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25% Gross Adjustments

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H.B. Userman

Thread Starter
Junior Member
Joined
Nov 11, 2003
Professional Status
Certified General Appraiser
State
Wisconsin
I do a fair share of FHA work. In the past five years, this is the first request I've had like this, and it is becoming a repetitive occurance with this underwriter, and I'd like your take on it.

Yeah, we all know about the 10, 15, and 25% adjustment guideline. However, I completed two assignments recently, here are the scenarios:

Large (top 10%) older home worth about $80K in a small local market (village with 200 people). The comps are few and far between, and beleive it or not, three of the six comps have gross adjustments over 25%. This is very common in this market, and the adjustments that were made were absolutely necessary in order to reflect the differences. not to mention two of the comps have 10% credits, which basically is an adjustment that adds 10% (already accounting for 40% of the allowed adjustments!!) to the bottom line. This is an adjustment that increases the Gross Adjustment, but really means nothing other than a credit on paper. THE UNDERWRITER WANTS ALL THE 25% ADJUSTED COMPS REMOVED AND NEW COMPS ADDED. She said I could reach into larger surrounding towns if I had to (ok, so the good ocmps should be removed???).

Second, there is a home, within another nearby small village, on 15 acres. I don't know of any homes in the market, in a village, on 15 ACRES!! She, of course wants the 25% comps out, and replaced with comps that adjust within 25%.

The loan officer for the credit union called me requesting the comps. I told here that if she reads the report, the adjustments are explained and all of the out of the ordinary issues were addressed. In fact it was a full page explanation, a very good one. So, the underwriter called me and said she's been underwriting loans for many years and has NEVER heard of an appraiser having to exceed the 25% adjustment, and swears to the sky that there would be abslutely NOOOOO WAAAYYYYY this appraisal would pass for FHA, only reason being the 25% Gross adjustments (keep in mind anywhere from 20-40% of the allowed gross adjustments are attributable to sales concessions, simple closing credits.

What do I do, ask to talk to her boss?? She's requiring an appraisal to include less adjustments rather than to use recent, quality data that results in a credible opinion. I get a lot of business from this client, but I feel like telling them where to go.

Is she correct, does FHA automatically kick back an appraisal with 25%+ Gross adjustments??? I don't know becasue I don't sell FHA loans, but I've never had these crazy requests before. Am I wrong or is this underwriter?
 

Calvin the Airedale

Elite Member
Gold Supporting Member
Joined
Aug 17, 2004
Professional Status
Certified General Appraiser
State
Ohio
I do a fair share of FHA work. In the past five years, this is the first request I've had like this, and it is becoming a repetitive occurance with this underwriter, and I'd like your take on it.

Yeah, we all know about the 10, 15, and 25% adjustment guideline. However, I completed two assignments recently, here are the scenarios:

Large (top 10%) older home worth about $80K in a small local market (village with 200 people). The comps are few and far between, and beleive it or not, three of the six comps have gross adjustments over 25%. This is very common in this market, and the adjustments that were made were absolutely necessary in order to reflect the differences. not to mention two of the comps have 10% credits, which basically is an adjustment that adds 10% (already accounting for 40% of the allowed adjustments!!) to the bottom line. This is an adjustment that increases the Gross Adjustment, but really means nothing other than a credit on paper. THE UNDERWRITER WANTS ALL THE 25% ADJUSTED COMPS REMOVED AND NEW COMPS ADDED. She said I could reach into larger surrounding towns if I had to (ok, so the good ocmps should be removed???).

Second, there is a home, within another nearby small village, on 15 acres. I don't know of any homes in the market, in a village, on 15 ACRES!! She, of course wants the 25% comps out, and replaced with comps that adjust within 25%.

The loan officer for the credit union called me requesting the comps. I told here that if she reads the report, the adjustments are explained and all of the out of the ordinary issues were addressed. In fact it was a full page explanation, a very good one. So, the underwriter called me and said she's been underwriting loans for many years and has NEVER heard of an appraiser having to exceed the 25% adjustment, and swears to the sky that there would be abslutely NOOOOO WAAAYYYYY this appraisal would pass for FHA, only reason being the 25% Gross adjustments (keep in mind anywhere from 20-40% of the allowed gross adjustments are attributable to sales concessions, simple closing credits.

What do I do, ask to talk to her boss?? She's requiring an appraisal to include less adjustments rather than to use recent, quality data that results in a credible opinion. I get a lot of business from this client, but I feel like telling them where to go.

Is she correct, does FHA automatically kick back an appraisal with 25%+ Gross adjustments??? I don't know becasue I don't sell FHA loans, but I've never had these crazy requests before. Am I wrong or is this underwriter?

Dear HB,

I will reproduce for you the language I use in such circumstances in both my Sales Comparison Approach Summary comments and my Final Reconciliation comments on the URAR:

"Given the limitations of the current market and the lack of more recent, proximate and similar comparisons, this valuation must be termed a complex residential analysis in conformance with CFR definitions for such work, to wit: "CFR, Title 12, Part 34, (e) Complex 1-to-4 family residential property appraisal means one in which the property to be appraised, the form of ownership, or market conditions are atypical." (Emphasis added.) As a result of this complexity, any compliance with FNMA line item, net & gross adjustment guidelines is purely coincidental."

You may alter them to suit your needs. The CFR regs quoted above apply to banks and thrifts, I would recommend searching CFR regs for credit union specific appraisal regulations (I'm sure they exist and will be identical to the phrasing shown above).

You will of course have to explain in what sense the subject, its form of ownership, or the market conditions are "atypical."

You can look of the CFR regs at

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/index.tpl.

I caution you, very few UW or mortgage processors have ever read the CFR regs. This language has the same effect on them as garlic does on vampires, IME.

Your response to them when they then ask you to remove the comps would be: OK since these CFR regs are "required by law" and the adjustment limits are only "guidelines" that can only be exceeded with good explanation, what do you want me to do? Violate federal law, or violate your UW policy? Whatever your response, please put it in writing so that I may document the file.
 

Artemis Fowl

Senior Member
Joined
Mar 16, 2004
Professional Status
Certified Residential Appraiser
State
Michigan
...The loan officer for the credit union called me requesting the comps. I told here that if she reads the report, the adjustments are explained and all of the out of the ordinary issues were addressed. In fact it was a full page explanation, a very good one. So, the underwriter called me and said she's been underwriting loans for many years and has NEVER heard of an appraiser having to exceed the 25% adjustment, and swears to the sky that there would be abslutely NOOOOO WAAAYYYYY this appraisal would pass for FHA, only reason being the 25% Gross adjustments (keep in mind anywhere from 20-40% of the allowed gross adjustments are attributable to sales concessions, simple closing credits.

What do I do, ask to talk to her boss?? She's requiring an appraisal to include less adjustments rather than to use recent, quality data that results in a credible opinion. I get a lot of business from this client, but I feel like telling them where to go.

Is she correct, does FHA automatically kick back an appraisal with 25%+ Gross adjustments??? I don't know becasue I don't sell FHA loans, but I've never had these crazy requests before. Am I wrong or is this underwriter?

Do what you know to be right.

Ask her to send you the documentation requiring less than 25%adjustments.
 

Mike Phillips

Senior Member
Joined
Dec 16, 2004
Professional Status
Certified Residential Appraiser
State
Florida
First question: Do the comps bracket the subject with all the relevant units of comparison, i.e., sale price, SFLA, etc.?

Second question: How narrow is the range indicated by the comparables?

Third question: Is there a strong central tendency in the several indicated values?

If not...welll...we don't have much to work with. That's what I'd be looking for as a UW or review appraiser, including adequate explanations which I'm sure you included.

I'd give it another look but if you are like me, you included the best comps available the first time. The question you must answer is whether complying with the UW will result is a misleadng report. I would not remove the existing comps under any circumstances - just add new ones if it comes to that. A UW will not tell me to exclude or replace comps more than once.

Sounds like a business decision to me. I doubt FHA will give you any help. I sure as hell wouldn't go to her boss, I'd think about getting more comps unless you know they are not available and hope you can educate this UW.
 

john eickhoff

Junior Member
Joined
Apr 17, 2003
Professional Status
Banking/Mortgage Industry
State
Texas
H.B.
You stated exactly what you should tell the U.W. when you said those are guidelines--not hard and fast rules. No, FHA will not kick back an appraisal for exceeding guidelines if you properly explain why it was necessary. I have submitted many appraisals where the guidelines were execeeded and never had 1 kicked back.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
The data are what the data are.

Life is not always easy...and neither is appraising.
 

H.B. Userman

Thread Starter
Junior Member
Joined
Nov 11, 2003
Professional Status
Certified General Appraiser
State
Wisconsin
I found the NCUA Requirements, and MC your were right the verbiage is the same regarding complex property. I emailed her Section 722.2.
 

ghrousseau

Member
Joined
May 5, 2006
Professional Status
Licensed Appraiser
State
Virginia
I do a fair share of FHA work. In the past five years, this is the first request I've had like this, and it is becoming a repetitive occurance with this underwriter, and I'd like your take on it.

Yeah, we all know about the 10, 15, and 25% adjustment guideline. However, I completed two assignments recently, here are the scenarios:

Large (top 10%) older home worth about $80K in a small local market (village with 200 people). The comps are few and far between, and beleive it or not, three of the six comps have gross adjustments over 25%. This is very common in this market, and the adjustments that were made were absolutely necessary in order to reflect the differences. not to mention two of the comps have 10% credits, which basically is an adjustment that adds 10% (already accounting for 40% of the allowed adjustments!!) to the bottom line. This is an adjustment that increases the Gross Adjustment, but really means nothing other than a credit on paper. THE UNDERWRITER WANTS ALL THE 25% ADJUSTED COMPS REMOVED AND NEW COMPS ADDED. She said I could reach into larger surrounding towns if I had to (ok, so the good ocmps should be removed???).

Second, there is a home, within another nearby small village, on 15 acres. I don't know of any homes in the market, in a village, on 15 ACRES!! She, of course wants the 25% comps out, and replaced with comps that adjust within 25%.

The loan officer for the credit union called me requesting the comps. I told here that if she reads the report, the adjustments are explained and all of the out of the ordinary issues were addressed. In fact it was a full page explanation, a very good one. So, the underwriter called me and said she's been underwriting loans for many years and has NEVER heard of an appraiser having to exceed the 25% adjustment, and swears to the sky that there would be abslutely NOOOOO WAAAYYYYY this appraisal would pass for FHA, only reason being the 25% Gross adjustments (keep in mind anywhere from 20-40% of the allowed gross adjustments are attributable to sales concessions, simple closing credits.

What do I do, ask to talk to her boss?? She's requiring an appraisal to include less adjustments rather than to use recent, quality data that results in a credible opinion. I get a lot of business from this client, but I feel like telling them where to go.

Is she correct, does FHA automatically kick back an appraisal with 25%+ Gross adjustments??? I don't know because I don't sell FHA loans, but I've never had these crazy requests before. Am I wrong or is this underwriter?

First question I would ask her is if she is really a DE Underwriter with a Chums number...............if not ask to speak with an actual DE underwriter in her office. Also, you can call the HOC yourself and give them the case number. I've had very good luck getting a hold of the appraisers at FHA lately..........they seem to be the only ones who answer their phones. I think the loan would be insurable by the way. We deal with similar type properties in some parts of Virginia.
 

Metamorphic

Senior Member
Joined
Mar 15, 2008
Professional Status
Certified Residential Appraiser
State
California
I bust 25% all the time. I dont even think about it. That's a number for appraisers working tract neighborhoods.

If you're in a small (low volume) market, high end custom market, rural market, or a market with dramatic location/view amenities 25% is a pipe dream.

It seems like if you explain yourself, explain the market and substantiate your adjustments a knowledgeable UW wont hassle you.
 

NC Appraising

Senior Member
Joined
Apr 28, 2006
Professional Status
Certified Residential Appraiser
State
North Carolina
FHA:


Net Adjusted (Total)
• Mark either [+] or [-] box to indicate if the total net adjustments will increase or decrease the value and note by how much. If any adjustment is excessive, review the comparable sales to determine if the best ones were selected. If the total adjustments appear excessive in relation to the sale price; the appraiser should reexamine the comparability of that sale.
• Explain any adjustment that appears to be excessive.


Total all of the adjustments and add them to or subtract them from the sales price of each comparable. Generally, adjustments should not exceed 10% for line items, 15% for net adjustments and 25% for gross adjustments. If any adjustments exceed stated guidelines an explanation must be provided including reasons for not using more similar comparable sales.



FYI:

Fannie Mae Single Family Guides:

We have established guidelines for the net and gross percentage adjustments that underwriters may rely on as a general indicator of whether a property should be used as a comparable sale. Generally, the dollar amount of the net adjustments for each comparable sale should not exceed 15 percent of the sales price of the comparable. When the adjustments exceed 15 percent, the appraiser must comment on the reasons for not using a more similar comparable. Further, the dollar amount of the gross adjustments for each comparable sale should not exceed 25 percent of the sales price of the comparable. The amount of the gross adjustment is determined by adding all individual adjustments without regard to the positive or negative adjustments. When the adjustments exceed 25 percent, the appraiser must comment on the reasons for not using a more similar comparable.

Individual adjustments that are excessively high should be explained by the appraiser and reviewed carefully by the lender’s underwriter. In some circumstances, the use of comparables with higher-than-normal adjustments may be warranted, but the appraiser must satisfactorily justify his or her use of them.

The appraiser must research the market and select the most comparable sales that are available for the subject property, and then adjust them to reflect the reaction of the market to the differences (except for sales and financing concessions) between the comparable sales and the subject property, without regard for the percentage or amount of the dollar adjustments. If the appraiser’s adjustments do not fall within our net and gross percentage adjustment guidelines, but the appraiser believes that the comparable sales used in the analysis are the best available, as well as the best indicators of value for the subject property, the appraiser simply has to provide an appropriate explanation. If the extent of the appraiser’s adjustments to the comparable sales is great enough to indicate that the property may not conform to the general market area, the lender’s underwriter must review the property carefully.
 
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