Have you noticed a CHANGE in the climate recently? No, I'm not talking about global warming! I'm talking about the new interest, from lending clients, on the analysis aspects of residential appraisals.
Fannie Mae recently issued their guidance to lenders and appraisers on the importance of accurately reporting or disclosing declining markets. Download Fannie Mae Ann. 07-11-Declining (33.8K). Part of their instructions to lenders states:
"Generally accepted appraisal standards and our appraisal report forms require the appraiser to include support for his/her conclusions regarding market conditions, including housing trends. The Neighborhood Section of the appraisal is the primary area where the appraiser would indicate whether property values are increasing, stable or declining. If the lender believes the property is in a declining market and the appraisal indicates otherwise, the lender should request additional information from the appraiser that supports the appraiser’s conclusion."
Are you starting to see that yet in your practice? You will! Take a look at these instructions from a large AMC:
You have recently received an appraisal order for Bank XYZ on a property located in the state listed above. The lender has requested that the appraiser specifically address each of the four following questions within the body of the appraisal report that you are completing for the above referenced property:
- List the 12 month change in house prices (appreciation/depreciation) for the subject's immediate market area or MSA. Please cite the source of information.
- Were foreclosure sales used in the appraisal? If so, why were foreclosure sales deemed necessary? Were adjustments made to the foreclosure comp(s)? If so, please qualify.
- Were sales over 6 months old used in the appraisal? If so, please explain why.
- Provide an overall analysis regarding supply and demand for the subject's immediate market area.
Please complete the required Property Addendum information (4 items noted above). Please address each item in detail, place within the addendum of the report separate from other comments and labeled Property Addendum. If not completed as requested, or if a item is not addressed, we will ask for additional corrections to be made before the report is completed.
What do you think? Is that type of analysis and documentation in your reports? Let me quote a few passages from Steve Smith's Appraisal Scoop article from last Fall:
"In a declining market, closed sales alone may give a false read of the present value. If values are going down at double digit prices, a six month old sale will give a really false read unless you actually make the appropriate downward adjustment. Even then, the current listings and pending sales might come in lower. We are on the cusp of this market; it will be a slippery slope that will require true skills to navigate"
"Should appraisers be reporting the market trend based on annualized statistics when they know prices have already been declining for the last 2-3 months? I do not think so. What if they do not know what is happening to the market, but should know? What if they know, but do not report the facts? These questions might by the type posed to a jury. Juries in court rooms are not made up of appraisers and even if there is an appraiser on the jury, they have no sympathy for a licensed professional who did not do their job."
"Those appraisers who embrace the changing market conditions, measure and analyze what is happening; will float to the top like cream in a can. Create market demand for yourself by being analytical, articulate and accurate in your measurement and reporting of the market conditions in the areas you maintain geographic competency." "Hunting for three sales to complete a report is not all that is expected and presumed of the appraiser."
If you received a letter from an AMC (see above) requesting support for your market conclusions . . .What's in YOUR "workfile"? Are you going by a gut feel or do you have some real data and analysis to back it up?
- What analysis tools are you using?
- What defines a "declining" or "stable" market?
- What courses or webinars have you taken?
Are YOU starting to see more requests for "analysis" in your appraisal reports? Send us your comments!
Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog and the WinTOTAL Users Group an email forum for appraisers.
Recent Comments