New Changes for Home Appraisals- Phoenix Real Estate

FNMA/ FHLMC Appraisal Addendum Is Required with Appraisals after April 1, 2009

As a result of the crash of the housing market, here are the resulting changes required for home appraisals required by Fannie Mae and Freddie Mac. 

Listing Agents- take note- the quality of your listings and descriptions may impact appraisals.

This information was provided by Amy Swaney of Peoples Mortgage. 

Fannie Mae and Freddie Mac recognize the Uniform Standards of Professional Appraisal Practice as the minimum appraisal standards for the appraisal industry; they now require an addition to establishing separate appraisal requirements to supplement these Uniform Standards. This addendum has been discussed in earlier emails, but there are many who don’t recognize how it can affect their transaction.  These are some things you should know about the newly introduced Market Conditions Addendum to the Appraisal Report.  I have included this form with the email.

As you may have noticed Lenders are cracking down hard on appraisals and will continue to do so.  They will be looking closely at ALL INFORMATION including LISTINGS within a certain neighborhood to determine the market conditions. 

What is the purpose of the Market Conditions Addendum? Due to the complexity of the current real estate market, Fannie Mae/Freddie Mac created the Market Conditions Addendum to capture additional information in regards to the market trends specific to the area and the conclusions made by the appraiser.

What is the absorption rate and how is it helpful in identifying market trends? The absorption rate is the rate at which properties for sale have been or can be sold within a specific area (the area determined by the Neighborhood Section of the Appraisal). It is helpful in determining supply and demand trends for a market area.

How is the absorption rate determined?

The absorption rate is determined by dividing the total number of sales for a given neighborhood by the time period being analyzed.

Example:

If there were 60 sales during the 6-month time period being analyzed, the absorption rate would be 10 sales per month (60 divided by 6). If there are 240 active listings there would be a 24 month supply of homes on the market (240 divided by 10).

What is the Median Sale and List Price, DOM, List/Sale Ratio Section?

The appraiser must analyze additional trends, including the changes in median prices and days on the market (DOM) for both sales and listings, as well as a change in list-to-sales price ratios.

What is the Overall Trend Section?

The “Overall Trend” section is designed to reflect potential positive trends, neutral trends, or negative trends in inventory, median sale and list price, days on market, list-to-sale price ratio, and seller concessions.

What is the Foreclosure Sales and Summary/Analysis of Data Section?

The presence and extent of foreclosure/REO sales is worthy of comment when analyzing market data and must be reported on the form. The form also allows for the appraiser to summarize the data and provide other data analysis or additional information, such as analysis of pending sales, which over time can show a market trend.

FHA will also use of the Market Addendum Form as of April 1, 2009 with Additional Requirements for Declining Markets

In addition to the Market Addendum Form, FHA Appraisals of properties located in declining markets must include…

· At least 2 comparable sales that are as similar as possible that closed within 90 days prior to the effective date of the appraisal in order to show recent market activity.  In some markets compliance with this requirement may be difficult or not possible due to the lack of market data and, in these cases, a detailed explanation is required.

· A minimum of 2 active listings or pending sales in comparable 4-6 position or higher (in addition to the three settled sales).

· The active listings and pending sales must be market tested and have reasonable market exposure to avoid the use of over priced properties as comparable’s.

· Adjust active listings to reflect list to sale price ratios for the market.

· Adjust pending sales to reflect the contract purchase price whenever possible or adjust pending sales to reflect list to sale price ratios.

· Include the original list price, any revised list prices, and total days on the market (DOM). Provide an explanation for DOM that does not coincide with the DOM noted in the Market Conditions Addendum.

· Reconcile the adjusted values of active listings or pending sales with the adjusted values of the settled sales provided. If the adjusted values of the settled comparables are higher than the adjusted values of the active listings or pending sales, the appraiser must determine if a market condition adjustment is appropriate. The final value conclusion should not be based solely on the comparable listing or pending sales data.

· Include an absorption rate analysis, which is critical to developing and supporting market trend conclusions, as mandated by the Market Conditions Addendum.

More Appraisal Concerns

The Home Valuation Code of Conduct (HVCC) will be mandatory as of May 1, 2009.  Many believed that the pending change would be able to be blocked or delayed by the lawsuit filed by the National Association of Mortgage Brokers, but as stated in a recent press release by NAMB, they have officially “withdrawn” their lawsuit against the FHFA.  You can read their press release at http://www.namb.org/namb/NewsBot.asp?MODE=VIEW&ID=261&SnID=1540040253.

Amy can be reached via email.  She is the Vice President of People’s Mortgage.