Valuation Q1 2023 Update
We hope your 2023 is off to a great start!
First American Mortgage Solutions has some significant initiatives for 2023. One of those initiatives is this communication, which is intended to keep panel appraisers informed of company and industry ongoings throughout the year. This initial update will be the first of four quarterly updates in 2023.
Industry Volume
Of primary concern to many appraisers is the current appraisal volume. At this point, it’s common knowledge that we’re in a very different market than we found ourselves just a few quarters ago. With volume being where it is, lenders, underwriters, reviewers, and QC staff have higher overall expectations, namely communication,
Single-Family Housing Market Conditions
The main reason behind volume being down industry-wide is a crucial topic that we’d like to address here: significant interest rate hikes throughout 2022. Significantly, the rate hikes have affected single-family housing market conditions throughout the country. While every market is unique, current market conditions must be accurately and adequately addressed in every appraisal report. We greatly encourage you to analyze the market in every assignment you do genuinely. Not only is this a requirement, but without an accurate assessment of the market (both current and historical), the probability of your valuation being inherently flawed is high.
To start, we wanted to thank every one of you for your partnership. Wholistically, First American Panel Appraisers do excellent work! Our business would not be the same without our fantastic appraiser partners. We appreciate all you do and want to thank you for your partnership!
appraisal quality, and turnaround time. With that said, now is the time to shine more than ever. We strongly encourage all panel appraisers to renew their focus in these core areas. Not only do our clients expect it, but our order assignment logic also considers these factors.
A significant factor with value accuracy arises from appraisal reports prepared “on auto-pilot” without specific market conditions research. If you are not already doing so, we recommend focusing on three particular areas:
1. Appraisal form accuracy and consistency
2. Thorough and descriptive narrative
3. Adding exhibits so the reader can visualize local trends.
We’ll stop short of outlining all the possible ways in which appraisers can communicate what they see via the three areas above. Still, without clear and consistent reporting in these areas, there are bound to be questions, disputes,
revisions, and/or value reconsideration requests. Much of this can be avoided with a thoughtful and accurate description of local market conditions.
Appraisal Quality: Reading the Engagement Letter
As mentioned above, industry-wide, there is a renewed focus on quality. With volume being down, there are real opportunities for improvement here. Even if your personal revision rate is in the single digits, improvement is always possible. With that said, one of the number one issues we face regarding quality is a failure on the part of the appraiser to adhere to the engagement letter. Do issues come up that weren’t spelled out in the engagement letter? Absolutely! However, in our assessment, nine out of ten times, most revisions could be avoided by simply taking the time to read the terms of the assignment.
Please read the engagement letter multiple times throughout the assignment. We have numerous “stop and call” items outlined in each order that can be
Insights from Quality Control
To provide some specific items to watch out for, we’d like to share some insights from the QC department. The following are the Top Five Preventable Revision items across all First American valuation clients:
30% Cost to Cure/ Repair Items
21% Accessory Unit/ Second Kitchen
17% Grid and Adjustments
17% Subject Photos
15% Inconsistent Comments
Top
These five areas should be focal points if you want to improve your overall quality with First American Mortgage Solutions.
identified in your preliminary research BEFORE the subject property is even inspected. Recognizing these stop-andcall items upfront can prevent significant headaches later, so we encourage thorough primary research with the engagement letter “in hand.” Other times we suggest reading and referring to the engagement letter are apparent throughout the assignment, whether that be at the inspection or while writing the report. Finally, the engagement letter should be thoroughly reviewed before delivering the report. While our delivery system will catch numerous items, it cannot catch everything outlined in the engagement letter. We rely on you, the appraiser, to provide appraisal reports consistent with the engagement terms and error-free.
In terms of the overall panel rejection rate, while we have remained relatively stable throughout 2022, there is an upwards trend beginning in Q3 and Q4. Unsurprisingly, this trend correlates with industry-wide volume declines. This means that a renewed focus on quality is a MUST since clients have more time to analyze your reports.
Rejection Rate
Accessory Dwelling Units
Finally, a note on Accessory Dwelling Units (ADUs). Did you know that Fannie Mae has precise documentation on what constitutes an ADU and how to handle ADUs in the Appraisal Report? If not, or if you would like to familiarize yourself with the Selling Guide requirements, complete info can be found here: B2-3-04, Special Property Eligibility Considerations (12/16/2020) and here: B4-1.3-05, Improvements Section of the Appraisal Report (04/06/2022).
The first link provides Fannie Mae’s definition and a variety of related info. The second link addresses how ADUs should be identified within the appraisal, the requirements to document market acceptance and
the requirements for illustrating how the ADU impacts marketability and value. While ADUs and corresponding valuation requirements are not new, appraisers continue to struggle with the issue. As such, please take a moment to familiarize yourself with the requirements now and the next time you encounter an ADU. Also – please remember to refer to the engagement letter, as our clients often have requirements in addition to what is required in the selling guide.
* Note: FHA has its own reporting and valuation requirements for ADUs which can be found here: Single Family Housing Policy Handbook 4000.1 or here (p.591 of the handbook/p.617 of the PDF document).
Notes from your First American Mortgage Solutions Operations Department
There is now an “Inspected” Button in the Vendor Work Queue in AMP. When you click the “Inspected” Button, the Lender will be notified that the inspection has been completed. Please also make sure that you are providing an ETA at the same time you are clicking the “Inspected” Button. Doing this will prevent additional phone calls, emails, and text messages from us.
This is a reminder that your orders must be accepted within 4 hours to prevent reassignment.
If you haven’t already, please drop us a note with your preferred communication method (phone call, email, text message), and we will notate this in our system accordingly. You can drop a note in an order to us, or you can email us at els.appraisalcs@firstam.com
These are a few ways in which appraisal quality can be enhanced, and our relationship can continue to be successful. As always, we greatly appreciate your partnership and dedication.