On September 1, 2011, new changes to appraisal reports 
were implemented called the Uniform Appraisal Dataset (UAD). UAD was established to enhance appraisal data quality and consistency related to home values.
These changes are now being applied to all appraisals delivered to both Fannie Mae and Freddie Mac. It’s been rumored that FHA will adopt UAD on case numbers assigned on or after January 1, 2012.
Being that I am waiting for my first appraisal since the changes went into effect, I thought it best to look into these changes to find out how they are going to affect my borrower's appraisal, especially since I have some grave concerns about the condition of this particular property my borrower is in contract to purchase.
In speaking with some of my fave lenders last week about the new changes and asking them about any problems they’ve seen so far, I’m hearing reports that “so far, so good” and that “it’s too soon to tell”.
For the most part, UAD will not be changing the way that appraisal forms look but there will be some new fields that appraiser will need to complete and lenders will be looking for additional info than they’re currently getting. Supposedly, the UAD will allow for consistent appraisal reviews by using standard definitions and responses. That will remain to be seen.
The biggest change in the data that appraisers will be required to provide is more extensive descriptions on property condition and construction quality. This actually could be a good or bad thing depending on how it’s rated and reviewed.
Currently, I am seeing little to no value adjustments for property conditions and/or upgrades. I have seen well maintained, upgraded, move-in ready properties compared to run-down, dilapidated, dumpy model matches with little to no adjustments in value for property conditions and/or feature upgrades. Quite frankly, this is wreaking havoc on my market here in Los Angeles & Ventura counties. The new ratings for property conditions that will be required are listed as follows:
C-1 The entire structure is new, has never been occupied and has no physical depreciation.
C-2 Existing home with no deferred maintenance and requires no repairs. This rating is given if the property is “almost” new or has been totally renovated.
C-3 Existing home, well maintained but displays evidence of normal wear and tear.
C-4 Existing home, minor deferred maintenance and requires only minimal repairs.
C-5 Existing home, with major deferred maintenance and is in need of significant repairs but the home is still livable as a residence.
C-6 Existing home, with severe defects that affect safety, soundness and livability. If property receives this rating, it’s not eligible for a conventional loan.
It will be interesting to see how different appraisers will interpret these definitions, especially those between “normal wear & tear” and “deferred maintenance”. Furthermore, I’m certain there will be some differences in what some may define as “livable” and “not livable”.
The appraiser will also be required to indicate if there has been any material and/or structural work done to the kitchen or bathrooms in the prior 15 years. Appraisers will also be required to use one of three ratings a) not updated, b) updated and c) remodeled and they will need to provide additional info on the updates and remodeled features.
There will also be changes in how appraisers will be required to rate the quality of construction on newly built homes as well as recently renovated and remodeled properties. The new ratings for the quality of construction are as follows:
Q1 Unique home individually designed by an architect for a specific user and details are exceptionally high quality.
Q2 Custom designed home built on individual property owner’s land or high-quality tract lots. Workmanship and materials are high quality.
Q3 Higher Quality homes built from readily available blue prints in above-standard tract lots or individual’s land. Materials in home are up-graded from standard materials and workmanship exceeds standards.
Q4 Meets or exceed building codes: Standard or modified blue prints. Materials, workmanship, finish work are stock builder grade and may have some upgrades.
Q5 Basic, standard quality, economy homes with limited interior design. Meets minimum building codes and inexpensive construction, stock materials and limited upgrades.
Q6 Low cost construction used and may not be suitable to year-round use. Low quality and could be built by non-qualified builder with or without plans.
As can be expected with any new changes that affect the loan process, I'm sure there will be some initial hiccups until things seem to work themselves out. I'm hoping that these new changes will bring in better appraisals with more accurate value assessments based on property conditions.
I guess time will tell if these changes will have not only a positive effect on my market as well as my own borrower’s appraisals and transactions.
Photos courtesy of flickr: fanniemae freddiemac koyume
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
Thanks for sharing these details. I just hit it for a re-blog and plan to suggest the post.
It is always good for us to know of the new changes and how they will affect our customer's. Thanks for sharing the information.
Vickie - Thx for the reblog; I appreciated it. I just made some changes so I hope you can reblog the revised post.
Pat - It is absolutely vital that we do whatever we can to stay abreast of the most recent changes in our industries.
Thx for stopping by ladies; I really appreciate it. Have a good day and a wonderful week. :)
Hi Donne -- you have presented the differences and explanations better and more clearly than anyone I have heard/read. Nicely done.
Wow...some of those definitions seem a bit subjective. Do they have guidelines on how to reach the rating of, let's say, normal wear and tear? I would assume they would, but my definition of normal wear and tear may be totally different from someone else's. Thanks for the update Donne.
Michael - Thx, I'm glad that I've made it easier for all of us to understand. Unlike Fannie & Freddie who pretty much laid all of this out in a 37pg guideline change document. LOL
Brenda - My exact point! I too see issues of interpretation and highly suspect that it will be up to us (Realtors/agents/MLOs) to communicate our interepretations as well. Last week, I spoke to a couple of my fave lending sources who were just starting to see appraisals that were ordered on Sept 1st & 2nd come back. They were saying that it's really too soon to tell if they were going to be having problems of interpretation of these definitions and responses. Until borrowers and their MLOs start appealing them, we won't really know for sure.
Thx for stopping by folks; I really appreciate it. Have a good day and a great week too! :)
Its always good to have feedback. Like you said Time Will Tell. I had to pass this along. Thank you for all the good info you explained very well.
Donne...Brenda's thoughts were exactly what first came to mind as I read this. Hmmm. It'll be interesting to see what impact this might bring. I was particularly struck by the "...prior 15 years" part. If there's no seller around to corroborate, then how do they determine?
Lisa - I'm glad you liked it. Yes, it does seem to be a little too soon to see how these new changes are going to shake out at this point but I will keep everyone posted on any new hiccups or issues I come across.
David - I too am just a little concerned about how different appraiser will interpret the new ratings. I see some issue here already. As for the REOs where we don't have seller disclosures, appraisers are going to need to do a little more work. Most appliances have mfg dates on them and some installations are actually recorded on the appliances.
Thx for stopping by everyone; I really appreciate it. Have a good night everyone and a wonderful week too. :)
Hi Donne,
I guess with any changes, we just have to wait and see how they will pan out. One thing that I am lookin forward to seeing is more detained descriptions. I have had a few incidents where the homes features were definitely not detailed, comparables used did not match, etc. I have even had appraisals where features that did not even exist were added on and described. Thanks for keeping us informed.
Holding my breath. I hope this is the one that makes perfect sense and works like a dream. Alas...I fear the worst.
Excellent post Donne, I actually saw it re-blogged! An appraiser told me that these changes were coming but yours is the first place that I've seen the lables and their meanings!
I wait with baited breath to see what happens with the appraisal on my buyer's home. I hope the listing agent is prepared for the barrage of questions. I presume they will be directed at the agent?
Keisha - I'm hoping that these property condition requirements will allow positive value adjustments for upgraded and well maintained properties from the run-down, dilapidated, dumpy properties. This would be a definite step in allowing appreciation in our markets.
Karen - I do suspect we will see some confusion with interpretations over the property conditions ratings and feature upgrade details as well as the construction quality ratings. I just find some of these ratings subject to personal interpretation of appraisers.
Jane - After reading the 37pg Fannie & Freddie guideline change document, I did try and extract the primary points in the changes. Hopefully, I've gleaned the major points.
Jane - You and me both! I have grave concerns about the property my borrower is in contract to purchase and I am concerned how the appraiser will rate the condition because I already know that if it's a C5 or higher, were going to have issues. Furthermore, we have unpermitted work that typically isn't necessarily a deal breaker with conventional loans but the workmanship is questionable, which could be the deal breaker.
Thx for stopping by ladies; I really appreciate it. Have a good night ladies and a wonderful week too. Hopefully, these changes will actually improve the quality of appraisals that were currently seeing now.
Donne - I agree with Michael. What a great job. And, another reason, I am grateful not to be a loan officer.
Wow, I had no idea, Donne. How are they going to explain the difference between "upgraded" and "remodeled" when those terms are often synonymous? And case numbers? By January 1? Crap, I'm delighted right now that I have a conventional buyer for an approved short sale in which the FHA appraiser came in $20,000 low. If conventional loans start assigning case numbers, that opens a whole 'nother can o' worms.
Ron - LOL!!!
Elizabeth - My exact point! I see so much room for interpretation there. As for the case numbers, those are only on FHA transactions. Right now, these new changes only apply to conventional loans delivered to Fannie & Freddie. However, it is rumored that FHA will be adopting these new changes come the first of the year.
Thx for stopping by folks; I really appreciate it. Have a good day and a great week too. :)
Donne,
Thanks so much for sharing these. The in-house lender we have was telling us about them at our office meeting this morning but she wasn't able to give a lot of detail. To me it seams like it fits newer homes fine but what about homes that were built in the 1940's like I see in Sacramento?
Regardless, thanks for passing this on!!!!
Donne, I hit this for a re-blog and failed to disable comments. I have had a few comments that I attribute to your fine writing skills. Perhaps you will pick up some new followers (I hope)
Hi Donne,
As with all businesses, Change is inevitable. Just like the changes in the banking regulations announced today.
Best, Clint McKie
DeeDee - It is really too soon to tell on this one yet. When I spoke to a couple of my lending sources last week, they were just getting back appraisals that were ordered on the 1st and 2nd. I just ordered my first appraisal since the change so I'm really curious to see how the condition of the property will be rated (it has a lot of deferred maintenance). I'm also really curious to see if a recent comp in the area that has been totally upgraded will have a higher value adjustment because it is in much better condition.
Vickie - Thx for the reblog; I really appreciate it. It's all good. :)
Clint - I'm not sure I'm going to agree that all change is good. The mortgage industry has seen so many changes in the past few years and not all of it is good. Some of it has actually been very detrimental to the consumers, who we are supposed to protect.
Thx for stopping by everyone, I really appreciate it. Have a good day and a wonderful week too. :)
Hi
I was looking for more information regarding this subject, because I have my first UAD appraisal. I did not agree with the condition, so needed a quick lesson. There is a good tutoral on the NAR Website. Very informative!
Your comments outline the information in the tutoral quite nicely, except I believe it said FHA has now approved this for sure. It begins the first of next year.
Just wanted to say thanks for posting this. I will use it with the buyers -- to help explain.
Best,
Shari
Shari - I too am waiting for my first UAD appraisal to return this week and I have grave concerns about the condition. My lending source has already told me that if it comes back as a C5 or C6 that all noted repairs will have to be addressed prior to the COE. However, I'm hopin that the appraisers interpretation of "deferred maintenance" is different than mine. It will be interesting to see because I truly believe some of the ratings are very subjective.
Thx for stopping by Shari; I really appreciate it. I hope all goes well with your UAD appraisal. Have a good day and a great week too. :)
Great post Donne. It will help me with my research on my issue. Have a great day.
Gene - I hope it helps. If you have a conventional buyer for your property, then these new guidelines are currently in effect. If you have an FHA buyer, then you could still have problems because FHA hasn't implemented these new guidelines yet and probably won't until early 2012.
Donne - This was an excellent post, I'm surprised it didn't get featured. I'm going to reblog it. Thanks for posting the link on my post about appraisals.
My fave appraisers are not impressed... we'll have to see if this really is an improvement. I just ran into a problem with the 15 year rule.. because although one could see a kitchen was remodeled it was not possible to know exactly when.
Donne: I agree with Gail above. THIS is a post worthy of showcasing with a Feature. Great info, well presented. I wrote on Gail's post that my hope is that banks will utilize these new changes and get their bank owned properties up to snuff. I may be a dreamer ...
Gene
The only thing certain right now is change and it is coming at the real estate industry in the bucket fulls. Hopefully it will affect bank properties as Gene says. I am suggesting also.
Gail - I'm glad you liked it and it is worth reblogging. The more we get they message out the more that know how this may affect their appraisals being done now. I actually think that that these new guidelines will make it easier to appeal appraisals that don't adhere to these guidelines.
Joan - I haven't had a problem with the new appraisal guidelines yet regarding my appraisals although I have had one buyer walk away and cancel an escrow because of some lender repair requests (after an appraiser noted them in the appraisal) that the REO seller refused to make.
I do think that these new guidelines can be very subjective like what some appraiser may deem normal wear & tear or deferred maintenance. And you point out a very good point about actual dates of upgrades. With REOs, you get no disclosures and getting any info can be challenging.
Gene - Based on a recent escrow of mine, the REOs out here are interested in doing anything. They don't care if the buyer walks either because they will just take one of the other multiple offers they got. If the repair requests are extensive, they will just accept the highest cash offer they get. What I am hoping these changes do is enable MLOs and Realtors appeal low appraisers where the appraiser didn't adhere to the new guidelines of rating upgrades and custom features.
Thx for stopping by everyone; I really appreciate it. Have a good night everyone and a great week too! :)
Mary - I'm hoping this will allow for more valid appeals when appraisers value run-down, dilapidated, dumpy REOs the same as ugraded, move-in ready homes. These new guidelines are supposed to put a stop to that. Time will tell. Thx for stopping by Mary; I really appreciate it. Have a good night and a great week too! :)
Donne, this post is just full of information that EVERY Active Rain member needs to read. I think there should be a separate category of Featured posts for such imporant legal topics that need layman interpretation from pros like you. Crystal clear explanation but definitely open to interpretation.
In reaponse to Elizabeth's comment, to me 'upgraded' means you put in new lighting and/or new counters, or a new shower, etc. 'Remodeled' means you redid the whole bathroom. But I guess someone else would disagree, hence the 'room for interpretation.'
Sharon
"Currently, I am seeing little to no value adjustments for property conditions and/or upgrades."
And that is what has been driving us bonkers for several years now. It just made no sense.
Sharon
Sharon - Yeah, there is still room for interpretation by the appraiser but I do hope this clears up the issues that nicer homes have higher market values than run-down, dumpy homes. I still think it's a little too soon to tell but for me and the appraisals I've ordered since September, so far so good.
Thx for stopping by; I really appreciate it and I am glad you found the post informative and helpful. Have a good day and a wonderful week too! :)