Appreciation and Lenders

[xmmcsmielr]

The following paragraph demonstrates a complete lack of understanding of USPAP:

"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."

USPAP is NOT a defense from anything. USPAP is a set of rules for appraisers to follow. There certainly is no "fact" that USPAP favors upward time adjustments over negative time adjustments.

What different consequence results from daring to use USPAP to justify a time adjusted negative market trend than a positive one? And who imposes any consequence for following USPAP and FNMA guidelines?

The consequences from NOT applying valid and well supported time adjustments may be lawsuits from entities suffering losses resulting from poor appraisals that fail to comply with USPAP and FNMA guidelines, both of which require appraisers to analyze market trends. There also may be sanctions from a state board, if a report that omits time adjustments to reflect a real market trend is turned in.

The FNMA underwriters who created this "NO TIME ADJUSTMENTS" cadre of appraisers by rejecting time adjusted reports have done a major disservice to everyone involved in mortgage lending, in appraising and in buying and selling real estate, because the resulting appraisals tend to be inaccurate.

Appraisers who comply with mistaken FNMA underwriter demands and omit time adjustments, when data shows that prices are changing, are violating USPAP and FNMA guidelines.

 

[xmmcsmielr]

While re-reading posts I keep finding statements that beg rebuttal:

"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."

Time adjustments are perfectly acceptable even when sales data is NOT scarce, because the more sales data that is available, the more reliable the indication of price changes over time, particulary if there are one and two month old sales.

For example: Current MLS listings are sufficient for only one month's absorption. Listing brokers report multiple offers within days of MLS publication. Some listings sell for more than their asking prices. A trend line of graphed sale prices of two years of MLS data shows more than a 1% per month increase. A trend line of graphed days on the market declined from just over 80 days to less than 30 during the preceding two years. Prior sale prices of six comps, adjusted in an appraisal report, were all lower than their current prices, averaging 0.5% to 1.5% +/- per month.

In the example, should I comply with a FNMA underwriter's demand that time adjustments of +1% per month be removed from the report? I refused and fired the mortgage company.

What if the reverse time trend were true? What if prices declined by 1% per month, and there was a two year supply of listings, and marketing times were increasing? What if there hadn't been a sale for more than six months? Should I comply with a FNMA underwriter's demand to omit downward time adjustments? Of course not.

 

[Dee Dee]

In the example, should I comply with a FNMA underwriter's demand that time adjustments of +1% per month be removed from the report? I refused and fired the mortgage company.

Ricardo, you are entitled to your opinion, and how you choose to handle any client that doesn't accept it is entirely up to you.

If I were doing an appraisal on the same property I would use three recently closed properties and one or two that are under contract. I would make a statement that recent sales indicate steady value increases (in more detail, of course) and give more weight to the under contract sales.
When Denver's market was seeing 1.5% per month value increases that was how I handled it. I was never questioned by underwriters and the estimate of value was identical to what it would have been had I used time adjustments.

We all know that a sizable number of underwriters have never done an appraisal in their life, and in a hot rod market their numbers seem to increase. Sometimes dumbing down the information is easier than trying to educate those who are looking only at deadlines and volume. No, it's not fair, but if the estimate of value is the same then no harm done. Same end, different means.

 

[xmmcsmielr]

Dee Dee,

You said, "Sometimes dumbing down the information is easier than trying to educate those who are looking only at deadlines and volume. No, it's not fair, but if the estimate of value is the same then no harm done. Same end, different means."

For one or two appraisals, O.K. Reasonable solution..........

However, those who are looking only at deadlines and volume force inaccurate adjustments in thousands of appraisals, because way too many appraisers comply with FNMA underwriter demands to omit time adjustments all the time. It is important to note that the FNMA forms have "Date of Sale / Time" adjustment lines in the grids. If FNMA doesn't want changing market conditions reflected in opinions of values, that line should be deleted from the form and new guidelines should be written. Certifications should be altered to say that changes in market conditions were omitted from the analyses.

This situation results in an unfortunate chasm between segments of the mortgage lending industry: appraisers who comply and the FNMA underwriters who demand omission of time adjustments on one side, and appraisers who include time adjustments and market participants who want accuracy on the other side.

As you know, I will not stoop to a "work around" policy for time adjustments, because work arounds only work part of the time. When time adjustments have to be included to report accurate opinions of values, then underwriters who are accustomed to appraisers omitting time adjustments go ballistic and delay closings by requiring a NO TIME appraiser to complete another report.

Dee Dee, sounds like you are concerned about accurately reporting values, and I commend you for that. You use the same work around as that SRA I mentioned in an earlier post. He said he is tired of jousting with the "time adjustment" windmill. Maybe I am naive in sticking with time adjustments. I hope not.

There are numerous examples of rules and laws being regularly and openly broken with little if any consequence. Like illegal aliens crossing the Mexican border (last month over 25,000 illegal entrants in the Tucson sector alone with those who make it across waiting for the next amnesty).

Time adjustments in appraisal reports are such a minor part of life in general that I am not going to spend any more time bantering about it on this Forum. My wife and I have two 8-week old cocker spaniel puppies (litter mates) to go play with this afternoon.

Don Quixote de Tiempo Cambiando