February 28, 2014
Taken from an excerpt written by Hank Miller, SRA
While you slept, the appraisal industry had yet another “check” placed upon it: Collateral Underwriting. Weeks into it appraisers are adjusting, but the warnings are clear; appraisers must have justification for everything in the report. Opinions? Fuggettaboutit – did you agents and sellers hear that?
Regulations state that appraisal adjustments cannot be based upon an appraiser’s opinion. According to federal and state law, adjustments must be based on support and evidence – proof if you will, and an appraiser’s opinion is not considered to be “support.” Many appraisers have failed to support their adjustments and as a result have had their licenses revoked, penalties assessed and lawsuits lost, all because the they failed to understand a single but important requirement. – Richard Hagar, SRA
So what’s the impact on home buyers and sellers AND agents? It’s pretty simple and the basic tenant hasn’t changed – provide tangible data to support value and adjustment positions. What has changed, is the noose that’s even tighter on appraisers. Fannie Mae defines Collateral Underwriting as:
Collateral Underwriter (CU) is a proprietary model-driven tool developed by Fannie Mae that provides an automated appraisal risk assessment to support proactive management of appraisal quality. Fannie Mae will make CU available in 2015 to provide transparency and help lenders more effectively and efficiently identify issues with appraisals.
In case you missed it, reread the first sentence and note the word “automated”. The marble mouthed government speak is best said as “appraisals will be reviewed by software to validate adjustments and comparable selection”. Boil it down even further, most understand a “zesstimate” and most are also annoyed when they complete one on their home. A zestimate is an AVM – defined as:
Automated valuation model (AVM) is the name given to a service that can provide real estate property valuations using mathematical modelling combined with a database. Most AVMs calculate a property’s value at a specific point in time by analyzing values of comparable properties.
Right. In simple terms, it’s a computer program that “analyzes” data to arrive at an estimated market value. There are obvious fundamental flaws using computers for this – real estate is perhaps the most unique entity in the world, no two parcels or homes are alike and conditions behind a sale are never the same.
So if you as a seller or your agent feel that changing the cabinet pulls adds $7500 or replacing the gold “brass look” ’88 bathroom strip light adds $2000, bring something to support that. That condo on the 10th floor is worth $75000 more than the same exact units on the 5th and 6th floor? Support it.
The idea that “checks” are going to be made by computer programs is completely asinine – the unique nature of real estate precludes this type of blanket research. However, the appraisal organizations allowed this to occur and this has been in motion for years. Collateral Underwriting involves more than this but the end result is clear: an appraiser’s opinion, agent’s opinion or seller’s opinion is not considered to be “support”.
Kristen Haynes, Broker In Charge, Realtor, NC / SC, GC, CMRS
Says Kristen from New Home Buyers Brokers / Realty Pros, www.NewHomesNC-SC.com: “I would argue appraisals in truth serve no purpose in residential real estate transactions. Market value is and should be defined as what a ready, willing and able buyer will pay for the property. Appraisals have always served only one, true purpose: to supply the bank a scapegoat if they end up foreclosing and then can’t get the property sold for what’s left outstanding on the mortgage. Yet, “Automated Appraisal “reviews are allowed, and even encouraged? Don’t make me laugh- they are as pointless as automated estimates of value (think Zillow’s Zestimates)-utterly worthless. Just sayin’. we have been fighting low ball appraisals for years after the banking fall out, due to Appraisers not wanting to get in trouble with the feds due to what was the new federal HVCC rules (we call in HAVOC in the business). We have a socialistic system that doen’t allow lenders to choose the best, local or most experienced appraisers- we have appraisers sfrom Salisbury chosen to come down into Indian Land, or appraisers who don’t know how to value new construction doing appraisals that they can’t “find comps” for (call the builder, most “to-be-builts” never hit the MLS, as they are built for a particular homeowner, unless they are a “spec” or cancelled contract. So now, more regulations, when we are just starting to see Appraisals get more realistic?” What’s your opinion?
For more information on how this is affecting our local North and South Carolina market and for a free, local market report for your neighborhood and area of town, contact Kristen Haynes, Broker In Charge, Realtor NC / SC:
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