Mortgage Appraisals play a huge role in obtaining financing for a property. Therefore, everyone involved with the Lending or Real Estate Industry should be family with all of the nuances of Appraisal Requirements and Responsibilities For Conventional Loans. Especially since Fannie Mae rolled out their new “Automated” Appraisal System earlier this year. Although it’s not mandatory that Banks use the system… they all are.
Between having a SELLER’s Market, where Seller’s are getting above asking price offers, and this new AVM (Automated Value Model) – we are seeing multiple low mortgage appraisals in NC.
My dad was a mortgage lender. When he retired, he became an Appraiser. Because of that, and because I’ve been a mortgage underwriter, I know a lot about reading an Appraisal.
There are specific requirements and responsibilities Fannie Mae and Freddie Mac require from Lenders and Appraisers. Because of that, many MEGA Banks (like Wells Fargo) have a whole separate company that Orders, reviews, Underwrites and Guarantees the accuracy of the Appraisal.
Fannie Mae and Freddie Mac require that Lenders are accountable on Mortgage Appraisals in NC for:
- The selection of an Appraiser qualified to perform an appraisal of the subject property, without attempting to influence the Appraiser’s results (The Loan Officer is not allowed to communicate with the Appraiser at all).
- Provide the Appraiser with a Sales Contract and other information about the subject property and the transaction, including whether funds are paid on behalf of the Borrower come from a contribution from an interested-party and are within allowable contribution limits.
- Reviewing the appraisal to ensure the Appraiser’s opinion of value meets all the Fannie Mae or Freddie Mac definitions of “Market Value”, the appraisal is accurate, and is fully supported, and in compliance with Secondary Market guidelines.
- The Lender must also verify that the appraisal was ordered and completed in accordance with the Code of Conduct, meaning it was ordered on a rotational basis, not by the loan officer – normally it’s handled through a separate company or department. It must be ordered from a strictly non-interested party.
Mortgage Appraisal FEES are generally included in the Closing Costs, and while they CAN be paid by the Seller, that is not always the case. Often, we now find that the buyer is paying for the appraisal at the time of loan application, and then the money is credited back at closing.
In selecting the Appraiser the Lender MUST follow and meet the following criteria for Mortgage Appraisals in NC. The following is right out of a Fannie Mae Announcement 2010-09:
“Lenders are reminded that appraisers must have the requisite knowledge to perform a professional quality appraisal for the specific geographical location and particular property types. The use of an appraiser who has the appropriate knowledge of specific geographical markets, access to the appropriate data sources, and experience in appraising specific property types within those markets will help to ensure that valuations are accurate and that appraisal practices are appropriate.
Although the Uniform Standards of Professional Appraisal Practices (USPAP) allows an appraiser who does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae requires that lenders only use appraisers who have the appropriate knowledge and experience, and does not allow the USPAP flexibility. Consequently, the Selling Guide has been updated to state that appraisers who lack the requisite knowledge, experience, and access to appropriate data must not be utilized.”
Additional revisions have been made to clarify that the lender is responsible for the appraiser’s qualifications and quality of the work, and to provide guidance for determining an appraisers’s qualifications. This might help you see why many of the large banks use a 3rd party to guarantee the Mortgage Appraisals in NC “work,” and why the new Fannie Mae AVM, which can help some of the responsibility off of the Bank is so important.
Besides the above requirements and responsibilities of the Lender, Apprasers are requrired to Certify and Attest to a number of things on the Appraiser’s Certification Section of the appraisal. There are 25 statements the Appraiser Certifies and agrees to on the Appraiser’s Certification Section of the appraisal.
I have seen the two pages which make up the Appraiser’s Certification Section of the appraisal many times but never took the time to read them.
If you have never read what Appraisers have to attest and agree to on EVERY appraisal, I suggest you do so. All of the 25 statements are important, but there are two that I think Realtors and Loan Originators will find very interesting about Mortgage Appraisals in NC. The two statements that I am referring to are statements 11 and 12. They read as follows:
11) “I have knowledge and experience in appraising this type of property in this market area.”
12) “I am aware of , and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records, and other such data sources for the area in which the property is located.”
Let’s think back to those 3rd party companies that are being used by companies like Wells Fargo. The APPRAISERS are in many cases covering very very wide territories. Yes, they might have access to the MLS for Dillworth in Charlotte or inside the Beltline in Raleigh – but these are difficult properties to appraise. Why? Because they often don’t even go on the market.
Before all of the appraisal changes, we had basically had one company that did most of the Inside the Beltline Appraisals. They had a filing cabinet of all the properties they had been in, all of the information on the upgrades and condition of the home.
Can you pull all of that from the Tax Records? Well, sort of.
But choosing the BEST comparable sales means you have ALL of the information, even the “private” sale information. Often times, an appraiser from Burlington NC doesn’t know the history of a Raleigh neighborhood (for instance).
This is NOT TO SAY that the Appraiser is “bad” or that they are not doing diligent work… only to say that someone with a more local point of reference might provide a better Mortgage Appraisal in that situation. This is where a knowledgeable Real Estate Agent can help.
The actual Appraisal Requirements & Responsibilities For Conventional Loans required by Fannie Mae and Freddie Mac are all available to the public. Being able to read the appraisal, see if they feel the neighborhood is declining in value, or seeing a an increasing appreciation is important.
Another important factor on the Mortgage Appraisal in NC is the Property Condition Rating. Remember that in North Carolina There are 11 categories available in the Property Condition Rating on an Appraisal Scale: EX-Excellent, VG-Very Good, GV- Good to Very Good, GD-Good, AG-Average to Good, AV-Average, FA-Fair to Average, FR-Fair, PR-Poor, VP-Very Poor, DL- Dilapidated.
A North Carolina home with a physical condition rating of AV (average) is a house that shows signs of normal “wear and tear” and exhibits an ordinary standard of maintenance and “updates” based upon it’s age. It is the benchmark from which the physical condition factor is adjusted upward or downward.
If you have questions about Mortgage Appraisals in NC, and the way Seller Paid Closing Costs might also be influencing low appraisals, please call Steve and Eleanor Thorne 919 649 5058.