Appreciation and Lenders

[Dee Dee]

Mike.........

Where's that sample REO you were going to send my way?
I've been getting info from several other wonderful forum members, but any additional input you can send my way would be greatly appreciated.

Hard to believe it, but if someone would have told me two years ago that I'd even be considering doing this type of work, I probably would have laughed in their face.

 

[xmmcsmielr]

Dee Dee posted a couple of times about time adjustments, concluding one with"....most appraisers only have to go through this spanking once or twice before they realize it's not worth the grief."

WORTH THE GRIEF!?!?

What does that conclusion mean? That appraisers should ignore USPAP and omit time adjustments?

That is NOT all right..........

It is my job as an appraiser to accurately analyze market conditions and apply whatever supported time adjustments are indicated: UP, DOWN or NONE. If I don't do that, then I am an unethical appraiser, who reports inaccurate opinions of values. Accepting underwriter demands to omit time adjustments is a violation of USPAP and does NOT COMPLY WITH FNMA's GUIDELINES! If I consistently ignore changes in market conditions, I should NOT continue as a licensed appraiser. My state board should suspend my license until I learn how to analyze appropriate market data AND apply the results of those analyses.

Underwriters DO NOT spank me! If a mortgage company's underwriter cannot accept the time adjustments that result from data analyses, then I fire the mortgage company.

Dee Dee, saying "It's downright terrifying when I can put together a solid appraisal to justify a market value today,..." is 180 degrees from how I become terrified about my appraisals. If I CANNOT put together a solid appraisal to support my opinion of market value, I will not sign the report. By the way, I do NOT consider it my job as an appraiser to "justify" any one's value. I think my job is to report market data that support my opinions of real market values. If that data says changes in prices are happening over time, then I apply time adjustments.

 

[John Stirling]

Ricardo

You have it right. Simply put it is out job to report the value no matter what adjustments are necessary.
If the underwriters dont like it, then it is our job to educate them.

John

 

[xmmcsmielr]

Following is a copy of "Excerpts from the FNMA Selling Guide (04/12/2002)" that I though might be helpful in this discussion. I downloaded the recent Selling Guide from a reference provided by Jo Ann from Safford Arizona and selected these excerpts to send to FNMA underwriters who don't know about this part of FNMA's guidelines.

Remember, this is FNMA not USPAP! From these excerpts, I think FNMA underwriters, who tell appraisers to omit time adjustments, should read their own guidelines.

Excerpts from the Fannie Mae Selling Guide (04/12/2002)

Section 406 - Sales Comparison Approach to Value

The sales comparison approach to value-traditionally referred to as the market data approach-is an analysis of comparable sales, contract offerings, and current listings of properties that are the most comparable to the subject property. The appraiser's analysis of a property must take into consideration all factors that have an effect on value, recognizing that a well-informed or well-advised purchaser will pay no more for a property than the price he or she would pay for a similar property of equal desirability and utility if it were purchased without undue delay. To accomplish this, the appraiser must analyze the closed or settled sales, the contract sales, and the current listings of properties that are the most comparable to the subject property in order to identify any significant differences (or elements of comparison) that could affect his or her opinion of value for the subject property. This is particularly important in soft or declining markets because the competing current listings and contracts probably reflect the upper-end of value for the subject property as of the effective date of the appraisal (and we expect the appraiser to accurately report and reflect market conditions as of that date). The comparable market data must be verified, analyzed, and adjusted for differences between the comparable properties and the subject property. On most appraisal forms, the appraiser will identify these adjustments by assigning a dollar value to reflect the market's reaction to any features of the comparable properties that differ from those of the subject property. However, when the Desktop Underwriter Qualitative Analysis Appraisal Report (Form 2065) is used, the appraiser will identify the adjustments in terms of relative value relationships between the features of the comparable properties and those of the subject property without assigning an estimated dollar value to the relationships.

Section 406.03 - Adjustments to Comparable Sales

Each comparable sale that is used in the sales comparison approach to value must be analyzed for differences and similarities between it and the property that is being appraised. The appraiser must base his or her analysis and any adjustments to the comparable sales on the market data for the particular neighborhood and for competing locations-not on predetermined or assumed dollar adjustments. If an appraiser's adjustments to comparable sales (or the reconciliation of the comparable sales) are based on unsupported assumptions or personal opinion that cannot be supported by market data, poor quality appraisals that could have a discriminatory effect may result.

Comparable sales must be adjusted to the subject property--except for sales and financing concessions, which are adjusted to the market at the time of sale. The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical characteristics of the properties. [FORUMITES NOTE:] "Time" adjustments must be representative of the market and should be supported by the comparable sales whenever possible. The adjustments must reflect the time that elapsed between the contract date (or the date of the "meeting of the minds") for the comparable sale and the effective date of the appraisal for the subject property.

Section 406.05 - Underwriter's Review of Adjustment Grid

D. Date of sale/time adjustment. We will accept more than three comparable sales as part of the appraisal report, but at least three of them must be actual settled or closed sales. The appraiser should provide the date of the sales contract and the settlement or closing date for each comparable sale. Unless the appraiser believes that the exact date is necessary to understand the adjustments, only the month and year of the sale need to be reported. If the appraiser does not report both the contract date and the settlement or closing date, he or she must identify the reported sale date as either the "contract date" or the "settlement or closing date." if the appraiser reports the contract date only, he or she must state whether the contract resulted in a settlement or a closing.

 

[Blue1]

I am impressed by the intelligent responses I've read here on this thread. I too, am in an increasing market. I try to use the most recent sales. (Within 1 month). I also include active listings to represent the principle of substitution because of greatly reduced inventory. I try to limit a time adjustment to the next oldest sale date of the comparables and calculate the % per month of rise. Different neighborhoods rise at different rates in my market. You cannot apply a "blanket" time adjustment in this area. I would not make an "across-the-board" time adjustment because if there are no recent sales in the neighborhood then the market is probably not on the rise.

 

[Farm Gal]

My comment related to quarterly ranges related also to the seasonality of sales typically found in the less temperture stable areas of this great nation... which goes way beyond the kids are in school issues faced everywhere. I tend to look at this seasonal tendency as well as market rise and lets face it: fall. Colorado has seen more boom and bust cycles than most areas of the country in the last decade and a half...

I was specifically speaking to Dee Dee's market in that quarterly comment, and my (admittedly) passing familiarity with that area market through contact with friends who live in the area does influence my attitude... as to the applicablity of that sort of analysis!

I particularly agree with the point(s) that were made by Blue, Joe and George which you will forgive me by summarizing in this manner:

(1)Deriving your own :twisted: market adjustment MUST come from (2)recent activity in the market and even the specific (3) submarket on which you are making the adjustment!

(1) I think that taking generalization made by outside sources such as the local ad valorum resource or the head realtor who trumpets the results of his/her analysis of sales on the front page of the local fishwrap is highly dangerous, and far too common :roll: !

(2) In those areas where there is a highly volitile market, keeping current on listings, recent sales and history goes well beyond just a quick glance at 'sales in last 12 months' or what sold in the subdivision. (even bigger eye rolling).

(3) Being aware of the differences between high end, new construction, and resales over all the ranges as opposed to full market generalizations is also a necessity too often overlooked by the client.

What this boils down to is the old :

fast, cheap or accurate: pick any two!

What I see happening is clients wanting the first two at the expense of the third.

As we (and others) acquire the ability to perform 'better' analyses through the marvels of computing: the horsesense and highly important knowlege of the local market (for which we had better start being PAID) is becoming at the same time less respected and more necessary...

SO will we return to SOME form of professional designation/affiliation to seperate the actually competent from the incompetent?
Licensure is obviously a failure as a measure of competency,
USPAP is only a bat by which to beat folks if the state decides to do so,
and complete competency under current regulations with proper analysis to suport all value conclusions is not finacially feasable.

What to do? :?

 

[xmmcsmielr]

Lee Ann said, "......complete competency under current regulations with proper analysis to suport all value conclusions is not finacially feasable."

.... and then asked: "What to do?"

IMO, if I am not going to deliver a completely competent report WITH proper analyses to support ALL value conclusions for the fees that I set, then I am changing careers. Signing my name to an incompetent report WITHOUT a proper set of analyses is NOT something I will do.

Every single appraisal assignment doesn't require extensive number crunching! BUT, every single appraisal assignment should result in a completely competent report.

There are repetitive buyer behavior patterns for most characteristics. For example, buyers tend to pay the same amount more for a house with a pool in specific submarkets, so I don't have to run trendline comparisons for pool versus no pool for houses where I studied that amenity relatively recently.

Price changes over time are not so constant, so that element should be looked at often. But, that is my job as an appraiser.

So, what I MUST do is study market trends as often as necessary, and I MUST apply the results of those studies. If I am confronted with report rejections from incompetent FNMA underwriters who do not understand time adjustments, what I MUST do is inform them by showing them FNMA guidelines. What I MUST do is show them how I determined time adjustments. That's what to do!

I know there are numerous appraisers who comply with underwriting demands, even though those demands violate USPAP and FNMA guidelines. An SRA, who I used to respect, told me he jousted with "time adjustment" windmills and stopped adjusting for time, because it was too much of a hassle.

That designated appraiser takes the easy way out and diminishes our profession. He still gets to cash his appraisal fee checks and will be financially fat & sassy until a lawsuit for lack of accuracy comes his way. Sadly there probably is a slim chance that will happen, so that probably makes it worth the risk to many appraisers.

Although, in a declining market, there may be more clients than in appreciating markets who will look to appraisers who did not adjust downward for time to recover foreclosure losses.

 

[Dee Dee]

Ricardo,

We are not in complete disagreement here.
I would never tell an appraiser NOT to use time adjustments, but my observation has been that those who consistantly do so tend to be trying to hit a specific value dictated by the lender, NOT because there is a lack of comparable sales. Perhaps your experience has been different than mine...I certainly hope so.

Time adjustments are perfectly acceptable when sales data is scarce, but anyone who uses them should be advised that they need to be prepared to be scrutinized. In my opinion, rightly so. If you will recall, the original inquiry about time adjustments was from a trainee in a hot market who was looking for opinions, so it would be negligent if the downside of doing so isn't addressed. As with any other line adjustment, a good appraiser needs to be prepared to verify it with solid data. Just because USPAP recognizes it as a legitimate adjustment doesn't make it immune to abuse by number hitters, and more than a few underwriters recognize this.

Ricardo, have you ever made a negative time adjustment to any of your appraisals? Has anyone on this forum ever done so?

Anybody can boldly proclaim how they'll faithfully adhere to USPAP guidelines and address a negative time adjustment if they're confronted with such a market, but if they've never actually done so their words carry little weight.

Let's face it, USPAP can sometimes be a handy defense when arguing in favor of an adjustment that makes the value come in higher, but it will not protect us from the consequences if we dare using it to justify a time adjusted negative market trend. That fact alone causes me to have reservations about the validity or strength of using time adjustments.

You completely missed my point when I said, "It's downright terrifying when I can put together a solid appraisal to justify a market value today...."
Never did I say that I was trying to justify any market value other than what was my own conclusion, nor did I indicate that I am terrified of the quality of my work. Back up and read it again, because you were way out of line.

My point was that my market is indicating a downward trend in prices in the near future based on a growing number of current active listings. The value estimate of almost every home in my market today, based on solid current sales comps, may well be considered a high value six months from now. Six months ago there was no indication that active listings in my area were going to sell for markedly less than the listing price.

If I am correct, and soon I will know for sure, the number of homeowners in my market finding themselves upside down on their LTV may well increase due to no fault of their own. THAT is what I'm terrified about.
It's not about my job, though I know I will have to adjust the way I approach my value estimates and it won't be pretty, it's a growing concern over what will happen to the people in my community.

 

[Farm Gal]

Dee Dee:

I have two different friends who lost in the last down turn in your market and had to pay to leave the area 8O . This only works when there is a job offer elsewhere, you are quite right that folks who get upside down may be in a very bad way...

Sigh...Ricardo, you keep sawing off the limb when I climb out on it. Gimme a break wouldja?

I liken (to some extent) your tearing apart of my 'complete competency' statement to the pool example you cite: yes you can know with some REASONABLE degree of accuracy what pools have historically been worth in your market, because you did a study x months ago, but not doing one this appraisal resembles rather closely the "designated appraiser" saying they 'know' also :twisted: . They feel competent also.

Clients are not interested in perfection, most desire reasonable levels of competency, and speed... In MY market at least they do not care for exteremely competent but arguementative hirees! Educating a particular cleint out of your client list works in boom times, but in bust times it poses a real problem 8O .

Most of my competition is non-designated, and uninterested in accuracy to a greater degree than the designated folk who at least know HOW to perform some of the analyses:evil: . I am not designated, I DO spend time number crunching in an attempt to explain what I find in MY market... and so do several of the finest appraisers I know, many of who are very proud of their hard-earned designations. I take exception to your statement that designated appraisers take the easy way out.

My point is that a designation in and of itself is NOT at this time a garauntee of competency, neither is the lack thereof, but perhaps a return to 'when it means something' IS in order for the purpose of 'saving the profession'...

 

[xmmcsmielr]

Dee Dee asked "Ricardo, have you ever made a negative time adjustment to any of your appraisals?"

Yes, I have applied negative time adjustments in several of Tucson's manufactured home rural and marginally suburban areas. These areas have long distance / time linkages, and prices are declining. The declines shown by graphed sale prices are NOT just improved (affixed) manufactured houses, but are also apparent in graphed sale prices of vacant residential sites. During the last month or so I have applied negative time adjustments to two reports of manufactured houses. That's about 10% of my volume, because I only complete about 20 jobs a month.

Hitting requested values to make deals fly is NOT my objective in applying time adjustments. The market data dictates the applicability of time adjustments. And, whatever the data shows should be applied regardless of FNMA underwriters rejecting time adjusted reports.