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 ...
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 LOs/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 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:
Mortgage Lender - NMLS #216987 - IL Lic. #0006220 - WI Licensed
American Portfolio Mortgage Corp.
Gene Mundt, Mortgage Originator, an Originator with 37 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL.
Your Referrals are Greatly Appreciated!