There Go My Brackets
When appraisers fail to bracket…
Forget college hoops and all of the upsets. This is about the upsets that occur when residential appraisers fail to bracket.
Say that your subject property has a contract for $102,900. Ideally your three sales should surround the contract price like a cozy, warm blanket. Comp #1 might end up, after adjustments, at $100,000. Comp #2 might reach $102,500 and Comp #3 might conclude at $104,000.
All you need is a pretty bow and you can deliver a lovely report to your client.
But…it really doesn’t work that way on most days. Does it? Especially when rates climb or credit tightens. All of the squirrelly deals get sent over. Incomplete start-it-yourself rehabs, one-bedroom cottages, oversized lots, and preposterous cornfield castles.
Still, clients want… no … demand that you bracket the value with the comps. Suddenly your $102,900 contract swims in the middle of a crazy range from $58,800 to $163,750.
Is it a USPAP violation to fail to bracket or end up with a tight bracket?
USPAP is silent on bracketing. For that matter, so is Illinois law. Here’s what Fannie Mae says;
When there are no truly comparable sales for a particular property because of the uniqueness of the property or other conditions, the appraiser must select sales that represent the best indicators of value for the subject property and make adjustments to reflect the actions of typical purchasers in that market.
Not a word about bracketing.
While comforting for an underwriter to see the collateral fall snugly into place, bracketing is still a guideline. This hasn’t stopped AMCs and lenders from complaining to the Board about missed brackets or huge ranges. There just isn’t a law against having a sloppy bracket, nor should there be.
Something else from Fannie Mae;
It should be noted that the indicated value in the Sales Comparison Approach must be within the range of the adjusted sales price of the comparables that are reported in the appraisal report form.
Here, Fannie is referring to appraisers who conclude a value outside of the adjusted range of the comparables.
Back to our $102,900 contract. If your sales adjust out to $58,800 all the way to $163,750 and you conclude a value at $165,000; there’s a problem.
Stay within your range to avoid problems.
By Brian Weaver, Coordinator Editor of IllinoisAppraiser, Appraisal Management Company Coordinator for the Illinois Department of Financial and Professional Regulation (IDFPR)
Source Illinois Appraiser Newsletters – Volume 9, Issue 1 – June 2016