appraisal analysis the underwrite - mbba-nh
TRANSCRIPT
Presented by Gwen Timbas
Staff Review Appraiser/Appraisal Manager
Merrimack Mortgage Co. LLC
Appraisal AnalysisThe UnderwriteProprietary information, do not distribute or use without permission of MBBA-NH.
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LEARNING OUTCOMES
1. How to review an appraisal for accuracy, salability and insurability
2. Explain the difference between a formal and an informal appraisal, and between an appraisal and an appraisal report.
3. List the main uses of appraisals.
4. Outline the Ethics Standards of USPAP.
5. List several important reasons for studying appraisal.
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The Underwriter must review the appraisal report any any
addendums for accuracy. They must ensure that the
property meets the Secondary Market guidelines in addition
to any Investor overlays. Lastly, they are reviewing the appraisal to make sure the property meets the Insurer’s guidelines if insurance is required.
What is the primary focus of the Underwriter?
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How does an Appraisal show that a value is fully
supported?
What might make an Underwriter question the
value?
Supporting Value
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The Appraiser analyzes distressed sales in a given neighborhood to determine the
effect on the neighborhood. If the neighborhood has a significant level of distressed
sale activity, they may have to consider foreclosures or short sale comparables in the
neighborhood to help them draw a more accurate conclusion about the value of the
property. What could this do to the property values of homes that are still on the
market? Simply put, values could go down. This is because the short sale values are
included in the overall market value range.
However, this doesn’t mean that the distressed property value is weighted the same as other comparable properties. Comparables that were sold at a market price will often be weighted to hold the majority of the value when determining a property’s value.
How do short sales and foreclosures affect market values?
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Market Value
Market value is the most probable price which a
property should bring in a competitive and open
market under all conditions requisite to a fair
sale, the buyer and seller, each acting prudently,
knowledgeably, and assuming the price is not
affected by undue stimulus.
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An Appraisal is required to provide an accurate portrayal
of the subject property, neighborhood, and current market
conditions
The Appraisal will also provide the Lender with an
accurate and supportable opinion of market value using
sound methods and recognized appraisal techniques
Why does the Lender need an Appraisal?
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What does the Underwriter see that you may not?
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What does the Underwriter see that you may not?
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What does the Underwriter see that you may not?
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What is considered a unique
What is a unique property?Can these properties be sold on the secondary market?
Can they be insured?
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Common Repairs
Health and safety is always top priority. Some examples of items that raise a red flag for appraisers and may require repairs are:
● Electric garage door opener won’t reverse with resistance● Steps or stairwells with no handrail that are deemed a safety concern by the appraiser
● Second floor doors lacking decks that are not secured
● Raised decks with no railing
● An outlet within 10 feet of a water source that has only a regular two-prong plug (for FHA and VA loans). A grounded plug or a GFI outlet
(designed for bathrooms, kitchens, garages and anywhere outside where you need an electrical outlet) must be installed.
Utilities must be functional and have no safety issues present such as exposed electrical wires. The appraiser will test the operation of water, electricity
and air conditioning
Water stains on the ceiling may not require repair, however, they generally require an inspection to locate the cause of the stain, such as a plumbing or
roof inspection.
Foundation or structural inspections may be required if there are signs of concern such as:
● Cracks in the walls, ceiling or foundation
● Water intrusion through the foundation
● Lack of sound roofing structure (must have at least three years of economic life remaining)
For FHA loan or VA loan products: If the home was built prior to 1978, chipping and peeling paint must be scraped and painted. This includes the
interior, exterior, garages, sheds and fences.
When an appraiser evaluates a house that has safety as a top priority, it’s more likely the appraisal will help the mortgage process move forward
instead of stalling it.
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Common Repairs
Red Flags
Comparable sales not independently verified or recorded
Value not supported by the comparable sales, and/or the comparable sales
are not appropriate
Incorrect appraisal report form or inspection type for the transaction
Inconsistent or unexplained adjustments, numerous adjustments, across-
the-board adjustments or all net adjustments in the same directions
(upward or downward)
Photos that portray the subject property to be inferior or dissimilar to the
comparable sales
Typographical and mathematical errors
Appraiser is not familiar with the market in which the property is located
Appraisal ordered prior to the sale contract date
The required completion certification is not in the mortgage file
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Appraisal Red Flags
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Common Red
Flags
Per FHLMC:
● Appraisal ordered by a party to the transaction
● Occupant shown to be tenant or unknown
● Owner is someone other than seller shown on
sales contract
● Appraisal indicates transaction is a refinance, but
other documentation reflects a purchase
● Purchase price is substantially higher than
predominant market value
● Purchase price is substantially lower than
predominant market value
● Subject property obsolescence is minimized
● Large positive adjustments made to comparable
properties
● Comparables’ sales prices do not bracket the subject’s adjusted value ● Comparable sales are not similar in style, size and
amenity
● Dated sales used as comparable sales
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● New construction / Condo conversion: All
comparable sales located in subject development
● Comparable properties are a significant distance
from the subject, or located across neighborhood
boundaries (main arteries, waterways, etc.)
● Map scale distorts distance of comparable
properties
● For Rent sign appears in photographs ● Photos appear to be taken from an awkward or
unusual standpoint
● Address reflected in photos does not match
property address
● Weather conditions in photos inconsistent with
date of appraisal
● Appraisal dated before sales contract
● Significant appreciation in short period of time
● Prior sales are listed for subject and/or
comparables without adequate explanation
Red Flags per FHLMC
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Appraisal Dispute
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Examine the appraisal report thoroughly. Check for any mistakes that potentially affect the value. If you
do find errors, you must be able to find documentation with the correct information to show the Lender.
Research comps in the area. Look at how the properties compare.Home improvements don’t always increase the home’s value. since the increase or decrease in price is largely based on how the property compares to others in the area.
Gather all documentation that you have to support your case and seek the help of the Lender.
It is very important to have concrete evidence that the appraisal is incorrect. Without solid
documentation, it will be very difficult for the Lender to assist in the dispute.
With clear documentation, the Lender is able to go back to the appraiser and request a revision. In some
cases, a Lender may even allow another report to be ordered.
Appraisal Disputes
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Collateral and
Compliance 16
Appraisals and Compliance
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Uniform Standards of Professional Appraisal Practice
▪ Conduct
o Impartiality, Objectivity, and Independence
▪ Management
o No undisclosed fees
o No contingent values
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USPAP
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▪ Confidentiality – Report only to:
o Client and authorized users
o State licensing agencies and third parties authorized by law
o A duly authorized professional peer review committee
▪ Record Keeping
o Keep work file for 5 years
o Keep work file for 2 years after final disposition of any judicial proceeding where testimony was given.
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USPAP
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The Competency Rule
▪ Need to be competent to appraise the property by the time you complete the appraisal report
The Scope of Work Rule
▪ The Appraiser Must:
o Identify the Problem
o Determine and Perform correct Scope of Work to produce Credible Assignment Results
o Disclose in Report the Scope of Work
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ADDITIONAL USPAP RULES
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Jurisdictional Exception Rule▪ Use when any part of USPAP is contrary to the
law or public policy of any jurisdiction
The Supplemental Standards Rule
▪ Added requirements issued as policy or regulation by Government Agencies or similar bodies
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ADDITIONAL USPAP RULES
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HVCC
In the spring of 2009, New York Attorney General
Andrew Cuomo, Fannie Mae and Freddie Mac, with
support from the Federal Housing Finance Agency,
developed a set of appraisal rules called the Home
Valuation Code of Conduct (HVCC). HVCC was adopted to
isolate parties with a financial interest in a mortgage loan
transaction from appraiser selection and retention.
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HVCC
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Appraiser Independence
In 2010, Congress enacted The Dodd-Frank
Wall Street Reform and Consumer Protection
Act (Dodd-Frank Act, P.L. 111-203). Dodd-
Frank includes appraiser independence
provisions similar to the Home Valuation Code
of Conduct (HVCC) and sunsets the HVCC.
Dodd-Frank required the Federal Reserve to
amend the appraisal independence rules in
Regulation Z of the Truth in Lending Act. The
interim final rule was effective April 1, 2011
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Appraiser Independence
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Appraiser
Independence
Once an appraisal assignment is completed and sent to the client, USPAP prohibits an appraiser from
discussing the results of the report to anyone but the client who ordered the appraisal, or parties
designated by the client. In order to ask an appraiser to correct errors in the appraisal report, an agent
must use the client, typically the lender, as an intermediary. The client may choose to provide additional data to the appraiser for consideration. The language from USPAP’s Ethics Rule is as follows:An appraiser must not disclose 1) confidential information; or 2) assignment [appraisal] results to
anyone other than:
● the client;
● persons specifically authorized by the client;
● state appraiser regulatory agencies;
● third parties as may be authorized by due process of law; or
● a duly authorized professional peer review committee except when such disclosure to a
committee would violate applicable law or regulation.23
Appraiser Independence
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Appraiser
Independence
(AIR)
The role of the appraiser is to provide an independent
and impartial analysis of real property. This analysis
is a critical component of the mortgage transaction
and, over the past three years, new laws, rules, and
regulations have been implemented in an effort to
protect the independence of the appraiser.
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What is the role of the Appraiser?
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AMC
An AMC is an independent entity through which
mortgage lenders order residential real estate
valuation services for properties on which they are
considering extending loans to homebuyers and/or
existing homeowners
AMCs fulfill an administrative function in the appraisal
process, including selecting an appraiser and delivering
the appraisal report to the lender. Individual
appraisers who work for AMCs provide the actual
property valuation services.
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What is an AMC?
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Lender’s Responsibility
in Appraiser
Selection
Appraiser License and Certification, Knowledge and Experience: − Selection of appraisers − Verifying state-licensed or state-certified − Ensuring state license or certification is active as of appraisal date − Ensuring appraiser has knowledge required to perform a professional quality appraisal for the specific geographic
location & property type − Confident appraiser has knowledge & access to appropriate data sources for the appraisal assignment − Appraiser has demonstrated the ability to perform high quality work
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Appraiser Qualifications
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