With every challenge to our real estate industry comes waves of changes.  Some very much needed and some just plain knee jerks reactionary.  One given, as time passes and today's whoas become yesterdays reflections, changes of flexibility will take place.  For now, while in the moment of heat, the rules have tightened and more strict practices have been implemented.  We need to learn to accept this is the plate that has been dealt and now how best we can embrace and prepare.

I am one of those rare breeds, a full time Realtor, but by past background of 14 years as a full time appraiser as one would say, feels the pain.  Having walked in those shoes and still maintaining my state certification, I know that these changes will impact our business.  Below is a summarization of the recent guideline change that takes effect for appraisals done after April 1, 2009.  Note that these guidelines are for areas where there is a declining market.  Some areas that are not in decline may elect to require some of these guidelines as well.  Being aware of these changes will better help us with our listings and working with buyers as we understand the impact these changes may create.

1.  A new addendum is required for appraisal reports - Market Conditions Addendum (FNMA Form 1004MC/Freddie Form 71).  This is a new form that the appraiser must fill out to address declining markets.  The impact is that this form is fairly intense and time labored even in a vibrant area with great sales activity.  This will cause more time for the appraiser and it should be expected that appraisers will seek a price increase on reports for their time and added work responsibility

 2. Appraisers must use at least 2 comparable sales within 90 days of the appraisal date.  Appraisers  may have difficulty finding meaningful comparable sales with this restriction.  In a market or area that has little activity the appraiser will have to go out of the neighborhood to obtain comparable sales within this time frame.  This may present challenges of good comparable data, flags to an underwriter to reject the report due to lack of credible data, etc.  Even when an appraiser has no value problem it still can be declined due to an underwriter not accepting the report.  The appraiser cannot make up data so his/her hands are tied.  What a Realtor can do is stay on top of their farm area where they list homes and get information if there are properties that sale unreported in MLS.  Obtain verification sources for the appraiser to confirm price, terms, etc.  Also be aware of what a good comparable neighborhood the appraiser can jump to seek more recent sales.  That way you guide them towards a competitive quality area.

3. Appraisers must use 2 active listing or pending sales in addition to 3 closed comparables.  This just makes good sense.  In a changing market, one indicator of price change is the current listings.  Are they being reduced in price going down?  Closed sales information can be dated.  A Realtor can be informed as to the competitive inventory and what condition differences may be present.  For example a listing may reek of smoke - price keeps dropping because of condition.  Make the appraiser aware of such things. 

4. Bracketed listings using both dwelling size and sales price when possible.  Simply stated the appraiser must find when possible at least one sale that is above and below the sales price or appraiser value of the subject property.  This also applies to square footage above and below.  If you have one of the highest priced homes and largest homes in the area this may present an issue.  Be prepared by research to provide an appraiser with suggestions of alternative neighborhoods that may give these needed variables.

5. Adjust active listing to reflect the list to sales price ratio.    An appraiser must apply an analysis of adjustments comparing the subject property to the active/pending sales information like is done for comparable sales.  An indicated adjusted value for the active/pended property is derived.  An estimate is applied to the anticipated sales price from list (maybe 3 to 5 percent) then a bottom line indicated price for the home is given.

6. Adjust pending sales to reflect contract sales price when possible.  Same as #5 above.  When possible the actual sale price of the pended sale if obtained will be used. 

7. Include original list price of the subject and any revised list prices.  This is a history of the price of the subject property.  Any explanations such as price elevations due to condition improvement, etc will certainly be excellent information to have ready for the appraiser.

8. Reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales.  This is where the appraiser must comment as to how the comparable sales values and the active/pending sales compare in indicated price levels.  This is another tool to validate if the market is still in decline, steady, or improving.

9. Absorption Rate -  An appraiser must include this study.  This is a simple analysis of how many homes are currently for sale (inventory) to home many are expected be sold within the month.  How many homes in the price range are currently under contract.  This is an excellent analysis I use when I visit regarding listing a home.  If you don't do this then you need to learn!!

10. An appraiser must inform of any known sales concessions (buyer closing cost assistance) for reported sales and those offered on listings (bonuses for Realtors and buyer incentives).  Be aware that these concessions may be deducted from the sales price of a property or list price.

To be prepared:

•  As a listing agent know these guidelines and be aware of how you can assist the appraiser with information.

• When an appraiser calls you for input/conversation regarding a property, make yourself available to assist.

• Maintain good records so you can answer questions and know all the terms of a transaction.

• Consult with local appraisers and find out what is being required of them on reports.  Have one visit your MLS or Office Meetings. 

• Make friends with the appraiser so the communication is comfortable and well received.

Remember these are guidelines and may not necessarily be required.  These changes mostly will be required in areas with a Declining Market. As your declining market improves the biggest obstacle will be appraisal reporting and getting the underwriters to accept the positive change.

Remember - one thing is certain about change, it will change again.  Stay on top of what is new and how it applies to your market.