Mortgage

Fannie Mae’s new appraisal system really just back to basics

Why is everyone so worried?

The appraisal industry has changed a lot since the late 80’s when I first entered the fray. When I became interested in starting a career in real estate I went to the President at my local bank (remember those days?) and we talked about real estate career choices.

Like many I fell into appraising. I went to talk with Ed, our local bank President, because my father and I had been building spec homes for a couple of years and we weren’t getting along. I decided in my infinite wisdom that I’d go it alone but I had a problem, I didn’t have any money.

Regardless, Ed was gracious enough to tell me to stop in and we’d chat. Since I didn’t have anything to back a General Contractor career he presented me with these options;

Realtor, appraiser, banker, sub-contractor, title…. “Wait, appraiser? What does that entail?”

I had zero interest in showing homes, banking was a long trajectory, sub-contracting sounded reasonable and the title industry didn’t sound interesting at all – at least at the time. I figured I’d appraise part time and swing a hammer the other part of the time and build up enough reserves to get back into General Contracting where I could “do it my way”. 

Ed called his local appraiser Mike and within a half an hour I was being interviewed. About an hour after that I had a job. In the old cloak and dagger world this was how you entered the industry… you found a mentor, you took classes at the Appraisal Institute and you learned the craft.

Mike taught me the basics. Matched pair analysis, pulling good comps. He instilled in me, and other mentors did as well that if you put three appraisals of the same property next to each other they should all have at least one identical comp and the values should be no more that 7% apart.  That last part was an outright threat that your work would be reviewed by your peers and if you screwed up you’d have to answer for it and possibly be sanctioned. We were a tight knit group for the most part and most everyone knew everyone else, so being embarrassed in front of and by your peers was not an option.

I don’t recall much conversation about Fannie Mae or Freddie Mac back then.

Probably because most of the loans we were appraising for were in-house/booked loans. But we did adhere to guidelines and it worked for many years until it didn’t as property values started climbing in what felt like exponential rates.

Licensing changed a lot of the industry too. After licensing all you had to do was have a friend who was a loan officer, take a few classes and within a few weeks you were an appraiser. More for less and faster became the clients’ rallying cry.

Over time the basics became a thing of the past, then “boom”. A bubble hath burst.

Back to the future. Peer review is back at center stage with the Fannie Mae Collateral Underwriter and so are substantiated adjustments and good comp selection practices. Sound familiar? This is nothing new. This is old school appraising utilizing technology. However, it will, in my opinion make things a bit weirder in the appraisal world.

Technology today affords the appraiser the ability to get back to basics and utilize those best practices; good comp selection and substantiated adjustments. With those two stalwarts solidly employed the peer review process should be a breeze.

Oh, I almost forgot. I never did get back into General Contracting.

I eventually did some light development but after I “fell into” my career I never did look back, and never intend to.

 

 

 

 

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please