Appraisal Analysis The Underwrite - MBBA-NH

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.

Proprietary information, do not distribute or use without permission of MBBA-NH.

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?


How does an Appraisal show that a value is fully

supported?

What might make an Underwriter question the

value?

Supporting Value


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?


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.


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?


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?

11Proprietary information, do not distribute or use without permission of MBBA-NH.

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

http://www.quickenloans.com/blog/home-fire-safety-winter

http://www.quickenloans.com/home-loans/va-loan

http://www.quickenloans.com/home-loans/fha-loan

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


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


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


Collateral and

Compliance 16

Appraisals and Compliance


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


▪ 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


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


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


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


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

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

(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?


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?


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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Appraisal Analysis The Underwrite - MBBA-NH

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