New Requirements for Reconsiderations of Value

It's bound to happen.

The appraised value is lower than the contract price. Are you up the creek without a proverbial paddle? No. Recently, Fannie Mae published their new requirements for Reconsiderations of Value or "ROVs".

ROVs were always sort of a "Wild, Wild, West" sort of experience for both Appraisers and the users of their reports. Rules were vague and inconsistent from Lender to Lender and AMC to AMC. I heard many reports from Appraisers stating that Clients would use the ROV process as a 2nd, 3rd or even a 4th swing of the bat, trying to get to that "home run" of value to make the deal work.

And on the other side of the table, there was a lot of frustration on the past of Realtors and Originators. They didn't understand the process and why the Appraiser did what they did and there was rarely a value change.

As a Real Estate professional, no matter what side of the ball you are on, there can be huge impacts to a transaction, depending on the outcome of an ROV.

So what has changed?

Fannie Mae standardized their ROV policies and procedures. It formalizes a framework for borrowers to appeal an appraisal on their own behalf. This policy is designed to create a balanced approach for informing borrowers of their rights and responsibilities while maintaining appraiser independence and standardizing operations for lenders.

Lenders are now required to:

• provide a disclosure to borrowers outlining the ROV process
• must complete their appraisal review before initiating the ROV process
• designate an underwriter or other appraisal subject matter expert to review any ROV requests
• validate that the request from the borrower contains sufficient supporting evidence prior to sending to the appraiser.
• limit to five, and no more than five, alternative comparables can be submitted for the Appraiser to review.
• limit the ROV requests to a single one. You now only get one swing at the ROV.

There are also standardized communication requirements with the Appraiser that the lender must follow.

There new responsibilities for Appraisers, too:

the appraiser must analyze the relevance of the information provided with the ROV;

Regardless of whether the ROV request results in a change in value or not, a revised appraisal must be provided within the defined time frame with a description of the points in dispute and the outcome.

This standardized ROV process takes a lot of the problems out of the process, for both Appraisers, Lenders, Borrower and Realtors.

What can a Realtor do to stay compliant and have the best chances for a successful ROV?

Meet the Appraiser at the Property

It doesn't matter if it is the Listing Agent or the Buyer’s Agent, being present at the appraisal inspection appointment is key. This is where you can communicate directly with the Appraiser, in a compliant manner, to “Tell The Story” about not only the house being appraised, but the transaction itself.

Get the property measured by an Appraiser.

Assessors, Owners, Borrowers, Realtors, Lenders, Builders, Architects and Appraisers all look at square footage and what is included in the square footage, differently. Getting a property with additions, below grade areas, detached rooms, outbuildings and accessory dwelling units measured at the time of listing and prevent surprises at inopportune times.

Put the Home’s Best Foot Forward

• Remove clutter and obstacles. 
• If there are pets, clean the backyard
• Tidy up! Although Appraisers are required to be objective, a great first impression can’t hurt.

Be Prepared! Bring Your Appraisal Package

Your Appraisal Package should include:

• A complete, fully executed contract with all contract addendums and counter offers.
• A list of improvements and features for the property, including when they were completed and the approximate cost. This can be remodeling or updating, installation of features like a pool or information on additions built to the structure.
• A list of how many offers you had on the subject and what the range of those offers are.
• Permits for any additions or garage conversions.
• Comparables
  • • • • Pending sales or “In Contract” properties are acceptable and can be used as support by the Appraiser. They can be especially helpful if the           contract price is known.
    • Dated, Distant or Dis-Similar sales are generally not helpful, even if they have sold at what you think the subject should appraise for.
  
  

  Unlock All the Doors

             

   Make sure the Appraiser has unencumbered access to all areas of the house, including all outbuildings.

   

  Secure Animals and Children

   

   The Appraiser should be able to do their inspection, free of distractions.

   

  Don’t “Helicopter” the Appraiser

   

   Most Appraisers are very routine and process oriented. If they are distracted by conversations, they might get out of their routine and forget or miss an important aspect of the property.

  
  FHA Inspections

   

  • Make sure all of the utilities are on and working
  • Repair any Health/Safety items before the appraisal inspection
  • Be sure that there is good, open access to the crawlspace and attic. For FHA, the Appraiser will need to inspect these areas.

   

  Communicate! It’s OK!

   

   Realtors are the best source of data for an Appraiser. Remember that Appraisers are “Data Miners”. They are always looking for information related to the property. Don’t be afraid to discuss the contract price, and how it was arrived at, with the Appraiser, but understand, the Appraiser can not discuss what the property might potentially appraise for. Avoid statements like “We really need this one to work out” or “This one is a no brainer”. These can be seen by Appraisers as subtle pressure statements. 

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• Not Every Appraiser is Open to Communication

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• Its unfortunate, but occasionally true. The vast majority of Appraisers are professional and open to communicating. Its essential for an Appraiser! But you might find an occasional Appraiser that doesn't subscribe to the philosophies I've laid out. That doesn't mean they are a bad Appraiser.

   

   

As with many things Real Estate, understanding, knowledge and preparation can remove a lot of risk in a transaction.

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  Anthony Blackburn is a Washington State Certified Appraiser and is the owner of San Juan County Appraisal. SJC Appraisal serves San Juan, Island, Snohomish, Skagit and Whatcom Counties.

   

  SJC Appraisal specializes in the following appraisal types: New Custom Construction, Date of Death, Estate Planning, Family Transfers, Lending, Home Measurement Services, PMI Removal, Pre-Listing, Pre-Purchase and FSBOs, Rent Surveys and Tax Appeals.