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In a declining market where the most recent comparable sales may be a distressed sale a few blocks away, appraisers are finding themselves on the hot seat about their work.
Fannie Mae just issued new requirements to help clarify single-family home appraisals, since it identified some issues in "post-purchase reviews of mortgage loan files." Simply put, what Fannie's June 30 selling guide updates mean is the agency didn't like the looks of the some of the appraisals on mortgage loans sold to it by lenders.
One concern often voiced by real estate agents is how appraisers are being selected and whether lenders are hiring competent, as opposed to cheap, practitioners. Fannie's new language says appraisers must have the "requisite knowledge" as well as experience and the right data to competently perform an appraisal. The lender, Fannie said, is ultimately responsible for hiring qualified appraisers.
Appraisal reports must also contain more pictures, including interior photographs of a home's kitchen, all bathrooms, the main living area, any examples of physical deterioration and examples of recent updates like remodeling or renovation projects.
Another issue addressed is the use of short sales and foreclosures as comparable sales. If a distressed property is used, the appraiser has to "identify and consider" all differences, including any stigma that may be associated with a foreclosure, for example.
Another change, and this one is a biggie, is designed to rein in lenders who are decreasing a home's market value from an appraiser's opinion based on a loan underwriter or automated valuation methods, a practice that can quickly kill a deal.
"The changes are merited; we needed to do something," said Alex Chaparro, a local real estate agent and national chairman of the National Association of Hispanic Real Estate Professionals. "You have a lot of first-time buyers who are losing deals, and they don't understand why."
Fannie Mae says lenders must raise concerns about market value with the appraiser who did the report, and if that doesn't do it, they have to get another appraisal before deciding whether to underwrite the loan.
What does it all mean? It means more work for appraisers and lenders, but the goal is more accurate appraisal reports and greater likelihood that good transactions will be underwritten.
"It's nothing more than Fannie trying to tighten the ship up," said Jim Blaydes, the governmental relations head of the Appraisal Institute's Chicago chapter. "When something's different or unique, explain to me why. Appraisers are going to have to explain themselves a little more. You're going to have to be able to write persuasively to support your opinion."
If history is any indicator, Freddie Mac is not far behind with similar revisions.
This story was first published on July 16, 2010 by the Chicago Tribune. This article from Tribune Company news outlets has been republished for additional education purposes. Please note that this editorial content was produced by Tribune news staff who are not employed by ForSaleByOwner.com or by Tribune Digital Marketplaces. This article is not affiliated with any links or products that appear on the on the same pages. Read more about our editorial policy. |
