Standardized definitions for rating condition and quality in real estate are not a new concept. But this time around, the condition and quality rating codes defined in the Uniform Appraisal Dataset (UAD) for Fannie Mae and Freddie Mac have exposed some practices in the field with regard to how comparable sales are being measured and reported. Details about a property that are subjective, such as condition, become more reliable when a consistent definition for rating those details is used by all. When the appraiser reports the condition of a property, it is recorded fact and is therefore absolute. Conversely, the opinion of value concluded by the appraiser is relative.
So one might ask, “Well, what is the problem?” To explore this topic further, I spoke with Charlie Gress, chief residential appraiser at Martin + Wood Appraisal.
Charlie: From my perspective as an appraiser, the UAD has solved the problem of variations in value among appraisers (who can rate the property as Average ++, Average/Good or Average –). Let’s face it: There were a lot of shenanigans and inconsistent reporting techniques being deployed in the condition line and in several other segments of GSE appraisal forms.
Liz: So, appraisers should make their fact assessments in accordance with UAD definitions for UAD assignments. This step in the appraisal process has never been about reporting facts relative to the market; that’s what adjustments in the comparison process are for.
Charlie: That’s correct. Adjustments provide for how a comparable property is aligned to the subject property. So at that point in the process, the condition rating of a comparable property can be adjusted to align with the subject property. However, “A card laid is a card played,” meaning that once the appraiser has reported facts about a property, they must remain the same. Only until a new transaction on the property takes place can the facts be potentially reset, if needed.
Liz: It’s important for the appraiser to realize that GSEs have a record of every report submitted to the portal. They also monitor reports to ensure that appraisers do not report different ratings in different reports on the same property, as they might do when using it as a comparable.
Charlie: One way to prevent such mistakes is a photographic memory! However, if you don’t have one of those, leverage the tools in your software to keep track of details about the properties you have appraised or used as comparable properties.
Liz: Keeping track of facts previously reported about properties allows the appraiser to focus on analyzing the impact of those facts on the market.
Charlie: And providing commentary to support the case for adjustments and extraordinary assumptions is key. Disclose, disclose, disclose. If you feel like you’ve written enough, pick up your pen and write a little bit more.
Liz: Using standardized definitions assists appraisers and users of appraisal services in communications, but we still need proper appraisal reporting with commentary.
Charlie: Most definitely.
Liz: Thank you for your time, Charlie!
