One cannot argue that around March 2020, our country would face unprecedented challenges as a result of the COVID-19 coronavirus. Businesses would suffer for sure but nowhere more than the real estate business with appraisers being put to the test.
Fannie Mae’s temporary guidance allows desktop and exterior-only appraisals for many mortgage transactions so that appraisers do not have to physically enter the home.
In that these flexibilities have been in place for a while, Fannie Mae sat down to discuss what it has observed so far.
“Kudos to the appraiser profession for raising the bar on quality while helping to keep the nation’s housing market moving,” Fannie Mae Collateral Policy Director Lyle Radke told Valuation Review.
Radke said when Fannie Mae looked at the appraisals submitted via the Uniform Collateral Data Portal (UCDP) since the announcement, approximately 16 percent used the desktop or exterior-only flexibilities.
“That number may seem surprisingly low, but several factors play into it,” he said. “One of these factors is that different areas of the country have had varying degrees of shelter-in-place rules and COVID-19 cases.
“We see the highest percentage of appraisals using flexibilities in the northeastern region of the country (i.e., New York, New Jersey, Pennsylvania, Vermont), with some hotspots in California,” Radke added. “Another factor affecting the use of flexibilities is the lender’s decision; we encourage lender and appraiser communication in determining the appropriate scope of work for each assignment considering our guidelines and the individual circumstances.”
Radke also pointed out that Fannie Mae requires that the appraiser gather information to determine the interior condition of the subject property. When the COVID-19 flexibilities are incorporated into the scope of work, the appraiser often can find interior photos through a listing of the subject.
Fannie Mae, according to Radke, encourages the appraiser to supplement information about the interior through additional sources, such as conversations with the homeowner or real estate agent. If the appraiser cannot obtain adequate descriptive information, they cannot — and should not — complete the assignment using the modified scope of work.
“To analyze the appraisals that utilized our temporary flexibilities, our internal valuation team studied a sample of several thousand of these appraisals along with a random control sample of traditional appraisals as a baseline for comparison,” Radke said. “Our first observation was that approximately 90 percent of the desktop and exterior-only appraisals used the modified scopes of work correctly. We think this is a very encouraging number that reflects appraisers’ ability to absorb and utilize new information quickly, as well as communicate effectively with their clients.
“Next, we looked closely at external obsolescence,” he added. “Especially with the desktop appraisals, the appraiser must use tools like aerial maps and rely on their geographic competency to identify negative external influences. For traditional appraisals, we found that appraisers failed to report external obsolescence approximately 11 percent of the time; however, that number dropped to approximately 9 percent for desktop appraisals and approximately 6 percent for exterior-only appraisals. This indicates that appraisers using the flexible scopes of work have done an excellent job of utilizing their knowledge, skills, and data sources to identify and analyze locational influences.”
Another observation Radke mentioned is that, although Fannie does not require a sketch in the exterior-only or desktop appraisals, approximately 35 percent of them did include a sketch from prior appraisal reports or assessor records. And lastly, the supporting comments in the nontraditional reports are even better than those in traditional reports.
“We realize that this hasn’t been easy for appraisers. On top of the huge challenges we all face from the pandemic, following the temporary guidance required many appraisers to adjust deeply ingrained practices,” Radke said. “Extracting a description of the subject property from third-party sources instead of personally inspecting the property requires extra care and due diligence.
“And, the mechanics of the solution (copying and pasting the modified scopes of work into the existing forms and repurposing the map reference field) are admittedly not the most elegant. We opted for this manual process to implement the flexibilities very quickly; creating an automated process would have taken several months, a luxury we did not have in the face of a rapidly evolving situation,” he added.
Radke said the one silver lining of this unique situation is that it has stimulated a wave of creativity within the valuation industry.
“For example, several service providers have recently launched apps that give appraisers access to homeowner-assisted virtual inspections,” he said. “And 3-D scan technology is becoming more accessible every day, which could eventually allow appraisers to not only view and capture comprehensive imagery of the home, but also remotely capture measurements of wall height, staircases, and other descriptive elements.
“This experience has illustrated the benefits of the Scope of Work rule and the ability to adopt new tools and methods in the appraisal process,” Radke added. “Overall, the appraisal profession has stepped up to the recent challenges and done an outstanding job. We are encouraged by the high level of communication, flexibility, embrace of innovation, and professionalism that appraisers have shown.”
To assist appraisers, Fannie Mae has provided links to its policy announcement, two demo videos, FAQs, and other resources on Fannie Mae’s appraisers webpage (www.fanniemae.com/appraisers). Appraisers also have the opportunity to ask appraisal-related questions using the “Contact Us” link found on the page.