Fannie's Own Statement About Waiver /value Acceptance;

[TerryRohrer]

How can a waiver be part of the market when you're removing the neutral third party that's licensed to do appraisals and then hides the data to make that determination?

Is the waiver using superior sales? Inferior sales? Dated sales? Using the entire market area as opposed to the immediate neighborhood?

Why not just indicate it so it can be measured?

What part of the definition of "market value" entertains the notion that "a neutral third party that is licensed to do appraisals" must be included in the chain of events between listing and closing? I must have missed that over all of these years. Never mind the fact that the neutral third party you are talking about doesn't work for the buyer or the seller in most transactions. They are an after the fact service engaged by and for the lender. Where does the definition of market value talk about lenders?

"Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale with, the buyer and seller, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• buyer and seller are typically motivated;
• both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
• a reasonable time is allowed for exposure in the open market;
• payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
• the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

Now, if you are going to make the case that waivers are "special or creative financing" that necessitate adjustment to account for, I will be wanting a front row seat. But since the waiver isn't a buyer or seller decision, and buyers (to my knowledge) can have an appraisal done upon request, then I expect that will require ignoring all aspects of the definition of market value that hinge on buyers making decisions.

 

[J Grant]

I would submit that if your appraised value came in below the contract price 60% of the time and most of those transactions were arm's length transactions exposed to and sold on the open market, then there was likely something that was seriously flawed in your analysis. On top of your likely flawed analysis, your comment that you prevent the lender from "over-lending" based on the "the inflated SC prices" shows and unbelievably high level of arrogance as you actually believe that you know better than 60% of the market participants in your market at that time. I don't know what value you thought you were appraising to, but it sure does not seem like your appraised values had any relation to actual market value at that time.

I am not saying that buyers never contract to pay more than market value (it happens), but when you think that buyers are offering to pay over market 60% of the time, the problem is likely you, not the buyers.

You are so wrong... the entire state of Florida had roughly 60% of appraisals below SC price at the time. It was reported.

There were crazy bidding wars at the time - 12 offers --- 11 of the offers BELOW the "winning bid " of the crazy high price. So which buyer was right - the 11 people who, even in that market, would not go that high, or the top price? Ever heard of undue stimulus? What do you think a bidding war does to prices? What would you do- rubber-stamp every price?

It is not arrogance; it is doing the job. This is sick: an appraiser accusing another appraiser of not making a high sale price way above prevailing as having arrogance. No rewards for it except for the fact that some clients actually want a market value, even if it does not hit a SC price. This is the reason why I have lender and wholesale clients who do not use AMC's. There are those who want to see every appraiser gone who is not a rubber-stamp number-hitter.

I was hired to do field reviews post-crash and reviewed several hundred appraisals that turned out to have inflated values. Though in a field review, one does not say that. The value is either credibly supported or not. Those appraisers cherry-picked superior sales and other antics even in a high-price market. I guess you would have loved those appraisers.

My comments about over-lending are only my bulletin-board perspective. It was not my mission to do so when appraising.

 

[timd354]

Of course we want to know. Nobody said otherwise.

The question still remains. How would an appraiser go about using whatever that comparison reveals when it comes to handling one of those waivered sales in their analysis?

As the Chief Appraiser at a national MI that has insured several million loans over the past 15 years and currently insures about $250 billion of mortgages, I undoubtedly have access to lot more data than most people on the AF and we have done several comprehensive analysis of waivers. I wish I could share all of our data and methodologies, but I cannot for obvious reasons. However, I can tell you that we completed a comprehensive comparison of loans which included an appraisal waiver versus loans that included an appraisal and arrived at the following conclusions regarding valaution bias:

For Refinances, we found that both appraisals and waivers had a slight upward valuation bias and that the upward valuation for waivers exceeded the upward valuation bias for appraisals (~4% versus ~1%).

For Purchase, we found that upward valuation bias for appraisals was ~6%, while waivers actually had a slightly negative valuation bias.

This tells us that, for purchase appraisal waiver offers, the GSEs have set their tolerances pretty conservatively and and are only issuing appraisal waivers on those purchases in which there is a very high level of confidence that the purchase price does not exceed market value.

Obviously, that could change in the future, and that is why we continue to diligently continue to monitor appraisal waivers.

 

[George Hatch]

Good to see some numbers.

 

[J Grant]

Now, if you are going to make the case that waivers are "special or creative financing" that necessitate adjustment to account for, I will be wanting a front row seat. But since the waiver isn't a buyer or seller decision, and buyers (to my knowledge) can have an appraisal done upon request, then I expect that will require ignoring all aspects of the definition of market value that hinge on buyers making decisions.

A waiver is a buyer's decision. A buyer is extended a waiver offer if the property qualifies, and the buyer can elect to use the waiver or not use it and proceed with an appraisal.

It was originally called a Waiver because the buyer "waived" the appraisal option in the financing clause of a sales contract. In that clause, if the appraisal is lower than the SC price, the buyer can elect to cancel the contract. These situations usually result in the seller negotiating down to the appraisal value opinion. Any time I appraised below an SC price, 80% of the time the contract was negotiated down to the MV opinion. The buyer saved tens of thousands of dollars. The buyer saves $500 or so by not getting an appraisal, but loses the protection of the financing clause wrt an appraisal.

 

[George Hatch]

In your 2nd paragraph, an appraisal contingency in a sales contract has zero overlap with a lender waiving an appraisal altogether. Both exist, obviously; but they're two very different things.

 

[timd354]

You are so wrong... the entire state of Florida had roughly 60% of appraisals below SC price at the time. It was reported.

There were crazy bidding wars at the time - 12 offers --- 11 of the offers BELOW the "winning bid "Of a crazy high price. So who was right - the 11 people who, even in that market, would not go that high, or the top price? What would you do- rubber-stamp every price? I bet you would have. You sound like the type of appraiser who rubber-stamps everything and wants others to do it as well.

Unreal. No wonder the market went nuts and values are way beyond affordability now. It is arrogance; it is doing the job.

BTW, I was hired to do field reviews post-crash and reviewed several hundred inflated appraisals. You might have been one of those folks in a different state if you had actually been doing appraisals at any point in your career. Did you do field appraisals before working for PMI?

My comments about over-lending are only my bulletin-board perspective. It was not my mission to do so when appraising.

LOL, if 60% of appraisals in Florida came in under market during that time, then that reflects rather poorly on the profession. It is the appraiser's job to report the market, not to try to control the market.

If a transaction is an arm's length transaction exposed to the open market and there are multiple offers, one of those offers has to be the winning offer and it may of may not be the offer with the highest offer price.......the winning offer may be the one that was the cash offer or had no financing contingency, etc. In fact, I purchased a property that had multiple offers and was told that my offer was exactly the same price as another offer, but my offer was accepted because I was putting 40% down, while the other "bidder" was only putting 5% down.

In any case, even if the so-called "winning bid" (your term not mine) was slightly higher than the others, so what? If it is a huge amount higher than there could be a problem and reflect an overpayment, but escalation clauses in multiple offer situations are typically written in $500 or $1000 incremental increases (at least in my markets) and if you really think you are good enough to determine market value to within a $500 or $1000 tolerance on a several hundred thousand dollar transaction, then good for you.

BY the way, I was in the field appraising for about 9 years prior to working for a PMI, including during pre-2008 bubble run-up and none of the thousands of appraisal that I did ever resulted in anyone finding that I overvalued a property or a lender repurchase over a faulty appraisal. (as far as I am aware). In any case, I did not rubber stamp anything and did come in below the contract price when warranted and certainly lost clients backs in the days of loan officer select when I would not play ball when it came to values or property condition issues.

 

[J Grant]

I would submit that if your appraised value came in below the contract price 60% of the time and most of those transactions were arm's length transactions exposed to and sold on the open market, then there was likely something that was seriously flawed in your analysis. On top of your likely flawed analysis, your comment that you prevent the lender from "over-lending" based on the "the inflated SC prices" shows and unbelievably high level of arrogance as you actually believe that you know better than 60% of the market participants in your market at that time. I don't know what value you thought you were appraising to, but it sure does not seem like your appraised values had any relation to actual market value at that time.

I am not saying that buyers never contract to pay more than market value (it happens), but when you think that buyers are offering to pay over market 60% of the time, the problem is likely you, not the buyers.

I will appraise higher than a SC price if the market supports it. In case you got some inane idea that I set out to "lowball" values

I appraise over SC price in any market where the support is there for a price over what they paid - not that it matters since the lender only lends the lower of the two but MV is MV.

When the market crashed and REO sales were fire sale prices, I tended to appraise even then over the SC price if supported. Idiot rubber stampers can not do anything other then hit the Sale price regardless of the market cycle- and the rubber-stamper appraisers are the heroes? I don't get it.

 

[timd354]

You are so wrong... the entire state of Florida had roughly 60% of appraisals below SC price at the time. It was reported.

That is a complete load of crap....there is no reputable source that reports the so-called "appraisal gap" as being anywhere near 60% in Florida or anywhere else during the post-COVID boom. The "appraisal gap" runs in the 7-9% range pretty consistently most years and spiked to about 15% in 2021 and 12% in 2022 during the post-COVID boom according to a study done by FHFA.

Thus, if you were coming in below the contract price 60% of the time, you were out of step with the rest of the profession.

By the way, there were other markets that had a higher rate of post-COVID price appreciation than Florida, including Arizona, Boise, and Austin.

 

[J Grant]

LOL, if 60% of appraisals in Florida came in under market during that time, then that reflects rather poorly on the profession. It is the appraiser's job to report the market, not to try to control the market.

If a transaction is an arm's length transaction exposed to the open market and there are multiple offers, one of those offers has to be the winning offer and it may of may not be the offer with the highest offer price.......the winning offer may be the one that was the cash offer or had no financing contingency, etc. In fact, I purchased a property that had multiple offers and was told that my offer was exactly the same price as another offer, but my offer was accepted because I was putting 40% down, while the other "bidder" was only putting 5% down.

In any case, even if the so-called "winning bid" (your term not mine) was slightly higher than the others, so what? If it is a huge amount higher than there could be a problem and reflect an overpayment, but escalation clauses in multiple offer situations are typically written in $500 or $1000 incremental increases (at least in my markets) and if you really think you are good enough to determine market value to within a $500 or $1000 tolerance on a several hundred thousand dollar transaction, then good for you.

BY the way, I was in the field appraising for about 9 years prior to working for a PMI, including during pre-2008 bubble run-up and none of the thousands of appraisal that I did ever resulted in anyone finding that I overvalued a property or a lender repurchase over a faulty appraisal. (as far as I am aware). In any case, I did not rubber stamp anything and did come in below the contract price when warranted and certainly lost clients backs in the days of loan officer select when I would not play ball when it came to values or property condition issues.

The appraiser does not passively report the market. The appraiser is supposed to analyze the market. The appraiser does not set out to control the market; however, you seem to think that is some kind of motive if a home appraises "low" ...yet controlling the market is the agenda when an appraisal is deliberately made too high. I rarely, when reviewing, saw a poorly supported "low" value - I saw a ton of poorly supported high values. And I say that as someone who personally will appraise higher than a SC price when credibly supported.


IDK how it came about that you believe, in an insane market, the appraisers who appraised below SC prices for credibly supported MV were not doing their jobs. The fact that millions lost their homes due to paying too much and overvaluation, and that the economy almost crashed as a result, escaped your notice?

That might not have happened if so many had not rubber-stamped the insane prices. Rubber-stamping any price appears to be your idea of a good appraisal.

The fact that so many were paying above any shred of credibly supported MS is why so many Sale contracts at that time often had a clause in Florida for the buyer to put more cash if the home appraised below the SC price. Which is as it should be. The buyer is welcome to pay any price they want, if they are willing to put up their own funds when there is a gap in a MVO and the price.