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Editor’s Note: This story is reprinted from the current print edition of Working RE magazine, mailing now. (Am I a Working RE Subscriber?)
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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isaac@orep.org
by Lisa Rilee
It sounds like you need to find a new job! One that you would love to do. Go above and beyond. One you will put your heart and soul into no matter what needs to be done! This is not the right job for you. His help is all!
-by Stephanie Southerland
Let’s talk about lazy appraisers who lie about market stats? In a low to no inventory market, says 3-6 months of inventory and marks stable all the way down. Let’s talk about the fact that it robbed the seller and possibly the buyer as well, especially when the loan is already through the very same lender! Also will be robbing the lender if the deal falls through. Laziness is real amongst some appraisers and I’m frankly sick of it.
-by John Dorie
This appraiser, like most appraisers, believes the assignment is complete when the report is submitted. NO! The assignment is complete when the report is ACCEPTED by the lender.
Let’s look at a similar scenario — You are buying a new computer for your appraisal business and purchase it from a computer store. When you take it home and unbox it you find the screen is cracked. What did you do? Well, you take it back to a replacement. The deal is not done when you walk out of the store; the deal is done when you ACCEPT the new computer.
-by David Bramuchi
I too got tired of the frivolous reconsideration of value requests from Realtors via the lender. Now my appraisal work consists of VA appraisals (about 99.5%) and the .5% is some lender work. I’m quickly curtailing the lender work because they want things in the report that are meaningless to the value of the subject property.
-The VA has the appraisers back and I thank them for that. Lenders can no longer send reconsideration requests to the appraiser. The Tidewater process takes care of that waste of time. I do not know of any VA appraiser that likes the Tidewater process when a property does not make the sale price. There is extra work involved with the Tidewater process. However, the way that Realtors price homes brings about the Tidewater process far more than I like but, it is necessary. When I invoke the Tidewater on a sale to the lender, I enclose the VA Tidewater circular so the lender can hopefully understand the process and, a comparable grid sheet. No longer will I accept 5, 6 7 or a flood of properties that have no chance to be a comparable sale. I state in the Tidewater letter that I will only accept 3 comparable sales. If more are sent I will select the first three, period!
In my opinion, the problem is the way Realtors are educated (or not educated) about what makes a comparable property. The Brokers are not doing their jobs.
I have been in the appraisal industry since 6/1/1966 and a Realtor since 05/1977.
I know both sides very well and will not take any crap from anyone.
by G Man
Your arrogance towards something that is so important to Veterans’ lives is astonishing. Shame.
-by cassandra vaughn
What I do when I receive one is send an initial return email asking the following: 1. What is your reasoning for the request? 2. What issues are present with current comps that would indicate they are NOT appropriate? Selling price cannot be the only parameter. 3. Information source for new comparables? (Unless they are a member of our local MLS, it has been ruled that is proprietary information which cannot be supplied to a nonclient . That includes members of other MLS databases, appraisers, and companies who request it be included in reports routinely. The nonmember has to contact the board, pay a fee per comparable to obtain the info.)
They generally don’t push for any additional reconsideration after that.
-by Joe Allen Cox
So you bully your way into not doing your JOB…. you must be proud
-by Roseann Dufala
This was a very timely article for me. I sat down to address yet another request from an underwriter who just seemed to pull 3 sales from CU on a property that I came in under value on, BUT that was at the higher end for the subdivision. 8 comps–no listings-multiple offers on the first day, etc, etc. CU came up with 3 sales not at all comparable, BUT within mileage, and within date–and that was it. Would NEVER have been considered by the same buyer. All sales were MUCH lower in price-as has been typical for these CU sales. And there was your article. THANK YOU. It gave me the support I needed. My husband is on the board of SCPAC. They are putting out a newsletter and I am hoping to include parts of your info on the FNMA letter numbers and doc numbers and what they are to require for us to have when they give us CU sales. And lately underwriters are trying to pull things DOWN!! And NEVER does anyone say ” how much do you charge?”
-by John M Pratt
ROV, Reconsideration of Value, I wrote an article on this very same item several years ago and it was published in appraisersblog. Yes you are correct that Fannie and HUD both have procedures for ROVs (I do not do VA) and usually the ROV comes from the Loan Officer or the Real Estate agent. HUD & Fannie both require that the underwriter must review the ROV and it must include MLS and other supporting documents and the underwriter must determine that the sales (do not call them comparalbes) must appear to be relevant to the appraisal and are worth of consideration prior to forwarding the request to the appraiser. This can not be done by the amc, it must come from the underwriter after he/she has reviewed the ROV and supporting documents. If they bypass the underwriter and the request comes from a loan Officer or Real Estate agent directly or thru the amc to the appraiser you should response saying they need the underwriter to review and comment why they think the new sales are superior to the ones in the report. Ask for the name and phone # of the underwriter to be included. If the underwriter has not seen the ROV this could be a violation of the AIR (Appraisers Independent Requirements). Several years ago I received an ROV which I challenged and I called the underwriter directly and she stated that she was not aware of any ROV and that my appraisal was already reviewed and approved by the her office.
-If the appraiser did a good job or searching for comps it is likely that the properties cited in the ROV would be included in the appraisers search for comps. If this is the case my response to the ROV is as follows.
These sales were included in the result of my search for comparable sale and were not considered as superior to the comps cited in the report. No changes will be made to the original report.
Do not add this to the report, just send an email response thru the amc and keep a copy in your workfile
If one or more of the sales provided with the ROV are superior to the ones you included in your report you may consider adding them to your report (you are not required to add them, the decision is yours), never remove any of the comps in your original report, just add them as additional comps after the ones in the report as comps 7, 8 or 9 etc.
I would recommend that you never change the value of your original report regardless of what the additional comps indicate. In over 20 years I have never changed my opinion of value after I have completed, signed and delivered an appraisal report. You may ask why, if you have 2 reports on the same property on the same effective date with 2 different values and you are asked by regulators or in court which one is correct, no matter which one you state is correct they will come back and say that the other report is incorrect and you have signed an incorrect report and therefor in violation of USPAP. You can’t win !
John Pratt
by TROY ADAMS
Hi John. I was just asked to review 4 other comparables for a value reconsideration. I had just taken a class about ROV and per FNMA guidelines, the lender is supposed to provided you with certain information regarding new comparables. I relayed that back to the lender and the underwritter called me and said that was only for CU and that they didn’t need to provided the information regarding the new comps. I’m so confused. I’m not an expert with CU so is there something to this? If I have missed a good comp then I have no problem adding it but just seems like the rules should be followed. Any words of advice would be appreciated.
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