Appraisal Guidelines

In typical good old American fashion, we love going to extremes; nothing in moderation as that’s….well….boring! No one wanted to know where the brake pedal was as the real estate market rolled on with reckless abandon…refi….equity lines….leverage….more more more. As credit and loans were given to anyone, there was essentially a total lack of concern by government regulators – what went on at Fannie and Freddie is reprehensible. But we’re in this mess so now we have to get out.

Appraisals are at the center of all of this – appraisers are supposed to be the watchdogs for the lenders. One of the main reasons we’re in this mess is because the Feds kept the dogs chained up for much of the real estate run. To expedite the sales and refi process, lenders were allowed to use Automated Valuation Models – AVMs for short – to establish home value. No boots on the ground, no physical inspections to verify condition of the subject or comps….just hit a computer button and get a value. If it didn’t spit out the “right” number to start, just use another version and do it again.

So now the Feds (led by Fannie and Freddie) have a disaster on their hands, what to do? Now they decide to unleash the appraiser watch dogs. Great – but now let’s over-correct in true government mingling fashion….Rather than allow the appraisal industry take the point, the Feds do – and start handing down “helpful guidelines” for underwriters to “follow”. Appraiser licensing and other regulations spun out of the S&L debacle of the early 90’s – we’ll see what “help” the appraisal industry gets this time.

So you’re a homeowner looking to refinance or a seller/buyer having appraisal issues. This is happening quite frequently – especially with refi’s as owners try to get a grip and lock in these still very good rates. Your first inclination is to bum rush the appraiser but before you do, consider the idea that we don’t make the rules. What follows is a “helpful” memo sent out by a major lender through their underwriter channels – from national down to local.

When you as a homeowner or as an agent get fired up because the appraiser “doesn’t know what they’re doing”, take a second and remember that we get our orders from above. Your helpful federal government is way overcorrecting and now we’re seeing the opposite of what it was a few years ago – solid buyers and owners falling prey to ridiculously micromanaged federal regulators….the memo…..

With the mini refinance bubble upon us and the volatility of the market, timely receipt of a satisfactory appraisal is crucial to the process. Listed below are some of the standard areas in the appraisal underwriting sometimes requires feedback from the appraiser. This information may be used as a possible “Heads Up” to the appraiser and could result in eliminating the need to go back to appraiser a second time.

  1. Appraisal to contain a minimum of two sales closed within 90 days of the appraisal date. An explanation from the appraiser is required if closed sales within 90 days of the appraisal date are not available.
  2. An appraisal containing sales dated greater than 90 days require an explanation from the appraiser. Most appraisals contain comparables between 90 days to 6 months.
  3. The appraisal should contain three closed sales and at least one listing or pending sale to support the market value.
  4. When the appraisal indicates the subject is located in a declining market, has an oversupply of homes, and over six months marketing time, the appraiser should comment on how these factors impact the subject’s marketability. Sometimes the appraisers state these factors may exist, but the market is stabilization in values.
  5. The appraisal should contain comments regarding the foreclosure activity in the subject’s market and the impact on the subject’s marketability.
  6. The appraisal should contain comments if the recently closed comps have lower sales prices than the older dated comps. This situation could indicate the subject is located in a declining market.
  7. The appraisal should contain closed sales that support the value located within the subject’s subdivision or within .5 to 1 mile of the subject. The distance of the comps for rural properties may be expanded depending upon the market.
  8. Minor repairs (such as paint, carpeting, or small holes in walls) should be addressed as cosmetic or not. Appraiser should indicate if the repairs have any impact on the subject’s marketability or value.
  9. The appraiser should place an “x” in all required boxes in the appraisal form. The GAAR report will pick up any box that is not checked as required.
  10. The owner/seller listed on the appraisal should match the executed sales contract and the title commitment.
  11. The appraiser should make a time adjustment for all sales that closed more than six months from the date of the appraisal.
  12. The appraisal should be signed and dated by the appraiser and review appraiser if applicable and contain the state certification or license number and expiration date.