A lot of things have been thrust into the future from the pandemic, one of these is the appraisal process. As a broker I have seen hundreds of appraisals, in fact its arguably the most pivotal point of a sale. We can negotiate will perfect skill a price between a buyer and seller and amaze the masses with stellar marketing but at the end of the contract if they are mortgaging the home there is a 95% certainty, (100% if putting less than 20% down) it will require a licensed appraiser opinion on the market value of the property.
Because most banks are just "originating" the loan, or in other words getting the initial paperwork complete and funding the sale until it's sold off. The bank will only loan based on what the appraiser says it's worth. This is because most banks sell their loans to government sponsored enterprises or GSE's who have strict rules ("Dodd-Frank laws") as to which loans they can buy.
"Fannie Mae, Freddie Mac relax appraisal, employment verification standards in wake of coronavirus"
These GSE's pretty much set the state for how the housing market is financed due to their large volume of loans that they buy. During the pandemic all federal agencies recieved heavy pressure to implement policies to help stop the spread and sending tens of thousands of appraisers into every corner of every home being bought or refinance with a bank loan immediately came under question.
Urban Institute reported a 14% increase overall in appraisal waivers, which contributed to an increase in refinance activity.
Sarah Wheeler from Housing wire magazine writes "The Federal Housing Finance Agency (FHFA) announced Monday (DEC 28th) it is requesting input on the appraisal policies, practices and processes of Fannie Mae and Freddie Mac, especially as it relates to the GSEs’ appraisal modernization efforts.
The Request for Input (RFI) – open to comment until Feb. 26, 2021 – highlights specifically the benefits and pitfalls of hybrid appraisals, updating the Uniform Appraisal Dataset (UAD) and an increased use of appraisal waivers.
According to FHFA director Mark Calabria, modernizing the appraisal process has the potential to create a more “streamlined and accurate collateral valuation process.” However, if incorrectly adopted, Calabria said it could result in unintended consequences.
“Today’s RFI will improve FHFA’s understanding of how the Enterprises can improve the appraisal process while at the same time ensuring they don’t take on unintended or inappropriate levels of risk,” Calabria said. “The comments we receive will inform how we will modernize appraisals to improve both loan quality and the origination process.”
At the onset of the pandemic in March, the FHFA began easing standards on property appraisals that allowed drive-by and desktop valuations in certain circumstances. "
Already the appraisal trade organizations are selling training material on "Desktop Appraisals" Such as Ron Maloney, self described as the "appraiser and coach", selling a new training program to help prepare appraiser's for the desktop appraisal business. This pushes even further on the assumption that Desktop appraisals are here to stay.
Now, the FHFA is considering implementing hybrid appraisals that enlist a third-party – typically an appraiser trainee, home inspector or real estate agent – to collect the data for a lender and certified appraiser once past the automated underwriting system. Yesterday (DEC 27TH) the FHFA announced a Request for Input on the subject, looking for comments on the possible risks/rewards of such a plan.
Could this be the next step in true appraisal disruption? Time will tell, but in the meantime, we need to prepare for a good chance that your appraiser may not ever set foot in your home.
There are three main steps I have started doing for all the properties I list for our customers that i believe have helped get the highest value during a desktop appraisal. I have personally been through 5 desktop appraisals this year and each one met value.
Take great photos: Your photos must not only look fabulous but they must tell the story of how the layout of the home functions, does the kitchen overlook the living room, making it an "open concept"? Is their access to the porch from the master bedroom allowing a private retreat to a covered patio? Does the photographer have a wide enough angle on his chosen camera to allow for the custom tile work in the oversized greek shower you paid two months of salary for actually show up?
Make a list: Do not make the mistake of thinking that the public description of the features in the home is enough, all though important there is just not enough space in the public description to cover much needed details for an appraiser. So we create a word document of every upgrade in the house since it was last purchased, typically this is a bullet format top to bottom of everything in the house, to really impress the appraiser this list should feature dates installed and permits pulled fill required.
Call the appraiser: It's important to connect the dots for your appraiser, he or she is typically very busy, and trust me you want them to be, thats part of the experience thats needed to appraise correctly. That being said, a short phone call explaining that you are going to email them a list of upgrades to the property or giving them your personal cell in case they have questions can go along way. I have recieved calls from appraisers late at night because i told them, please call if you have questions anytime and then kept emailing and reminding them Im here for them. This open line of communication can often make the difference.
A lot of the appraisal process is more art than science and its these clear lines of communication that help the appraiser feel comfortable that the property is worth what you have it under contract for. Thousands of dollars are on the line for appraisals in todays market, and typically they come in less than over in the multiple offer climate we are currently in. So take it serious and don't make the mistake of "hoping it all works out fine" go the extra mile and provide the information and healthy communication to give your listing an edge.
Feel free to email me direct with your housing questions,
Landon Whitt, Principal Broker OKCREAL