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!!
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!!
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.
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.
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.
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.