analyzing appraisals: focus on sales comparison (presentation slides)

Analyzing Appraisals:

Focus on Sales Comparison February 2013

©2012 Genworth Financial, Inc. All rights reserved.

Property Issues…

????How many cows make the property unacceptable‏

1 Analyzing Appraisals: Focus on Sales Comparison

Session Overview

Agenda

– Fannie Mae Update

– Comparable Properties

– Sales Comparison Grid

• Adjustments

• Best Practice Recommendations

– Sales Comparison Considerations

– Common and Serious Sales Comparison Issues

– Appraisal Analysis Resources and Tools


Recent Fannie Mae Appraisal Changes


Changes are effective in DU the weekend of October 24,2012

General Appraisal Analysis Reminders

Important Point‏

– Appraisers Choose Comps.

– Underwriters Review Appraisals



Appraiser Responsibilities‏

– Opinion of Market Value-Does it meet Fannie/Freddie Definition

– Supporting Data

– Explanations

– Sales Data

Underwriter Responsibilities‏

– Appraisal Review.

• Consistent.

• Supportable.

• Makes sense.

– Guideline compliance.

• Correct form.

• Applicable GSE, Investor, Lender and/or MI Company guidelines.

• Complete

• UAD compliant.



If there is inconsistent data:

– Appraiser explanation is necessary.

– Investors may be apprehensive to purchase the

loan.



Analyzing Comparable Properties Guidelines and Best Practices for Reviewing the Appraiser Chosen‏

Comparable Properties


Analyzing Comparable Properties

At Least Three Closed Sales

– More can be provided.

– Pending sales or listings:

• Can be used when appropriate.

• These might provide additional supporting data.

Comp’s Sale Date (Age)‏

– Check applicable guidelines.

– Closed within the past six months preferred.

– Explanations and possible time adjustments for older comps.


Shortage of Comparable Properties

– Possible Reasons:

• Nature of property improvements.

• Relatively low number of sale transactions in the neighborhood.

– Comparables may have to be:

• Older than six months or a year.

• From a nearby, competing neighborhood.

– Appraiser Explanation and Market Data.



When there is a shortage of comps, the

appraiser should explain:

– Effort made to find better comps?

– Why the shortage of recent sales?

– What does the shortage indicate?

• Stable market?

• Marketability issue?

– Shared unique characteristics?

– Why a potential comp was not selected?

• i.e. Foreclosure sale or non-arms length

transaction.



Unacceptable Comparison Selection Practices

– Misrepresentation

– Inappropriate Comps

• Unacceptable Locationally

• Not Physically Similar

– Uninspected Properties

• No Appraiser Drive-By

– By passing more appropriate comparables

• “Cherry Picking”



Requirements Include:

– Same or Competing Market/Neighborhood

– Similar Factors Impacting Value

• Marketability issues. (Adjacent to dump)

• Functional obsolescence. (Only bathroom located through kitchen)

• Location issues. (Busy street)

• Unique features. (Swimming pool)



Review Appraisal Map‏

– Subject “Center of Attention?”

– Distances make sense?

– Natural boundaries honored?

• i.e. Waterways, Highways, Large Parks.



How far (distance) can the appraiser go to find comparables?

– NO distance rule.

– Distances must make sense.

– Urban location

• Highly densely populated, should be close, within one mile

• Blocks might be more appropriate in certain scenarios.

– Suburban location

• No set distance rule.

• Case by case.

• Sometimes more than a mile is appropriate.

• Track Home subdivision

– Rural location

• Not a lot of homes to select from.

• Might be miles to find similar market alternative.

– Appraiser explanation is key.



Established subdivisions, condominium, or PUD projects:

– Comps should be within the subject’s project.

New subdivisions, condominium, or PUD projects:

– At least one comp within the subject’s project.

– At least one comp from a nearby competing development.



Bracketing‏

– At least one comparable superior and one inferior to the subject.

– As many bracketed items as possible:

• Unadjusted Sale Price

• Gross Living Area (GLA)

• Lot Size

• Adjusted Sale Price

• Other Major Physical Characteristics

– Bracketing is a best practice.

• Upward and downward adjustments balance one another.

– Less likelihood of adjustment inflation.

• Bracketing may evidence conformity to the neighborhood.



Gross Living Area (GLA) Square Footage and Bedroom Count‏



Gross Living Area (GLA) Square Footage

– Comparables within 30% of the subject are preferred

• Anything outside of that is not typically similar.

– Differences < 100 square feet are not usually adjusted.

• Exception: small homes (<1,200 sq ft).

Bedroom Count

– Similar bedroom count is best.

• Typically, at least two comps should have same bedroom count.

• One more or fewer bedroom is ordinarily acceptable for 3+ bedroom homes.

– Two bedroom subjects should have one or more two-bedroom comps.

– Three and four bedroom homes can usually be compared.



Declining Markets

– Check applicable guidelines carefully.

– Typical guideline requirements:

• At least two comparables closed within the past three months.

• A minimum of one, preferably two, listing(s) and/or pending sales.

– Downward time adjustments may be warranted.

• If older comparables used.

• If market conditions have changed since the comparable went under contract.



?Do the subject and comparables appear to be similar‏



Sales Comparison Grid Basics‏

Analyzing Sales Comparison Grid


Compare: To make the comp more like

the subject, one must

add/remove a ______.

Consider: Does ______ bring value to

property? If not, no

adjustment warranted. If yes,

how much?

Start: Comp’s Actual Sales Price

Example: To make this comp more like

the subject, add the finished

basement rooms. (+) The

appraiser’s research

indicates the rooms bring

$3,000 in value, so there is a

+ $3,000 adjustment.

Value: Indicated Value for Subject is

established by

adding/subtracting the

column.


Value Adjustment Basics‏

– Adjustment based on value feature contributes to property.

– Not based on building cost.

– Differ by market area.

– Must be supported, justified and explained.

– Should make sense.


Field Types

– Non-Value Adjustment Fields

– Value Adjustment Fields

• Basic Information

• Guidelines and Best Practices




Adjustment Percentage Red Flags‏

– Best practice benchmarks.

– Fannie Mae® requires appraiser comment/explanation if net or gross exceeded.

– Severity and frequency should be considered.

– Appraisers often exceed these.

• Explanation warranted.

• Must make sense.


Single Adjustment* > 10%

Net Adjustment > 15%

Gross Adjustment > 25%

*The Single Adjustment recommendation, 10%, is no longer a GSE guideline, but is a helpful rule of thumb.


Net Adjustment Calculation‏

– Percent difference between comp’s

Sales Price and Adjusted Sale Price.


Example: Net Adjustment is the

comp’s Actual Sales Price

minus the Adjusted Sales

Price equals Net Adjustment.

$155,000 - $153,000 = $2,000

Net Adjustment/Sales Price is

the Percent Net Adjustment.

$2,000/$155,000 = 1.3%

Example: Gross Adjustment is the total

of the absolute value of all

adjustments.

$5,000 + $3,000 = $8,000

Gross Adjustment/Sales

Price is the Percent Gross

Adjustment.

$8,000/$155,000 = 5.2%


Gross Adjustment Calculation‏

– Percent dollar amount of all

adjustments, without regard to

whether they are positive or negative.



29

?True or False‏

– Given the Adjusted Sales Price of the Comparables shown here, the indicated

value for the subject is $158,200.

Analyzing Appraisals: Focus on Sales Comparison

( $153,000 + $157,800 + $163,800 ) / 3 = $158,200

False it is NOT an average


Indicated Value by Sales Comparison Approach‏

– Summary

– Written rational

– Weighted average

• Not simply a numeric average



Non-Value Adjustment Fields Address, Proximity to Subject, Sale Price, Price/GLA, Data and Verification‏

Sources


Non-Value Adjustment Lines (Disclosure)

– Address

– Proximity to Subject

– Sales Price

– Sales Price/Gross Living Area

– Data Source

– Verification Source



Non-Value Adjustment Lines

– Address

• Verify at http://www.usps.com

– Proximity

• Distance

– In miles, to two decimal points.

– As the crow flies.

• Direction

– From the subject, to the comp.

– Sales Price

• Actual sales price,


http://www.usps.com/


Sale Price/Gross Living Area

– AKA Price per Square Foot:

– Sales Price divided by Gross Living Area square footage.

– Can indicate whether the subject and comparables are similar.



Data and Verification Sources

– Specific Data Source used for each comparable shown.

• Specific MLS and MLS#, when applicable.

• Other sources explained in the “Comments” section.

• Days on Market (DOM), to four digits, must be included.

– Verification Source required.

– Data Source can be party related to transaction.

• So long as Verification Source public, published, and verifiable.



Value Adjustment Fields Basic Grid Reading, General Best Practices, UAD Impacted Fields, Field‏

Specific Best Practices and Guidelines


Additional Best Practices for Reviewing Adjustments‏

– Subjective and Objective Adjustments

– Field Specific, Including UAD Requirements

• Sales Concessions

• Time Adjustments

• Basement Space

– Value

– Finished versus Unfinished

– Additional Reminders



Across the Board Adjustments

– Subject feature

• No similarly featured comparable

• Adjustments to each comp in the same direction for any single item of comparison.

• Common Examples: Swimming Pool, Shed, Barn, Greenhouse or Workshop

– Questionable market acceptance

– Unsupported value additions/subtractions

– Additional comparables

• Older, distant or otherwise not usually acceptable

• Market acceptance

• Value



Field Specific Adjustments Including Best Practices and UAD Impacted Fields‏

Sale or Financing Concessions‏

– First Line

• Type of sale.

– Second Line

• Financing type.

• Concession Amount.

– See Fannie Mae and Freddie Mac

Uniform Appraisal Dataset

Specification, Field-Specific

Standardization Requirements

(Appendix D) for abbreviations.




Sales and Financing Concessions‏

– Fannie Mae® Selling Guide §B4-1.4, Appraisal Report Assessment



Sales and Financing Concessions‏

– Freddie Mac® Single-Family Seller/Servicer Guide §44-15


Financing Concessions‏

– Within allowable limit?

– Adjustment required?

– Narrative included?

– Is sales price inflated by concession’s

inclusion?

– Excessive financing concessions

deducted from sales price?

– LTV recalculated, if necessary?

Sales Concessions‏

– Non-real property items in contract?

– Non-real property items deducted

from sales price?

– LTV recalculated, if necessary?




Date of Sale/Time‏

– Sale date and contract date.

– Market condition adjustments:

• Sometimes warranted for significant

market changes.

• Explanation required.

• Measured from date of contract, not

sale.



Location‏

– Look for similar ratings and factors.

– Impact on value rating.

• Neutral (N)

• Beneficial (B)

• Adverse (A)

– Factor(s).

• One or Two

• Explain what impacts the value rating.

– Value adjustment may be warranted:

• Otherwise similar properties.

• Appraiser explanation.

– Check Location, View and Site value

adjustments to ensure the same

influence is not adjusted twice.

• i.e. Oceanfront Property


*Any necessary location adjustment would appear on the “Other” line, per UAD Appendix D. .


Site‏

– Lot size.

• Not description. (i.e. Average)

– Entire site.

– Less than one acre:

• Whole numbers, square footage.

– One acre or more:

• Acreage to two decimal points.

– Similarly sized lots.

– Adjustments

• Consistent with lot value in cost

approach.

• Supported with market data.



View‏

– Look for similar ratings and factors.

– Impact on value rating:

• Neutral. (N)

• Beneficial. (B)

• Adverse. (A)

– Factor(s):

• One or Two.

• Explain what impacts the value rating.

– Value adjustment may be warranted:

• Otherwise similar properties.


– Check Location, View and Site value

adjustments to ensure the same

influence is not adjusted twice.

• i.e. oceanfront property.



Design‏

– Architectural design/style

– Narrative

– i.e. Mid-Century Modern, Colonial,

Craftsman, Ranch

– Does the market react to different

property designs?



Quality of Construction‏

– UAD Quality Rankings: Q1-Q6

• See Appendix D for specific ratings

definitions.

– Similar rankings.

• Otherwise, possible adjustment.


Actual Age‏

– Adjustments can be

– Validate no double counting for age

and condition



Condition‏

– UAD Condition Rankings: C1-C6

• See Appendix D for specific ratings

definitions.

– Subject’s condition rating must be the

same as rating indicated in

Improvements Section.

• Appraisal subject to completion/repair.

• Sales comparison based on anticipated

condition upon completion.

– Similar rankings.

• Otherwise, possible adjustment.




Bedrooms‏

– Appraiser explanations for

adjustments.

– Particular markets.

Bathrooms‏

– Full and half baths reported.

Square Footage‏

– Similar adjustments.



Basement‏

– First Line

• Square footage.

• Finished square footage

• Basement access:

– Walk-out (wo), walk-up (wu) or interior

only (in).

– Second Line

• Number of rooms.

• Type of finished rooms:

– Rec room (rr), bedroom (br), bath (ba) or

other (o).

– Baths reported in ‘full.half’ format.

– Basement value and adjustments

must make sense.

• Check basement and basement

finished adjustments to value given

above grade living area.



Functional Utility‏

– If adjusted, explained in comments.

Heating/Cooling, Energy Efficient‏

Items, Garage/Carport,

Porch/Patio/Deck, Fireplace.

– Adjustments need to make sense.

Other‏

– In blank spaces.

– Need to make sense.



Other Sales Comparison Concerns Previous Sales/Transfer History. Genworth Guidelines, Common Sales‏

Comparison Issues and Resources.


Other Sales Comparison Data

Sale History Reporting and Analysis‏

– USPAP and GSEs require:

• Three year sale history reporting/analysis for subject.

• One year history reporting/analysis for comps

– Can help identify:

• Value increases.

• Foreclosure, short sale or quit claims in title.

• Unsupported or supported changes in value.

• Seasoning of ownership of property.

MC 1004


?Do the comments confirm the adjustments‏

Sales Comparison

Some Commonly Identified Appraisal Red Flags‏

– Using dated comps without sufficient explanation.

– Not relying upon the most similar comparable property.

• Closest.

• Most recent sale.

• Most similar property.

– Indicated value outside the value range for the neighborhood.

– Photos show a feature/situation not reflected in the appraisal.

• Major farm structures or livestock may evidence farm use.

• Appraiser should explain unusual circumstances and that land is used residentially.

– Gross adjustments in excess of 25% of the original sales price on several

comps.

• Without sufficient explanation and justification.

– Not identifying an area as declining when credible evidence suggests a decline.



Tools and Job Aids Appraisal Review Checklist, Appraisal Review Reminders, Top MI‏

Appraisal Issues, Additional Training, Websites and Resources.

Genworth Appraisal Review Checklist

60

– http://www.mortgageinsurance.genworth.com/LenderServices/Underwriting.aspx


Consult Fannie Mae and Freddie Mac Uniform Appraisal Dataset Specification: Field Specific Standardization Requirements

and all applicable guidelines for complete UAD requirements.

http://www.mortgageinsurance.genworth.com/LenderServices/Underwriting.aspx

Job Aids


Sales Comparison and Genworth

Value Not Supported by Comparables” is a top Genworth Top MI“‏

Decision Error.


Resources • http://www.realtor.com

• http://listingbook.com

• http://www.realquest.com

• http://www.realtytrac.com

• http://www.zillow.com

• http://www.corelogic.com

• http://www.platdata.com

• http://mortgagefraudblog.com

• http://www.appraisalfoundation.org

• http://www.hud.gov

63

•http://maps.yahoo.com

•http://earth.google.com

•http://www.freddiemac.com/learn/pdfs/u

w/apr_reminders.pdf (Freddie Mac

checklist)

•https://www.efanniemae.com/sf/guides/

ssg/relatedsellinginfo/appcode/ (Fannie

Mae Appraisal Guidance and Code of

Conduct Information)

•www.mortgageinsurance.genworth.com


Genworth Action Center 800 444.5664

http://www.realtor.com/

http://asc.gov/

http://www.realquest.com/

http://www.realtytrac.com/

http://www.zillow.com/

http://www.corelogic.com/

http://www.platdata.com/

http://mortgagefraudblog.com/

http://www.appraisalfoundation.org/

http://www.hud.gov/

http://maps.yahoo.com/

http://earth.google.com/

http://www.freddiemac.com/learn/pdfs/uw/apr_reminders.pdf

http://www.freddiemac.com/learn/pdfs/uw/apr_reminders.pdf

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/

Appraisal Review Reminders

Genworth Appraisal Webinars

– Appraisal Underwriting

– Condominium Appraisal Review

– Manufactured Housing

– Calculating Rental Income

– Rural Property Appraisals

– 1004MC and Appraiser Independence


Legal Disclaimer

Genworth Mortgage Insurance is happy to provide you with these training‏

materials. While we strive for accuracy, we also know that any discussion of laws

and their application to particular facts is subject to individual interpretation,

change, and other uncertainties. Our training is not intended as legal advice, and

is not a substitute for advice of counsel. You should always check with your own

legal advisors for interpretations of legal and compliance principles applicable to

your business.

,GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES‏

EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF

MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH

RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO

EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT,

INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND

WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS.

‏

66 ©2012 Genworth Financial, Inc. All rights reserved.

analyzing appraisals: focus on sales comparison (presentation slides)

Documents

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toolsanalyzing appraisals

comparable propertieshow