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Reconsiderations of Value and
What to Do About Them
By Danielle Lopez
It is Tuesday morning and I have my day planned and timed between reports that are due and morning inspections. I’m just about out the door when I receive an email notification for an appraisal I submitted last week. The notes indicate “Reconsideration of Value.” You know the drill, I’m sure.
Since I just completed this appraisal it was fresh in my mind. I recall the steps, time and attention to detail to locate the appropriate sales. I review my appraisal, and the unadjusted range of sales is $740,000 to $761,000, with adjusted prices of $740,000 to $756,000. I utilized three closed sales and two active listings/pending sales to support my opinion of value. The sales comparison approach is tight, bracketed and the report has an additional forty-eight pages of supporting documentation and explanation for the reader.
I open the notes from the AMC that say: “Please review the attached sales and indicate why they were not utilized in the appraisal.” The first thought that came into my mind was that maybe I missed an integral and viable sale. The first sale I researched was in the same neighborhood but sold for $115,000 less than my opinion of value. It is important to understand that the subject is not located in a “cookie cutter” development and many of the dwellings, like my subject, are custom-built designs. Without even looking at the interior MLS photos, I immediately notice this property is inferior in quality as compared to my subject. The interior was also inferior in quality and condition of materials. I am relieved to see that I didn’t “overlook” a viable sale, but also annoyed that I have wasted 15 minutes out of my busy schedule to prepare a rebuttal. Most often rebuttals must be prepared on a separate Word document, and each sale in question must be explained in detail. My time is valuable and no additional compensation is granted for such time and research.
I create a new Word document and begin writing why the lender-supplied comparable sale is not considered a good indicator of value.
Before going any further, I would like to mention that the subject has a fully finished basement with a tiered seating home theater, wet bar, and an additional sitting area. The entire finished basement area was wired for surround sound to provide a theater like atmosphere; the lighting and the flooring reflected the same ambiance. While the cost for the home theater exceeds the market return, it is an amenity and should be considered as it has some added value if it can be properly supported.
Next, I review the second lender provided sale which is on the same street as Comparable Sale 2 in the report. The supplied sale closed for $690,000 while Comparable Sale 2 sold for $740,000. The lender-supplied comparable sale for reconsideration does not have a finished basement, while Comparable Sale 2 on the same street in the report has a finished basement and requires fewer overall adjustments. I return to my Word document and again explain why this sale is also irrelevant, reiterating why the comparable sales in my grid supports my opinion of value.
This reconsideration of value has already set me back 30 minutes. The review and analysis of the lender-selected sales are completely irrelevant to the report and opinion of value.
Now do not get me wrong, I understand firsthand that we are human and in today’s “Amazon World” it is not unheard of to miss a viable sale. I have missed reliable sales just because the real estate agent did not properly geocode in the MLS, so when I did my initial map search it did not show all of the results. It happens and when it does I am more than happy to review the new data and add it to the report to further support value, or in some cases to reconcile a new value.
Let’s recall that the Dodd-Frank Act that was passed on July 21, 2010. I felt at that time this was quite needed to reduce and/or eliminate lender pressure. For a short period of time thereafter the number of requests for Reconsideration of Value had decreased. But today, more than nine years after this Act was passed, I am finding an increase in Reconsiderations of Value. In a time where the word collusion is part of most political statements I feel that appraisers are once again experiencing collusion in the form of lender pressure as most markets are increasing and house flipping is on the rise.
Under (Lender) Pressure
The Dodd-Frank Act is not the only regulation that was put into place to protect the appraiser but also Fannie Mae Lender Letter FNMA LL 2015-02. This letter states: “Before asking the appraiser to consider any alternative sales, it is imperative that the lender analyze the relevance of the sale and determine if the use of such sale would result in any material change to the appraisal report.” (Click Here to read Fannie’s Guidelines.) There appears to be two issues. The first is lender pressure and the second is the relevance of the sales suggested by the lender.
Since Fannie Mae began implementing the Collateral Underwriter (CU) I have also noticed an increase in requests for Reconsideration of Value. CU is a web-based dataset that scores and provides possible overlooked sales within certain parameters. It is a tool to assist in verifying the quality of an appraisal. However, I feel some lenders have either become lazy or abuse this tool and do not do their own due diligence to determine the validity of the suggested sales. The problem begins when the sales suggested are not relevant to the appraisal report. This is becoming a nuisance to all involved. It will in turn take the lender and borrower longer to close, and the appraiser is losing valuable time and money due to unnecessary research and analysis.
Has the banking industry forgotten that one of the primary principles of USPAP is public trust? Our signed certification in the 1004 attests that we “selected and used the best comparable sales that reflect the market’s reaction to the differences between the subject property and the comparable sales” and that we “have knowledge and experience in appraising this type of property in this market area.” Is our industry losing public trust or do lenders not understand there is also a process and steps they must take before handing off these reconsiderations?
What You Can Do
So what can appraisers do to minimize these costly and time-consuming reconsiderations of value when the comparable sales supplied in the appraisal report are legitimate and pertinent to the analysis?
We must start by enforcing and reminding the requestor to submit these reconsiderations properly in terms of FMNA Guidelines and even the VA Tidewater guidelines. (Click Here to read the VA’s Guidelines.) It shouldn’t be as simple as sending over three to six comparable sales and forcing the appraiser to explain why he/she omitted these sales in the initial report. There are procedures set in place that most appraisers do not even know exist; they simply go along with the lender request to satisfy the needs of the client. The requestor must follow these rules:
• No more than three sales.
• The requestor must explain why these sales are more applicable than the ones in the report and they must include a grid.
• They must attach supported documentation/verification such as MLS sheets, maps and tax records.
I have received several reconsideration requests in the past with only one having an attached grid because most requestors neglect attaching the supporting documents. It almost seems too easy for them to do a quick search or use CU and send over these requests just so they cover their risk. As a result, the appraiser spends valuable time answering pointless requests from the client while the sales are not even pertinent to the appraisal.
Appraisers must start to enforce Fannie Mae’s CU procedures before completing an absurd reconsideration of value. In addition, the appraiser should be compensated for his/her time. Appraisers should start to set a fee for each comparable sale requested in the reconsideration because time is money. If the appraiser overlooks a relevant sale that impacts the opinion of value, the appraiser should waive the fee.
If appraisers make it a business practice to enforce this procedure, lenders would rethink frivolous reconsiderations of value and over time, appraisers would see a reduction of this type of revision from the clients.
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About the Author
Danielle Lopez is a Certified Residential Appraiser in New Jersey with 16 years’ experience. She has been recently certified in Green Appraising and working toward her SRA designation and commercial certification.
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