Banning the Boilerplate and Simplifying Revision Requests
This month our General Manager, Cameron Cook, teamed up with our Chief Appraiser, Barry Locke, to deliver our internal monthly webinar to our staff of appraisers. We aim to provide our appraisers with the knowledge, tools, and confidence to empower them individually in their respective markets. Keep reading to learn more about Banning the Boilerplate and Simplifying Revision Requests.
Better Report Writing
In reviewing reports, it’s clear that clients and lenders are needing more from appraisers than they were 10 years ago. Today, our clients depend upon more than just the sales comparison approach and the correct value. This will increase the appraiser’s workflow, but will decrease those pesky revision requests. Writing better reports means writing reports that anyone can read and digest with relative ease.
Neighborhood Boundaries
The immediate neighborhood is bound on the north by 1300 South, on the east by 700 East, on the south by 2100 South, and on the west by 300 East. The broader subject market area consists of the Downtown and City Park neighborhoods extending from 600 South to the interstate, on the north and south, and from State Street to 1300 East on the West and East.
Consider who you are writing the report for. The reviewers are not always appraisers,in fact, a lot of the times they aren’t even trained in the appraisal side of things. The example to the left is a strong description of the neighborhood boundaries written clearly and concisely. When paired with a map image in this section, anybody - appraiser or not - will know the area this report was written about. Barry encourages appraisers to consider defining the immediate neighborhood and also defining the broader market area so that reviewers have a chance to see the bigger picture, this can also be accomplished in the Neighborhood Description. The neighborhood description is defining where appraisers are pulling their market information from. In the example above and to the right, the appraiser provided distinct boundaries for where they were pulling their market data from. Add in an image of a map , and anyone reading the report will be able to see the physical boundaries of the report’s data.
Neighborhood Description
The subject property is located within 20 minutes, or 0-10 miles, of most major services, amenities, employment centers, and access points. The subject property is located in the Downtown suburb of Nowhere County, in the Important City School District. The Downtown area is comprised of 1 family residential dwellings, along with 2-4 family, multi-family, and small commercial as shown above. Residential dwellings in Downtown range from 70-125 years in actual age for approximately 90% of homes, with approximately 10% of the remaining homes between 0-70 years. Homes in the 70-125 year age category typically range from 800 sf - 1300+ sf in GLA, approximately 80% with finished or part finished basements, and vary from C2-C4/Q3-Q4 in terms of condition and quality. Approximately 60% of recent sales and listings in the neighborhood noted significant recent remodeling/updating. There are no homes in this area with enhanced views or location factors, there are 6 streets that are busier traffic arteries, 3 of those with significant commercial influences. The subject is not located on one of these streets nor are the comparable sales/listings used in this report.
Typically these are very brief and succinct descriptions for the user. This is another area where appraisers can elaborate on to be able to provide some additional data and some additional neighborhood composition factors. The example on the right takes the initial location description and broadens it. If school districts are meaningful in your market, include which school district the property is in. Talk about the neighborhood composition and talk about the different types of properties in the market area. Don’t use subjective terms like “the neighborhood is good” or “the neighborhood is popular”, instead provide specific market data and ranges that are concrete that communicate that information to whoever may review the report.
Neighborhood Marketing Conditions
Avoid over-generalizing the market conditions. Take a gander at some of these less-than-ideal condition statements:
1. In making a determination of market trends, relevant listings and sales have been considered. There are multiple sales and listing with which the subject competes; The subject conforms to the market. There are no items which would indicate a marketability issue for these sales and listings.
2. Generally good real estate market with some upward pressure on prices. Interest rates at historic lows. Sellers are typically paying 0-3 discount points with financing readily available for qualified buyers.
3. Market conditions are good.
4. See addendum. [Nothing is added in the addendum].
Probably the biggest culprit for needing better writing would be our description of the market conditions. View the marketing conditions #1 above, are you able to tell what the neighborhood marketing conditions are in that market area? No. They don’t use any actual data to describe it; everything has been generalized. In the second example, this example being from a report Barry reviewed from an IVG applicant in October 2023, #2: “Interest rates at historic lows.”, is false, they’re actually at 22 year highs. It is then followed by a generalized statement about discount points. Examples 3 and 4, with 4 usually having an empty addendum, have made no attempt to address market conditions at all. Barry calls on appraisers from every market to step their collective game up in these sections. This section sets the stage for the actual appraisal, make sure it is accurate and descriptive!
An example of a higher quality neighborhood market conditions description:
The real estate market in the subject neighborhood area has slowed over the past year as evidenced by new listings (-31.0%), closed sales (-3.5%), median sales price (-1.1%), and days on market (48/+220.0%) as reported by the Nowhere Board of Realtors. Demand continues to outpace supply as evidenced by a 75% drop in inventory from September 2022-September 2023. 2023 coupled with seasonal demand which typically begins to decrease over the fall and winter months. Interest rates have increased to approximately 7.8% for a 30 year fixed rate mortgage as compared to approximately 5.2% during September 2022. The significant rise in interest rates along with other current economic conditions (historically high property values during 2022, supply chain issues, rising inflation rates) have contributed to sellers taking a more guarded posture and greater competition for buyers in the face of low inventory. As a result, some multiple offer scenarios are again being seen and value declines have slowed and stabilized over the last 6+ months. Seller paid financing concessions, typically in the form of closing or other loan costs </=3% of sales price are not uncommon and remain stable. Typical marketing times remain at under 90 days, due to low inventory, with the median days on market reported to be approximately 48 days. The subject property conforms with the surrounding neighborhood and these stated market conditions are relevant to the subject property. See attached 1004MC addendum and attached market chart(s).
Barry encourages appraisers again to describe what’s going on in the neighborhood and make sure it’s consistent if you’re including the 1004MC addendum. How can appraisers streamline this process rather than punching it in each time to every report? By creating templates: save it into a quick-list, or paste it into the addendum and update the numbers and descriptions as needed per report.
Highest and best use
Another area appraisers can be more descriptive is in the Highest and Best Use statement. Typically there is just a box to be checked that yes, the property is highest and best use, or there’s a very minor statement added to the addendum section.
Barry recommends following USPAP guidelines and deep diving these descriptions. The four tests appraisers must apply to each property include Legally Permissible, Physically Possible, Financially/Economically Feasible, and Maximum Productivity to the Land.
See a good Highest and Best Use statement below:
The appraiser has conducted a highest and best use analysis of the subject property and noted:
1) The subject property is improved in a residential suburb withe zoning classification R-1-10 which allows for single family residential dwellings and requires a 10,000 sf minimum lot. The subject property complies with these criteria and compliance with Zoning Requirements is determined to be legal (Legally permissible).
2) Based on the appraiser’s observations of site size, shape, topography, and accessibility, as well as the existing (proposed) improvements, the appraiser has determined that the subject property, as improved, represents a reasonable and conforming utilization of the subject site (Physically possible). The comparable sales and listings used in this report demonstrate that the improvements are reasonable, typical, and compatible with market demand for the neighborhood. (Financially/economically feasible).
3) Based on the appraiser’s examination of zoning requirements/compliance, market area demand/conditions, and financial feasibility the appraiser has determined that present use of the subject property, as improved, results in maximum productivity to the site (Maximum productivity). No other uses are permitted and a change in zoning classification is unlikely.
Market Value Reconciliation
Barry advises appraisers to slow down and make sure that they are describing what was looked at, what was weighed, and how the value was determined. The examples to the right are concise, straightforward, and do a very good job of depicting how the analysis was done.
The brief description added to the sales grid is fine, but another description in the reconciliation section will help the reviewer to understand the appraiser’s thought process better and will help them understand why the comps were chosen. The examples to the right do a great job of laying out the adjustments and weights and show why the appraiser chose the comps they chose.
Comp #1: Closed sale within the past 1 month, located within .25 miles of the subject property in the immediate subject neighborhood, improved on a similar residential site; comparable quality and size Ranch style home with some more recent updating (significant bathroom updates), detailed by the listing agent (Conditions adjustment made; approximately 3% of sales price for bathroom updates based on paired sales analysis). Based on examination of relevant criteria for comparison, gross adjustments of 4.5%, comp #1 is the most relevant comparison to the subject property. Weight: 50%
Comp #2: Closed sale within 3 months, located approximately .5 miles from the subject property in a competing neighborhood, improved on a similar residential site; comparable quality Ranch style home which, based on listing agnet confirmation, is similar to the subject in terms of condition/updating; Approximately 250 sf larger than the subject in terms of GLA and is improved with an additional main floor bathroom with corresponding adjustments. Based on gross adjustments of 10.5% and larger GLA - Weight: 30%
Comp #3: Closed sale within 4 months, located approximately .75 miles from the subject property in a competing neighborhood, improved ona similar residential site; comparable quality Split-Entry style home with minimal updating and some dated components noted from listing agent property description (Condition adjustment made; approximately 3% of sales price for dated interior wall and floor coverings based on paired sales analysis). Approximately 200 sf smaller than the subject in terms of GLA and is improved with 1 less main floor bathroom, with corresponding adjustments. Based on gross adjustments of 14.9%, style and distance - Weight: 20%
7 Easy Steps to Reduce Appraisal Revision Requests - Clear Capital 2022
7 Easy Steps to Reduce Appraisal Revision Requests, Clear Capital
Explain “How” not “Why” in the appraisal report.
Reduce lengthy commentary.
Use technology and templates to organize and save time.
Do careful pre-inspection research.
Eliminate surprises.
Communicate issues ahead of time.
Run a quick check before sending.
This list brings us full circle, back to the boilerplate issues and how having better substance in appraisal reports, will reduce the underwriter’s need to nitpick at the final product.
IVG’s General Manager and Certified Residential Appraiser Cameron Cook highlights the step for communication, being done professionally, as being the number one key to keeping those relationships between appraisers and AMCs strong, bonus points when the communication from the appraiser is in a timely manner. When done efficiently, there won’t be a need to eliminate any surprises. His second highlight is addressing the request thoroughly and professionally; being thorough reduces opportunities for miscommunication!
The third tactic Cameron recommends to our appraisers is to ask questions. Tying into the communication factor, asking questions when there is a disagreement about a submission or there are concerns or needs for clarification, reach out to your AMC rep! That’s what they’re there for!
The term CYA means something a little different here at Impact Valuation Group, Cover Your Appraisal! If appraisers are following the suggestions from Barry and the steps from Clear Capital above, and describing the “how” in each determination step, they will have a good, solid report that should be able to stand up for itself against future scrutiny.
