Having spoken with many, many appraisers regarding forms development, specifically those forms produced by Fannie and Freddie such as the URAR, I get the feeling that the subtle hints intended to catch our attention were not fully realized.
You see, when Fannie rewrote the forms and released them to a captive appraiser audience effective November 1, 2005, they really, really tried to provide clues about what they wanted us (the appraisers-at-large) to consider. My guess is they “hid” these hints to avoid insulting our intelligence and that, once revealed, actually become quite obvious. Here’s a listing of a few of the bigger hitters:
Hint #1: The “Subject Listing History” was moved from an obscure, obsolete form known as the Multi-Purpose Supplemental Addendum (the MPSA for you ACI users) to the front page of each residential appraisal form. Now, what items make it to the front page of anything? Unless you’re reading a newspaper from cold-war era Russia, the front page is generally reserved for those items perceived as the most important, agreed?
But, as to not offend, Fannie gave us a little check-box that states we checked the Listing History. A large majority of Lenders have written underwriting guidelines that clearly state: “We will not fund a loan on a property that has been listed in the last 12 months.” Have you checked your Subject’s listing history lately? What happens if the loan funded using an appraisal in direct violation of stated underwriting guidelines defaults? Got E&O? (see Analysis of Sales Contracts and Listing Histories)
Best Practices: Run the MLS on the Subject property before releasing your report and use wild card characters in the search. There are some pretty sneaky MLS users out there that will from time to time use the “property correction” form to “correct” one or more digits in the listing’s property address that can cause a listing to vanish. Imagine now, months or years later when this listing agreement signed by the homeowner and a licensed Realtor suddenly appears in court?
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Hint #2: The “Contract” section was also moved from the obsolete MPSA to the front page of the residential form and here’s the hint: Fannie wants the appraiser to actually review the purchase agreement on sale transactions. So there it is now, immediately following the basic USPAP requirements of Subject and Client Identification, Property Rights Appraised and Purpose.
But, as to not offend, Fannie gave us an “out” – by allowing us to “opt out” of the contract review. Does anyone actually believe Fannie wanted us to check this box? Purchase Agreement review is a critical part of the appraisal process. After all, how else does one identify illegal cash back incentives, 100% financing (and related creative financing costs), concessions and other important details about the transaction this appraisal is intended for? These are key factors that influence value – ignoring these key factors could be trouble. (see Analysis of Sales Contracts and Listing Histories)
Best Practices: Never proceed on a purchase transaction assignment without a PA. Opting to ignore proper appraisal principles and procedures results in exposure to liability and there are far too many other liability pitfalls built into these new forms to have to worry about something that should be readily available. Heck, we always get our PAs, sometimes even twice. Funny thing when we get the copy meant for the appraiser the first time and the one that actually went to the bank the second time.
Hint #3: At the tops of residential Page 2s, Fannie asked us to report the number of Actives vs. the number of Solds for the prior 12 month period. Was Fannie just trying to create more work for our already overworked and underpaid crew? What happens when you divide the number of Sales into the number of Actives? Is it a meaningful number? Here’s the hint: Fannie wants us analyze inventory, supply, demand, absorption – all of those things that critically impact values!
But, as to not offend, Fannie simply gave us fill in boxes that could be completed with little or no thought about their function or intended use. Now, Fannie is rejecting appraisals containing faulty analysis and, as of July 22, 2007 – may even black-list appraisers who didn’t catch this hint.
Best Practices: Get Statistics. There are a number of courses now available from numerous venues and institutions. Appraisers without the skill to analyze their markets, report pricing trends, supply, demand and other critical factors – will be appraisers without clients. Our profession has come under siege from AVMs, AAVMs and other companies that think computers can outsmart the trained man on the street – and – in some cases, we’ve proven them right.
Hint #4: Here’s a goodie: they tried to warn us before, but now Fannie really means it. At the bottoms of each sales comparison grid, Fannie used to ask us for the 36-mo Sale History of the Subject and 12-mo Sale History of each comparable reconciled. Nothing really changed here, right? What about those two little check boxes directly above the Prior Sale History row? Here’s the hint: Fannie wants us to analyze and report the influences on value for caused by prior transfers and to identify illegal property flipping.
But, as to not offend, they gave us a couple of extra credit items to check off and say, “Ok, I saw that prior sale” but what they meant is: this item is really, really important and has been added to reinforce the fact that this expected research item has not been completed reliably in past.
Best Practices: If a property flipping trend is seen in the neighborhood, verify the reasons for the flipping by interviewing the market participants and be certain to reconcile comparables that haven’t flipped in your report. Notice the price difference between a flip and a non-flip? Funny trends are observed (at least in our areas in Southern California) where the Flips are selling for higher than the non-flips. Coincidence? I think not.
Fannie has been begging us to do our jobs better and without telling us directly and blatantly, they have provided the tools, methods and “hints” to assist us towards higher ideals. For those that catch the hints, longevity in the profession is almost nearly certain.
AUTHOR: Dennis Jorgenson, Licensed Staff Appraiser, Express Appraisals Group - Associate Member of the Appraisal Institute 7375 Day Creek Blvd. Ste. 103-149
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