Sandy Krestan, branch manager and Certified Mortgage Planner for Benchmark Home Mortgage , shared this update on appraisal standards with AAR. A member of the Arizona Mortgage Lenders Association, Scottsdale Association of REALTORS® and Women’s Council of REALTORS®, Sandy constantly strives to stay informed of industry trends and information. You can reach Sandy directly at 602-820-5166 or by email at sandy@TheKrestanTeam.com.
Appraisals continue to be the knothole in a lot of real estate transactions. If you’ve ever had one come in low, then you know how frustrating it can be to look at the comparable sales and try to make sense of how the appraiser came up with that value. Underwriters and investors struggle to make sense of the hodgepodge of commentary and adjustments on appraisals as well.
In an attempt to provide consistency and accuracy to the appraisal process, Fannie Mae and Freddie Mac have implemented a Uniform Appraisal Dataset (UAD), and ready or not, it rolls out on all appraisals completed on or after September 1, 2011. FHA has issued guidance that they will follow suit shortly thereafter. (You can also learn more about UAD on NAR’s Appraisal Insights blog.)
So What Does This Mean to the Rest of Us?
The MLS is the most common source appraisers use for their information gathering on comparable sales, and currently, it MAY OR MAY NOT provide all of the data they will be required to report. Therefore, they will have to call you to get it if you’re the listing agent. This will slow things down a bit, and your quick response, if you’re the listing agent, will be very important to getting appraisals completed on a timely basis.
Here are some of the significant data changes:
Days On the Market: Days on market (DOM) is now defined as the total number of continuous days. DOM is required for the subject and the comparables. So even if it is taken off the market for a short while and then relisted, the appraiser will have to count all of the days it has been listed.
Offering Price: The original offering price and history of all price changes must be reported.
Sale Type: Sale type must now be reported and the allowable choices are:
1. REO sale
2. Short sale
3. Court ordered sale
4. Estate sale
5. Relocation sale
6. Non-arms length sale
7. Arms length sale
The appraiser will have to start at 1 and choose the most applicable choice in order from 1-7.
Financial Assistance: All financial assistance must be reported. Financial assistance is now defined as: “Financial assistance or concessions paid by any party on behalf of the borrower include both monetary and non-monetary items, including below-market-rate mortgage financing, gifts of personal property, payment of property taxes and/or HOA dues for a period of time, etc.”
Site Area: Sites and parcels with less than one acre must be reported in square footage. Sites over one acre are reported in acres.
Property View: A view rating and view factor must be assigned to all sites. The allowed rating choices are: Neutral, Beneficial or Adverse. There are 12 established view factors which include water view, golf course view, industrial view, power lines, etc.
Property Style: Appraisers must use appropriate architectural design type indicators such as “Ranch,” “Colonial,” “Rambler,” “Farmhouse,” etc. Descriptions such as one story, one-and-one-half story and two stories are no longer acceptable.
Condition of the Subject Property: An overall condition rating must be assigned from the predefined condition categories provided. The appraiser must also report any “material work” done to the kitchen and bathrooms in the last 15 years. The work must be categorized as “not updated,” “updated” or “renovated.” Specific definitions are provided for each of these terms. The time frames of all “material work” done must be provided in the following intervals: less than one year, one to five years, six to ten years, eleven to fifteen years or time frame unknown.
The standardized “Not Updated,” “Updated” and “Remodeled” definitions as well as the condition ratings will be used to describe the condition of the property.
Sale Date of Comps: The appraiser must now report the contract date as well as the closing date of all comps.
Quality of Construction: This is one of the most significant changes being made! The appraiser must report a quality of construction rating of the subject and all comps from a list of six predefined quality levels.
Basement and Finished Rooms Below Grade: The total square footage of below-grade improvements (unfinished basement) must be reported. The finished square footage below grade must be reported. Percentages are not acceptable. The access to the basement must be reported as either “Walk out,” “Walk up” or “Interior only.” The number and type of finished basement rooms must be reported. The allowable room types are “Recreation Room,” “Bedroom,” “Bathroom” or “Other.”
AMC Reporting: The appraiser is now required to report the name of the Appraisal Management Company involved in the assignment.
On a Final Note
Despite all of these changes, nothing takes the place of the underwriter’s review in the process. It is ultimately the underwriter who is held responsible for insuring that the appraisal is acceptable and supports the value. There is a process that takes place once the appraisal is in that tests the appraiser’s result against an automated valuation model for quality-control purposes. If this process detects that there are other, potentially closer or more recent comps, it will red flag the appraisal data, and the underwriter may have to further investigate value through the use of a review appraisal or by getting additional information from the current appraiser. So it’s never over these days until we have a firm commitment from the underwriter.
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