Fannie Mae drops net and gross adjustment guidelines

So I was doing a little casual reading of the Fannie Mae Selling Guide ( I know.. I'm a sick puppy) and found a recent change that made my jaw drop.  Fannie Mae no longer has any guidelines with respect to net and gross adjustments.  So many of us residential appraisers were weaned on the 15% net and 25% gross adjustment guidelines.  Essentially these benchmarks were used to test the comparability of a sale used in the sales comparison approach.

If your adjustments were in excess of 15% net or 25% gross, you had better have an explanation that was approved by the Pope (and even then it may not be accepted by some underwriters.)

No more.

According to Section B4-1.3-09, updated 12/16/2014 "Fannie Mae does not have specific limitations or guidelines associated with net or gross adjustments."

However, this does not necessarily make the appraiser's job easier.

The section goes on to say "If the extent of the appraiser’s adjustments to the comparable sales is great enough to indicate that the property may not conform to the neighborhood, the underwriter must determine if the opinion of value is adequately supported.

The concern now is that rather than having clearly defined benchmarks for judging the sales comparability, it is now more open to interpretation (and possibly dispute) by the underwriter.  An underwriter could now question a sale with 15% gross if they had a mind to do so.

Lets hope good judgment wins out and that this relaxation of the guidelines results in more acceptance rather than more stipulations.

Getting that first appraisal job.

As an appraisal instructor, I have the very great privilege of working with the next generation of appraisal professionals.  While many come to the licensing courses with a job in hand, many do not. Getting that supervisor lined up can often be the most difficult part of becoming an appraiser.  I am often asked by students how to go about it.

The direct answer is networking.

Most employed appraisers I know got their first gig because they already knew somebody in the industry.  They had that connection already.  If you do not, here is what it is going to take: persistence.

Jump on-line, grab the phone book (do they still publish those things?) and call every appraiser in your area.  Make them aware you are interested.  You are going to be told "We're not hiring right now" a lot. Don't let that bother you.  Keep their contact info and call them back in a month.  Call them back the month after that.  Ask to take them out to lunch so as to get their opinions about how to break into the industry and what it takes to be a successful appraiser.  Make sure that when they are ready to hire a new appraiser, you are the one they are thinking of.  Training a new appraiser takes a lot of time and effort. Supervisors want to know the person they hire are very interested.

Contact the assessor's offices around your area.  They often are willing to hire newly or soon to be licensed appraisers.  Contact your local chapter of the Appraisal Institute or other appraisal industry organization.  They love having interested guests at their luncheons.  You could not ask for a better networking opportunity.

Advanced Education

After what has felt like an eternity, I have completed the MAI and SRA designations with the Appraisal Institute.  It was a long journey and I most definitely feel it was worth the effort.  Are you looking to take your career to the next level?  It will require more education than that which you took to get your license.  This is a knowledge profession.  The more you know, whether it be about a market, a property type or a particular intended use, the more valuable the  clients will find you.  Never stop learning.

Trainee Appraisers In Minnesota - Heads Up

A quick note to applicants for the Trainee Residential Real Property Appraisal license in the state of Minnesota.  I just verified with the Minnesota Department of Commerce Licensing Division, that applicants must have a supervisor lined up before they apply for their license.

The Licensing Instructions for Trainees found on the Commerce Department's website do not specifically state the supervisor must be in place before applying.  However, when completing the license application, the name of the supervisor is required.

When a Trainee completes the state licensing exam, those test results are good for two years.  This means you have a two year window to get the supervisor lined up before you apply for the license.

Welcome to USPAP 2014

Here we are again with a new edition of USPAP.  With this edition we see some great simplifications. Of interest to most appraisers is the retirement of "Self-Contained" and "Summary" written reports. Check your boilerplates.  There are now just two written report options: Appraisal Report (which is required to have a summary level of detail) and Restricted Appraisal Report (which is appropriate only when the client is the only intended user.)

The other major change, is the retirement of Standards Rule 4 & 5 which deal with appraisal consultation.  As these standards were rarely used correctly, they were retired.

Also, a clarification as to what constitutes assignment results.  As appraisers, we are very well aware that our value conclusions are confidential.  This clarification reminds us that not only the value conclusion are confidential, but other opinions developed during the assignment are also confidential.  These include items such as the highest and best use conclusion, the opinion as to the reasonable exposure time, opinions about qualitative factors relating to the subject and comparables.

With a handful other minor changes, I look forward to seeing you in the 7 Hour Update Class starting in February at Kaplan  

Trainee Residential Real Property Appraisers in Minnesota.

Just a quick heads up to Trainee appraisers in Minnesota.  If you do not have a supervisor lined up, you will want to find one as quickly as possible.  Prior to 2008, you could obtain a Trainee Residential Real Property Appraiser license without having a supervisor.  That changed in 2008 when Minnesota changed to a model similar to that used for Real Estate agents.  Trainees must register themselves with a supervisory appraiser that holds a Certified Residential or General license.  This is like real estate agents that must associate themselves with a broker in order to obtain a license.

The Trainee can have as many supervisors as they like.  However, supervisors may only have three Trainees at a time.    

The $200,000 word.

What is the difference between "either" and "both?"  Its about $200,000.  I recently performed a valuation where the owner created an easement agreement with a neighboring property owner.  They wished to build a common entry between their buildings which straddled the common property line.  In crafting the agreement, however, they worded the termination clause to allow "either" party to cancel the agreement.  Normally, such easement agreements require mutual agreement to cancel.  Since either party could cancel the easement on a whim, the beautiful $200,000 entry way had no contributory value.

USPAP Nerd!

Go ahead, call me a nerd.  I accept it.  Teaching USPAP courses is among my favorite activities.

I am finishing up a USPAP power weekend by teaching the 7 Hr Update course on Friday and the 15 Hr course on Monday and Tuesday.

Thanks to all that came out to Kaplan and made the classes so much fun.

Poetic Justice

As an appraisal instructor, I often hear complaints by appraisers about having no mechanism in place to halt the unsavory practices they see everyday in the mortgage lending world. 

In an article published by Appraiser News Online, a staff appraiser for Countrywide lost his job in 2009 for airing concerns about deceptive practices that were inflating appraised values.  Normally, the appraiser losing their job and never being heard from again would be the end of the story.

Not this time! 

The appraiser, Mr. Kyle Lagow, filed a whistle blower lawsuit and, as part of the $26 billion mortgage settlement, was awarded $14.5 million.  Provisions of the U.S. False Claims Act allow private parties to sue organizations involved in illegal activity on behalf of the government and then share in the settlement.

Nothing makes me happier than hearing about an appraiser being rewarded (rather than punished, which occurs all too often) for doing the right thing.

Way to go Kyle!

Welcome to 2012 (USPAP)

An even numbered new year means a new edition of USPAP.  I know every appraiser sleeps with a copy of USPAP under their pillow and has read the 2012-2013 edition so many times their copy is already worn out.  Even so,  I thought I would bullet point the major changes:

• Revised definitions: Client, Extraordinary Assumption, Hypothetical Condition.  The definition of Exposure Time was moved from Statement 6 into the Definition Sections.
• A new rule: Record Keeping is now a full blown Rule
• Exposure Time (associated with market value) must now be reported.
• Revised disclosure requirement:  Disclose whether you have or have not performed any services with regard to the subject property within the 3 years proceeding the effective date.
• Standards for Personal Property Appraisal (Standards 7 & 8) have been significantly updated.
• Advisory Opinion 21 USPAP Compliance has been revised to help us understand when USPAP does and does not apply.

See you in the 7 hour USPAP update class!