New standards for appraisals were recently announced by the Federal Housing Finance Agency (FHFA) and take effect September 1.
Federal Housing Finance Agency
The Uniform Appraisal Dataset (UAD) was created to improve the quality and consistency of appraisals on mortgages for Fannie Mae and Freddie Mac, according to FHFA.
“Any appraisal that’s not UAD compliant will be rejected after September 1,” according to Michelle Bradley, PAR chair of Specialized Practice Issues Subcommittee and an appraisal trainer. “Appraisers should immediately contact their software vendors to find out when the updated software release is scheduled,” she suggested. “I think there’s going to be a huge learning curve to begin using the new, standardized abbreviations.”
The UAD only applies to single-family residential properties and condos (not multi-family units or manufactured homes), according to Bradley. “At this time, the UAD requirements don’t apply to Housing and Urban Development (HUD) or Veterans Administration (VA) loans but they may adopt these later.”
For Realtors®, Bradley said it’s important to know that appraisals will now be required to have standardized verbiage. “We’re no longer allowed to use words like ‘fair’ or ‘good’ to rate a property. Appraisers will be required to use condition (C1-C6) and quality (Q1-Q6) ratings based on the provided definitions,” she explained.
“More than ever before, appraisers must have well-documented reports that prove the value of the home. No longer are appraisers the ‘final word’ on the value. Lenders routinely use computer-generated valuations to compare against the appraisal. If the computer’s value differs from the appraiser’s value, the processing of the loan is halted and additional documentation is requested from the appraiser,” Bradley said.
To that end, the UAD will allow the Government Sponsored Entities (GSEs) to pull reports on appraisers to review whether an appraiser is overvaluing or undervaluing properties based on the statistical information the GSEs collect. “Every important portion of the appraisal will be standardized so Fannie Mae or Freddie Mac can run a report on any aspect of the appraisal,” she said.
For Realtors®, it would be helpful to know the criteria for the standardized ratings and know the difference between remodeled and updated, and location and view, as these areas are often considered synonymous, but are not, Bradley said. “Often Realtors® are the first contact for appraisers and it’s helpful if the Realtor® knows what the criteria is for a kitchen or bath remodel, what was done and when it was completed because that has to be included in the standardized fields in the appraisal form,” she said.
For appraisers, Bradley notes that the computer tracking process is a new aspect and will allow everything an appraiser does to be tracked. She said an online 20-minute tutorial provided by Fannie Mae is extremely helpful and interactive.
“If two appraisers both appraise the same property and cite different conditions and view ratings, Fannie and Freddie will have the ability to track that information and may question why,” Bradley added.
Additional interior and exterior photos may be required and some lenders may require aerial maps depicting the property and surroundings, Bradley said.
Appraisal classes on this topic are still being written and Bradley suggests appraisers contact their continuing education provider to determine when classes will be offered on these new requirements. Bradley has incorporated these changes into her appraisal classes offered by the Pennsylvania Realtors® Institute (PRI).
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