Appraisal errors are a headache: They can slow down the mortgage lending process and delay final loan approval for customers.
And yet, they’re surprisingly common: Inaccuracies, such as incorrect information about comps and missing photos of the property, are among the top errors seen during the loan validation process.
But many errors, and the subsequent requests to fix them, can be avoided through awareness and early fact checking.
Catch errors early
There are a number of common errors that are frequently found with appraisals:
- The address and details of the subject property
- Details for the comparables
- Owner and borrower information
- Pictures. For example: Are all the necessary photos in the file? If the home has four bathrooms, but only three photos, why is the fourth one missing? Are all the required exterior and interior photos there?
Perhaps the easiest way to reduce errors is simply by running the appraisal data files through Fannie Mae and Freddie Mac’s Uniform Collateral Data Portal (UCDP)—which ensures consistent data and quality control on all appraised properties—and paying careful attention to the results.
“[The UCDP] is probably one of the best tools to use out there, as it gives you access to collateral tools such as Fannie Mae’s Collateral Underwriter,” says Dwight Nesbitt, Vice President, Collateral Production Manager at SunTrust Mortgage. “It essentially tells you, ‘Hey, here are some red flags,’ and if you have those, that's something that really does need to be addressed.”
This simple step can catch a number of potential errors, and lenders can then easily address those errors and ask the appraiser the right questions early on.
Taking care of any obvious address discrepancies upfront with the appraiser improves the integrity of the loan file. “It may improve the client experience because the loan will not be subject to back-and-forths with the investor, lender and appraiser. The lender can stay in control and control the closing date without any delays or fire drills,” says Blayne Harvey, SVP at SunTrust Mortgage Correspondent Non-Delegated Division. “It really helps keep a customer loyal and happy, because the experience is so good.”
When red flags do appear, communicating them to the appraiser is key, but because of the Appraisal Independence Requirement, lenders have to be careful about how they speak with appraisers.
“Communicating effectively with appraisers and asking the right questions really helps ensure that the process is clean,” Nesbitt says.
Tip 1: If you note that the appraiser’s report has three bedrooms in a comp, but other records indicate it has four bedrooms, raise the discrepancy and simply ask the appraiser to address it.
Tip 2: When these issues come up, make sure the appraiser is addressing them specifically and not using generalized statements about the market.
For instance: “If something comes back where there is a square footage discrepancy in the subject property and there may be public information stating the property has a garage, but now it doesn't and instead it has more square footage,” Nesbitt says, “we want to know, was that converted to living space? Has the appraiser properly addressed that information?”
Tip 3: For new construction properties, it’s important to ensure the appraisal accurately reflects the property that’s built, not just the initial plans that were drawn up. When change requests, upgrades and sales contracts addendums happen, the appraiser needs to be involved.
“The buyer decides that they want to maybe change the plans a little bit, do this, do that,” Nesbitt says. “That appraiser has to be kept in the loop with updated addendums and change requests as soon as possible so that they can make sure the appraisal they're delivering is truly representative of that property.”
Everyone reaps the benefits of due diligence
Properly addressing all of these discrepancies and errors is just as important as finding them in the first place. It also immensely helps the process to address these with the appraiser quickly.
“If it's a case where the market is very busy, the appraisers are busy. When the appraiser has just submitted this appraisal to you and you review it and you have questions, it is important to get it back to them while it's still fresh,” Nesbitt says.
Some markets are even reporting appraiser shortages (which can extend closing times), so if an appraiser has to revisit the property, scheduling this extra visit can immensely delay the process. Not verifying information upfront can have real consequences.
“It’s really a minimum of 48 hours each way, when you have to go back and forth and it can cause delays on multiple transactions,” Harvey says. “There are families and moving vans, there’s electricity to schedule. There are so many components of moving and so many properties and time frames tied to that. So it’s important that we meet them and minimize the delays for the borrowers and their families.”