If I Cannot Support a Small Adjustment, I Just do not Make it

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

Dustin Harris
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Dustin Harris

Dustin Harris

A multi-business owner and residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc. He owns and operates The Appraiser Coach where he personally advises and mentors other appraisers. His principles and methodologies are also taught in an online, Mastermind group. He and his wife reside in Idaho with their four children. Dustin Harris on e-AppraisersDirectory.com

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3 Responses

  1. Avatar Bill Cobb says:

    This was the entire point of the 7 Hour CU class I took 2 weeks ago and based on conversations I’ve had over the past 3 years with FNMA reviewers. FNMA believes Appraisers are making too many adjustments to comps, especially those smaller adjustments in fields below GLA like for fireplace. In my market, 75%+/- of new homes built don’t have fireplaces anymore. So, should Appraisers be making those $1,000 to $3,000 adjustments for fireplaces we were taught as trainees? Maybe if you’re in the Midwest and it’s a more expensive brick or brick hearth style. What about that famous $5,000 to $10,000 adjustment for IG Pools….is there really support for it? It depends on predominance of pools in that market and buyer expectations. Certainly in some older subdivisions where pools are being filled in, they don’t have value and may have negative value impact because of cost to fill them in. I think what FNMA wants to see is concentration of adjustments on the big items like location, site, view, age, quality, condition and GLA. And honestly, their logic makes sense to me.

  2. Avatar David Buckley says:

    The adjustment process is all about bracketing, small adjustments can add up and give a better indication of where the value should be in the broad range of things. The very idea that an adjustment can be supported either by match pairs or regression is a complete fallacy and intellectually dis-honest.

  3. Baggins Baggins says:

    Only when decks and fireplace services become free of charge for me as a home owner, will I quit making those adjustments in the appraisal grid. The proper purpose of the appraisal grid is not to satisfy some one elses expectations regarding appraisal development. The proper purpose of the appraisal grid is to break apart the whole home, and analyze the financial influences of the various little parts. You don’t need any market evidence to prove a deck has worth. All you have to do is call a contractor to get a quote for a new deck. If it had no value, it would be free or carry a labor only charge. Some amenities have limited terms of effective value contribution, like pools, and decks, etc. I think it’s an important point to make that the effective age of the materials has a lot to do with their potential to bolster market valuations for their parent homes. It’s rarely as simple as just pool to pool or deck to deck comparisons. I will continue to pop in penny nickle and dime style generalized adjustments for all the little things, so long as they are not standard market items. If someone bothers to put something nice into their home, they deserve the credit for that, regardless of what some avm computer data base says is the area norm. UCDP is not going to bring any additional security to mortgage backed securities markets, as long as lenders can pass their losses back to tax payers and insurers. If FNMA tracked defaults and denied lender participation based on excessive foreclosure records, then we’d be making progress. Dare anyone to google mortgage servicing fraud. It’s an excercize in futility, because such actions are ongoing. All this focus on the appraisal process is one big smoke screen so the primary participators in real estate don’t have to miss a single step or sacrifice a single dollar. If UCDP was concerned about same neighborhood comparables, it would not have hijacked the line previously used to state neighborhood names, and replaced it with a static letter rating. Any presumption that the commission based lenders will use UCDP data responsibly as a standard, would be illogical. UCDP is synonymous with a government funded AVM. Wake me up if rules which protect appraisers are ever enforced. Good article with a positive message, although I disagree. UCDP is going to change the game, and create an even wider gap in methodology from one appraiser to the next. The government can keep it’s nifty little computer print outs, and the clerk reviewers can get an appraisal license themselves if they think the job can be done better.


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If I Cannot Support a Small Adjustment, I Just do not Make it

by Dustin Harris time to read: 3 min