Report Observation & Trigger Points

Report Observation & Trigger Points - Don't Fall Into a Trap!Appraisers, this is another essay written about a report I have ‘observed.’ I’ve mentioned before that I “come in contact with” appraisal reports from a variety of sources. Those that I determine have significant issues I write about. Conclusions about the ‘real value’ will be disclosed below. Trigger points for having reports formally reviewed are discussed.

I do this because a majority of appraisers do not participate and interact with their peers on a consistent basis, and therefore may not get exposed to items that clients and lenders see in reports, which they question. I believe it’s important to expose items in reports that demonstrate weaknesses or inaccuracies should be disclosed, so that appraisers might want to review their own practices to prevent such occurrences.

When clients and lenders have issues with reports, they want a ‘second pair of eyes’ on the report to validate a lending decision. This particular report was sent out for review, although I am not the hired review appraiser…just an observer. I do have familiarity with the property location.


A one story SFR, 21 years old, 3 BR, 1 Ba, of about 1,100 sf, within the city limits of an urban city, the second largest in population in this county, with urban utilities, administrative and protection services. Quality and Condition are both judged to be Average (#4), although the Effective Age is shown to be 6 years. It is within a singular school district. Site is in a typical urban subdivision, 0.20 acre, with Residential zoning. It has a typical neighborhood residential view. It was appraised (this report) as a sale early in 2018, with a contract price of $325,000 and $3,000 concession, after being on-market for 8 days, and sold for that amount. OMV stated as $321,400.

For these comments, I’ll go through the report primary pages, but before doing that, I want to mention the order of pages, i.e., what would be a Table of Contents, although no such page is in the report being ‘observed.’ See if you think the page organization is OK. It is believed this is the order the report was submitted (although there are no Page X of X Pages indicators on each page), not modified by the client:

~ 1004 page 1
~ 1004 page 2 (with comps 1-3)
~ 1004 page 3
~ 1004 page 4
~ 1004 page 5
~ 1004 page 6
~ Comps 4-6 page
~ UAD Definitions Page 1
~ UAD Definitions Page 2
~ Addendum Page 1
~ Addendum Page 2
~ Addendum Page 3
~ MC Form
~ Dimension Calculations page from Sketch
~ Subject Photos page 1 (3x per page)
~ Subject Photos page 2 (3x per page)
~ Subject Photos page 3 (3x per page)
~ Subject Photos page 4 (3x per page)
~ Subject Photos page 5 (3x per page)
~ Subject Photos page 6 (1 photo)
~ Comparable Photos 1-3
~ Comparable Photos 4-6
~ Floorplan Sketch
~ Plat Map
~ Location Map
~ Subject’s County Record (from Assessor)
~ USPAP Addendum page
~ Flood Map page (subject is NOT in a FEMA flood area)
~ Aerial photo with Subject location arrow

Did you notice that some of these pages appear to be out of a logical placement sequence? It’s frustrating for clients, lenders and review appraisers who have initial contact with reports only on a computer screen to find info when related pages really should be presented together, instead of skipping around. By the way, in our report software, the comps 4-6 page CAN  be moved to be just after the Comps 1-3 page. I recommend doing that, as it makes it easier for clients and reviewers to see those properties in a sensible way.


  1. The report indicates ‘no concessions’ applied to the sale. Yet the MLS says a concession was part of the agreement. The listing agent has confirmed that a seller concession of $3,000 was included. This should have been noted by the appraiser when the contract was reviewed. It’s a serious oversight in reporting. A trigger point for review.
  2. The report shows the location checkbox as SUBURBAN. To that I ask – “Suburban to what?”  As I indicated above, the subject is in an URBAN location. This is an unending and common discrepancy I see in reports, and in discussions with appraisers. There seems to be misunderstanding about what these location designators mean. I’ve written about this before, so I won’t elaborate here.
  3. The report indicates Stable Property Values. The appraiser mentions MLS data as the source for that opinion, but does not include anything other than a comment about this (and the MC Form) to back that up. I’m fond of using Excel scatter graphs with overlaid trend lines to visually indicate price trends – in every report. Look at this graph (homes comparable to subject, within 1 mile), and you decide if the trend is ‘increasing’ or ‘stable’:
    scatter graph

Frankly, I struggle with ‘what to report’ when I see indicators such as this. On the one hand, the 4 year trend is increasing (at $57.42 per day), but the individual sales trend (the dashed red line) is stable for the prior year….with only 4 sales in that time period. But the end points of the red line show an increase over the time period. Based on the weight of evidence, I’d opt to report Increasing Property Values, which is also consistent with the trend of other properties in this county for the past 4 years. One sale at a lower price than recent others is not enough to sway my opinion.

  1. The Neighborhood boundaries are far too wide for this assignment, based on comp locations. The ‘west’ boundary is “out in the county” outside the city where properties are widely spaced on acreage sites, and not even shown on the Location Map. Why? This may have been a review trigger point when the client looked at an area map, and noticed the reported boundary was far out of the city.
  2. The (overly broad) Neighborhood boundaries include areas of commercial uses, yet the report shows 0% Commercial Land Use.
  3. The property is not in a FEMA flood zone, but a Flood Map is included. Because this is an unnecessary ‘piece of paper’ added to a report, I normally recommend not including the Map when the property is outside a flood zone, unless including the map is included in the lender assignment conditions. Most lenders want the Map when a property is in a flood zone.
  4. The actual age of the property is 21 years, but the Effective Age (EA) is indicated as 6 years. This implies much better condition than the actual age. Per appraiser’s comments in the report, the subject “features minor physical depreciation due to normal wear and tear.” The MLS listing mentions nothing about updating or renovations made. There are no comments in the report relating to any improvements or renovations that would justify lowering the EA as far as was done. The M&S Graph in the Residential Cost Manual shows an approximate EA of 12 years for a 21 year old house. If this is followed, the depreciation would be approximately 18%. (12/65 = 18%)
  5. Relating to the above, in the Cost Approach section (filled out), the Economic Age of the ‘Average’ condition home is placed at 50 years. That’s 15 years lower than the graph shows in Marshall & Swift, and which most residential appraisers use. In other words, the Econ Age is typically estimated to be 65 years for Average condition homes.  Because the appraiser used a lower Eff Age and Econ. Age, that depreciation percentage was 12%. In other words, this is an overt, or perhaps inadvertent, attempt to indicate the home is ‘better’ than it would normally be. (6/50 = 12%)
  6. Whenever I conclude an Eff. Age should be lower than typical, I include a comment in the report similar to: “Lower Eff. Age is justified due to subject’s improvements or renovations.” This keeps the reviewers off my back.
  7. Moving on to 1004 page 2: I am always looking to see how many ‘sales’ are reported at the top of the page. This is another one of the misinterpreted entries on the GSE form. Many appraisers don’t see the word “comparable” in the instruction line, and tend to report ‘all’ sales in the neighborhood. This can skew the sale prices lower and higher than what would be considered by a purchaser to be comparable (or competitive) to the subject property.  For this ‘observation’ I did my own MLS search for comparable homes with ONE BATH within 1 mile of the subject – extended because few were found closer. My count: 4 (on the graph above). The appraiser’s count: 33.
  8. Now we’re coming to the meat of this essay… What’s the real value? This is where appraiser opinions, research and reporting procedures, can get all tangled up. Appraisers are supposed to base value decisions on the CHARACTERISTICS (and Location) of properties, not the desired sale price promoted by others, or a value perception by the borrower if a refi.
  9. Note the comment above, where my research included similar-to-subject properties within 1 mile. The report has 3 sales at 1.03, 1.20 and 1.27 miles away. For lenders, this is an immediate red flag because they know whether a property is in an Urban or Suburban location by doing THEIR OWN research and analysis. This situation is a trigger point for having a report formally reviewed. Especially when they find out there are other, closer, properties to consider as comparables. We don’t need to quibble about FNMA’s dismissal of distance guidelines; lenders still find the distance metric to be useful in their risk analysis.
  10. The next item to discuss is the Sale Price/Gross Liv. Area amounts for each of the comps. They are $234.30, $269.36 and $270.00. The one listing comp is not included in this. These figures represent the “entire cost” on a per square foot basis of each house, including all amenities, view, site size, quality, condition, etc. In short, all the ‘adjustable’ items on the grid. In this case, each is a one story, so that calculation represents one level.

I’ve written an essay in the past how these figures can be used to factor a supportable GLA adjustment very easily, by assigning a percentage amount to represent the GLA contribution, multiplied against the $s/f figure that is at the ‘middle of the range’ of those amounts. If we calculate the ‘middle’ of the range as $252 per s/f, and use 40% as the contributory amount, the GLA adjustment would then be $101.00. It’s a high percentage, and high amount, because in most cases, GLA (i.e., places to put furniture and live in) is the primary element in purchase decisions. {Yes, there are differences in this, so let’s not argue that right now!}

  1. I bring up the GLA adjustment now, because the appraiser made a point of stating in the report (twice) that the GLA adjustment amount was proper due to a perceived “industry standard” of $30 per s/f difference. That’s what was used. This lower amount than really justified, per the #13 method, significantly altered what would have been the Adjusted Sale Price of Comparables had a higher, more appropriate amount, be used. Since when is there an ‘industry standard’ for incorporating the GLA adjustment? This is another trigger point for report review.

In fact, after UAD was mandated, FNMA began researching ALL of the millions of appraisals submitted to them. They found that the majority of GLA adjustments were ALWAYS either $25 or $30 per s/f, regardless of the type, quality, condition or location of the dwelling. As a result of this research, FNMA issued a revealing FAQ document discussing this topic, and cautioned appraisers about continuing to use those low figures in their reports.

  1. Another trigger point for getting a formal review is the GLA of comps in a report, vs the subject’s GLA. In this report, one comp was the same size, while the other two sales were 12% to 30.5% LARGER. The weighting of the OMV decision was based on the larger GLA comps, which correspondingly, had higher sale prices. They were also farther away from the subject than other, more similar properties I found which were closer. The graph above are those.
  2. That brings me to the prices of the report comps, and the prices of nearby comparable properties. The graph shows the nearby properties have a maximum sale price of $290,000, while the farther away highest report comp has a sale price of $332,000. That’s a $42K spread. Because lenders have access to lots of market data, it is my contention that all the factors I have revealed here would be another trigger point in having the report formally reviewed.
  3. Oh gosh…I almost forgot. The ‘real value’ in this report is questionable. On Form page 2, it’s stated as $321,400. However, in the addendum, the appraiser reports the value opinion as $325,000! So which is it, really? Inconsistencies like this in reports are what irks lenders. These definitely become a trigger point when reports are analyzed, prior to determining if a formal review should be ordered.

After doing my own research, based on details in the report, my contention is the appraiser worked as hard as possible to justify the contract sale price, rather than appraise the property per specific characteristics, its location and market evidence. It is also my contention that the appraised ‘real value’ is overstated.

Too many appraisers fall into a trap of trying to appease AMCs, lenders, agents and emotional exuberant buyers or borrowers, rather than doing their work properly as independent analysts and reporters of facts.

Dave Towne
Image credit flickr - Chelsea Marie Hicks
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on

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10 Responses

  1. Lori Alexandra on Facebook Lori Alexandra on Facebook says:

    In many cases you almost have to satisfy the client or you are booted from their panels. A lot of us do not fall into this trap and actually value our license and our reputation.

    • Baggins Baggins says:

      The mandate of origination departments is a moving target. All it takes sometimes is one or two staff turnovers to change the game completely. It can happen overnight and appraisers need to be ready for that. This is why working with amc’s is counter productive to the cause of appraiser independence. Unlike independents, the viability of the amc company is wholly dependent on a limited spread of lender customers. And if appraisers rock the boat, they lose multiple lender clients because they’ve upset one amc. This sort of institutionalized intimidation and pressure factor is absent or at least substantially diminished when appraisers simply focus on direct assignment panels and reject amc’s.

      • Lori Alexandra on Facebook Lori Alexandra on Facebook says:

        Our company pretty much rejected AMCs some time ago. We worked with lenders and got peeled off quite a few local companies for not hitting value. They do not even try to hide it in our market. I hear that story more and more from other appraisers. Many have stepped away from the AMC models. Hard to take them seriously when they send an order with a 2 day turn time and 225 fee on a $2M property.

        • Baggins Baggins says:

          They’ve got people who’s sole responsibility is to farm orders to the lowest bidder, to meet operational pricing expectations, aka to profit from improperly co mingled fees and variable service costs. Appraisers who bother to ‘quote’, merely perpetuate the cycle, regardless if they win or lose on individual orders. Middle management companies are all the same, and easy to research.

          The more you know…

  2. Avatar TruthBTold says:

    I’d be willing to bet that this appraiser came along during the mortgage boom days, was rushed thru the process to get licensed (and/or illegally assisted). What many don’t understand is there was an attitude amongst banks and AMC’s, during the mortgage boom to go find people to be appraisers, help them in any way they could, legal or not to obtain their license. This was all done to reduce turnaround time. The appraisal profession was presented to them as a profession to appease the lender/AMC. This is why they have no pride or respect for their license, work or profession. Yes, there are a few bad apples in every bunch and a good portion of those bad apples can be blamed on lenders/AMC’s!

  3. Baggins Baggins says:

    Still on Aurora. Some things can not change. I prioritize data security and familiar use over assimilation of pages. My counter argument to limited applicable ranges of ppsf adjustments which are routinely 25 to 50 is simple. If one were to add in the line item adjusted amounts for specifics, the actual total adjustment spread is better aligned with the going market for ppsf analysis. That’s why regression falls short, the whole enchilada in the ppsf line. This allows highest and best comparability without restriction and isn’t that exactly what went wrong with comp searching 10 years ago? You have to adjust out the details before determining a reasonable ppsf adjustment. You can back into ppsf adjustment if the other line item adjusts are sound, and you know it’s working or not, based on streamlined benchmarks for indicated adjusted value range of the gridded comparables.


  4. Avatar John Pratt says:

    Dave I agree with you that this is a bad appraisal in many way. Appraisers that are this bad need to be removed from the industry, they are probably beyond help. There are numerous major items in this appraisal report that show the appraiser is incompetent. Any reviewer of this report should recommend that a new appraisal be completed by a competent appraiser in the local area.

  5. Avatar chris says:

    I say put that appraisal in front of the state review people. Audit several appraisals a month and whip the appraiser into shape, that’s all that’s needed.

  6. Avatar Dan T says:

    I enjoy these types of blogs. Great learning experience for a green horn like myself. Not for reviews but to help me work on my abilities and what I need to be conscious of. Thank you!


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Report Observation & Trigger Points

by Dave Towne time to read: 9 min