How Big, Really… Size Matters… Suggestions
Very often the public records are dead wrong…
Appraisers,
We all know Fannie Mae (FNMA) has their Collateral Underwriting (CU) report scoring system after the .xml file of the report is submitted through the Uniform Collateral Data Portal (UCDP) portal used by both GSE’s. This system of theirs is used to ‘score’ an appraisal for a loan quality rating, and it’s also used to provide a lender with a guarantee of relief from a FNMA loan buy-back demand, if the report ‘scores’ a number of 2.5 or lower.
We’ve previously discussed how that can be manipulated by a lender or an Appraisal Management Company (AMC) to coerce appraisers to modify reports to achieve a “passing grade.”
Well, the ‘other half’ of the conservatorship GSE’s is Freddie Mac (FrMAC). They also have an on-board review process for submitted appraisals. Theirs is called Loan Collateral Advisor (LCA). It also issues a quality rating score “…to assess the overall appraisal quality and valuation risk of the appraisal. All results are returned (to the lender) within the tool, including scores that represent a view of appraisal quality and valuation risk.” This info is from a FAQ document issued by FrMAC. The ‘results’ are in the form of warning messages generated by the LCA system.
Just as CU does, the LCA review is also designed to assist the lender to avoid buy-backs of loans based on “appraisal deficiencies.” FrMac’s message to lenders is “correct the deficiencies before you deliver a loan to FrMac.” The material I’ve read does not disclose a minimum score number to “pass” as does FNMA. In fact, we don’t know what the ‘scoring range numbers’ are in the LCA.
I give you this background info so you understand why my message subject line says ‘size matters.’
There is a tendency among the GSE’s, lenders, AMC’s, borrowers, real estate agents, loan originators, etc., to believe public records are absolutely accurate in the property data they report, especially for what we call the above grade, gross living area (GLA), of a home.
Very often the public records are dead wrong.
Several of the LCA warning messages concern discrepancies between the appraiser’s reported GLA and the public records… as shown here:
- The gross living area for the subject property ([GLA] sf) varies by more than [X]% and [Y] sf from public records ([GLA] sf). Please confirm the reported gross living area for the subject property is accurate and adequately supported.
- The gross living area for the subject property ([GLA] sf) varies by more than [X]% from public records ([GLA] sf). Please confirm the reported gross living area for the subject property is accurate and adequately supported.
- The subject reported gross living area of [GLA] sf, is [larger] than [X]% of homes within the vicinity which range from [GLA] sf to [GLA] sf. Please ensure that the provided sales adequately support the marketability of the subject property.
My suggestions:
- In every report, add the statement that YOU measured the dwelling to determine the GLA used in the report. Also state that your measurement is considered more accurate than other sources. (Add this to your starting template or ‘master’ report.)
- Compare your measurement with public records. When there is a difference, state the public records larger or smaller amount in either a percentage or actual s/f difference.
- When you find a difference, state that YOUR measurement is more accurate “due to an assessor measurement error.” You may want to include further details to explain why. Don’t be afraid to call out why public records are wrong.
- For proposed new construction, when using a set of blueprints, state that those were your source to determine the GLA. Don’t forget to add a comment about a Hypothetical Condition (also applies to #5).
- When appraising a new, not yet delivered Manufactured Home, state that you used the ‘builder drawing’ to determine the GLA. Note that these sometimes are not very accurate, so you may need to talk with a sales rep or even the factory rep to get the ‘real’ dimensions, or perhaps even visit the retailer’s lot to measure a display model which is the same model as being purchased.
If you follow these suggestions, this will be one less ‘ding’ you’ll get from the FrMAC and FNMA electronic reviews, because the lender is required to confirm data source material before asking for a correction. If you state how you derived the GLA, it will satisfy that issue.
Dave Towne on e-AppraisersDirectory.com
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Depending on the locality
Depending on the locality
As an appraiser you should be using the most accurate data available. No matter what anyone says.
I have always advocated that realtors need to verify data to ensure they are reporting true verified data within the mls. County records in some areas just simply isn’t accurate. We have to be able to have confidence in what realtors report. They need to be where this data Nazi compilation starts.
Jeff in some of my areas realtors will not do that for fear of being sued. Ha imagine that.
That’s exactly the problem I think for most areas. I think this must be taught either in class or a common myth amongst realtors. That just seems like such a backwards way of thinking. To keep from getting sued one would think that they would want to provide precise and verified data to prevent from being sued. Such a crazy way of thinking isn’t it.
Jeff I agree with you, but unfortunately they are not going to get themselves dirty or spend the additional time it might take to do it. A lot of the ones I’ve dealt with have assistants filling out the MLS info. Now if we had access to Chuck Upchuck we can have the appraisers measurements for dwellings that have been put into it. HA imagine that one too!
Yes I think we should have access to the same data the CU has. Now I do perform measurements for several realtors in the area before they list their houses which makes it great and everyone has accurate data from the start and the issue of square footage discrepancies doesn’t come up at closing. We as appraisers all need to communicate and we are much stronger when we stand together and communicate with one another. We are fortunate in our markets that we all have a good relationship. It has made us stronger as a whole in our markets.
Jeff not long ago in Rancho Palos Verdes (or maybe it was Palos Verdes Estates) where overall property values (including land) are often easily $500 to $1,000 or even more a real estate agent either rounded off or somehow came up with 50 SF more than the owner-attorney subsequently measured. We don’t know if that 50 sf may have been covered non -living area or not; or whether it was interior room measurements simply totaled up. Anyway judge said “Yep! By golly they misrepresented the SF to you and accordin’ to my summin’ and cypering that’s 50 sf x $1,000 = $50,000 that agent owes you (+plus legal fees).”
Of course in that same area about 75% to 80% of that overall cost was land value so the highest the loss should have been was $12,500. Frankly in the size house it was even the 50SF would not have normally been recognized in the real market. This case ALMOST had the local boards going back to non reporting of GLA at all.
Agents attorney was clearly incompetent.
Mike that’s a great point and good example of how a judge and lawyers can be so wrong in lawsuits over minimal square footage differences. I feel the opposing lawyer should have had to prove some intent by the realtor in defrauding the data otherwise there are always varying discrepancies in square footage calculations. Hats off to the realto for actually measuring the property. Huge disservice by the judge.
The issue with GLA is that the original builder could be wrong, different builder options (loft, etc.) were never properly recorded, public records could have been recorded wrong, past additions were perhaps permitted or not permitted, garages were completely or partially converted, basements / guest houses / casitas are incorrectly added as GLA, patios could have been enclosed, the appraiser could be wrong, and of course there is never a guarantee some 80 years after the build date that the appraiser can figure out the truth. Its a liability game that no one wants to play (agent don’t measure), but yet all parties want the appraiser to know the entire life history of the property.
Come on into my areas where the houses are 100,150,200 years old and see how much of a difference the GLAs are from public records. A few hundred that I’ve come across over the years. Had a newer house with the builder reporting the GLA to include a 300 sf morning room to the assessor and I get to the house and the owner states we decided against that room, it wasn’t built at the time 3 yrs ago. The owner did not know the tax record included it.
All of my full reports include a sketch and I’m done. Are you telling me it is a USPAP requirement that I inform my client that all the public records, if they do, differ from my measurements and what those differences are? Cause I have to get my money back from the instructor of the most current USPAP class because he stated no that as long as a sketch was included to prove my GLA I’m covered.
As far as a drive-by and comparables I state my information comes from the assessor. I call the realtor on listings and they all state don’t measure due to liability or they quickly laser measured, so in the trash it goes. Also, that instructor said if an agent has a different number on the listing than the assessor not my responsibility to report the discrepancy in my report. If the client asks in the LOE to report difference I tell them no and send over a confirmation that it does not have to be included in the report.
I respectfully disagree with that instructor. USPAP does require that we consider all available data; and that we also reconcile the quality and quantity of the data in developing our opinions and conclusions.
Does it specifically say we must report GLA or GBA discrepancies? Ok, no it doesn’t. Maybe this is a regional thing but I was taught from day one to explain ANY discrepancies in data or information. As often as not it helps me to provide a better professional product.
Example: MLS 7 rooms total -three bedroom, 2 bath. Public records 8 rooms total 2 bedrooms 1.75 bath.
MLS (LR, K, FR, DR, 3BR, Baths 1,1,0,0) Public records (LR, K, FR, DR, 2BR + den with closet, full bath and 3/4 bath-public records improperly considers a utility or laundry room as a ‘room’; back east you may call it a mud room).
Explanation: The subject is a three bedroom for all intents and purposes in the marketplace. The original developer paid reduced permit fees and had lower covered parking requirements for two bedroom and den dwellings than for ‘three bedroom dwellings’. The “den” is a fully enclosed room with a normal, closet and is acceptable in the marketplace as a three bedroom.
Mike, There are four or five sources for me to gather information from and I review everyone (USPAP). When I am working on a report with a subject, six comparables, three listings and two or three of the sources might have varying information on each one. Your going to report on each and everyone which source has it correct and which has it wrong and what that wrong information is? Bless your heart cause I’m not going to.
I’ve always explained size discrepancies. Common 1940’s-1950s error was entryway cut-outs under the original primary room still. Assessors often include it as GLA. Not a lot (12 SF). Assessor data used to square off buildings.
Also commercial reporting sources of public records (CoreLogic) may or may not use the same term the local assessor uses. GBA and GLA are NOT the same thing! Yes, most of us use them interchangeably in residential appraising but we should not. GLA is a better term in most single family residential instances since it covers only livable area. Anything else is an ‘other’.
In residential income consider using all three of the following: Gross Building Area, Gross Living Area or Net Rentable Area. In mixed use C&I / res. the terms become more critical.
Real estate agents are often sued for discrepancies as little as 50 SF. For years in SoCal they stopped reporting GLA completely. Now its gone back to reporting. In most cases it is ‘per assessor’. I don’t hold someone else accountable for my obligation to measure. In the case of comparables my limiting conditions statement addresses reliance upon third party sources deemed credible but not guaranteed.
The size of the fee matters most, first and foremost.
Koma-Yes. Of course I’M not going to give anyone six comparables plus 3 listings in the first place unless I consider it necessary-in which case I charge enough to do the work. Seriously-not just being pompous-that’s my job as an appraiser.
Jeff-you are right. we complain about agents not trying to get the info right and when one does he or she gets hammered by an ill advised judge.
Write them about your loan… FOIA Requests info….
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John, a FOIA request would not entitle anyone to private loan information originated by private lender’s loan brokers. Not even when made by a regulated bank or GSE.
Not sure what your objective is in posting that but isn’t it a bit misleading? “Write them about your loan”. What aspects of it?
WHICH specific private consumer data is fair game for FOIA? My social security number? My employment and salary history? What will any of us gain by contacting the folks who’s information you provide?
Hopefully I’m not wrong in this, but I don’t believe National Archives collect or store my loan information…nor are they legally entitled to it absent a claim to FDIC from it.
The Appraiser has a contract with his client. that contract can be modified by either party. Institutional loans frequently require the 1004 form. That form requires the appraiser to inspect, and verify all pertinent sources. Sizes very greatly for various reasons, like bigger bushes with big thorns in the summer, miss interpreted information from an architect-builder, etc.
The appraiser – client relationship SHOULD be friendly with the appraiser explaining his methods and sources, such as measured to the closest 1/2 foot, by standards published by ???.
Lot sizes should be explained as a ; typical land unit, part of a larger ownership, etc.
Lots of stuff necessary to protect your client according to the your contract, lots of reasons to address the report to your single client by using an engagement letter for every job.
If you don’t know this stuff, go back to school, don’t learn from an underwriter, or a lender.
don
Don, agree with all you said but also have to assume you do not do UAD format residential loan production appraisals for GSEs.
The only ‘contract’ is when the appraiser first signs up with the AMC, and the boilerplate (like Chase’s) that is only referenced by a URL link in the so called engagement agreement from the amc.
For C&I orders under $3,000 I usually don’t use anything beyond a confirmation email outlining conditions. For those forced to race a clock to accept AMC work its not that simple.
There is the issue of time it takes for a unique engagement letter for each $250 to $375 assignment; as well as the present conditions of the client and their amc. Either you accept them or you don’t get the work. Few nominal exceptions like $25 fee bumps and turn times, but for the most part it is a take it or leave it environment.