The Unicorn of Real Estate Transactions: The "Perfect" Appraisal

The Unicorn of Real Estate Transactions:

The "Perfect" Appraisal

 

     Did you know that ...

     According to a survey performed by the National Association of Realtors (NAR), 1 out of 5 Real Estate Contracts (20%) are delayed prior to Closing as a result of disagreements and problems within the Appraisal Report.

     Even with all the info and data available to Appraisers ... as well as Underwriters, Lenders, and Regulatory Organizations ... this fact remains:  

     Performing the perfect Appraisal remains an unattainable goal.  The perfect Appraisal simply doesn't exist.

     It's like the mythical unicorn ...

     Why?

     Despite all the automation and software programs available and in use, Appraisals are still conducted and written by humans.  Humans … working within an industry that doesn't and can't possibly provide a manual for a "one-size-fits-all" Appraisal Report.

     Just like no 2 properties are alike, no 2 Appraisers view a property the same either. Even when presented the exact same data.  It's much like a Realtor giving an opinion in a CMA (Comparative Market Analysis), or a Broker's Opinion ... human factors must be considered and figured in.

     While the Mortgage Industry has continued to monitor Appraisals very closely, entities like Fannie Mae have developed programs like CU (Collateral Underwriter), as tools for Underwriters and Lenders to use as a "guide".  Remember, Underwriters and Lenders are not Appraisers.

     Since the inception of Fannie Mae's and others' "Valuation Models", the goal has always been to reduce risk by avoiding what is the "over-valued" property Appraisal, whenever possible. 

     The process of reviewing the quality of Appraisals breaks down for Underwriters when conflicting data ... or unusual Adjustments ... are found within an Appraisal Report.  Either can result in the need for additional conditions or comments from the acting Appraiser that will help defend their position and thought process taken within their Appraisal Report.  

     In cases where the Appraisal Conclusion (Final Estimate of Value) is found questionable, Underwriters may lean towards taking caution. 

     Underwriters will ask that one of the following be pursued regarding the Appraisal Report:



  • Better/more narrative from the Appraiser explaining discrepancies or inconsistent adjustments made, or why certain Comparables were used (or omitted).
  • Additional Comparable Sales or Listings be presented to better represent the Value Estimate provided.
  • Require a Desk Review or Field Review (2nd Appraiser involved) to assess the quality and accuracy of the first Appraisal performed.  (This is a worst-case scenario)

         
    In each of the cases above, delays in obtaining what is the ultimate goal ... a final Loan Approval ... will occur, as the Appraisal Review remains a critical part of today's Underwriting Process.

         As unicorns are said to be elusive, so is the "perfect Appraisal".  And as a result of 20% of Appraisals causing issues/delays within current Real Estate transactions, we must remain prepared to address questions raised by Underwriters regarding them ... 

    *  Hoping to Buy or Refinance a home in the greater Chicagoland area?  Contact me today.  I'll put my 37 years of mortgage experience and expertise hard to work on your behalf.
         I can be easily found at:

 Gene Mundt

 Mortgage Lender  -  NMLS #216987  -  IL Lic. #0006220  -  WI Licensed

American Portfolio Mortgage Corp.

NMLS #175656

 

Direct:  815.524.2280

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gmundt@goapmc.com

www.genemundt.com

 

 

  

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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

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Comments

The number of 20% seems a little crazy to me. If I heard one out of 20, that would have easier to accept. That number just seems a little crazy.

If you would have said 20% for home inspection issues, it would have made more sense to me.

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) almost 3 years ago

I agree with Joe Petrowsky it seems unusual. Gret blog and thanks for putting this data together Gene.

Posted by Noah Seidenberg, Chicagoland and Suburbs (800) 858-7917 (Coldwell Banker) almost 3 years ago

Hi Gene - While I agree with your overview of appraisals in general, and appreciate the explanations of the process, like Joe and Noah, we don't see anywhere near that figure for problem appraisals. And we're in a rapidly appreciating market right now, so I have been expecting more problems than we have seen.

Posted by Dick Greenberg, Northern Colorado Residential Real Estate (New Paradigm Partners LLC) almost 3 years ago

Gene I agree no appraisal is perfect, but I am surprised the challenged appraisals are as high as 20%.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 3 years ago

Interesting post, Gene.  I'm wondering if that 20% figure includes all delays re: appraisal, including even those basic "appraiser to comment on..." requests from underwriters that usually only take a day or so to get taken care of.

Posted by John Meussner, #MortgageMadeEasy Walnut Creek, CA 484-680-4852 (Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA,) almost 3 years ago

Thanks for reminding us that appraisals can be very very difficult! 

Posted by Lise Howe, Assoc. Broker and Attorney Licensed in DC, MD, VA, (Keller Williams Capital Properties) almost 3 years ago

Usually I think one of the big problems I have had recently is the appraisal not being ordered on time by the lender.

Posted by Bill Reddington, Destin Florida Real Estate (Re/max Southern Realty) almost 3 years ago

Timing of appraisals here in MN is a problem. Some have been taking forever!

Posted by Shar Sitter, Home Staging and Redesign Minneapolis/ St. Paul, M (Rooms With Style) almost 3 years ago

In our area rarely there are sold stats to support the steep sold price. Last several years I had only 1 that was 5K appraised under the offer. In a strong sellers market with multiple offers appraisers are sympathetic to buyers. A few times there is a desk review for the underwriter.  No TFT yet.

As for no or low down that may be an issue. I only work with strong buyers. Many to pick from.

Posted by Sam Shueh, mba, cdpe, reopro, pe ( (408) 425-1601) almost 3 years ago

Right on!!!

Despite all the automation and software programs available and in use, Appraisals are still conducted and written by humans

Posted by Sham Reddy, CRS (H E R Realty, Dayton, OH) almost 3 years ago

Good morning Gene Mundt, Chicago-area Mortgage Lender - www.genemundt.com,

Excellent post and explains why so many questions on the Appraisal conclusion. I see this process is what is holding up some closings..taking longer due to more and more conditions imposed

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) almost 3 years ago

When I was involved in hard money loans, those appraisals were deliberately slanted toward the money source and never based on market value but distress value instead. What are the lenders telling their appraisers? Their criteria?

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) almost 3 years ago

There were a few years back in 2011-2013 where I was fighting appraisals left and right. I got to be pretty good at getting them to adjust the value up to at least contract price. It seems now-a-days that the appraisers have finally caught up to the rest of the world in regards to opinion of home value. 

Posted by Nicole Doty - Gilbert Real Estate Expert, Broker/Owner of Zion Realty ZionRealtyAZ.com (Zion Realty) almost 3 years ago

The number comes from NAR's report, Joe Petrowsky ... not mine.  But my guess would be that some markets see more issues arise then others and this percentage represents an average regarding all markets.  As John Meussner points out later, it probably represents a fairly wide interpretation of those issues seen ...

Gene

 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Noah Seidenberg ... I replied to Joe Petrowsky s comment above .. but I believe our point of view may come from what we see within our own local markets.  It's obvious that Joe (and perhaps you) don't see issues arise that often.  And that is good.  But other markets may be experiencing much higher frequency ... and I believe this number probably is an average that points to that ...

Gene 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Dick Greenberg ... it's good to hear that your local market isn't having the issues referred to within this report.  I suspect that others are not so lucky ... and the % claimed by the NAR reflects that.   I think it also depends on what is thought of as a problem too ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Noah Seidenberg ... I think this blog reflects the rise in issues I have seen and faced within my own transactions ... and the requests of Underwriting as a result.   And my frustrations with this issue.  Having been a licensed IL Appraiser for over 25 years, this resonates with me on many  levels.  Some issues have been very minor, thankfully.  Others have reflected very poorly written reports.  It about makes my head spin!

Thank you for asking about my family, Noah ... we're enjoying the 3 grandkids immensely throughout the Holidays.  Nothing like experiencing it through their eyes ...

Hope you are doing well too ... and enjoying all our beautiful City has to offer!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

George Souto ... It's my opinion that this report hosts a very wide definition of "issues".  Some fairly meaningless and easy to handle.  Others not so.

I suspect you are correct in your assumption, John Meussner ... but the number does reflect that issues arise and need to be seen to by Lenders on a fairly consistent basis.  No matter how minor ...

Gene   

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

You're welcome, Lise Howe ...

I think timing of the order is important too, Bill Reddington ... but I know that sometimes I hold off on ordering an Appraisal if other larger issues need to be addressed within a file that have a likelihood of derailing approval.  In those instances though, I explain that to all involved ... and the reasons why.  Many times Buyers hope to avoid the cost expenditure for the Appraisal if their approval is "iffy" too.  But again, that is the reason ... and it is explained so no one is left unaware ...

Gene 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Some areas are experiencing a shortage of Appraisers, Shar Sitter ... and that results in delays.  Other markets are just so busy that it's hard to keep up.  In your area, I would guess that is the cause ...

Thank you for reporting what you are seeing within your market, Sam Shueh 

Gene

 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Thanks for the thumbs-up, Sham Reddy!

Sorry to hear that you are actually facing this issue, Dorie Dillard ... it can cause extreme anxiety for Buyers and Sellers ... as well as the agents involved AND Lender.  

Gene 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

As a Lender, I am not telling the Appraisers anything, Richie Alan Naggar ... that is no longer possible or allowed.  It's "hands-off" these days.  And while I understand why the rules were changed ... and understand that flagrant problems existed previously ... new problems now exist because of the new rules too.  Seems there is no "winning" ... and little common sense ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

As markets heal, it should be easier for Appraisers to find supporting statistics, info, etc. for their reports, Nicole Doty - Gilbert Real Estate Expert.  Timely info that can actually be incorporated into a Report.  If you have seen a drop-off in issues arising in your Gilbert, AZ area markets ... that is fantastic.  It reflects a healed and improving housing market for you and your clients.  And that Underwriters and Appraisers are now reflecting that ... cause to celebrate!

Gene 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Agreed! One of the homes I currently have under contract had two appraisals less than six months apart and of course there are two different valuations. The buyer doesn't understand how that could happen. I explained just as you did - two different appraisers, two different days of the week! The house didn't "lose value" or gain value within that six month time frame, it was just a difference of opinion. Thankfully it appraised for a little over sales price.

Posted by Pat Starnes-Front Gate Realty, 601-991-2900 Office; 601-278-4513 Cell (Front Gate Real Estate) almost 3 years ago

Thank you for the information. I will bookmark this and share it with sellers.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) almost 3 years ago

I hesitate to say anything, just because I don't usually have these issues.  Hope on not jinxed now.

Posted by David Alan Baker Laveen & South Phoenix Realtor, Your local Expert (Keller Williams Realty Phoenix) almost 3 years ago

Gene Mundt, Chicago-area Mortgage Lender - www.genemundt.com may be, I am lucky - there are delays in closings, though rarely because of the delay in appraisals.

And yes, it's one place where computer software will be dependent on human judgment.

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) almost 3 years ago

HA HA HA unicorns and the perfect appraisal.  Very good way to tie together two mytical creatures!  

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) almost 3 years ago

Some issues are easily explained to Buyers and Sellers ... and fairly easily (and routinely) addressed.  Others, not so much, Pat Starnes.  Glad your issue was explainable ... and had a happy ending ... 

Thanks, Gita Bantwal ... I appreciate you doing that!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Hope not either, David Baker Realtor - Laveen Homes for sale.  From what I'm seeing in responses, the frequency of these issues arising may be somewhat dictated by locale.  You're obviously in a great place!

There's no doubt about it, software makes the physical writing of a report easier, Praful Thakkar.  But it doesn't replace the thought process, knowledge, and writing skills needed by Appraisers to provide a sound evaluation ...

Gene  

 

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Glad you found it entertaining, Carla Muss-Jacobs, Principal Broker/Owner ... I thought the analogy a good one!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Gene

Thanks for sharing your insight on the appraisal process in a sale.

Congratulations on the gold star.

Lou Ludwig

Posted by Lou Ludwig, Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC (Ludwig & Associates) almost 3 years ago

Excellent commentary Gene Mundt, Chicago-area Mortgage Lender - www.genemundt.com .   We try to smooth out any issues in advance of closing but sometimes, it just doesn't happen.

Posted by DEANNA EARLY - ( NMLS #268590 ), Virginia Mortgage Loan Originator (American National Bank and Trust) almost 3 years ago

Gene  appraisal issues can be frustrating.  I once had a property which did not appraise because the appraiser was from out of area, and we could not get the bank to reconsider. The buyer was even puzzled by the decision.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) almost 3 years ago

Always appreciate your taking the time to comment, Lou Ludwig ... it's greatly appreciated ...

Deanna Early ... we run interference on as many of the issues that will .. or can .. pop-up in a transaction, based on our past experiences and knowledge.  Often performed so quietly that others remain unaware of our actions and hard work.  Appraisals often fall under that category ... but once-in-a-while ... aaaggghhh!

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

I can feel your frustration, Jennifer Fivelsdal ... and totally understand it.  There can be options during those times .. but they often include much slower transactions ... or extra stress or expense ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

Gene in the end the seller and buyer split the difference.

Have a great week.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) almost 3 years ago

Gene Mundt, Chicago-area Mortgage Lender - www.genemundt.com 

Well your title drew me in - I guess I was a little surprised at the statistics, but perhaps I shouldn't have been. I imagine the issues can, in some cases, be signficant, while others less so. The appraisal is typically one of the items in the transaction that causes a bit of worry and anxiety. It's helpful to know what all goes on behind the scenes to try to make the process as streamlined as possible, and hopefully with fewer errors. It's a tough process and not an exact science, as we know.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (Solutions Real Estate ) almost 3 years ago

Glad it worked itself out .. and a compromise was found, Jennifer Fivelsdal ...

Jeff Dowler CRS ... perfect assessment.  It IS a tough process ... especially with some properties and transactions.  Add the human element and we can see why it gets tougher ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) almost 3 years ago

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