There's no doubt that appraising real estate is a little bit of art and a little bit of science. As both a certified appraiser and the head of an appraisal management company, I get the perspective of both lenders and appraisers. Clearly, both are interested in having an accurate and detailed appraisal report completed in a reasonable amount of time, as well as complying with the Uniform Standards of Professional Appraisal Practice and the regulatory agencies.
Yet, more often than not, the appraisal reports we review go back to the appraiser for corrections. Revisions range from minor typos to significant mistakes that can make for an inaccurate appraisal. We may ask for simple corrections, or in many cases, more explanation on the appraisal report for things like adjustments.
Why do we employ such a stringent review process?
For our lender clients, we want to ensure the lender receives an accurate and credible report so they can make an intelligent lending decision. A report with inconsistencies and typos confuses the underwriter. Lenders are concerned about buybacks and repurchase requests, and any questions about the appraisal report will raise a red flag in the underwriter’s mind.
At the same time, our review process protects the appraiser and their credibility. By catching serious mistakes, we protect the appraiser's reputation and help them to avoid potential liability. A real estate property appraisal is a very detailed report, and even the best appraisers can make mistakes. That's especially true when you consider that most appraisers are out in the field during the day and may be writing their reports at night.
The following eight step checklist is designed to ensure an appraisal report is done right the first time, saving everyone time and money.
1. Is the report free of typos? Is everything up to date, including the license expiration date? Accuracy counts!
2. Are all photos included? We often come across reports with missing photos, which can make the entire appraisal appear sloppy.
3. If it's a Federal Housing Administration-insured loan, does the appraisal form meet all of the Department of Housing and Urban Development's requirements? Did the appraiser add HUD/FHA as the intended user?
4. Have you explained all adjustments so that the lender's underwriter can understand them? For example, an appraiser may make an adjustment for square footage. Perhaps the subject property has 1,700 square feet and a comparable property has 1,800 square feet. If the appraiser is going to adjust for a certain amount, whether it is a dollar amount or a percentage, he or she needs to explain why they made the adjustment the way they did. It's important to remember that not everybody is an appraiser, and what may seem obvious to you may not be as easily understood by someone who doesn't specialize in appraising real estate.
5. Are adjustments consistent across the board? Adjustments are market-driven, but an underwriter should be able to understand the appraiser's logic and see that it’s applied consistently. If you're going to make an adjustment of $2,000 for central air conditioning as opposed to wall units, that needs to be explained and applied consistently within the same neighborhoods for the same type of homes.
6. Are you using the most recent comparables? Some markets and properties are admittedly tougher than others. Perhaps there are no comparables within two miles; the comparables will be further out and require more of the appraiser's judgment. The best appraisal reports will clearly explain why the appraiser is choosing particular comparables, as well as detail the reasoning behind adjustments.
7. Are there discrepancies in the owner of public record? Sometimes the owner doesn't match the owner of public record, as is often the case with estates. The appraiser needs to explain where the different information came from, and why it might not match.
8. Is the name of the town or city where a property is located confusing? The U.S. Postal Service may consider a property to be located in a city, but other sources use the name of a smaller area within the city. For example, in New York, a property address may accurately be described as being in Kew Gardens Hills or Flushing, Jamaica Estates or Jamaica. Clearly explaining where the information comes from and why it may differ from other sources is the key to making sure the underwriter will understand it, and not push the appraisal back.
We highly respect good appraisers and the job they do. Our stringent review process is designed to give both lenders and appraisers peace of mind, and ultimately deliver an accurate and detailed appraisal report.