Monday, November 17, 2008

Important New Appraisal Changes

Fannie Mae just announced that there are some new appraisal requirements going into effect, in order to make sure that properties are valued correctly. The main change is the addition of the Market Conditions Addendum, which requires the appraiser to go into great detail to support the claim that a market has declining, stable, or increasing property values. This is something that everyone should be familiar with - sales will depend on it. The announcement from Fannie is 9 pages long, so we're supplying the link to the document, rather than pasting the entire thing in this email. Here is the link:

The new addendum must be used for all appraisals dated after April 1, 2009.

There are other changes as well.

- Supervisory appraisers can no longer just sign off on an appraisal - they must inspect the property themselves.
- The sales contract and all addenda must be given to the appraiser. If the contract is updated, the updated contract must be given to the appraiser.
- If the appraiser uses comparable sales from outside the neighborhood where the property is located, they must now explain why they are doing it.

Fannie also clarified some appraisal issues:

- Repair escrows can be used for minor problems with the property (worn carpet, minor plumbing leaks, holes in screens, cracked window glass, etc.).
- The appraiser must comment on each time the property has been listed for sale in the previous 12 months.
- The appraisal must be for the entire property, not just for a part of it (all acreage must be counted).
- If an adjustment for the effective age of the property is used in the appraisal, it must be explained.
- When anyone with a financial interest in the transaction (real estate agents, buyer, seller, mortgage broker, etc.) provides the appraiser with comps, the appraiser must verify them.
- Neighborhood boundaries cannot be expanded to encompass comps.
- Time adjustments must reflect the difference in market conditions between the date of sale of the comp and the date of the appraisal.

Everything other than the use of the new addendum goes into effect on January 1, 2009.

Again, these are big changes and they will have an impact on listing prices and sales prices (probably to lower them - that's the whole point of all of these changes). Make sure you read the Fannie Mae announcement and pass the word on to everyone you work with.

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