CoesterVMS Inside the Mind of the Appraiser 101
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The document covers the appraisal process including what appraisers assess in a home, the influence of lender guidelines, and communication tips for clients. It outlines the qualifications needed to become an appraiser, important factors influencing home value like location and renovations, and specific FHA and FNMA guidelines relevant to the appraisal process. Additionally, it discusses strategies for addressing low appraisals and the complexities involved in valuing green improvements.
CoesterVMS Inside the Mind of the Appraiser 101
- 2. What we will cover •What Appraisers Look for in a Home •How Lender’s Guidelines Effect Appraisals •What They are required to report back •How the Inspection Process takes place •FHA Guidelines and Tips •How to communicate with an appraiser •What to do . •What not to do. •What to never, ever do. •Valuing Green Improvements •Q&A
- 3. What’s inside the mind of the appraiser?
- 4. What clients may think….
- 5. To Become an Appraiser •4 Year College Degree from Accredited University •300 Hours of Tested Education Classes (an entire month of 9 hours a day) •3,000 “Logged Field Experience Hours” •Pass a Criminal Background Check •Become an apprentice for 2 years •Take a 200 question test and score an 80% or above •Take an FHA test ….then you become an appraiser that doesn’t know anything…
- 6. Communicating with the Appraisers WHAT YOU CAN DO…. • You can talk with an appraiser • You can have normal conversations about the property • You can question the work completed as well as provide information. WHAT YOU CAN’T DO….. • What you can not do is try to influence or change the value • You can not select the specific appraiser you want for a particular assignment. • You can not threaten them or threaten to withhold future work if they don’t hit a value.
- 7. What Appraisers Really Look for in a Home • Appraisers look for similar "use" that would appeal to a broader audience. • The specifics aren't as important as the location the market, location and other unchangeable factors. Anything that can be changed with relative easy is not as much of a factor. • The biggest single factor is the neighborhood, style of home, and the overall renovations.
- 8. Appraisal Guidelines vs. Lenders Guidelines
- 9. Map of US
- 10. How Lenders See the US Guidelines are written to fit these areas.
- 11. What Appraisers Really Look for in a Home • Typical Home • $273,900 • 2,700 sq ft • Lot Size 14,680 sq ft • 3 Bedrooms • 2 Baths • Heated by Gas
- 12. What Appraisers Really Look for in a Home
- 13. What Appraisers Really Look for in a Home
- 14. What Appraisers Really Look for in a Home
- 15. What Appraisers Really Look for in a Home
- 16. What Appraisers Really Look for in a Home
- 17. What Appraisers Really Look for in a Home
- 18. What Appraisers Really Look for in a Home
- 19. The forms The Creation of the appraisal form was to try and standardize the way things are reported back to the lender in an easily understandable format.
- 20. URAR History The Appraisal Form’s
- 21. URAR History • Revised March 2005 • Grew from 2 pages to 6 pages • Incorporated former addendum 1004B • Assumptions and Limiting Conditions – 10 to 6 • Appraiser Certifications - 9 to 25
- 22. URAR History To report an appraisal of: • One-unit property • One-unit property •with an accessory unit • Unit in a PUD • Requires interior inspection • Requires 1004MC Addendum
- 23. What’s Required In the Report? • Exterior building sketch with dimensions • Interior dimensions for condo or co-op • Floor plan if atypical or functionally obsolete • Gross Living Area (GLA) calculations • Street map – subject and comps
- 24. What’s Required In the Report? • Photos – Subject property front, rear and street – Interior photos of certain areas (details below) • Operating Income Statement – Form 216 for investment properties • Single-Family Comparable Rent Schedule – Form 1007 Rent Schedule – Form 216 when applicable
- 27. Reports • Comps • Adjustments • Grids • Addendums • Reconciliation • Value
- 28. Reports
- 29. Reports ADJUSTMENTS: • Match Pair Analysis
- 30. Street Map With Comps
- 31. Subject Photos
- 32. Subject Photos
- 34. Home Sketch
- 35. Condo Sketch
- 36. How Accurate? • It’s not 100% accurate and not designed to be 100% accurate, it’s designed to be a reflection of the general layout of the property.
- 37. Who’s going behind the bush?
- 38. GLA What?
- 39. Inspection and appraisal process So what's the purpose of the form? To gather all the information needed for the lender in an organized format, this is not the appraisal.
- 40. Reports The appraisal is the value and certification by the appraiser, anything else is a lender requirement.
- 42. FNMA Announcement 8-30 Provide Sales Contract to the Appraiser • The lender must provide the appraiser will all financing data and sales concessions for the subject • The lender must provide the appraiser with the sale contract and all addenda • If the sales contract is amended, the amendments must be provided to the appraiser
- 43. FNMA Announcement 8-30 Selection of Comparable Sales • Appraiser to provide an explanation as to why specific comparables were used in the appraisal report when… • 4 Comparables total • 2 Comparables within 90 Days • 2 Listings or Contracts • Urban – 1 mile • Suburban – 2 miles • Rural – 10 miles
- 44. FNMA Announcement 8-30 Repair Escrow – Existing Construction • Appraisers reporting the existence of minor conditions or deferred maintenance items NOT affecting livability, soundness, or structural integrity of the property may complete the appraisal with an “as is” status • Minor conditions or deferred maintenance items to be remedied or completed after closing may be escrowed by the lender • Property must be appraised subject to completion of the specific alterations or repairs when there are incomplete items or conditions affecting livability, soundness, or structural integrity
- 45. FNMA Announcement 8-30 Appraising the Entire Site of a Property Clarification – the appraisal must include the actual size of the site and not a hypothetical portion of the site Example: An appraiser may not appraise only 5 acres 40 acres of an unsubdivided 40-acre parcel. The appraised value must 5 acres reflect the entire 40- acre parcel.
- 46. FNMA Announcement 8-30 Neighborhood Boundaries • Preferable for the appraiser to provide comparables from the subject’s neighborhood • Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods – Best comparables available and the most appropriate for the appraiser’s analysis • The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist
- 47. Understanding FHA and What the appraiser is looking for
- 48. What FHA will lend on…. Eligible Properties • Detached 1-4 units • Semi-detached 1-4 units • Townhouses • Rowhouses • Condominiums • Approved Projects • Spot Unit Approvals Ineligible Properties • Commercial Enterprises • Boarding Houses • Hotels/Motels • Tourist Houses • Private Clubs • Bed and Breakfast Establishments • Fraternity/Sorority Houses • Condotels
- 51. Mixed Use Properties FHA will finance properties with minimal nonresidential use…
- 52. Mixed Use Properties •Must be self-sufficient •Net rental > monthly payment •Net rental income is the appraiser’s estimate for vacancies OR the vacancy factor used by the jurisdictional HOC or whichever is greater
- 53. Unacceptable Locations Hazaqds Enviqonmental contaminants Noxious odoqs Offensive sights and excessive noises to the point of endangering the physical improvements
- 54. Private Water and Sewer Systems Appraiser to report if public water and sewer are available. Lender is to determine feasibility Usually connection Is considered feasible if the cost is less than 3% of appraised value. If home has been vacant from 30 days or several months inspection and dye test will be required.
- 55. Private Water and Sewer Systems
- 56. Private Roads Pqivate stqeets and shaqed driveways Each pqopeqty must have vehicular or pedestrian access Road suqface oveq which emergency vehicles can pass The absence of these items must be noted
- 57. Accessory Units Habitable living unit add to, created within, or detached from a single- family dwelling Accessoqy units may not be subdivided or segregated
- 60. Unacceptable Locations Below 100 year flood level Flood Insurance not available Unacceptable area near airport
- 61. Unacceptable Locations Not approved Instability Easement
- 62. Unacceptable Locations • Three noise zones • Clear zones • Accidental potential zones
- 63. Unacceptable Locations • Appraisers who work in CBRS areas must obtain the appropriate maps from the U.S. Fish and Wildlife Service • Prohibited areas on the maps are those inside the red areas
- 64. The Best Way to Deal with the appraiser
- 65. The Best Way to Deal with the appraiser
- 66. What if your value comes in low • Submit an Appraisal Rebuttal • Provide supplemental comparables that are similar to the subject that would meet the lender requirements for standard appraisal practice. • Generally speaking pointing out minor errors will not get the value changed.
- 67. It is to… “Address legitimate concerns with the appraisal in which there is tangible evidence the appraisal is flawed and the property is being misrepresented.” - Brian C. Coester.
- 68. Concerns on the appraisal Could be: 1.Better comparables sales are available that support a different value that are not in the report. 2.Misrepresentation of the property. “I didn’t know the homeowner owned the waterfront lot next to the house” 3.Overlooking key features such as acreage, view, updates, features. 4.Lack of appraiser competency apparent in the report. 5.Over conservative appraisal. 6.Lack of attention to detail and multiple errors
- 69. What Not to do “This appraisal is horrible, we need an extra 10k to make this work. Call the appraiser and tell him to change it or never use him again!” “Appraiser missed a ton of stuff, borrower paid 90k more two years ago and he know its worth at least that we need to order a new appraisal” “Need more value to close please adjust” All of these get us nowhere……..
- 70. What TO do “Noticed that the garage adjustment was only 2k and the deals very tight. Can you see if the appraiser can re-look at the garage adjustment.” “Borrower indicated the appraiser didn’t give appropriate adjustments for upgraded kitchen and bathrooms as you can see from the photos its in great shape, can you have him look again?” “Local realtor was able to find 3 additional closed sales that support a 20k higher value. Can you send these to the appraiser have them take a look?
- 71. Your Appraisal Inspection Package • Copy of Fully Executed Contract • List of all renovations and improvements done within 5 years • Any notable features that are not obvious during the inspection • Copy of Sketch • Copy of PlatMap • Copy of Old Appraisal • If purchase supply appraiser with comparables the agent used for listing the property. Anything that may be helpful for them to spend more time on the report and not in research.
- 72. What appraisers are dealing with in the mortgage industry…
- 73. How appraisers are looking at Green • Very Difficult to Value • No Clear Structure in place • The best is the AI ready energy efficient Appraisal form that adds some data points. • Biggest issue is lack of Data on comps • About 2 – 3 years from a real solution.
- 74. Thank you Laura Hite Market Trainer Coester Valuation Management Services Lhite@coestervms.com