Portland Area Real Estate Appraisal Discussion

Appraisers Fear Fannie Mae Collateral Underwriter

In January 2015, Fannie Mae will release Collateral Underwriter (CU), a statistical tool for lenders that assesses an individual appraisal’s risk and quality using the uniformly coded data (known to appraisers as Uniform Appraisal Dataset (UAD)) from other appraisals.  If the CU program works as intended, it could make appraisers more accountable, improve appraisal quality, and help lenders access loan risk more effectively. 

Appraisers are put off by the pending change because the trend has been that increased oversight usually results in more work and liability for appraisers without increased compensation.  With CU, appraisers will be compared to their peers and to statistical models on every assignment.  Both comparisons could be wrong, but either could lead to an appraiser being asked for numerous clarification revisions, being listed as high risk appraiser, being placed on a do not use list without due process, and ultimately result in a loss of business.

Here is an example output from Collateral Underwriter obtained from Fannie Mae’s online Introduction to Collateral Underwriter Course and four issues that cause appraisers anxiety.  (Please excuse the poor visual quality of the example; it is the best resolution of a screen capture that we can manage.)

Collateral Underwriter Example Appraisal Message

  1. In the example above, the appraiser has used a condition adjustment that is “…smaller than peer and model adjustments.” In our office, we attempt to interview as many agents as possible to find out the true condition of our comparables and other insight that only the agent knows. It is common that when talking to an agent, we find out that a property is presented one way in the Realtor’s multiple listing, but is really something completely different. Our fear is that appraisers, like us, who are doing more due diligence than our peers could be harassed by Underwriters (more than now) or worse yet, could be placed on secret do not use lists. Could it be that a system like CU could further incentivize appraisers doing lender work to not do more thorough research than their peers?


  2. In the example, the appraiser provided comparables that are “…materially different than the model-selected comparables.” This warning is something that is deeply disturbing to many residential appraisers. In recent years, appraisers have become accustomed to banks submitting large lists of comparables that are selected by an automated valuation model (or AVM) and asked to comment on each. Those lists of comparables tend to be useless because they typically omit very important features that the market participants are focusing on. For instance, I received a list of sales produced by an AVM from a bank. All of the properties were located near the subject property in Portland’s West Hills, but none of the AVM comparable sales included panoramic views like the subject property. Importantly, all of the comparable sales that I had originally analyzed in the report did include views (the focus of the typical buyer).


    Appraisers often spend hours researching and commenting on lists of AVM comparables, without any additional compensation, because responding to lender stipulations is required when accepting the assignments. Admittedly, CU should have better comparable data than most AVMs, because the data comes from actual appraisals and includes things like condition, quality, basement finish, and view. However, the typical appraiser has had bad experiences with past AVM data making them nervous about CU’s implementation.


  3. The example includes a warning that, “The appraiser’s reported GLA is different than the GLA reported by other appraisers.” For me and other conscientious appraisers, this is concerning because we often find things about properties that may lead many other appraisers to measure incorrectly or to analyze incorrectly. Experienced appraisers are left with the following questions:


    1. What if I am the only appraiser who is taking the time to exclude areas of finished attic below five feet in height from the GLA, remove two story foyers, or include staircases in above and below areas, when other appraisers might exclude these areas mistakenly or carelessly?


    2. What if I am the only appraiser who is cross-checking the comparable GLA in the multiple listing service with county records and subtracting out areas that the Listing Agent might have advertised as area, but should not be included because of lessor quality, detached areas, or unpermitted areas?


    3. Could I be punished for doing the right thing?


    4. Should I do what I think my peers are doing and try “fly under the radar?” Many appraisers already try to fly under the radar of constant lender stipulations. One example of appraisers avoiding notice is that many make small adjustments for a particular feature (when a larger adjustment might be warranted) because a smaller adjustment will raise fewer red flags by the lender client. In our company, we use statistical analysis to support many adjustments and the result is that our adjustments are sometimes much higher than our peers and this sometimes results in our appraisals getting greater scrutiny from reviewers.


  4. Last, the example shows that the appraiser has reported “…materially different…” quality and condition for one of the comparable sales “…in one or more appraisal reports.” For instance, the appraiser used one specific comparable sale before and called it a C4 condition but now calls the same address property a C3 condition. This is an easy mistake for a conscientious appraiser to make and does not mean that the value opinion is wrong. Many properties fall on the border between one condition rating and another. The gray area is particularly large between C3 and C4. The important thing is that the appraiser makes the appropriate size and direction adjustment to the comparable as the market data suggests. Most software for appraisers has not caught up with this issue of reusing a comparable sale and does not warn appraisers about contradictions with data presented in past reports.

All of the above issues touch on the anxiety that appraisers currently feel about the implementation of Fannie Mae’s CU.  These examples are based around the fact that data is being used by Fannie Mae and lender clients to judge an appraiser’s work, without the appraiser having access to similar information during the appraisal process.  If Fannie Mae truly wants to improve appraisal quality, the agency should work to find a way to provide CU information or warnings to appraisers during the appraisal process so that appraisers can work to improve the quality of their work before submitting a finished product, and/or address issues that the automated system will flag.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

If you find this information interesting or useful, please subscribe to our blog and like us on Facebook.  Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos.  If you need Portland, Oregon area residential real estate appraisal services for any reason, please request appraisal fee quote or book Gary F. Kristensen to speak at your next event. We will do everything possible to assist you.

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Posted by Gary Kristensen on December 10th, 2014 3:15 PMView Comments (12)

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Fannie Mae launched the required 1004MC Market Conditions Addendum to the 1004 Appraisal Report, in April of 2009, as a way for real estate appraisers to better communicate and to support market condition conclusions within home appraisals. This form is now standard for almost all home lending appraisals in the United States, including FHA. At the time, many appraisers complained that the 1004MC form is additional work that does not result in a higher-quality appraisal. Five years later, I think most appraisers concur (Please comment and let me know if you agree.).

Contrary to the assumed majority, A Quality Appraisal believes that the 1004MC is an overall good thing for the appraisal profession. Prior to this form, few appraisers were doing much more of a market conditions analysis than merely citing an area report from the local multiple listing service (MLS) (See our past blog on problems with RMLS Area Report.).  Now, many home appraisers commonly analyze detailed statistical data of the micro market surrounding the subject home. However, some appraisers continue to discount the 1004MC completely by only citing MLS or other data sources.

For many home appraisers, ignoring the 1004MC is made easier by its several flaws. The following lists ways that I think the 1004MC appraisal form could be improved:

1. Move the focus of the Market Conditions Addendum and the appraisal report away from neighborhood to competitive market area. Often, competitive market areas are larger than neighborhoods and include larger samples of data for the appraiser to analyze statistically. This is particularly helpful when working with complex or rural properties where buyers often search a large area; and where a market conditions search of only the neighborhood often results in very little comparable data for statistical analysis.

2. The 1004MC table should be composed of at least two years of data. This will help appraisers to identify if observed changes are a result of an overall trend change or just a seasonal swing.

3. Stop displaying data for two quarters and then a six month period on the 1004MC, because it is confusing to the reader. The following example shows a stable trend, but as displayed on the 1004MC form, it looks like the number of sales declined.

Portland Appraisal 1004MC Inventory


The above is a screenshot from an actual 1004MC appraisal form showing the Total # of Comparable Sales (Settled) row.

4. Include a price per square foot trend analysis. Price per square foot is often a stronger indicator of price trends than median sales price because changes in the size of homes can result in a change in median price trends, without a corresponding change in value.

5. Remove the Overall Trend check boxes for either Total # of Comparable Sales (Total Sales/Quarter) or Absorption Rate (Total Sales/Month). A trend check box for each suggests that these are two separate indicators of the market health when they are really the same (just quarterly vs. monthly). If both trends are checked as “Declining,” it appears to the appraisal reader that two areas of the market are suffering, rather than just one. The 1004MC should display both, but only have a check box for one.

Portland Appraiser 1004MC Inventory


The above is a screenshot from an actual 1004MC appraisal form showing Total # of Comparable Sales and Absorption Rate lines.

6. In addition to a table of numerical data, the 1004MC should feature some graphical displays. With today’s technology, it takes no additional effort by the appraiser to include a graphical display of data. Some appraisers already do this, but a standard set of graphs would make it easier for users of the data, and for appraisers to quickly determine if the market is healthy or changing. The following are the four charts that I suggest be included with the 1004MC (Note that all of the following charts display two years of data and not just one.):

Portland Appraiser 1004MC Price Trends Graph


Chart A shows the appraiser how median list prices and median sales prices are trending in relation to each other.

Portland Appraisal 1004MC Price Per SF Trend Graph


Chart B shows appraisers how price per square foot of living area is trending. This chart is particularly helpful as a way to check the results of Chart A. Sometimes the market can shift toward selling smaller homes, making Chart A decline while Chart B increases.

Portland Home Appraiser Volume Trends Graph


Chart C shows the appraiser a component breakdown of inventory (sales and listings) and gives the appraiser a better feel for what supply and demand is doing and at what time of the year.

Portland Home Appraisal Housing Supply Graph


Chart D shows the appraiser the overall trend in home inventory.

The appraisers at A Quality Appraisal already incorporate all of the above-proposed suggestions for improvement of the 1004MC on every appraisal (and not just appraisals for Fannie Mae or other lending). We use Microsoft Excel to produce the graphs, but free software called Total Solutions 1004MC is also available to appraisers, as are many other similar programs.

If you find this information interesting or useful, please subscribe to my blog. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, OR area residential real estate appraisal services for any reason, please contact us. We will do everything possible to assist you.

Thanks for reading,



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