sid pachter
01-24-2008, 03:25 PM
Hello and Happy New Year to all. I am a new member and I have comments regarding the appriasal business. I have been in the mortgage industry for 12 years, 3 years as a fiee appraiser and staff appraiser for a S & L, 5 years as an underwriter and now for the last 4 years as a review appraiser for an established due diligence company. I have ridden the wave of good times and like all of you are experineceing more difficult times. As my compay has clients all over the US, I review appraisal reports from all areas of our country. Approximatley 80% of the reports reviwed I'd classify as being of poor quality. The purpose of my writing is to pass on point key points to help improve the quality of reports in an effort to limit the dreaded call from the underwriter for more information.
1) Remember the ultimate end user/reader of the reort may be located across the country. You cannot assume anything about the reader and hence the appraiser needs to provde better explanations pertaining to description of the subject and the neighborhood. This includes identifying and photogrpahing external obsolesence. I use high definition aerial photos to review the location of the subject and comps-so if these properties are near commercial properties or back to a dump or RR tracks or an expressway and you the appraiser do not disclose this and I find out-the creditability of the appriaisal report is gone.
2) Most of your clients are lenders. Lenders know what current economic conditions are and know what the current interest rate envrionment is. So the boiler plate comments used to describe the current banking environmnet is not needed. The purpose of the market condition section of the report is to inform the reader as to what is happeneing and the best way is to provided statistics. Local MLS is a good source and many state association of realtor web sites provide free data. Also Data quick provides free data. In this current environment don't tell the reader that market values are stable, when they are not. I have market statistics for most of the US and 98% of the county is experienceing declining markerts. As an appraiser it is your job to report the facts, not mask the facts. If you report declining markets and your mortgage broker client asks you to change this, just say no. If the pressure continues report him to the state department of busiess regulation. A Calif. appraiser is suing WaMu for putting her on their exclusion list beause she inidcates declinng values in reports. See mortgagefraudblog.com for details. If you do indicate declining values and are using more dated sales you must make a time adjustment to reflect the downward trend. I have reviwed many reports, especially from Calif., with December 2007 effective dates with comps used selling in June, July and August 2007, with decling vlaues indicated and no time adjustments. This is a red flag and reduces report creditability.
3) Avoid across the board adjustments. I still see $20/sf GLA adjustments in areas where properties are selling for more than $300/SF. Remember to bracket the feautes of the subject, remember that in a refinance transaction the reviewer will claculate the market value estiamte per square foot price-and this needs to be bracketed by the selling price /SF of the comps. If a comp sold with relator assistance, interview that realtor for additional verification and include his or her name and phone number in the report, if an addition is present verifiy that building permits were used-that menas call the local building department & include the name & phone number of the verifying party in the report-I do, if the subjcet has a recent prior sale find the circumstances of that transaction, for 2-4 family properties, the rental comps don't have to come from MLS, knock on doors of the next door rental property-contact the owner of a near by rental proeprty-rent survey needs to reflect similar proeprties in clsoe proximity to the subject. If you are providing an active lsiting as an addtional comp-which is acceptable, don't adjust it. As this proeprty has not sold you cannot measure the markets reaction to the features of the proerpty and as the proeprty has not sold you cannot know what the market economic influences are. Applying a generic percentage adjustment for the listing is not acceptable/realistic. Also do not use a listing that just came on the market, and report any price changes to the listing and disclsoe DOM. You should also disclose the list price and price reductions and DOM for the sold comps used in the report. If a FSBO is used as a comp, you should interivew the new owner or the seller of the proeprty and dislcose his or her name in the report. Otherwise how can yo confirm terms of sale and condittion of the proeprty? Don't hide behind extra ordinary assumptions or hypothetical conditions-make the effort!
4) Take extensive photos of the inside of the subject, especially if the property has been renovated and if there are itmes in need of repair. Proof read the report for errors and make sure everything makes sense.
Because of the currnet environment lenders are more senstive to collateral issues and appraisal reports. This includes actively investigating fraud issues and reporting appraisers, brokers, title companies to local authorities when needed. I hope my comments have been helpful-Good Luck and do a honest, professional job!
1) Remember the ultimate end user/reader of the reort may be located across the country. You cannot assume anything about the reader and hence the appraiser needs to provde better explanations pertaining to description of the subject and the neighborhood. This includes identifying and photogrpahing external obsolesence. I use high definition aerial photos to review the location of the subject and comps-so if these properties are near commercial properties or back to a dump or RR tracks or an expressway and you the appraiser do not disclose this and I find out-the creditability of the appriaisal report is gone.
2) Most of your clients are lenders. Lenders know what current economic conditions are and know what the current interest rate envrionment is. So the boiler plate comments used to describe the current banking environmnet is not needed. The purpose of the market condition section of the report is to inform the reader as to what is happeneing and the best way is to provided statistics. Local MLS is a good source and many state association of realtor web sites provide free data. Also Data quick provides free data. In this current environment don't tell the reader that market values are stable, when they are not. I have market statistics for most of the US and 98% of the county is experienceing declining markerts. As an appraiser it is your job to report the facts, not mask the facts. If you report declining markets and your mortgage broker client asks you to change this, just say no. If the pressure continues report him to the state department of busiess regulation. A Calif. appraiser is suing WaMu for putting her on their exclusion list beause she inidcates declinng values in reports. See mortgagefraudblog.com for details. If you do indicate declining values and are using more dated sales you must make a time adjustment to reflect the downward trend. I have reviwed many reports, especially from Calif., with December 2007 effective dates with comps used selling in June, July and August 2007, with decling vlaues indicated and no time adjustments. This is a red flag and reduces report creditability.
3) Avoid across the board adjustments. I still see $20/sf GLA adjustments in areas where properties are selling for more than $300/SF. Remember to bracket the feautes of the subject, remember that in a refinance transaction the reviewer will claculate the market value estiamte per square foot price-and this needs to be bracketed by the selling price /SF of the comps. If a comp sold with relator assistance, interview that realtor for additional verification and include his or her name and phone number in the report, if an addition is present verifiy that building permits were used-that menas call the local building department & include the name & phone number of the verifying party in the report-I do, if the subjcet has a recent prior sale find the circumstances of that transaction, for 2-4 family properties, the rental comps don't have to come from MLS, knock on doors of the next door rental property-contact the owner of a near by rental proeprty-rent survey needs to reflect similar proeprties in clsoe proximity to the subject. If you are providing an active lsiting as an addtional comp-which is acceptable, don't adjust it. As this proeprty has not sold you cannot measure the markets reaction to the features of the proerpty and as the proeprty has not sold you cannot know what the market economic influences are. Applying a generic percentage adjustment for the listing is not acceptable/realistic. Also do not use a listing that just came on the market, and report any price changes to the listing and disclsoe DOM. You should also disclose the list price and price reductions and DOM for the sold comps used in the report. If a FSBO is used as a comp, you should interivew the new owner or the seller of the proeprty and dislcose his or her name in the report. Otherwise how can yo confirm terms of sale and condittion of the proeprty? Don't hide behind extra ordinary assumptions or hypothetical conditions-make the effort!
4) Take extensive photos of the inside of the subject, especially if the property has been renovated and if there are itmes in need of repair. Proof read the report for errors and make sure everything makes sense.
Because of the currnet environment lenders are more senstive to collateral issues and appraisal reports. This includes actively investigating fraud issues and reporting appraisers, brokers, title companies to local authorities when needed. I hope my comments have been helpful-Good Luck and do a honest, professional job!