Over the years, it seems that there has been as many property-evaluation tools out there as Carter has pills. Fannie Mae and Freddie Mac have a plethora of different appraisal forms, and they are constantly undergoing change.
This past year, Fannie introduced yet another form, the FNMA MC, which was designed as an addendum to the regular FNMA 1004 or the standard Fannie Mae single-family-appraisal form. The MC stands for "Market Conditions," and the form was designed to reflect information not on the regular 1004, given all of the severe changes in the market, due to the financial crisis. Data, such as the number of homes on the market or average turnover rates, is addressed, giving underwriters more information about the current market than they would otherwise have. Necessity is said to be the mother of invention, and this would certainly be a good example.
At one time or another, we have been introduced to various new techniques and/or forms designed to lay to rest the challenges of placing a value on a property to be used for mortgage collateral. Each time it happens, we are led to believe that it is the end all to property appraisals only to find that later on, something else will come along to replace it. We have had limited appraisals, drive-by appraisals, windshield appraisals, narrative appraisals, electronic appraisals, broker price opinions (BPOs) and automated valuation models (AVMs), as the flavor of the day in one year or another.
What generates all of these changes, and why do we need so many different property evaluation tools? Most, in fact practically all, of our residential appraisal body of knowledge and appraisal guidelines have come from Fannie Mae in the past. Freddie Mac followed suit by taking the same forms and guidelines and put its name on it, creating a sister form, so that things would not be so confusing. For this we are thankful.
Given all of the changes in the past, what new appraisal forms or techniques should we expect in the future? If I were a betting man, I would say that the next wrinkle in appraisals will not be new at all but a rehash of a previous tool whose time has come again. The time is right for a revival of the review appraisal. Yes, we will have the standard residential form appraisals, and they will be required for all new loans. The difference, I predict, will be that there will be a lot more review appraisals.
Why? Many banks want to retain control of the appraisal process, so they continue to order their own appraisals from the same pool of appraisers. This by itself can cast a ray of doubt as to the validity of the appraisal process and/or the validity of specific appraisals. By using the review appraisal, complying with regulations will be easier. This method of validation may very well satisfy the lender, as well as the regulator. Banks are responsible for reviewing appraisals anyway, and having a complete review appraisal at hand to support the original appraiser and appraisal will go a long way toward to satisfying regulations and regulators.
Will the old tried and true desk review or field review be adequate for this purpose? In some cases it may, however, with all of the technology available and with the many databases of property sales information, we can expect more and different review appraisal formats coming down the pike. In fact, we are already seeing this offered by some of the larger technology companies.
On a recent visit to the FNC* headquarters in Oxford, Miss., I had a chance to see some of its new cutting-edge products firsthand. FNC's Collateral DNA suite of products, offers a variety of options designed to provide additional market data to reviewers, whether they be underwriters or review appraisers. These include the GAAR Report, Property Scan Report and the Market Report, all designed to provide additional sales data to assist the reviewer along with the QC Vigilance Report, which not only offers an online appraisal form, but it also populates the form with sales data, not necessarily found in the original appraisal. This allows the reviewer fingertip information with which to develop a more thorough review with the least investment in time and money. There are also other technology companies offering advanced high-tech products that are available as we speak. These will address the demand for the enhanced review appraisals and other review-and-underwriting needs, dictated by our current economic environment.
In conclusion, you may expect a larger number of independent, as well as in-house reviews of appraisals, used by the lending community, going forward. Because there will be and already is more demand for quality control and independent opinions, expect to see more appraisal-review products. Among the most popular of these will be the Web-based systems, offering additional sales data for the reviewer to use in his or her analysis. This is due to new technological developments, including better software and larger pools of comparable data, which favor quicker and cheaper services at a time when more in-depth review services are in demand.
* Editor’s Note: FNC, Inc.® is a mortgage software technology company that builds systems to give mortgage lenders and servicers access to the most current residential real estate information available.
About the author
Charlie Elliott MAI, ASA, SRA has a career of professional experience in real estate as an appraiser, broker, negotiator, contractor, manager, investor, counselor, mentor, and business executive. He founded ELLIOTT® & Company Appraisers in 1980 and has been its chief executive officer since that time. Mr. Elliott also acts as a consultant in providing service to clients on complex assignments and serves as an expert witness in real estate valuation in court litigation. Mr. Elliott can be contacted by email or by phone at 336-854-3075.