Fannie Mae Warning Letters On the Rise

WRE, Working RE Magazine, Appraiser News, Appraiser Magazine, Real Estate Appraisers, Volume 35
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Editor’s Note: Everyone is talking about Fannie Mae’s Collateral Underwriter but as the cover story of Working RE’s latest print magazine (issue 37) reports, the agency’s Appraiser Quality Monitoring initiative is gaining momentum and promises to directly affect the livelihoods of many more appraisers. (Are you a Working RE Subscriber?)

Fannie Mae Warning Letters On the Rise
by Isaac Peck, Associate Editor

Fannie Mae’s new Appraiser Quality Monitoring (AQM) list is the latest threat to the livelihood of residential appraisers. The AQM is a list of appraisers, provided to all approved lenders and servicers of Fannie Mae, whose work is subject to 100 percent review or is no longer accepted by Fannie Mae. With the AQM system now fully operational, many appraisers fear that placement on such a list can be a career death sentence, since lenders will be wary of using an appraiser whose work has been flagged by Fannie.

Just as Fannie Mae promised in their July 2014 AQM FAQ, appraisers are beginning to receive warning letters that their appraisals contain inconsistencies, inaccuracies, or data anomalies that may warrant “further action” should such behavior continue. Fannie Mae says that the intent of these communications is for “training and educational purposes” and to provide appraisers with an opportunity to improve their work before Fannie places them on the AQM (do not use) list.

Appraisers across the country are receiving such letters from Fannie currently. In many cases, the letter describes this infraction: use of the same property as a comparable in multiple appraisal reports but with inconsistent Quality and Condition (Q&C) ratings for that property between the reports. Appraisers are quickly learning that, according to Fannie Mae, Q&C ratings for a property are absolute and NOT relative to the subject, as many appraisers were trained.

The Letter
Sarah Wilson, speaking to Working RE under an alias to protect her identity, says she recently received such a warning letter from Fannie Mae indicating she used inconsistent Q&C ratings for a comparable property in multiple appraisal reports. Initially, Wilson says the letter made her afraid of being forced out of business. “When I first received the letter, I was panic-stricken that I was going to lose my livelihood because if Fannie blacklists you, no one is going to accept your appraisals. I spoke to some other appraisers and they are worried, too, because they know they’ve also used different Q&C ratings on a comparable in the past,” says Wilson.

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Since receiving the letter, Wilson says she has taken steps to ensure that she doesn’t make the same mistakes again. “I started using new appraisal software that allows me to easily pull up previous comps by address and make sure I am using the same Q&C ratings that I’ve used previously. I also attended an OREP/Working RE webinar, Fannie’s AQM: Understanding Quality and Condition Ratings, by Richard Hagar, SRA which really gave me a better understanding of the Q&C ratings I should be using for different property types,” says Wilson. “I also had a conversation with Mr. Hagar and he helped me calm down and not feel like the FBI was going to break down my door. He recommended that I respond to Fannie Mae stating that I received their correspondence and I am taking steps to improve. I took his advice and I wrote them a letter stating that I am being very proactive about the situation.”

Wilson sees Fannie’s latest requirements and AQM system as a form of scope creep that adds additional work for appraisers. “It’s taking me longer to do reports because I have to look up every possible comparable to see what the rating was then to compare it to now. It’s not just Q&Cs; Fannie now wants all kinds of additional information, which translates into additional work that we don’t get compensated for,” says Wilson.

Wilson is particularly concerned about what she interprets as a lack of transparency and due process in Fannie Mae’s AQM. “From what I understand, there is no due process for appraisers like me if Fannie is to place me on a 100 percent review or blacklist. I can’t call them up and explain why I did this or that, or that I was confused about which rating to use. They want me to fit into a box and if I don’t fit then they don’t know how to deal with me. The whole process is very vague and I don’t think Fannie has done a good job explaining how it is going to work,” says Wilson.

The prospect of being placed on a 100 percent review list or being removed from Fannie’s roster has Wilson, and many other appraisers, worried that they are now on a short list to be put out of business. “If I get placed on a review list, it’s likely that I’ll get blacklisted by all my clients. If an AMC gets a letter from Fannie saying that one of their appraisers is submitting inconsistent reports and that Fannie will be watching them, do you think the AMC is going to keep that appraiser on the list? If you’re on a 100 percent review list, technically you’re not blackballed, but no one will want to use you,” says Wilson.

What’s a C3?
Wilson points out that Fannie’s own Q&C rating system can be interpreted differently by different appraisers, which is a point that many seasoned appraisers agree with. “Fannie’s own rating system is not very clear, and I don’t think what they’re trying to do is going to work. Sometimes I feel like the people who designed this have never been appraisers,” says Wilson. The ramifications of being placed on Fannie’s list, she says, make it more important than ever for Fannie to provide due process and a better explanation for appraisers about how the system works and more guidance on how to meet Fannie’s standards.

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Wilson says that she’s talked to many different appraisers and sought guidance online but the explanations of Q&C ratings, and what appraisers define as a C4 or C3, seem to vary widely. “I’ve even heard an appraiser say that for everything he appraises, he uses Q3 and C3 because he doesn’t want to be stuck in the situation I’m in, where his ratings differ. That way, according to him, he never has to deal with this issue,” says Wilson.

Pamela Wyant, Certified Residential and appraising 19 years, agrees that there remains a fair level of disagreement as to what constitutes a C3 or C4, for example, even among experienced appraisers. “Fannie’s definitions are not clear cut and I think that’s causing problems for appraisers. There is not much difference between a C3 and a C4, particularly if you factor in the age of the property. If you get into houses that are 80 years old, you are looking at a whole different level of items to determine quality and condition, and particularly condition of a property, because some of the things in the house will be updated and some won’t be. At that point, I think the difference between a C3 and C4, for example, requires an appraiser’s professional judgment,” says Wyant.

Another problem, according to Wyant, is that Fannie’s approach of trying to make everything fit into six distinct categories makes it much more difficult to compare and adjust between properties. “Is a 40-year-old home that is well maintained, with a newer roof, water heater, furnace, and one renovated bath, equivalent in condition to one in which the kitchen has also been renovated? I don’t think so. What if the one with the renovated kitchen had carpet that was trashed? While adjustments can be made and explained, it will involve a battle with AMCs and underwriters that isn’t necessary if condition ratings were comparative rather than absolute,” says Wyant. “Even worse is that what is adverse for one location or price range can certainly be neutral in another price range or location. Somehow Fannie Mae seems to have forgotten that we are doing a sales COMPARISON approach.”

Fannie Mae Mum
Working RE reached out to Robert Murphy, Fannie Mae Director of Property Valuation and Eligibility, for specifics on questions the agency has avoided answering until now. When asked which mistakes might get someone a cautionary warning letter, instead of inclusion on Fannie’s 100 percent review or (heaven forbid) “do not use” list, Murphy mostly restated Fannie’s FAQ indicating that the warning letters are sent to “appraisers whose reports exhibit a pattern of minor inconsistencies, inaccuracies, or data anomalies” and the 100 percent review and “do not use” lists are reserved for appraisers whose reports exhibit egregious issues. (Click here to read a partial transcript of the email interview from the print edition.)

When asked what constitutes an “egregious” appraisal issue—what criteria is used and who makes that decision—Murphy simply restated the only specific example offered by Fannie to date as being “egregious”: an appraiser who appraises with his or her license revoked or suspended. This leaves appraisers with little guidance on what exactly will cause them to be placed on Fannie’s 100 percent review or “do not use” list. Murphy indicated that licensed or certified appraisers are involved in the process of identifying “potential issues,” but failed to specifically address whether Fannie Mae’s review appraisers are licensed in the states where they are performing reviews and have local competency.

Due Process?
Murphy offered little about how the appeal process works or what appraisers can expect if they find themselves charged with an “egregious” issue. Instead of a clear roadmap about what to expect, Murphy said instructions on how to proceed with an appeal are contained within the letter the appraiser receives from Fannie Mae. Murphy notes that Fannie will “consider removing an appraiser from the 100 percent review list once he or she demonstrates an improvement in appraisal quality,” and that lenders are frequently updated regarding the list. When asked about the concern of many appraisers that placement on a 100 percent review list will effectively put them out of business, Murphy said that an appraiser’s placement on the list does not indicate “a refusal by Fannie Mae to accept the appraisal.”

If an appraiser seeks to appeal his or her placement on Fannie’s list, Murphy indicates that a “management committee” will render a decision on the appeal, but declined to specify who is on the management committee or what criteria is used to evaluate the appeal, saying only that “the committee will include appraisers.” There is also no word on whether Fannie Mae has the staffing required to deal in a timely and judicious manner with what might be an avalanche of appeals. For an “innocent” appraiser who can’t work until his or her appeal is resolved, this issue seems vital.

Contrary to the approach that the Federal Housing Authority (FHA) and even private lenders have taken with appraisers who make errors in their appraisals—prescribing continuing education to remain in good standing with the agency—Murphy has indicated that Fannie Mae will not be offering continuing education to appraisers as a means for them to remain in good standing or to be removed from Fannie’s 100 percent review list.

Regarding how the AQM system interprets appraisers who change their Q&C ratings for the same property as the property changes, or as the appraiser receives additional information or education, Murphy reiterated that the AQM is not a fully automated process and that an appraiser’s comments regarding changes in Q&C ratings are taken into account. “We have multiple eyes on the issues, including licensed or certified appraisers from within Fannie Mae, before sending any letters to appraisers. This helps to ensure that appraisers’ comments are taken into consideration,” says Murphy.

Murphy confirms that Fannie Mae does not have a phone number that appraisers can call for guidance but advises them to ask their lender or client if they have questions regarding Fannie Mae’s requirements or are seeking additional information.

Murphy does acknowledge that Fannie Mae is able to track photos in each appraisal, a practice many appraisers have long suspected, which means that Fannie Mae is able to detect when appraisers reuse comparable photos in different appraisals and flag appraisals which contain outdated photos as deficient.

Read the entire story in the current print edition of Working RE.

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About the Author

Isaac Peck is the Associate Editor of Working RE magazine and the Director of Marketing at, a leading provider of E&O insurance for appraisers, inspectors and other real estate professionals in 49 states. He received his Master’s Degree in Accounting at San Diego State University. He can be contacted at or (888) 347-5273.

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Comments (15)

  1. If Fannie Mae, currently under government conservatorship, requires appraiser to report according to their specific format, one would think an appraiser would be able to contact Fannie Mae. If Fannie Mae wants to control what we do as appraisers, even in its absurdity with inadequate and deficient reporting options, then they should have a department for appraisers. Without a department for appraisers, Fannie Mae has no business implementing or establishing rules for appraisers to follow. This is one of many problems with our government, and it needs to change. I called Fannie Mae, and they said I need to go back to the lender, however, based on a field reporting requirement that does not specify the method of adjustment in the UAD guidelines that the lender has decidedly interpreted to be a specific format for the adjustment itself, I am hesitant to comply with the lender as I feel the lender’s interpretation is a detriment to the consistency and reliability of the comparable sales grid. In this instance, an appraiser should have the ability to contact Fannie Mae directly, and the inability to do so is an unacceptable and inexcusable practice by Fannie Mae.

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  2. It is incredible to me that appraisers put up with this.

    The actions by these agencies and by lenders and AMC’s in allowing this to happen with continue until monkey’s with darts are doing appraisal.

    The ONLY way to combat this is for those poor appraisers who accept $100 1004 appraisals quit or die.

    Holding out for the true value of work done and charging $800-1,200 per 1004 SFR appraisal is the ONLY way to hold sway.

    Our rights are almost gone and as soon as all data is mined-fee appraisers are extinct. The only way to block it is to refuse to allow your data to be mined and to refuse to accept low-paid appraisals.

    We all know that will never happen as the hacks will continue to take appraisals for $100 until that is the REASONABLE AND CUSTOMARY fee.

    Appraisers by nature are independent and refuse to be told what to do. This quality on its very own will allow the slippery slope to continue until we die out of stubbornness and a refusal to band together.

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  3. All appraisers should just not do any appraisal work for Fannie or Freddie and see
    how that works.Don’t you appraisers ever get tired of being bullied and threaten.

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  4. “Murphy confirms that Fannie Mae does not have a phone number that appraisers can call for guidance but advises them to ask their lender or client if they have questions regarding Fannie Mae’s requirements or are seeking additional information.”

    I didn’t want to get bogged down in the minutia but…. ASK the lender to interpret FNMA requirements!??? Are they Nucking Futs!?

    UAD was never a good format. The original stated rationale was ridiculous to begin with . Some clown decided we had over 65 variable ways of describing condition alone; (avg-gd.; avg.+, good -, and so forth.) and that it had to be reduced. NOW we have an INFINITE number of ways of describing condition: Of course we have the C3 or C2, but on top of that we then have an itemized laundry list of MLS and observed condition facets that are in turn included in the text addenda and contrasted THERE with the comparable sales laundry list of NET (inferior) or (superior) . When all is said and done it still boils down to a single NET inferior or superior adjustment explanation! Only now instead of TRUSTING the appraisers judgment and summary explanations expressed as +,- or sup., inf. “avg. vs. good etc. that we ALL understood, we are forced to go into much more extensive explanations in order to explain how every single nuance of comparison was made and the result arrived at.

    Im ok with that-IF I were preparing a self contained narrative appraisal report instead of a form summary appraisal report with a much lower fee and turn time being allowed.

    So NOW we have this magical UAD derived database that is only valid as of the date the last entry for a comparable was entered, cross checking our individual adjustments using some poorly described and undefined proprietary regression system. As near as anyone knows, it will flag adjustments that are deemed to be “out of range” though none will tell us what that range is or the body of data that it was extracted from so that we can duplicate it was derived. How does THAT reconcile with your states QC and compliance requirements?.

    I could STILL deal with all the above. My adjustments ARE market derived therefore I ASSUME they would likely fall in the magic range.

    MY concern is the manner in which the actual “review appraisals” are performed and communicated to lenders and AMCs, or whether they will be actual USPAP compliant reviews at all. The following was sent to me by another appraiser who obtained it from an AMC. A lender had forwarded it to the AMC with implied or direct instructions to “fix the problem”. The AMC declined to send it to the appraiser involved because they knew it was garbage and told their lender client to provide a USPAP compliant review and it would be addressed. (The LEAST that happens out of al this is the seller does not get their money when expected-plans on hold; buyers don’t get to move in when planned-plans on hold; notices of intent to move voided, etc.). Worst case? The appraiser involved gets blacklisted by the correspondent lender even though he or she never knew they had to have a value that conformed to a “Value Wizard” derived conclusion. BTW-note the adjusted VW results of comp 2 and 3. Only comp 1 of the Value Wizard was out of range-the other two supported the EXACT same and higher value than the appraisal!

    If FNMA wants improved quality they need to conform to FIRREA as written back in 1989. The lender in the following case` needs to make sure THEIR review appraisers conform to appraisal LAWS! I contend that SR1; SR2 AND SR 3 were violated along with California’s own appraisal regulations by the reviewer.
    [case cited follows]
    “1. A Staff Appraiser has reviewed the above referenced case and their findings are as follows: The appraisal in question was not produced by a Flagstar Bank approved AMC and Flagstar Bank is not the Intended User of the report. Appraisal Review cannot contact the appraiser to request corrections or revisions to the report. All corrections or revisions must be requested by the party that ordered the appraisal. The subject is a 4298 Sq. Ft., 5-bedroom, 2-story – Spanish style/design property. The subject property is 57 years old. There is no AVM report. Value Wizard value is $1,609,000 for the subject property. The comparable sales data used in Value Wizard is based on recent sales from the year 2014 and all are similar in age and design – 2 story. The adjusted sale prices are comp 1 $1,589,000, comp 2 $1,878,000 comp 3 $1,884,500. The indicated value of $1,878,000 is NOT adequately supported and appears inflated. The value conclusion is not appropriate and reasonable given the data and analysis presented. All the sales are modern/traditional one story, there are no 2 story sales within the report to support the subject in similar design/style/GLA and condition. Secondary research has found other sales that are more similar and close in proximity to the subject that need consideration: 16510 Alyse Ct MLS SR-14179780; 16754 Huerta Rd MLS 14-791265; 4814 Genesta MLS BB-1452135; 16742 Ashley Oaks MLS 14-740127 and 4369 Empress Ave. Ultimately, we do not have a credible appraisal with a properly demonstrated and supported value. I will be providing my comments to the AMC for the appraiser to either provide revisions, or a new appraisal to be completed, due the deficiencies noted within the appraisal.”

    Folks even with Working RE on our side we need to do more. Join either the American Guild of Appraisers (AGA) ask for Jan Bellas at 1(800) 660-1835;your state coalition, or even NAR (they now allow appraisers that are NOT brokers to join as Realtors for their RAA or GAA designations. Ask for Diana Garcia for special help. Its not a normal routine they or your Boards are used to)

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  5. While there are many things of concern regarding the AQM’s, photos and the the aging process of those photos should not be a problems. I have always maintained that the photo of a comp taken at or shortly after the sale reflects more of what the sale price bought than one six months or a year after the fact since many possible repairs or renovations may have taken place and THAT photo doesn’t represent what was purchased. Age of photos should not be a question.

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  6. Hello all- this is David Brauner, the Editor. This is a transcript of the Q&A with Mr. Murphy regarding photos. I hope it clarifies.

    WRE: Is FNMA, to any degree, keeping track of photographs? For example, what if appraisers uses MLS photographs instead of their own photograph of the subject, or comparable? Is FNMA able to track that?

    FNMA: Yes we are able to track photos. The question you raise with respect to MLS is not an issue. The following is an excerpt from our Selling Guide:

    Exterior photographs
    Clear, descriptive photographs showing the front, back, and a street scene of the subject property and the front of each comparable. The subject and all comparables must be appropriately identified. Acceptable photographs include original images from photographs or electronic images, copies of photographs from a multiple listing service, or copies from the appraiser’s files.
    Photographs of comparable rentals utilized in the Small Income Residential Appraisal Report (Form 1025) are not required.

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  7. More evidence that Bob Murphy has no idea what he is talking about. If you watched him at the Valuation Expo in Vegas, you would have been very unimpressed with his appraisal knowledge or explanations as to why appraisers could not have access to the CU data

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  8. Bob Murphy is a $*#(@!. This has been confirmed with numerous insiders at FNMA. FNMA does NOT track photos from appraisers. They do not have the technology for that. None of the CU or ALPHA or AQM programs has the ability to track the photos. This is just a lie, or maybe the “Yes” men that follow Bob around make him think they can track photos. I am very scared of FNMA right now. It is a matter of TRUST. They REFUSE to be transparent with appraisers, and even fired appraisers in FNMA that wanted this data to be transparent. We cannot trust an organization that lies, never admitted to the mistakes of the 2005 crash and then somehow gets an incompetent fool to be the Chief of Valuation.

    These are dark days for appraisers.

    - Reply
  9. Well we are getting exactly what we’ve asked for..Everyone in the software business continues to push all these new and shiny programs that fill in all the boxes in the report for you. All you have to do is sign it. Well fellow appraisers, you wonder why fees are so low? Frankly I can train a monkey to do a report for me with these programs, and you know what, the banks can too. So just how long do you think it will be before most all residential appraisers are replaced with computer generated reports that the banks/lenders pay a minimum wage person to do? Think I’m wrong? Then why are we as an industry accepting being told not only how we are to do our reports, but how much we’re paid for them. Do you tell your attorney or accountant how much you’ll pay them for their services? I thought the purpose of an appraisal was to get an ” independent, unbiased ” opinion of value. Not so much anymore as we all have to fill in the boxes according to someone else’s idea of how we should do it. I’m done with my soapbox now, and lucky for me am semi-retired so don’t have to accept the pressures out there anymore.

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  10. by Frank Vander Wall

    I had the same question. I found this in FannieMae’s 12/16/2014 Selling Guide:

    “Clear, descriptive photographs showing the front, back, and a street scene of the subject property and the front of each comparable. The subject and all comparables must be appropriately identified. Acceptable photographs include original images from photographs or electronic images, copies of photographs from a multiple listing service, or copies from the appraiser’s files.”

    It does not appear that reusing your photos is an issue based on this. I hope the author of the article will clarify.

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  11. The comment that fannie is comparing my photos of the comps in one report to photos of the same comp in other reports where I use that comp raises a question. If I use a comp in report “A” and use the same comp in report “B” 10 days later do I need to drive by that same comp and take another (new) photo of that same comp for report ”B” ? If I do 5 reports which I use this same comp does that mean I need to drive by and take a new photo each time ?
    The URAR states that the appraiser has inspected each of the comparable sales from at least the street. It does not say that the appraiser has made this inspection from the street within any time frame and it does not even state that he must take a photo at the time of the driveby inspection of the comparable. Is this a new interruption or policy of fannie that the appraiser must take a new photos for each report?

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  12. It seems to me and other appraisers with whom I have spoken, Fannie Mae has essentially become dictatorial, and as Mr. Peck notes, is failing to provide clear guidance in their application of AQM monitoring and providing a clear and proper means for an appraiser to defend his or her work.

    Even going back to the late 90s many appraisers have long suspected that the ultimate goal of lenders, Fannie & Freddie was to effectively eliminate the need for residential appraisals. It may be paranoia, but most of the measures taken over the past several years, mainly by Fannie Mae have had the effect of broadening the scope of the work necessary to complete a report, requiring more and more time, resulting in reducing the amount of work any one appraiser can complete. While the “customary and reasonable” fee language in Dodd/Frank did help boost many appraisal fees, it is now obvious that many AMCs are pushing back, attempting to force the fees back downward even with the prospect of the new requirements rendering the completion of future reports even more difficult and more time consuming.

    Of course neither Fannie nor AMCs will acknowledge it, they will claim that they are only interested in improving the valuation process, the net result will likely be even more appraisers throwing up their hands in frustration and leaving the business. For several years now I have been unable to recommend appraising to anyone – at least not residential appraising. As the numbers of us dwindle, it will have the effect of giving more ammunition to those who would have us removed from the lending equation altogether.

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  13. The problem with Fannie Mae is not that they’re mining data and using CU, the problem is that they are not open with appraisers. If they want better quality appraisals, they need to share what they know. If UAD data suggests that 75 of 100 appraisers called this property a C3, I want to know, particularly if I know something about the property that most appraisers don’t know and called it a C4 (then I can explain). If I’m the appraiser who is doing more research and verification than my peers (maybe finding out that the MLS square footage is wrong or other facts), am I going to get flagged as high risk by Fannie Mae? I wrote a blog post on this topic:

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  14. I agree with appraiser comments. This is a joke – An appraiser spends better than two decades, in my case, being as thorough, professional and diligent in completing appraisals and now because Q and C ratings I may now be on ‘bad’ lists for a subjective opinion that I have about a property that someone else may feel differently about. Please have all the ‘power’ people who will be putting appraisers on watch READ THE UAD DEFINITIONS FOR QUALITY AND CONDITON and then have them tell all of us appraisers that this is clear cut and the ‘corrrect’ way!! Come on be real – an appraiser is hired to provide their professional opinion and should have the freedom to fill out the form as they see fit and explain with comments as lenders and underwriters SHOULD be reading and acknowledging the theories and methods used by each appraiser. REMEMBER THIS IS THE SAME FORM THAT LENDERS, UNDERWRITERS, FNMA AND MOST LOOKING AT APPRAISALS DID NOT BOTHER TO READ BECAUSE THEY DIDNT CARE IN YEARS PAST. A system that only wanted a picture of the front of the subject and the appraiser to sign that the home existed – Former 2070 Form- to provide a loan is now going beyond an appropriate level to ‘trap’ appraisers because the new rating system… Higher fees, longer hours of review, research and form writing will be evident and appraisers need to view themselves as highly skilled professionals that are now under a microscope, the way we all wished the banking and lending system was under in the recent past.

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  15. by

    I have been saying for years that appraisers need to defend the QUALITATIVE side of appraising. The quantitative has now taken over. All subjectivity has been lost….and you know what? Buying a home is all subjective. It defines your appetite. What you like,is not be what I like. You may love a large lot. I hate grass cutting. I prefer golf on Saturday.Now we are at the mercy of the Geeks. Even in medicine, once a diagnosis is reached a doctor may offer several possible treatments for the same disease. Yes, fellows , all you guys that were tech mongers have gotten your way.

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