Appraisers are going to have to take specialized ‘green home’ appraising CE courses as one aspect of increasing their knowledge.
But the back end unintended consequence of this proposal is how much in additional fee will the appraiser be allowed to charge for providing an ‘approach’ documentation that is Not Required to be completed by USPAP? The ‘requirement’ to include a CA or IA becomes an additional assignment condition, added to an already more complicated FHA Scope of Work for FHA assignments.
Secondly, these ‘approaches’ rely on accurate documentation for various component costs and analysis of the income stream resulting from the use of various ‘energy efficient attachments’ to the dwelling … something the average home owner/purchaser/borrower may not have access to or knowledge of. Yet this proposed REQUIREMENT places the appraiser squarely in the middle of the bulls eye.
Third, adding this level of detail extends the time requirement for report completion. For these kinds of assignments, a cheap fee and the desire of a “48 hour turn time” after inspection probably won’t be realistic. Everybody connected to this kind of assignment is going to have to realize that the appraiser will need to be properly compensated and is going to need many more hours or days between assignment acceptance and report submittal … and they are just going to have to live with that reality. (Appraisers are also going to have to learn to say ‘NO’ and negotiate fees and DD’s when it is appropriate.)
If this just becomes another layer-upon-layer of Scope Creep with no ability to recoup time spent with an appropriate additional fee for the REQUIRED added reporting documentation, then FHA may find itself hurting for appraisers willing to commit to this kind of assignment. (Re-read the sentence above.)
Dave Towne, AGA, MAA
My comments: I have never seen any adjustment indicated in my market for energy saving residential improvements except maybe once for a new infill completely “green” home. Of course, I live in the “mild climate” San Francisco Bay Area ;> This has been going on for a long time, without requiring dollar adjustments. The old Fannie Mae URARs had grid adjustment lines for energy efficient improvements.
By Alan Hummel, Chief Appraiser Forsythe Appraisal
The topic may seem peculiar at a time when mortgage originations are down from the heyday of the early 2000s, but if the issue isn’t addressed now, a shortage of qualified residential appraisers could have a dampening effect on the mortgage market at precisely the moment when it is trying to regain its past vibrancy.
The decline in the numbers of appraisers entering the profession can be attributed to many factors including (but not limited to): qualifications and licensing requirements, the economics involved in training, and unwillingness on the part of some financial institutions to allow trainee appraisers to perform services. The most significant obstacle for many trainee appraisers is completing the 2,500 hours of required experience to achieve Certified Residential status, after the education component has been completed.
My comment: The only answer is for lenders to allow trainees to “sign on their own”.Hummel proposes a training program. But, I don’t see this happening on a large scale. Since Fannie and Freddie started loan securitization in the 1970s, the volume of appraisals needed has been very, very cyclical. Before licensing, most appraisers were employees of lenders. Lenders solved the problem by hiring armies of trainees during boom times and then laying them off when volume dropped. Few appraisers are employees of lenders now. Fee appraisers have been expected to train new appraisers. Lenders paid them a salary and experienced salaried appraisers were the supervisors. But, fee appraisers are not set up for it – no time, minimal supervisor training, little economic incentive, etc.
Read the full article at:
Blacklisted for Refusing Low Fees
Dawson (quoted under an alias because she fears retaliation), tells a story that many appraisers can relate to. She says she was blacklisted for requesting what should be protected under law-her right to customary and reasonable fees. Dawson is different because instead of being secretly blacklisted and left to wonder why she stopped receiving orders after requesting a fee increase on an assignment, she was formally removed from an AMC’s panel after insisting that the AMC’s fee was not customary and reasonable…
Recently, however, her client began using an AMC to manage the appraisal process. After an 18-year relationship with a quality client, Dawson found herself dealing with an AMC that wanted to pay her considerably less than her standard fee. Dawson says the AMC wanted to pay her $290 for an appraisal. “For five years my standard fee with my client was $375. They decide to go through an AMC and now I’m expected to accept a fee of $290 for the same work,” says Dawson.
She discussed her concerns multiple times via telephone with the AMC. “I told them that I would not accept a fee of $290 for the same appraisal that my client had previously paid me $375 for. Their fees are unprofessional and not in the spirit of Dodd-Frank. One girl just laughed at me on the phone because I wouldn’t take $290. She told me they didn’t need me because there are plenty of other appraisers who will do it,” says Dawson.
Dawson was removed from the fee panel for “Unprofessional Conduct – Derogatory responses to communication from Nationwide Appraisal Network,” according to a document supplied to Working RE . Dawson says it was her pushback on fees that led to her removal, which followed her sending the AMC an email pointing out that the C&R fee established between her and her client was $375, and that the fee offered by the AMC was neither customary nor reasonable. The return letter from the AMC concludes: “Due to the issues we have experienced with your conduct… you are hereby notified that you are being removed from our approved appraiser list.”
My comment: Appraisers are getting letters or emails that they are being removed from AMC lists because they are turning down low fees. I am also hearing about desperate AMCs who can’t find anyone to work for their low fees. This often happens in rural areas with few appraisers. Low fees can be ok in nearby conforming tracts but go rapidly go downhill from there. I have no idea who will be doing appraisals as more and more appraisers are turning down the low fees.
I am also hearing some AMCs are raising fees. Maybe they have figured out that one fee for an entire state often does not work well!!
$200 Appraisals – Poor Business Decisions for the Appraiser AND Lender
By Joanna Condé
Source Arizona Association of Real Estate Appraisers
As many of us fight for customary and reasonable fees of $350 or more, some of our appraisal brothers and sisters are still taking the $200 appraisal and not only hurting the cause for the rest of us, but doing something that will eventually, if it hasn’t already, hurt themselves.
… there are many AMCs that pay customary and reasonable fees of $350 and more, that give five business days to do the report, and that will pay more if the properties are complex, in an area that requires more work and research, and will allow more time if there are reasons…
So why would anyone accept a fee below $300, let alone in the $200 range. I can only attribute it to not thinking it through.
Below are the reality checks as I see it.
Reality Check – $: The net from doing one $350 appraisal is about the same or even more than doing two $200 appraisals…
Reality Check – Time: There is twice as much time spent on two appraisals as there is on one. So, the appraiser taking the $200 appraisal spends twice as much time for the same money unless corners are cut. If an appraiser tells me he doesn’t do the same amount of work for the $200 appraisal as he would for the $350, then there is no other choice but to believe he is: a) cutting corners, or b) not doing a full report and providing the information necessary for a credible report, i.e. USPAP compliant. Not smart. The issue becomes not “if” you get reported, but “when” you get reported.
Reality Check – Liability: It seems apparent to me that the same lenders that have the highest foreclosure rates are also the lenders that work through AMCs that pay low appraisal fees and ask for short turn around times…
To Lenders: For those lenders that do not inquire of the AMCs they use what they pay their appraisers, and the time they give them to complete the report, shame on them. They are putting their own company at risk as well the borrower. Why?
The best appraisers won’t work for cut-rate fees. They know the quality of their work and they charge for it. Those appraisers who work for low fees usually produce low quality. “You get what you pay for.”
Low quality appraisals put the lender at a higher risk of making a bad loan.Isn’t it time ALL appraisers and lenders realized that!
Cheap is Expensive!
My comment: well written. Not just a lot of whining and complaining. Explains why it is important to the lender.
CLICK HERE TO READ WHAT OTHER APPRAISERS SAY ABOUT LOW FEES AND POST YOUR COMMENTS ON MY BLOG
Read the full commentary at:
Appraiser Poll results
How often, if ever, do your lender/AMC clients question your opinion of value? 8/4/14
Almost every report 108 votes 2%
1 out of 10 reports 327 votes 6%
1 out of 20 reports 247 votes 5%
1 out of 30 reports 333 votes 6%
Almost never 3,535 votes 68%
My opinion of value has never been questioned 635 votes 12%
Total Votes: 5,185
Compared to a year ago, my lender/AMC revision requests have:
Increased significantly 1,053 votes 21%
Increased somewhat 971 votes 19%
Stayed about the same 1,981 votes 39%
Decreased somewhat 661 votes 13%
Decreased significantly 353 votes 7%
Total Votes: 5,019
On average, how much time do you spend making and delivering requested revisions on any given appraisal? 8/14/14
Under 10 minutes 1,163 votes 24%
10 – 30 minutes 2,323 votes 48%
31 – 60 minutes 875 votes 18%
Over an hour 366 votes 8%
I don’t make revisions 141 votes 3%
Total Votes: 4,868
My comment: Good to see that there are not many valuation hassles but, of course, there should be none since that is what AMCs are supposed to do – no valuation pressures!! Interesting revision results, since many appraisers complain they spend lots of time responding to them – 72% are 30 minutes or less. My favorite is No revisions, but only 3%.
I have written about some of these in the past. CNN has compiled 8 of them, including some I have never heard of!!
Here’s the list:
Pickle Barrel House Museum in Grand Marais, Michigan
Gold Pyramid House in Wadsworth, Illinois
Shoe House in Hellam, Pennsylvania
Winchester Mystery House in San Jose, California
Mary’s Gone Wild Glass House in New Brunswick, North Carolina
One Log House in Garberville, California
Beer Can House in Houston, Texas
House on the Rock in Spring Green, Wisconsin
Click here to read:
An Evolving Symbiotic Relationship Between AMCs and Appraisers ????
Monday, August 11, 2014, posted on Appraisal Buzz
Scott Pickell – vice president and chief appraiser at LRES
A few quotes:
“As a former appraiser with nearly 30 years of experience and now an executive working at an AMC, I have observed a true evolution in the way appraisers and AMCs work together. The relationship between AMCs and appraisers started off unsteadily but has improved over the years. It has now reached a point of mutual respect.“
“When working as an appraiser, I recall some AMCs treated me as though I was a rookie in the industry despite my 20 years in the field at the time. There was no reason for that. When AMCs treat appraisers with the respect they deserve, appraisers will return that respect and produce better work.“
My comments: Maybe Pickell’s AMC respects appraisers but the way appraisers are treated by most AMCs does not indicate any respect.
Appraising in the U.S. started during the Great Depression when lenders needed appraisals for foreclosures. Until the 1990s, when mortgage brokers took over, lenders somehow managed their appraisals without armies of telephone calls for updates, 10+ page engagement letters, sending broadcast emails trying to get the lowest fees, etc. etc.
Somehow, since HVCC, appraisers are managed as if they were children, who have to be prodded incessantly and corrected to do their appraisals “right” to ever increasing requirements.
Appraisers are seen as barely competent and unreliable, who have to be heavily managed. But, all of this costs a lot of money, as compared with the old lender management of appraisers. Of course, mortgage broker management cost very little, if anything. Who pays for it today? Appraisers and borrowers.
The same “barely competent” appraisers are increasing required to provide lots of time consuming information and analyses which often do not contribute to the accuracy or reliability of their opinions of value.
Residential appraisers are often required to “support” all their adjustments. That’s fine if you are doing a conforming tract home. If not, it all goes downhill fast. What’s my answer? Turn down as much as possible anything not a conforming tract home. Or, change your geographic area to one that has a lot of tract homes. Working for AMCs with less hassle can help, but scope creep seems to be affecting all lenders.
Few residential appraisers are willing to do non-lender work. Learn how to do it, including marketing. I have special reports that can tell you about how it differs from non-lender work, and how to get work. This will reduce some of your lender dependency. See my ad above.
FYI, I have a Certified General license. I do a lot of 5+ unit apartment properties. They are easier than 2-4 units and I get much, much higher fees. There are few appraisers who do them in my area. Cert residential are not licensed for it and local commercial appraisers don’t like to do them as they prefer commercial and industrial properties.
Very interesting comment posted on an appraiser chat group by Charles Baker, SRA: (editor addition: A more appropriate comment by Pickell would be) “It’s my job to maximize profits for the company. If you wish to participate as a contractor that’s your choice. But make no mistake, our job is to service the client, reduce costs, boost our bottom line and reward our principals and shareholders. You may wish to participate in those profits by contacting our investor relations department, but don’t expect to get rich as an appraiser. Thank you very much.” I really like this comment as it says what a corporate manager would view the situation.
From AppraisalPort’s monthly newsletter
Author: Steve Costello, who attended the recent Valuation Expo
“Fannie Mae’s Murphy stated that over the past year, the GSE had been focusing on “quality” and “condition” ratings of comps used in multiple appraisals by the same appraiser and found many cases where the appraiser has changed the quality and/or condition ratings on the same comparable from appraisal to appraisal. Now, based on the examination of the Uniform Appraisal Dataset (UAD) data, Fannie Mae’s focus for the next 12 months will be on adjustments. The data indicates that many appraisers are not using proper methodology to make their adjustments. Murphy stated that some appraisers are still using the old standard $20-$40 per square foot adjustment on properties that are easily valued at $500-$650 per square foot.”
“Murphy explained that Fannie Mae is planning to re-evaluate appraisers based on their adjustments and the GSE will expect appraisers to comment on all adjustments if necessary. And, ‘it will be necessary,’ he said, adding that Fannie has seen a lot of under adjusting. To be safe, appraisers should document their logic and reasoning for making any specific adjustments.”
My comment: The easiest adjustment is time. Fannie got that done by requiring 1004MC. The next easiest adjustment is sq.ft. – very easy and reliable using statistics. Of course, as we all know, unless you are appraising a conforming tract home, it is very, very difficult to “prove” all your adjustments. If you know the local market makes adjustments, they should to considered in your appraisal. State regulators are looking for support for adjustments. I am seriously thinking about not using dollar adjustments for 1-4 unit appraisals. Many years ago there was a Fannie form that just required plus and minus adjustments.
I seldom make any dollar adjustments on my apartment and commercial appraisals except for time adjustments, which are easy to support. I find it very strange that residential appraisals have such a high standard. I guess it is due to the lenders telling appraisers what they have to do. I am so glad I don’t do any residential lender appraisals any more. I never like them telling me how to do my appraisals.
I don’t know how Fannie will evaluate adjustments. I make many of my adjustments on a qualitative basis as I work in an area where most homes were built prior to 1920 and are very dissimilar. I know what my market wants, and doesn’t want. If I am not sure, I ask local real estate agents. Of course, they seldom know the dollar amount.
I wonder how well “bracketing” will work for adjustment support?
click here to read the full newsletter