If I Cannot Support a Small Adjustment, I Just do not Make it
I am more circumspect about the adjustments I make.
The most feared date in the appraisal industry has come. January 26, 2015 arrived with much trepidation and trembling amongst myself and my appraiser colleagues. The day of the Collateral Underwriter (CU) had finally arrived. Yet, it turned out to be a pretty typical day for most. We are now over a week removed from the CU and I have yet to receive even one CU-related revision request. I guess that means one of two things; either I am an incredibly talented appraiser who uses all the best comps and supports every one of my adjustments, or I work for awesome companies who realize the flaws in CU and have chosen not to implement it. For purposes of my daily ego-stroking exercises, I choose to believe it must be the former.
Humor aside, CU is a big deal. Though I may not have received any revision requests related to CU yet (and I stress the word “yet”), many of my peers have. My inbox has been flooded the past few weeks (even before the 26) with questions and complaints from my fellow appraisers about CU. They are finding more and more of these requests and it is making their lives a bit frustrating. I get it. Revision requests (especially those pesky ones which are silly and really have no bearing on the final value) take time. Time is money in the independent, fee-appraiser world. Though I have yet to experience CU directly, it is only a matter of time.
The most frequent question I am getting right now from other appraisers is “What are you doing differently now that CU is here?” It is a great inquiry and one I have been contemplating and preparing for long before January 26. As for me and my office, we have made two fairly significant changes to the way we appraise real estate (and both have everything to do with adjustments).
First, I am more circumspect about the adjustments I make. In the past, it was pretty common for me to make a $2,000 for a fireplace or deck. CU caused me to reevaluate that. On a $325,000 house, can I really support a $2,000 adjustment for ANYTHING? That is less than 1% of value! Maybe I can, but I doubt it. Since I do not have the data to support such minimal adjustments, I have stopped making them. If I cannot support a small adjustment (like sprinklers, fireplaces, decks, patios, etc), I just do not make it. Of course, an explanation is made in the report to this effect.
Secondly, I am much more careful about the support I have in my workfile for the larger adjustments I do make. Do not misunderstand, I am not convinced that every adjustment can be supported. I know others who feel differently on that matter, but I do not believe that ample evidence exists in every case that a $48 per square foot adjustment should be made over a $47 adjustment. I just don’t. However, that does not keep me from trying. If support can be made for adjustments (regression, paired-sales and other methodologies), I am not only going to process it, but I am going to keep that evidence in my workfile should it ever be needed.
The other encouragement I would give is to be sure you truly are choosing the best comparables available to begin with. If you are picking sales simply because they support some preconceived notion of value (yours or someone else’s), you will get caught. And you should get caught! Fannie Mae has access to all kinds of data. We live in the era of big data and, though that reality comes with some notable drawbacks, it makes it harder for the unscrupulous to hide their unscrupulousness. If you have three, really good comps in the neighborhood, yet ignore them to use three, higher sales in another subdivision, you better have a good reason for doing so (and document it).
Like it or not, Collateral Underwriter is here. It is my hope that either the flaws in the system will be recognized and addressed or it goes the way of the buggy whip, but until then we must deal with reality. We must find ways to work within the world of CU and still make a living as real estate appraisers. My advice is to not overreact. We can spend a great deal of time fretting about CU and making changes to our business practices that may be futile. Remember, CU has caused me to make only two, fairly minor, changes in the way I appraise. Both of them probably needed to be made anyway. Though it comes with some notable baggage, in a small way, CU can cause us to be better and more careful appraisers.
Dustin Harris, Creating ‘Value’ for Real Estate Appraisers