Another post on the changes in the appraisal system, but Donne has some specific definitions that I find very helpful. I've got three appraisals coming up on my listings and one of them is a high end remodel, so this will be useful.
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.
Serving low-medium income individuals and families as well as first time buyers with their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
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