CU and Appraiser Regulation

Whether you believe Fannie Mae’s comprehensive rollout of Collateral Underwriter will finally weed out the lazy form-fillers or it will end up euthanizing the aging residential leg of the profession once and for all, is not the subject of this article. There are plenty of blogs, articles, and seminars that are wrestling with the efficacy of CU and its long-term impact.

To be sure, the profession has entered the new age of big data. Residential appraisers will need to navigate regression analysis, heat maps, trend lines, oblique aerial images, and especially how to tie it all together into something meaningful.

From a regulator’s perspective, the new paradigm creates compliance challenges for appraisers and AMCs. Collateral Underwriter will be analyzing its own model data and data provided by an appraiser’s peers. Everyone needs to be aware that Fannie Mae’s label of “peer” is not necessarily synonymous with the USPAP definition of “peer”.


APPRAISER’S PEERS: other appraisers who have expertise and competency in a similar type of assignment.

Appraisers who are provided rebuttal data through CU will need to justify their own analysis against an unknown group of “peers”. No one will know for certain whether this pool of “peers” truly fits the USPAP definition that includes expertise and competency. A peer in USPAP is not just anyone with a license. To CU…they might be. AMCs will need to steer clear of making demands of their panel based upon CU output.

From the AMC Administrative Rules: Section 1452.190 Unprofessional Conduct

“Dishonorable, unethical or unprofessional conduct” as used in Section 65(a)(9) of the Act includes but is not limited to: i) Deliberately interfering with a licensed Illinois appraiser’s ability to comply with USPAP; j) Failing to deliver all information that supports a change in property value to a licensed Illinois appraiser without good cause;

When these two sections (i and j) were drafted back in 2010, it was already clear as to the direction the appraisal profession was headed. The law was written so that AMCs wouldn’t be able to filter the data toward one result or another. CU data, when provided by an AMC must be complete and support any change, up or down, to an appraiser. There will be no tilting of data to produce a more favorable score. However, appraisers are also cautioned to understand that AMCs are legally permitted to ask for three things on any assignment:

Nothing in this Act shall prohibit an appraisal management company from requesting that an appraiser: (1) consider additional appropriate property information, including the consideration of additional comparable properties to make or support an appraisal; (2) provide further detail, substantiation, or explanation for the appraiser’s value conclusion; or (3) correct factual errors in the appraisal report.

These dovetail perfectly with the intent of CU.

Changing Landscape

Rules Compliance Regulations ~copyright AppraisersBlogsWhy is Fannie doing this? Why are there so many different algorithms? Why so many different AVM models? Fannie Mae, like everyone else that pours money into real estate is looking for ways to minimize risk. The entire real estate collapse that began in 2008 was all about risk management through commoditizing and offloading risk. Today, big players are on the hunt for technological ways to minimize and manage their exposure to loss. The first thing I was taught when I got into real estate in 1980 was that real estate was dynamic. Dynamic, meaning ever changing. Algorithmic tools embedded in AVMs and platforms like CU are trying to hedge the bets of their entities in residential real estate.

The big players would like to know about the future of residential values but the mechanism by which conventional residential valuation is built, is by looking backward. The dynamic nature of real estate makes it a moving target – every day. To CU, comparable sales closer to the effective date of value are important when the trend lines are pointing toward rapid appreciation or rapid decline. Conversely, sales going back twelve months are acceptable in a flat or stable market.

In either reality whatever the appraiser chooses as a comparable is always in the rear view mirror. Appraisers base the future trend upon events of the past.

Steven Wright the comedian said,

“I had a friend who asked me if I’d ever seen any pictures of him when he was younger. ALL of the pictures I had seen of him were when he was younger.”

Even if all of your comparable sales closed yesterday for an appraisal completed today, all of the sales would still be in the past. Imagine an appraiser completing a ten year DCF for the Twin Towers on September 10, 2001, with all of the assumptions that were reasonable on that day. What was the value of those reasonable assumptions on the following day?

What Do Residential Appraisers Need Now?

Regression analysis is here to stay. Because so many of us in the profession grew up with an intuitive approach to valuation, there’s a profound need for statistical education. Most of the residential appraisers in Illinois may only have a cursory understanding of regression techniques. You’ll need it to survive the data avalanche coming your way. You’ll need it to be able to defend your analysis and the risk scores that will be the result.

As for the brokerage business, there’s going be a need for more reliable listing information across Illinois. The days of haphazard reporting of GLA, room counts, baths, basement finishes, etc., need to come to an end. Too much is riding on data integrity.

Appraisers need to get in front of their lenders and brokers so as to educate them on the new reality that has become big data and analytics.

AMCs need to do more to educate their own panels.

By Brian Weaver, Coordinator Editor of IllinoisAppraiser, Appraisal Management Company Coordinator for the Illinois Department of Financial and Professional Regulation (IDFPR) – Illinois Appraiser Newsletters – Volume 8, Issue 1

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Provided as a service to licensed and registered Illinois appraisal professionals as well as Illinois course providers and users of appraisals. Illinois Appraiser Newsletters promote a greater understanding of USPAP, the Act, and the Administrative Rules of the State of Illinois. promote a greater understanding of USPAP, the Act, and the Administrative Rules of the State of Illinois.

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6 Responses

  1. Herb Martin on Facebook Herb Martin on Facebook says:

    Is the problem lazy form fillers or pathetic brainiacs with no common sense that think thay can compile a list of vaguely defined data and state an exact value? Why don’t someone try simplification instead of redundant layers complaction. After all simplicity is genius.

    • Retired Appraiser Retired Appraiser says:

      The powers that be have apparently come to the conclusion that the method valuation being used for the past 80 years didn’t work. Every appraisal dating back to 1930 was unusable. They are now in the process of reinventing the process of valuation and figuring out what to do with the guys they issued appraisal licenses to from 1990 to date. God help those of you who insist on remaining seating through the finale.

  2. Retired Appraiser Retired Appraiser says:

    APPRAISER ~ As defined by FNMA

    “A professional certified by their state to value real property”

    “An individual whose opinion cannot be trusted, regardless of their experience and education”

  3. Avatar Mark Anderson says:

    If the regulators are taking comfort in regression analysis for adjustment criteria, then they should be reminded of the garbage in garbage out models the gov’t used prior to the meltdown. Without sensitivity analysis and good ole common sense and good judgment, the process will look good but may not be reflective of the actual market. Having worked with modeling for years, I have come to realize that you need human analysis. CU is a good wake up call to take a fresh look at the process, but it may not deliver the intended results.

  4. Avatar Michelle says:

    Sounds like a bunch of pooey from a form filler. “regression analysis”, oh no the sky is falling. You do not need regression, how about data analysis, matched paired analysis, allocation, yes single line regression, depreciated value, cost to cure, cost to cure + market response, Hagar’s “percentage of use calculations”, capitalized via change in rent income, market studies, interviews, yes and more (take a class from Richard Hagar SRA.). The bottom line, just have data to back up your adjustments. And yes Pending sales are “FORWARD indicators of future home sales activity. No your market. Back up your adjustments.

  5. Herb Martin on Facebook Herb Martin on Facebook says:

    Could someone enlighten me on where you get the data to back up your adjustments. No where on a listing does it specify what part of the value pertains to which feature or amenity. Please tell me how to look at several listings and determine how much to adjust for a half bath by looking at lets say 20 listings, I missed that in class and in training.


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CU and Appraiser Regulation

by IDFPR Board time to read: 1 min