New USPAP Q&As published March 6, 2025

[CGinMN]

Per FHFA, "In 2021 from a national perspective, 15.2% of appraisals were below the contract price, compared to 26.7% of appraisals equal to the contract price, and 58.1% above the contract price."

 

[timd354]

What you are saying shows that you as a secondary market insurer do not actually care about the appraisal development or appraisal adjustments. You just care about the valuation being reasonable.

I won't argue that the secondary market is only interested in whether the the valaution is reasonable...isn't that the whole point of what that they want an appraisal/valaution? Rightly or wrongly, that is just the way it is.

 

[timd354]

If it wasn't for the secondary market, lenders would require full appraisals and they would vet the borrowers more closely. But when they have little or no skin in the game, they're not concerned about the valuation process.

You are very naive if you believe that. I guarantee there would be plenty of lenders out there who would originate loans using BPOS and AVM's if the regulators let them even if they kept those loans on their own books. In any case, it does not matter as the secondary market will be the dominant source of mortgage funding until long after all of us are gone.

 

[timd354]

Yes, so the secondary market ecosystem limits the client pool.

If I am expanding the pool it is certainly not with the non-banks selling to the secondary market.

All appraisers (and all businesses) should do their best to expand their pool of potential clients.

 

[John Hassler]

When there are no appraisers to validate the reasonableness on the majority of purchase transactions, it will go something like this (already does to a degree)…

Real Estate Agent: Can you check to see if you can us a waiver at $410,000? Need to know how much we can offer.

Loan officer: Yes, waiver hit.

Agent: Awesome! I know this is crazy, but can you try $450,000? It’s competitive right now and I don’t want our customer to lose out on this one.

Loan officer: Yes, waiver hit.

Agent: Can you try $460,000? They can put down a little more if they need to.

And so on… rather than market fundamentals, in a competitive market it is AVM value plus borrower credit and LTV that determine the contract price.

Then Fannie will figure out, as long as the LTV is under 80, why not tweak the waiver algorithm to allow some variation on value (5%). The AVM is imperfect, right? There’s no such thing as a point value. As long as borrowers has strong credit and good downpayment, what is the risk? This allows them to pick up market share against Freddie which means a fat quarterly bonus check. Until Freddie responds, and then it’s just a race to the bottom.

This was happening 20 years ago with the F/F products of Desktop Underwriter and Loan Prospector. Backwards engineering.

 

[timd354]

Per FHFA, "In 2021 from a national perspective, 15.2% of appraisals were below the contract price, compared to 26.7% of appraisals equal to the contract price, and 58.1% above the contract price."

2021 and 2020 were not typical years....the longer terms trends show that around 7-10% of appraisals come in below contract price in most years. The data also shows that there is quite a bit of seasonality in the percentage of appraisals that come in below contract with appraisals done during the spring market coming in below contract price more often than during the rest of the year:


https://www.corelogic.com/intelligence/first-time-homebuyers-appraisal-gap/#:~:text=In June 2024, 8.6% of all U.S. homes sales in,from 10.7% a year ago.

 

[CGinMN]

2021 and 2020 were not typical years....the longer terms trends show that around 7-10% of appraisals come in below contract price in most years. The data also shows that there is quite a bit of seasonality in the percentage of appraisals that come in below contract with appraisals done during the spring market coming in below contract price more often than during the rest of the year:


https://www.corelogic.com/intelligence/first-time-homebuyers-appraisal-gap/#:~:text=In June 2024, 8.6% of all U.S. homes sales in,from 10.7% a year ago.


View attachment 97692

Yeah, the seasonality in the data is something we’ve discussed here before. My comment was more about the number of appraisals above contract because you said overvaluation is not an issue.

With purchase waivers at 12-15% and growing, the number of low appraisals relative to the total population of appraisals should theoretically be growing.

 

[alebrewer]

Experience as appraisers use it, is never personal, always professional. Experience could be viewed as a collective accumulation of professional knowledge, including analyzing evidence, that informs one’s judgement.

Love this. To wit: Appraiser specializes in a particular geographic area. Appraiser has done 10 appraisals of Q4 n/c in the subject market in the past month. New assignment is for a Q4 n/c in said market. Appraiser could state, "for the past ten assignments performed on new construction homes of between ~ 1,400' and 1,800' (and performed within the prior 30 days), the GLA adjustment factor has ranged from ~ $45 to $60 per foot utilizing sensitivity analysis. For that reason, the GLA adjustment factor of $55/foot is utilized for this assignment."

There is 'evidence' from prior reports, but in reality, its the appraiser's experience that drives the (well supported) decision. Because, however, a LOT of appraisers tend to use the PFA method of adjustment extraction, the GSE's have no means of quantitatively measuring 'experience'. Thus the bar is set as if none of us knew what we were doing - or at the very least, were not demonstrating that we knew what we were doing.

 

[Terrel L. Shields]

quite a bit of seasonality in the percentage of appraisals that come in below contract with appraisals done during the spring market coming in below contract price more often than during the rest of the year:

The majority of price increases happen in the spring selling season and the majority of the data available to the appraiser at that time is from the previous six months... But can the appraiser safely assume that the market will increase during the selling season or will it be flat like some years?

 

[The Bob]

2021 and 2020 were not typical years....the longer terms trends show that around 7-10% of appraisals come in below contract price in most years. The data also shows that there is quite a bit of seasonality in the percentage of appraisals that come in below contract with appraisals done during the spring market coming in below contract price more often than during the rest of the year:


https://www.corelogic.com/intelligence/first-time-homebuyers-appraisal-gap/#:~:text=In June 2024, 8.6% of all U.S. homes sales in,from 10.7% a year ago.


View attachment 97692

That would make sense in my market since prices normally adjust sharply in early Spring.

Regarding appraisal's in general. Assuming you have a normal market (i.e. typically motivated and well informed buyers/sellers) of course most appraisals will be at or very near the negotiated price.