Why You Don’t Want Appraisers To Push Values! Rate Cut Nazi: “No Cut For You!”

Here is a short list of the most psychotic people in history:

1. Genghis Khan
2. Joseph Stalin
3. Adolf Hitler
4. Mao Zedong
5. Pol Pot
6. Bob Smith, Review Appraiser

You do NOT want to upset Bob!

And nothing upsets Bob more than a pushed appraised value – which is one reason why you don’t want appraisers to push values – ever.

SIDEBAR: RATE CUT NAZI: “NO CUT FOR YOU!” There is only a 33% chance the Fed will cut rates in December, based on trader sentiment. Labor markets and inflation concerns remain too strong.

Our Appraisal Was Sliced to Ribbons Yesterday

We had an appraisal sliced to ribbons yesterday by a review appraiser, and that was the impetus for this blog. The appraiser thought he was doing us a favor by coming in at contract price, but unfortunately that was not the case.

If the appraiser had come in a bit low to begin with, given the lack of adequate comparable sales to support the contract price, there likely would have been no call for an appraisal review – and we’d now have a much higher value to work with.

Here are the reasons why you don’t want an appraiser to push values:

1. Collateral Desktop Analyses (CDAs). These are simply automated/electronic reviews that every lender runs. If an appraiser pushes a value too high, the CDA will flag the appraisal – and underwriters will often order a full appraisal field review as a result.
2. Field Reviews. This is where Bob comes in… When field reviewers sense that appraisers are pushing values, they often scrutinize every aspect of a report and start to find every possible reason to cut value. And that is what happened to us yesterday. Our appraised value was cut by 10%, but if our appraiser had initially just come in maybe 3% to 5% under contract price, I suspect we could have avoided the review-appraiser-bloodbath.
3. CU Scores. Also known as Collateral Underwriter scores, this is the name Fannie Mae attributes to its software that automatically runs an “appraisal risk assessment score” (Freddie has its own version, too). The scores range from 1 to 5 – with 1 being the lowest risk and 5 being the highest. Depending on the lender/loan program, scores of 3 or higher may trigger an appraisal review. What the CU software particularly deplores is appraisers ignoring comps in the immediate area in favor of stronger comps outside the area.
4. The Rise of Non-QM Loans. I blog about non-QM (non-traditional) loans often. These include bank statement loans, DSCR loans, asset-based loans, and more. What they all have in common is a stronger reliance on collateral and a weaker reliance on income or income documentation. As a result, these lenders always scrutinize appraisals more carefully. Our appraisal that got sliced up yesterday was for a non-QM loan in fact. In any case, with non-QM becoming more and more prominent, appraisals will now be scrutinized more and more often.

So, yes, we still want appraisers to come in at the “top of the value range,” but the value has to be supported by comparable sales in the area. And appraisers can’t ignore inconvenient comps; they have to at least be explained away.