Make Your Appraisals Rock Solid

Posted by Amrock
By Jordan Petkovski, VP of Appraisal Operations
I want to focus on assignment results, more importantly the credibility of assignment results, and how you, the appraiser, can ensure a defensible value.
Some background – A lot of my time is spent working through investor concerns regarding appraisals.  Most of the appraisals in question are mid-2000’s vintage, and the dearth of reasoning found within the report can probably be attributed to the time in which the appraisal occurred.  As we all know, prior to the collapse in 2008, many appraisers had flown ‘fast & lose’ for quite some time.
The vintage of an appraisal product only explains away concerns when the report was historical, but it does nothing to explain the lack of clear and concise narrative for a report that has a 2011 effective date.  Seeing an appraisal that was completed recently, that happens to be devoid of logic and reasoning, is disheartening to say the least.  That being said, the issues that most often arise can be mitigated by following these guiding principles in your day-to-day practice:
1.     Be Specific
Identifying the neighborhood on the first page of the URAR as “The city of Orlando” (for instance) is a bit too broad for it to be considered meaningful.  Explain the neighborhood boundaries in a way that includes readily identifiable geographic totems.  If your comparable sales are selected from outside your described neighborhood boundaries, give your reasoning.  Was it due to a paucity of recent and similarly equipped sales available from within the subject’s neighborhood?  How do the competing neighborhoods match up to the subject’s?  Are location adjustments necessary?  If not, why?
2.     Be Descriptive
Stating that REO activity is observable within the subject’s market area without analyzing their impact on arms-length transactions is a surefire way to upset an investor that’s reviewing your report after the originated loan has defaulted.  Explaining whether or not the REO sales are competing directly with the arms-length sales, and/or the percentage diff between these two populations gives the reader of the report better vision into the market.
3.     Reconcile Value
Explaining that an average of the post-adjusted comparable sales prices was used (or “equal weight was given to all comparables”) to reconcile the opinion of value is NOT a reconciliation.  Explaining in detail why, for instance, “Sale one was given the preponderance of weight” is a start.

If you follow the aforementioned guidelines, you’re taking a proactive approach to mitigating your risk of liability and furthering the appraisal profession.