For the past year we’ve been harping on new appraisal issues and their affect on real estate transactions. Well, we’ve got another doozy to tell you about, and this appraisal ticking time bomb is set to go off January 26.
Traditionally an appraisal is performed and submitted to the bank and then the underwriter signs off on it. Before you were clear to go if the underwriter didn’t ask more questions and if the adjustments didn’t exceed certain percentages.
FNMA is doing away with the adjustment percentages in section B4-1.3-09 Before agents and appraisers jump up and down and celebrate beware of the new changes.
Fannie Mae is introducing a new software tool called Collateral Underwriter that essentially will produce up to 20 comparable sales ranked by risk to compare against sales the appraiser uses in their report.
After studying some of the training on FNMA’s website it’s apparent that we’re in for a bumpy ride. I’m going to introduce you to a term called CBG (Consensus Block Group) This term will cause lenders and appraisers agita. Basically appraisers are supposed to use comparables in the same neighborhood when possible, and if not possible then use a similar nearby neighborhood.
With Collateral Underwriter the system will select up to 20 properties in the same CBG regardless of whether the neighborhood is similar or not. As you can imagine here in SW Florida, we have hundreds of neighborhoods with a certain set of values that abut another neighborhood with a different set of values.
For instance, think of Renaissance near I-75 and Daniels. Renaissance features homes over $1 million, while nearby Danforth Lakes features homes in the $200’s-$300’s range. This is not a knock against Danforth Lakes; it’s just not a good comparable for Renaissance.
Let’s also talk about the “Risk” factor. Collateral Underwriter will rank comparable homes it identifies by “Risk” and compares those 20 comps against the comps the appraiser used. You can bet the higher the sale price, the higher the risk. So now appraisers might be inclined to not select the best comparable but rather the comps with the least risk of being flagged because of “Risk”.
Guess what happens when the appraisal is shot back to the appraiser for clarification. The appraiser must now justify why the comps he used were better than the ones the computer used in a separate area but in the same CBG. Who is going to pay the appraiser for the extra time? The consumer will. If they don’t allow the appraiser to pass along the extra costs, they’ll take shortcuts to save time and use less expensive comps.
Does this ultimately protect the banks? No. It can put a false constraint on prices in the market which doesn’t protect the bank, and certainly not the public.
Why even order the appraisal if you’re not going to trust the boots on the ground? It seems the computer is taking over and the systems are flawed. Remember, garbage in, garbage out. And this goes against the Market Conditions Addenda FNMA requires appraisers to fill out using only neighborhood data. It’s like FNMA is breaking their own rules. Appraisers will be expected to reconcile any differences between the addenda and CBG trends.
Lending has become so complex it’s virtually impossible for anyone to Sell By Owner anymore. It’s also becoming harder for a part-time or inexperienced agent to tread the constant tidal waves coming ashore by new regulations.
If you’re thinking of buying or selling, be sure to call a professional. Doing it over and losing a sale is always more costly than doing it right the first time. We can be reached at 239-489-4042. Search the MLS at www.Topagent.com
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RE/MAX Realty Group – Ellis Team
Fort Myers Real Estate Agent
7910 Summerlin Lakes Dr
Fort Myers, FL 33907