Appraisals, why are they not done before contracts are made?

[StartingOver10]

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@Anonymous wrote:
What I'd assume they mean is that the lender specifies criteria that the comps must meet. i.e. GLA bracketed 25%, age, distance, bed bath, etc. So that would automatically rule out some comps. The UW nor the desk review department (the real decision makers at the lender) will never even talk to the appraiser because doing so can cause the whole appraisal to lose AIR compliance.

No idea what every other lender is doing, but I can certifiably state this has never happened at the large lender I've underwritten for, despite many angry brokers and borrowers assuming that some grand conspiracy was behind their crappy disputes being rejected :-)

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^^^This is how it used to be, but in addition to these qualifications, the u/w can now specify with the appraiser to remove or add a particular comparable sale (that is not necessarily comparable).  This is fairly new - I will check the Fannie Mae letter but IIRC it has been in effect since last year.

Now, as to how the u/w communicates it to the appraiser - IDK. Through the AMC? Around the AMC -probably not. But it is definately happening. Have seen it and discussed the issues directly with appraisers where they have 'rejected' certain comps and put in others that do not correlate as well to the property. I will look for the Fannie Mae letter now.

[Anonymous]

Maybe this? http://www.washingtonpost.com/realestate/fannie-maes-bid-to-boost-appraisals-accuracy-draws-fire/201...

It looks like it's basically just AVM software provided by the GSE. Lenders have been doing this for years, usually when a desk review is done, the reviewer runs the property through software, looks at other comps in the area, and if they look more similar to the subject, the appraiser is asked to comment on them. The fact that Fannie provides the software puts a burden on the lender to be overzealous in verifying everything as Fannie can now say "We told you so" if the loan goes bad. Other than that though, the appraiser still only has to explain why the comps weren't used, not to use them.

The UW does frequently communicate concerns through the AMC which is the established method.

[StartingOver10]

^^^Yes, that article summarizes the issues well.

This is a good summary from the article of the issues we are experiencing:

"Another problem: Fannie Mae won’t give appraisers access to the “black box” databases it uses to produce risk-rating scores. A national petition sponsored by the Illinois Coalition of Appraisal Professionals is now circulating, demanding transparency. Critics such as Mike Turner charge that Fannie’s data will not be able to recognize differences between adjacent neighborhoods — a key factor in valuations — because it is based on census tract groupings, which may include mixes of lower-priced and higher-priced homes from different neighborhoods. He believes the risk-rating system inevitably will be biased toward lower-priced comparables — something he says appraisers “will figure out quickly” — and will therefore reward appraisers who choose less-costly properties for their comps."

And, in fact, the appraised values do come in lower so as the listing agent we have to be cautious as to which contract is actually accepted - does the buyer have additional funds to pay over the appraised value. We are running into this frequently now. So those buyers with extra funds have a leg up over those that do not have extra funds to pay above the appraised value. It is a real issue. 

Naturally Fannie and the lender don't see any issue - the buyer is putting up additional funds or walking away if the seller won't reduce the price. It reduces risk to the lender. It just makes it more difficult for the buyer that is FHA or a high LTV conventional buyer to actually get a chance to purchase and close unless they have excess funds.

[Anonymous]

Possible, though on the flipside, the software can aid lenders and buyers alike to identify a flawed appraisal, and negotiate the sale again with the seller to buy the property at a fair price. If nothing else let the appraiser defend their logic as to why their comps are the best, hopefully to prevent another housing bubble as inflated appraisals contributed greatly to this. I haven't dealt with this specific software, but lenders have had similar software for years. Sometimes a comp looks bad to us, in favor of other comps returned by software, but the appraiser provides sound logic as to why he didn't use our proposed comp and used his own instead. In many cases we say "OK" and proceed, and if the GSEs ever ask we can say we did our due diligence. In other cases we do a FR. There are nuances in the market only the appraiser will truly know, so we do trust the appraiser but also verify what they provide to us.

Either way though, the software does not let underwriters add or remove comps at will. Only an appraiser can update their report. This is consistent with AIR.

[StartingOver10]

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@Anonymous wrote:
Possible, though on the flipside, the software can aid lenders and buyers alike to identify a flawed appraisal, and negotiate the sale again with the seller to buy the property at a fair price. If nothing else let the appraiser defend their logic as to why their comps are the best, hopefully to prevent another housing bubble as inflated appraisals contributed greatly to this. I haven't dealt with this specific software, but lenders have had similar software for years. Sometimes a comp looks bad to us, in favor of other comps returned by software, but the appraiser provides sound logic as to why he didn't use our proposed comp and used his own instead. In many cases we say "OK" and proceed, and if the GSEs ever ask we can say we did our due diligence. In other cases we do a FR. There are nuances in the market only the appraiser will truly know, so we do trust the appraiser but also verify what they provide to us.

Either way though, the software does not let underwriters add or remove comps at will. Only an appraiser can update their report. This is consistent with AIR.

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^^^This is a true statement. What I should have said is the u/w has the appraiser retain or remove the comp. Frankly I had not thought of it in terms of the appraiser defending his comp (in your words) - but that is a valid point.  I only see the appraisal after it has gone through the quality control dept with the lender and it comes from the buyer. The lender doesn't send the appraisal over to me.  I also only see it if there is a problem with the value. I have seen on those problem appraisals obviously bad comps - or huge adjustments. Bottom line is, if the software aids a flawed appraisal, that is a good thing.  But if the flaws are due to an inappropriate comparable sale, that sale needs to be replaced with an actual comp that is more reflective of the subject property. And getting that accomplished after the appraisal has gone through the process is just about impossible. Even if the comp in question is an obvious error. IME.

[Anonymous]

The UW can't make the appraiser do anything other than look at the comp and either update the report or support in writing why it wasn't used (i.e. Why the appraiser's comps are superior). Just feels like the UW is all powerful, since nowadays the balance of power has shifted, appraisers do have more independence, and lenders are scrutinizing things more closely and asking more questions (as they are kept on the hook by the GSEs)

I understand the feeling though as an REA on the side of an appraisal that could be poor, with little recourse, and there are bad appraisers just as there are bad appraisal review departments at lenders. I guess the thing to remember is that all appraisals are an opinion of value, not fact, and thus the disagreements between counterparties will never cease no matter what :-)