Appraisal FAQ's

Dear Loan Officers,

The Freddy Mac & Fannie Mae forms that appraisers use to complete appraisal reports were primarily designed to be understood and used by appraisers and underwriters. Without formal appraisal education, these forms are normally confusing. And since most loan officers and borrowers do not have formal appraisal training, it is likely that these forms will continue to be difficult to understand.

In addition, many times an appraiser is given additional specific instructions by the lender that are known only by the lender and the appraiser completing the assignment. If these lender instructions are not followed, the appraisers must provide a detailed explanation as to why. For example," comp sales are to be within 60 to 90 days" or "three to four comp sales are to be provided as well as two additional listings or pending sales" are lender standards that are commonly required.

We are dedicated to helping our loan officer clients better understand some of the most frequently asked questions about appraisals so that they can better help their borrowers. Please see the FAQ's below...hopefully they can help clarify some important issues and help the appraisal process become more understandable.

Q1. Are my basement rooms displayed in the appraisal report?

No, only the above grade rooms are displayed in the appraisal report.

(Below grade rooms are accounted for separately in the % finish of the basement).

Q2. Can the measurement of my house be different from the county records on the appraisal report?

Yes, the appraiser's onsite measurements can be different & most likely more accurate than county records. Measurements can also slightly vary from appraiser to appraiser. Also, each appraiser provides a sketch in the appraisal report to show the approximate dimensions of the improvements. The sketch is included only to assist the reader in visualizing the property and understanding the appraiser's determination of its size.

Q3. Can the appraiser use a comparable sale that is older than 60 days?

Yes, if the appraiser explains in detail why they have not followed the lender's instructions.

Q4. Can an appraiser appraise a house that is located in a county they do not live in?

Yes, appraisers are licensed statewide and bound by the Uniform Standards of Professional Appraisal Practice (USPAP) competency rule.

Q5. If an appraiser is not competent in a certain area/county can they still take the assignment?

No, they cannot take the assignment. It is a violation of their service agreement.

Q6. Can the appraiser communicate with the borrower about the appraisal report?

No, they cannot because of the Applicable Appraiser Independence Laws & USPAP violations. (Graham-Leach-Bliley Act)

Q7. Can the loan officer communicate with the appraiser?

No, they cannot due to Applicable Appraiser Independence Laws, USPAP & Graham-Leach-Bliley Act.

Q8. Who is the "only" client of the appraiser?

The appraisal management company. The appraisal management company is the exclusive client as they are the entity who approached the appraiser and ordered the appraisal. (USPAP)

Q9. What is USPAP?

Uniform Standards of Appraisal Practice, the appraiser's bible that has become state law.

Q10. Is a bedroom without a closet counted as a bedroom?

No, it would be classified as a den or an office.

Q11. Is it in the appraiser's best interest to be conservative?

No, it can be just as fraudulent to be overly conservative as it is to be overly aggressive. (USPAP violation)

Q12. Are Appraiser USPAP violations referred to their state's licensing board?

Yes. It is normally the Department of Real Estate that handles such complaints.

Q13. Can an appraiser use comparable sales outside of my neighborhood/market area?

Yes. In declining markets good comparable sales can be scarce. Therefore an appraiser may be forced to use comparable sales outside of the neighborhood or market area.

Q14. Are appliances considered in the appraiser's finial estimate/opinion of value?

Yes, but only if the appliance is permanently affixed to the home. If it is permanently attached it is considered to be real property.

Q15. What are some appliances/items that are generally considered to be personal property and not included in the value of the house?

Washers, dryers, free standing microwaves, refrigerators, and free standing hot tubs are good examples.

Q16. Are my upgrades considered in the appraiser's final estimate/opinion of value?

Yes, upgrades are considered and adjusted as part of the construction quality line item in the appraisal.

It is important to note that the appraiser considers the market reaction before considering making an adjustment for upgrades.

Q17. Are listings given the same consideration as the comparable sales?

No. The appraiser has based his or her opinion of value on the "sales comparison approach". The listings have been provided as requested by the underwriter. The actual sales are given most weight in arriving at a final value estimate. The reason listings are not given equal consideration is that a seller can ask whatever they want for their house but what matters is what the typical buyer is willing to pay.

Q18. Why is there an adjustment for concessions?

Concessions affect the net sales price and are adjusted accordingly by the appraiser.

Q19. Does the appraiser average the adjusted sales prices of the comparables to arrive at a final value estimate?

No. The appraiser can use a weighted average but rarely averages the adjusted values of the comparables in arriving at their final opinion of market value. The appraiser analyzes all of the comparable sales and decides which property or properties are the best indicator(s) of value. The appraiser can give one comparable sale more weight than the others.

Q20. Can the owner of public record show differently than the current actual owner?

Yes. If a home was recently purchased it sometimes takes the County Recorder's office some time to reflect the change of ownership. If the appraiser reports the owner of public record to be different from the true current owner it can be easily changed after verification.

Q21. Can the cost approach method be given more weight than the sales comparison approach?

If the appraiser is to determine fair market value for the subject property, the sales comparison approach is the most applicable. The cost approach is not applicable.

Q22. I can fit 4 cars in my garage and the appraiser has called it a 3 car garage. Why was it not accounted for as a 4 car garage?

Garage stall count is typically accounted for by analyzing how many vehicles can be sitting side by side... not one behind the other. This is why a stall count can be lower than the actual number of vehicles that may fit into the garage area.

Q23. I plan on finishing my basement in the near future and told that to the appraiser. Why wasn't that taken into consideration in the appraisal?

Most appraisals are performed "AS IS." In an "as-is" appraisal the appraiser can only appraise the current improvements. If the appraiser is performing the appraisal "Subject to completion" of the improvements, then the appraiser would complete the appraisal as if the proposed improvements were finished and perform a final inspection when instructed.

Q24. There has been a new addendum to my purchase price. Why can't the appraiser change his or her value based on my new purchase price?

The purchase price for the subject property is irrelevant to the appraiser. Their job is to provide an independent fair market value of the property. At times this fair market appraised value may not support a purchase price. Appraisers must remain independent in assigning value to a particular property. It is not his or her job to reach a particular sales price based on a purchase contract. If that were the case the appraiser would also be in direct violation of USPAP.

When the appraisal is completed it is determined to be the final value by the appraiser. In the case of the sales price being lower or higher than the appraisal the buyer and seller can choose to renegotiate the sales price if necessary.

Q25. My appraisal came back lower than expected. Can I reorder a new appraisal in the hope to get a higher value?

No. That would be considered "Value Shopping" A direct violation of Applicable Appraiser Independence Laws. Please refer to Fannie Mae FNMA FAQ's Q-9.

Q26. My friend is an appraiser. Why can't they appraise my home?

Applicable Appraiser Independence Laws prohibits any outside influence on the selection, retention and compensation of the appraiser. The appraisal management company selects, retains and compensates the appraiser without any outside influence.