Local appraisers were recently asked what factors are holding back higher appraised values. The predominant response was regulations - USPAP, FNMA, Freddie Mac, UAD and other Federal laws, i.e. FIRREA, Dodd-Frank, etc.
USPAP (Uniform Standards of Professional Appraisal Practice) can be considered the quality control standards applicable for real estate property appraisal analysis. USPAP requires that appraisers be familiar with and correctly utilize those methods which would be acceptable to other appraisers familiar with the assignment at hand and acceptable to the intended users of the appraisal. Any violation of USPAP is a violation of state law for which an appraisers' license can be revoked.
The multitude of requirements from mortgage underwriters was cited as another issue. Fannie Mae, Freddie Mac, FHA, VA and RD guidelines (as well as investor overlays) pose another hurdle as underwriters request data or clarification on appraisal issues and values. The high incidence of investors requiring buybacks of loans have made the underwriting process tougher not only on appraised values but have made the entire underwriting process more cumbersome (as we are all well aware).
When completing an appraisal, several different market valuations are used. There is the general market (i.e. the entire area including several miles out (most times) and all properties encompassed in that area), there is neighborhood specific (located within the immediate marketing neighborhood that can range from several miles down to a few blocks and encompasses all properties within that defined area) and finally, property specific neighborhood trends (these are located within the immediate marketing area but are only determined to be "comparable" to the subject). In many instances these trends are conflicting. There may be an overall increase in the general market but a decrease in values for the specific comparable market trend.
Appraised values generally tend to be derived from historic data and appraisers are only able to arrive at market value based upon a set of rules and not "market driven criteria". The definition of market value has changed from "highest most probable value" to the current "most probable".
As a REALTOR®, you can be proactive and assist the appraiser by following a few of the simple steps bellow.
- Meet the appraiser at the house. If you cannot make it, ask the selling agent to be there. Maybe even take the lockbox off the door after you get a contract so an appointment will have to be made.
- Give the appraiser as many Comparable Sales as you have for the subject property. Go further out if necessary and even go back as far as a year if it’s a special type property (waterfront, for example). Be aware that the appraiser may deduct value if the sale is further than three months out. Verify square footages when in doubt.
- Provide a “Complete Plus” listing report and 25 photos of Active, Pending, CTS and Sold comparables.
- Call the Listing agent for his/her Comps. They may have a comp you may not have considered.
- If you’ve visited a competing property being used as a comparable, share both the positives and negatives of it. The house down the street that needed a new roof – they need to know that, but it’s probably not in the MLS info.
- Make sure all the utilities, including hot water heaters, are on and in good working order and that the appraiser has full access to the entire property. You want to avoid a second trip by the appraiser.
- Give a complete list of every upgrade and improvement (and the dates they were done) that have been made during the seller’s ownership, including maintenance items as well as cosmetic upgrades. There is a category for “condition” on appraisals and although it won’t be matched dollar for dollar, it will be mentioned.
- Be sure to note when flooring is “hardwood” instead of “wood” or “laminate”. Be specific about other surfaces (granite vs. Corian) and raised panel cabinets vs. stock cabinets. Note high-end built-ins – Sub Zero vs. GE Profile, for example.
- Give the appraiser a copy of your marketing materials, including virtual tour floor plan, photos of the exterior, interior and grounds.
- Note anything special about the lot, i.e. the preserve is not only on the side but across the street, for instance. If it’s to your advantage, note the size of your lot vs. any comparable sales.
- If there are communities nearby that are not good comps, a map with some notes about the lack of amenities, production starter homes vs. your custom home community on estate lots, etc. may be very helpful for the out of area appraiser.
- Be gracious and offer to help the appraiser with anything they may need to get the best appraisal.
By taking these actions, you can improve the appraisal process and help move the sale forward to close!
Thanks to Bill Holmes of Ann Arbor Mortgage and Laurie Buys of The Charles Reinhart Company for contributing their time and insight for this article.