Data and Verification Sources Are Critical
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The genesis for this essay began when I heard from another appraiser that a VA report reviewer rejected the comparables “DOC Number” on the Verification Source(s) line. The reviewer said the “DOC Number” was not acceptable as a Verification Source.
In fact, VA has said in a newsletter to appraisers that “… Assessor’s File Number may never be used as a Verification Source.” I disagree with that position, and this essay explains why. It also explains what appraisers should do to provide credible Data and Verification Source(s) in reports. Caveat: I don’t do VA assignments.
I decided that a deeper dive into these two different line items on the forms was necessary, and could be helpful to appraisers. Over the years I’ve seen incorrect entries on the Data and Verification Source(s) lines (shown below) in many reports done by other appraisers.
The first item to keep in mind is Source(s) can be plural because of the (s). That means more than one source can be revealed in the report… and probably should be.
Secondly, the purpose for indicating Data and Verification Source(s) is to provide the report user with supportable, researched proof that the various property characteristics and transaction details in the report are valid, and the comparable actually did sell.
Third, both of these items should be researched from multiple Sources. Property details are not always correct in just one Source; cross checking is vital for accuracy.
One problem in our work is the availability of accurate Source(s), especially in the many non-disclosure states. Later in this essay, I provide info about that.
While Verification was the trigger for this essay, let’s examine Data Source(s) first, because that’s the first item required on the report form. Probably the best place to gain better understanding of these items is from the forms creators (the GSE’s) themselves… FNMA primarily because their Selling Guide (Section B4-1.3-07) seems to be written somewhat better than FrMAC’s. Other report users, such as VA, tend to use FNMA guidelines as the de facto standard for report content.
Per FNMA, Data Source(s) are considered to be, but not limited to:
- MLS listings (& the listing number + DOM)
- deed records
- tax records
- appraiser’s files
- other third party sources and vendors
> To the above I will add Assessor, Recording Office, County Treasurer records, and articles in local publications
These must be specific in reports, not generic (such as just ‘public records’), and reliable for where the property is located. Per The Appraisal of Real Estate, 13th Edition, we might call the ‘Data Source(s)’ “raw data” until it is actually verified by someone connected to the transaction.
Keep in mind that for UAD (Uniform Appraisal Dataset) reports, the current reporting protocol for comparable property Data Source(s) is to indicate only the MLS listing number, and the DOM (Days on Market). That doesn’t leave room for much else in that form field, even abbreviated. In fact, due to the UAD form design and character space limitations, nothing else may be allowed on that grid field. Therefore, you should include a section in your report Addendum that describes the Data Source(s) you used.
Basically, Data Source(s) are just that… data. Raw. The specific details about a property found in or from the various Source(s) you use, whether it be on-line (like from a web site) or found in some printed document, a prior appraisal, chats with interested parties, etc.
Again, turning to FNMA, they say Verification Source(s) can be, but not limited to:
- Listing and Selling agents
- Closing Documents
To that list, I would add Auditor File Number, Recording Number, Deed Document Number, Instrument Number, Excise Number… or whatever the actual legal number for that sale is called in your area when the sale is technically closed and transferred, and the keys are handed to the buyer. That number is applied to the Deed when the Deed is recorded by the jurisdiction. This is the document the Title Company uses to show the chain of title, and verify that a transfer was made from and to. It’s why I got a bit perturbed when the VA reviewer (and the VA newsletter) said the ‘Doc Number’ was not acceptable.
It seems to me that VA is taking a hard-line approach, believing that the “Doc Number” is ONLY a Data Source. It is not (in my view). That number VERIFIES that the sale actually happened. Anyone can tell you ‘yeah, it sold.’ But the “Doc Number” actually proves it did.
But there’s more, as the info commercials say. Per FNMA, the verification process involves not just the legal property transfer, but the examination of conditions of sale, financing concessions, physical characteristics and the type of transaction (arms length or other). This is a process many appraisers skip.
Thus, Verification is more than just noting the Doc Number to prove the sale. (This was what the VA reviewer reacted to, because no other Verification Source was identified.) To verify the data means you actually need to talk with one or more parties involved with the comparable property sale.
Now, I’ve always scratched my noggin about this next part in the FNMA Selling Guide:
“It is acceptable to obtain comparable sales data from parties that have a financial interest in either the sale or financing of the subject property; however, the appraiser must verify the data with a party that does not have a financial interest in the subject transaction. For example, if the real estate agent of the subject property has provided comparable sales data, that information must be verified through another disinterested source.”
I had to read that three times, out loud, to figure it out. Pixy dust applied to my forehead also aided the process! Actually, using bold type and underlines help more!
What it means is if the property listing or selling agent supplies the appraiser with comparables for your subject property, then the appraiser must verify the comparable data with “disinterested” sources for those comparables.
Note that statement doesn’t reference comparables found by the appraiser alone, without assistance from the subject’s listing agent. So ‘disinterested source’ does not specifically apply to appraiser-found comparables.
Who exactly are disinterested sources?
If you take a look again at the lists for Data and Verification Source(s), almost all are INTERESTED parties to the comparable transaction. The only DISINTERESTED sources (in my view) is the person who applies the “Doc” number to the deed at the time of recording, or the person at the county Treasurer’s office who applies the Excise Number to the property record for tracking purposes for the transfer fee payments.
Therefore, the ‘Doc Number’, or any other name as I mentioned on the previous page, is the most reliable Verification source for the actual property sale and transfer. The other parties are useful to provide the additional verification information for conditions of sale as noted above.
What I believe VA is really saying is they want ‘more’ than just the “Doc Number” in the Verification field for each comparable. They want to know who else you talked with to ‘verify’ the transaction components, etc. What applies to VA assignments (in this case) also applies to every other type of assignment we do.
For form reporting purposes, I’d recommend using the ‘Doc Number’ as the first item on the Verification Source(s) field, followed by ‘Listing Agent’** for each comp. You may need to abbreviate Listing Agent due to space. Elsewhere in your report, you should include a list of additional Verification Sources that you used for each comparable. I’d also recommend that you explain what the ‘Doc Number’ means on the form grid page.
** I mention Listing Agent because in some MLS associations, only the Listing Agent can modify the listing after sale to show the Seller Concession.
Note that the MLS Listing Number is NOT a Verification Source for the sale. Do not put that number on the Verification line! Also, do not use Public Records as that Source.
Now that we have examined what Data and Verification Source(s) are, we need to examine the process to obtain the necessary information in more detail.
This comes down to where in the country you work, and the state laws involving real property transfers you have to know and use.
If you are working in a ‘disclosure’ state, verify the Sale Price from two or more Source(s), and talk with parties with first-hand knowledge of the transaction and conditions of sale.
Non-disclosure State Verification:
Most of the US states and territories are ‘full disclosure’ for all transactions. The ‘raw’ data is relatively easy to obtain, including the comparable Sale Price. Verification of that data, and the transaction info is relatively accessible, depending, of course, on the willingness of human Sources to discuss the details.
But there are 15 states which are considered to be ‘non-disclosure’ – which generally means the Sales Price is not publicly revealed. These are:
- New Mexico
- North Dakota
When doing research for this essay, I asked appraisers in non-disclosure states how they obtain the necessary info for appraisal reports. These folks have far more hassles than those of us in full disclosure states!
Some states are semi-full disclosure, in that property sale data and sale price is available, but the appraiser must access a specific web site, or physically visit a ‘recording office’ to look at the recorded deed. Sometimes, data is available from a paid subscription Legal News service, which some appraisers use.
In rare cases, some counties don’t even have any records available for an appraiser to look at in person, and thus also don’t have any info on-line. The appraiser who mentioned this has discontinued doing appraisals in those areas because data are lacking. Using multiple Extraordinary Assumptions about data in reports may not build lender confidence in the reported value either (except for Texas, noted below)!
Obtaining the actual Sale Price is the biggest hurdle faced by appraisers in non-disclosure states. One appraiser reported the best way to get that data point is to obtain a copy of the actual closing document used by the escrow agent. It would seem prudent that developing good relationships with escrow agents and the real estate agents who work with them would be beneficial. Having a ready source of chocolate kisses candy to hand out would probably help!
Sometimes you can determine the actual Sale Price by getting the excise tax amount paid at the time of transfer, and multiplying (or dividing) that figure by the percentage factor number used to calculate the excise tax. The appraiser would have to talk with the jurisdiction recording department staff to get the factor number. But, as one appraiser pointed out, this may not always be accurate due to non-realty items, such as livestock or machinery, included with the sale (which needs to be verified).
It appears to me that Texas is the worst in terms of obtaining accurate and credible data, and to verify that information. Texas state laws are specifically designed to thwart the ability of ANYONE to find the Sale Price and other significant data about real property transactions. Recorded Deeds normally don’t have the Sale Price shown. Realist data, etc., can be hog-tied and redacted. Sale Prices are often ‘extrapolated’ by appraisers from limited info. This is one state where EA’s are commonly used by appraisers, and the MLS reported ‘Sale Price’ is used. Appraisers in Texas can obtain a copy of the closing statement from a Title Company – but only if the real estate agent(s) allow that to be forwarded to the appraiser. Talk about doing appraisals while blindfolded, with wrists handcuffed to ankles, and mouths duct taped! Only occasionally, usually with REO properties, Texas property deeds prepared from out-of-state title companies will show the Sale Price.
In Idaho, appraisers have to work to get the closing document, typically from the Agent(s) involved. But that’s not always guaranteed.
For appraisers working in non-disclosure states, including a statement in reports about Data and Verification Source(s) should be prominent, so that the client understands the situation. One of the appraisers I have been communicating with provided two such statements which you might consider using:
1) “(State) is a non-disclosure state and recollection of details and anticipation often fade with time; as such it is not always possible to obtain exact details from a respective transaction.
Additionally, since (State) is a non-disclosure state, details of comparable property sales or leases are presumed to be accurately portrayed by the parties to the respective agreements; in lieu of cooperation by the parties (or in some cases, where parties have no recollection of such details), assumptions and/or reasonable approximations are sometimes necessitated.”
2) “(State) is a non-disclosure state. This means essential information like grantor, grantee, sale prices and sale dates for real estate transactions are not listed in public records. Hence, appraisers must gather key details from parties involved who have no incentive to cooperate. Often appraisers are compelled to obtain the information from secondary sources. This lessens reliability of the data. [Appraiser] discloses s/he made reasonable attempts, within the context of the scope of work, to obtain all key information from seemingly reliable sources; but common sense suggests some data may not be completely accurate.”
So, what are the ‘takeaways’ from this essay?
- Data and Verification Source(s) are different items, and need to be defined and reported separately
- Data is basically ‘raw’ info in written form obtained from several Sources and then cross checked
- Verification includes verbal discussions with transaction participants. But in my view, a Verification Source can also include the Deed Recording Number (or whatever it is named in your area) and should be shown on the Comparables report form grid field because it is the legal evidence that a transfer occurred; i.e., the property actually sold
- Appraisers in non-disclosure states have extra due diligence requirements to obtain data and to do verification
Appreciation to Mr. Timothy Andersen, MAI for editing suggestions.