This is the final part of the three-part blog on reviewing your own appraisal like an appraiser. Again, let's continue with the questions in the Fannie Mae Field Review Form 2000. And, remember:
USPAP Standards Rule 1-1 (c) states the following: In developing a real property appraisal, an appraiser must not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affects the credibility of those results.
Are the data and analysis (including the individual adjustments) presented in the sales comparison approach complete and accurate? Supporting your adjustments is a big topic in today’s appraisal industry. Fannie Mae has been pushing for appraisers to use various methods for this rather than just a gut feeling or a “rule of thumb”. Let’s go down the list. Are there adjustments for concessions where the amount noted exceeds the typical amount in the area, and are those adjustments reflective of any impact on the sale price of the comparable sale? If the property values in the area are increasing (or decreasing), are there adjustments for date of sale based on the contract date of the comparable sale? Are there adjustments for location if applicable, or are there appropriate adjustments for location that are missing? If there are location adjustments, is there support for those adjustments? Are there adjustments for site if applicable or are there potential adjustments for site which are missing? And again, what about support for those adjustments? And the same for view? What about quality, age and condition? Are there appropriate, well supported adjustments or are there adjustments which should have been made and were not? Bedrooms, baths, gross living area, basement area and finished area in the basement, too. Are there appropriate, well supported adjustments or adjustments lacking where they should have been made? Does the property have insulated windows, high efficiency HVAC or any other energy efficient items and, if so, is that reflected in the sales comparison approach relative to the comparable sales?
Are the data and analysis presented in the income and cost approaches complete and accurate? For a single-family home, the income approach is almost never used. The cost approach might not be developed, but it could be relevant to the adjustments. A webinar on supporting your adjustments I watched recently, among other items, focused on the depreciated cost method. The cost approach provides a value indication that is the sum of the estimated land value, plus the depreciated cost (if applicable) of the building and other improvements. Adjustments in the sales comparison approach should make sense considering the cost approach. For instance, if the site value of a home is $500,000 and the total value of the home is $600,000, is it reasonable for there to be a $50,000 condition adjustment? That’s probably very high if the improvements are only contributing $100,000 to the total value of the property.
Is the sale or transfer history reported for the subject property and each of the comparable sales complete and accurate? Check for sales and transfers of the subject’s ownership in the past three years and for sales and transfers of the comparable sales within one year prior to the date of sale noted in the report? Are all sales and transfers reported? If not, that is an error. Is it another error in a series of errors? Sometimes the prior sale of a home can help determine an appropriate condition adjustment for the area. If a home is purchased as a fixer upper (per the Uniform Appraisal Dataset - C4 or C5 condition) and then later sold after being renovated in C2 or C3 condition, the difference in the sale prices for the two sales could be a reasonable indication of what a condition adjustment for comparable sales relative to the subject should be in the report.
Is the opinion of market value in the appraisal report under review accurate as of the effective date of the appraisal? Yes or no? If not, why not? At this point the Fanne Mae Form 2000 provides a space for a detailed explanation as to reasons for disagreement with the report under review. Then it has a sales comparison grid where the review appraiser can analyze the sales from the original report with appropriate adjustments or provide new sales and develop his or her own opinion of value. It could be worthwhile for you to do the same.
You can find a copy of Fannie Mae Form 2000 for your review and guide here:
https://singlefamily.fanniemae.com/media/12356/display
I hope that this has been a helpful exercise. Completing an appraisal report or reviewing an appraisal report is a systematic, step by step process. If you are faced with a lousy report, it can be overwhelming to figure out how to go about addressing it, but if you take it one step at a time you will often be surprised by what you find and how the process will bring you to a meaningful conclusion for better or worse. I’ll be honest. In my 21 years as an appraiser, I’ve made mistakes (believe it or not!). And I believe I’m like most people in that I remember those mistakes, especially what I learned from them. I’m sure I’ll make mistakes again, but I do know the mistakes I can avoid and what mistakes I find most disagreeable when I review an appraisal report. That is, easily avoidable, lazy inaccuracies. Things like not reporting plat book and page in a legal description, not reporting the correct zoning, not reporting the correct site dimensions from the most correct source (the actual plat if available, or the metes and bounds legal description). Basically, any factual information. If you set out to review an appraisal and start finding these types of errors, it’s more likely that you will continue to find a series of errors which call the value opinion into question (see USPAP Standards Rule 1-1 (c) above).
Contact Comp One Appraisal Services today and put our local expertise to work for you. Based in the Globe Building at Peachtree Dekalb Airport, we are the perfect resource for attorneys, agents, homeowners, and lenders. Thanks for reading!
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Let's continue on in with the questions in the Fannie Mae Field Review Form 2000. Remember: USPAP Standards Rule 1-1 (c) states the following: In developing a real property appraisal, an appraiser must not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affects the credibility of those results. Is the information in the site section complete and accurate? Did the appraiser take the time to accurately report the lot dimensions from the plat if they were available in GSCCCA.org (for Georgia)? Did they accurately describe the area of the lot? As a sidenote here, in Dekalb County (Metro Atlanta) Tax Records site areas are rounded to the nearest tenth. Did the appraiser report the rounded figure, or a more accurate figure based on dimensions or a measurement of the area? Is the shape adequately described or just described as "typical"? Is there anything special about the view to note rather than it just being residential? One of the most important aspects of this section is the zoning. Is the zoning noted correctly, particularly if the property is in an incorporated area. Is the property correctly noted as being on a public sewer or septic system? Are any adverse site conditions noted? Once again, errors here can call into question other aspects of the appraisal or be a part of a series of errors. If the appraiser cannot correctly note the property's zoning, can they provide a reliable opinion of value? Is the data in the improvements section complete and accurate? Again, take this section field by field. If the property has an accessory unit, is that noted? Is the correct heating fuel noted (typically gas or electric)? Are the materials/condition fields filled out appropriately? Is the above grade room count and GLA correct? Is the condition of the property accurately described? If you gave the appraiser a list of improvements/updates, are they noted here or attached to the report? Are the comparable sales selected locationally, physically, and functionally the most similar to the subject property? Good question. Are they? Are there similar sales in the subdivision or condo project that were not included? If the subject home is a split level or a contemporary style home or if it has some unique feature, are there comparable sales which are similar? Are the comparable sales all in the same marketing area in terms of offering a similar substitute for a typical buyer of the subject home? In Metro Atlanta, as in most cities around the country there are areas where homes across the street or one street over are not within the same city limits or in a different school district. Or sometimes homes on the other side of an interstate or other major boundary are similar in terms of their marketability. Does the appraiser seem to have an adequate understanding of the area and what homes compete for the same buyer? If there are homes in significantly different neighboring areas, is that noted and are appropriate location adjustments applied? Finally, can all sales included be reasonably considered to be arm’s length transactions, reflective of the actions of typical buyers and sellers in the area? Contact Comp One Appraisal Services today and put our local expertise to work for you. Based in the Globe Building at Peachtree Dekalb Airport, we are the perfect resource for attorneys, agents, homeowners, and lenders. Thanks for reading!