Freddie Mac: Quality & Condition Ratings

[TerryRohrer]

The value of the appraisal is implied to be the exact value is it not? Banks don't use some value close to our value. No, they use our exact value to base their lending decisions? If appraising was so exact then if you gave 10 different appraisers the same assignment they should all come back the same exact valuation right? We all know that doesn't happen. In fact, you would mostly likely get 10 different values and the more difficult the assignment, the wider range of values you're likely to get.

This is why I think a range of values with a certain confidence level is a better, and more honest way to value a property. That doesn't mean appraisers should have some crazy wide range of values on every assignment but it should be within a small range. Some values could even be exact like when you're a PUD and you have model match homes with no variations but it would be more accurate to have a range on more difficult properties. When I said we "good enough" I meant it's just our opinion and yes that can be supported but so can another appraiser who comes up with a different value who's value is also supported. You see statistics and data can be viewed and used in many different ways supporting different conclusions so if they are both supported who is to say one is right and one is wrong? Are you saying you're opinion is absolutely right every time and anyone else who comes to a different conclusion is wrong?

I have never completed an appraisal where my opinion of value for a subject was different than what I concluded and reported in my appraisal. I am, and expect to remain, 100% accurate in that regard, forever. To argue otherwise is to make the case that you have been misleading.

If appraising were exact, we would not talk about opinions of value and define things in terms of opinions of value. Others would talk about calculated values and others would program their computers to calculate those values. Appraisers would have no use and no value. Arguing that appraisals could be exact ignores the daily occurrence where very similar to nearly identical properties sell for different prices. Each transaction has different, mostly human, buyers and sellers with different motivations and knowledge/advice and experiences and financial wherewithal. Humans being human, there will never be two identical transactions, even if the properties were identical. And there is not enough time and money to verify and measure every difference between every buyer and every seller in every transaction and then develop the impact those differences had on each transaction price. Teams of phycologists and valuation experts and lawyers and many others would be necessary in each attempt, and the outcome would likely be little better than competent, ethical appraisers can do.

Many argue that reporting a range in values would be more useful. To whom? Lender likely rely on a point value because their regulations and programs rely on "the" appraised value. If you give them a range, what will they use? Borrowers will likely argue for the highest every time. Conservative lenders (if they exist) and lenders who keep loans in house and understand risk will likely prefer the lower end more often. And who will determine what value is used in calculating "loan to value" ratios? Will all those benchmarks be revised to state $X +/- 5% or $X +/- 15% or whatever range is suggested in the appraisal? Will that be based on the center of the range, or the upper end of the range, or the lower end of the range?

And what is "a certain confidence level"? Just a statement by the appraiser that will be more meaningless than a point value will ever be? If not, then how is it measured? How is it calculated? How is it's credibility gauged? How is it reviewed?

 

[J Grant]

As for the range in values vs the point value there's no reason for appraisers to consider that an either-or choice. You can't even get to the one point value without first stopping off for a moment at a range. Even if only as the first step in your final reconciliation process.

Saying so in a report can at least provide the reader with some context for the number on the bottom line. If a reviewer concludes to a slightly different number but that number is still within the appraiser's original range then the reviewer can fairly consider BOTH point values to be within reason insofar as the concept of market value goes. They don't have to say the other appraiser was clearly unreasonable.

If Fannie/Freddie really thought precision was a doable expectation the UAD ratings would include more than the current number of ratings. Appraisers would be doing Q3.2 or C4.5 and applying market conditions adjustments by the day.

It is an either-or choice on the client end - they usually want a point value, especially for lending. Of course, we first develop a range of values, and from the range, we derive our point value.

The range of adjusted values is there on our report. However, we can, as you say, comment and remind them about the range.

The problem is a segment of appraisers kept posting ( and some still are) that the appraiser is not "good enough" to develop a point value !! Well guess what, fannie and Freddie heard them loud and clear. They still don't get it - how that statement talked themselves ( and the rest of us) out of work.

Why would anyone go to a doctor who said, "I am not good enough to give you a diagnosis? Or a tax preparer who says, I am not good enough to prepare your return?

 

[George Hatch]

What providing "both" does is contribute to explaining how the point value occurred. And acknowledges that the appraiser could have considered anything in that range to also be reasonable.

The whole "there can be only one price for MV" thing becomes a credibility problem every time more that one appraisal report with no deficiencies concludes to different numbers on the bottom line. On occasion its possible for 10/10 appraisers to agree on the one number, but most of the time it isn't. And saying otherwise becomes...incredible.

 

[J Grant]

What providing "both" does is contribute to explaining how the point value occurred. And acknowledges that the appraiser could have considered anything in that range to also be reasonable.

The whole "there can be only one price for MV" thing becomes a credibility problem every time more that one appraisal report with no deficiencies concludes to different numbers on the bottom line. On occasion its possible for 10/10 appraisers to agree on the one number, but most of the time it isn't. And saying otherwise becomes...incredible.

We already are providing both.

The range of values is the adjusted range on the comps page. We can, of course re re-state it, o make it clear to the reader as an additional narrative comment.

The appraiser does NOT say in their appraisal that there can be only one price for MV !! Those appraisers too dense to realize that, frankly, should have quit. (not you, I know you are trying to make a point by saying that here)

The appraisal does not state that the X$ point value is the only one price for MV. The appraisal does the opposite -it qualifies the $ point value as an opinion, only intended for the identified client use etc etc.

Yes, competent appraisers can come to slightly different $ amounts as a point value for the same property -but so can an AVM or other program, depending on data and input. The number the appraiser derives should be credible and reliable, and most appraisers derive a similar number if they use the right comps - in a purchase, they might tend to opine at the SC price if the price is within the value range.

 

[FLApr04]

I know you mean well but the above, but I warned appraises about for years ( but some kept saying it anyway) The above is how lending appraisals became replaced with WAIVERS, which is what you say you want - an AVM range of value because appraisers are not "good enough" to stand behind a point value. Good god, if we say we are not good enough to do our jobs, what do they need us for? And that is how they saw it, since too many here kept saying it.

Our value opinion (not estimate ) does not mean the property is worth and no more or less as some universal fact - our value opinion is credible and reliable for its purpose, end of story..

I posted this numerous times in the past, that if appraisers kept saying "we are not good enough" , at some point Fannie and Freddie would believe them. I also said that if the appraiser did not pick th point value, then somebody else would - and that somebody now is the loan officer or CS price in a WAIVER ( as long as it falls within the FF AVM range )

The fact that a condition rating is somewhat subjective is not the problem, with enough competence the appraiser gets it right 99% of the time, enough to perform our job and the same with a point value. But we already lost the point value share of the business for a segment of lender work - good luck ever getting it back.

Fair enough. Don't get me wrong I am certainly not one to advocate for the extinction of our industry so you're point is well taken. I think you're right regarding what has happened to the industry regarding the loss of work from AVM's and other computer generated models however as humans we are able to complete valuations in a way that computers can not because they aren't able to distinguish some nuances that can make a big difference in a valuation. However, with the advent of AI I'm not sure how long that's going to last.

 

[George Hatch]

We already are providing both.

The range of values is the adjusted range on the comps page. We can, of course re re-state it, o make it clear to the reader as an additional narrative comment.

The appraiser does NOT say in their appraisal that there can be only one price for MV !! Those appraisers too dense to realize that, frankly, should have quit. (not you, I know you are trying to make a point by saying that here)

The appraisal does not state that the X$ point value is the only one price for MV. The appraisal does the opposite -it qualifies the $ point value as an opinion, only intended for the identified client use etc etc.

Yes, competent appraisers can come to slightly different $ amounts as a point value for the same property -but so can an AVM or other program, depending on data and input. The number the appraiser derives should be credible and reliable, and most appraisers derive a similar number if they use the right comps - in a purchase, they might tend to opine at the SC price if the price is within the value range.

My opinion as a range is *frequently* different than the range of adjusted value indicators in the SC. Usually a tighter range but I've also done a little wider before, too.

I think you should consider picking a principle and stick to it. If the one number is the thing then you are implying more precision. If that same number of part of your opinion as a range then you are implying less precision.

I don't always do it, but I often conclude to a range prior to a number in my rental surveys and land sale analyses. I always do it in my GIM/Cap rate analyses. As well, I don't use the sale price as the unit of comparison for any properties other than 1-2 unit residential. If you worked in these other property types as well as 1-4s you might have a somewhat different perspective on the conflicting ideas on the subject.

This is one reason why I'm amazed that a CG like George Dell can fixate as much as he does on that methodology. I don't know if he still appraises non-residential, but I do know what the non-res datasets look like in this region. His methodology doesn't work as well with small datasets such as occurs across the majority of appraisal practice outside the standard SFR properties. Sure, there are income properties that operate off the income but that's not the same thing as trying to pin the tail on the SFR being purchased by the owner-user by fixating on adjustment factors.

Full disclosure, I frequently "adjust" sales comparables of income properties based on their respective incomes. I don't apply line item adjustments to comps in my multifamily assignments.

 

[J Grant]

The only time I provide a range as an opinion instead of a point value is for a listing purpose appraisal where IMO it is more relevant. But for some listing purpose appraisals, I might provide a range opinion and a point value opinion (or just a point value depending on the client and what suits their need )

I discuss why I opine at the top , middle or high end of the range, and whether it is a range or a point value, I comment that it is a probable price in X range of DOM exposure and a lower list price typically results in a faster sale and a higher list price results in a slower sale with more DOM ( and in some cases will need a price reduction)

 

[George Hatch]

I've never done a range instead of a point.

 

[alebrewer]

nd what is "a certain confidence level"? Just a statement by the appraiser that will be more meaningless than a point value will ever be? If not, then how is it measured? How is it calculated? How is it's credibility gauged? How is it reviewed?

Exactly. If one does not provide context around the confidence level, it is meaningless. That said, it's not hard to develop a 95% confidence interval - it's simply 2SD from the mean.

As an aside, I believe you're right WRT the reason point values are used - if we reported a range, the lender would always lean toward the lower and and the borrower would always lean toward the upper. Point values solve that dilemma.

Finally, I do believe it is more credible to state a range of value within a given confidence interval than to state a point value. It is, IMO, more meaningful.

 

[alebrewer]

How many ROV's, over the years, would have been dismantled if the appraiser had reported a range of value. But folks are conditioned to believe our opinion of value is 'that number' stated on the dotted line. To GH's point, most folks don't understand that we first arrived at a range - within which pretty much any number should be supportable.