If you’re getting a home loan, then your lender will most likely want an independent third-party assessment by a licensed appraiser to determine or confirm the value of your property.
Although there’re currently several loan programs that don’t actually require appraisals, one way or another, your lender is still going to perform their due diligence behind the scenes to protect their interest in the transaction. It’s just embedded in the loan process instead.
Therefore, when the appraiser’s work or lender’s assessment doesn’t produce a favorable result for all the parties to the transaction, it can cause major problems and sometimes directly cause a transaction to fail.
Unfortunately, in times after a major disaster such as a flood or fire, appraisal results need to be heavily scrutinized more than usual to make sure market conditions are appropriately addressed.
On top of that, appraisers have increased workloads due to the number of re-inspection assignments that get cycled back to them during disaster recovery periods.
Most importantly, appraisers might have a more daunting task of not only finding comparables to use in their report but to also carefully adjust those same comparables in light of any recent disaster event.
Generally speaking, appraisers have a tough job regardless of whether they’re dealing with a major disaster or not.
Since this isn’t a new revelation by any means, lenders have come up with their own internal appraisal risk checklists over the years.
Mainly it’s a guide or tool for an underwriter to follow when reviewing the appraisal report.
For example, the underwriter will look to see if there’s an identity-of-interest issue with the transaction, if the list price is lower than the sales price, if the appraiser indicates any adverse property conditions or unique property characteristics or if the comparables used are not located in close proximity or if they are across a main roadway.
The checklist guides the underwriter to evaluate whether any line-item adjustments in the report exceed guidelines by 10 percent, if any net adjustments are exceeded by 15 percent or if any gross adjustments are exceeded by 25 percent.
Your lender pays close attention to these line-item adjustments because after all of them are added and subtracted against the comparables used in their report, that’s the main way the appraiser ultimately lands on a particular value.
The risk checklist reminds the underwriter to look for any individual adjustments that could be inconsistent, unexplained, numerous, across-the-board or if all of the net adjustments are in the same direction (up or down).
Lastly, the checklist encourages the underwriter to assess if the property was flipped, if there was any rapid appreciation or if any photos of the property and comparables don’t agree with descriptions in the report.
While the standard system alerts from Fannie, Freddie, FHA and VA all trigger warning messages when they pick up on suspect data or trends in a report, it’s always nice to know there’s a human element behind the scenes reviewing the appraisal as well.