Ask the Underwriter: Appraisal Review Part 1

Pricing is UNDER ATTACK! Okay, I may be exaggerating, but I’ve been looking at blogs for the last week and I think I can probably give you a high five when I say they’re being vetted.

As a subscriber, I understand why my fellow subscriber is asking for the additional offsets, appraiser comments, and corrections. As a former loan processor, I understand the frustration of the loan originator and real estate agents. The appraisal represents the guarantee of the mortgage loan. The underwriter can’t physically go to the property (although I’ve heard stories), so the appraisal is the only way to see it.

First let me say this: NO ONE IS PERFECT! This includes adjusters, underwriters, originators, processors, and agents. I’ve always subscribed to the philosophy that subscription is part guidelines and part COMMON SENSE, but the reality of the matter is that’s just not true. Underwriting has become part guidelines, part past experience, part last week’s underwriting meeting, part “last loan I underwrote this way didn’t sell” and LOTS OF PERCEPTION (of all! !).

I’m almost 100% sure I just pissed off half of my fellow subscribers!

For this reason, I have listed some questions to ask yourself when looking at your appraisal. Ask yourself these questions: before you send it to subscription!

1. Are the compositions older than 12 months?

FannieMae/Freddie Mac guidelines request comps no more than 12 months old and appraiser comments for comps older than 6 months.

2. Are the compositions of the subdivision of the subject?

This may seem like a strange question, but the underwriter is looking for value in the immediate area. When comps are drawn from neighboring subdivisions, they must be close and the property must be similar in style and layout.

3. If the property is new construction: Did the appraiser obtain at least one compensation outside of the new subdivision?

The reason the underwriter needs compensation outside of the new subdivision is because they are trying to determine market acceptance. They want to make sure there is a market for the property in question.

4. Did the appraiser move more than 1 mile from the subject? Urban/Suburban = 1 mile, Rural = 10 miles.

Typically, properties in urban cities are less than a mile apart from each other. Now, before you get a dozen emails, let me say: there are exceptions. I can think of at least 2-3 small cities that are quite spread out and I also know that some urban properties are located on the outskirts of the city. These are obvious observations that can be seen on the map included in the appraisal. Which brings me to my next point…..

5. If the appraiser has exceeded the recommended mileage search, does the map support it?

There are no guidelines that say the appraiser CANNOT go over a certain number of miles, the guidelines say the appraiser has to document WHY you went over a certain number of miles. Tester feedback is great, but feedback and the map behind the feedback are even better!

6. Did the adjuster cross any major streets or highways?

The problem with crossing major streets, highways, and train tracks is that it can put you in a different neighborhood value. I’m sure my fellow real estate agents know exactly what I mean.