For the past six months, I’ve been blogging with the purpose of assisting loan officers to better understand the appraisal process. So far, we’ve covered final inspections, lending on unique homes, communication with the appraiser, reconsiderations of value, bracketing and FHA appraisals. If this is your first time visiting our blog, welcome! And, you’ll definitely want to take a few minutes and read through our previous posts to get caught up.
If you’re a regular reader, you may have been thinking “yeah, all of this information is great. I mean no one is really talking about this stuff, so the more I think about it, it’s really quite amazing. This appraiser is the greatest ever!….” Ok, maybe I got carried away a little! While I hope you’re getting a ton of useful information from our blog, you might be thinking “but what can we do to reduce the amount of time it takes to get an appraisal back?” And it’s a good question. A necessary question.
So in this blog post, I hope I’ll be able to not only help our readers understand what all goes into an appraisal, and why it sometimes takes a while, but also give you some helpful tips on reducing the time it takes to get an appraisal report back.
Allow me first, though, to step up on my soap box for just a bit with a word about quality.
Quality takes time. In our market, there’s a well-known appraiser who travels here from another state across the river. He’s notorious for spending only five minutes at a home. His office manager even tells the homeowner he’ll be at the home only five minutes. Once, he was at a home and before the homeowner could get her kids in the car and leave, he was already done! And with a quick inspection comes a quick report. His reports are usually turned in the next day (clearly he has help), and I’ve never heard of him coming in under value. Now don’t get me wrong. I’m all about efficiency and productivity. I’ve built an entire team around it. But not at the expense of quality. This particular person is not completing quality work (I’ve reviewed enough of his reports to know). But enough about him. There’s this guy or gal in every market across the country. The thing is, an appraiser can cut corners and turn in a report with a fast turnaround time and make everyone happy. But you don’t want that appraisal. Trust me. It may make things sail through quickly now, but eventually it will catch up with everyone. So I’m going to assume that you’re the type of loan officer that values quality appraisal reports, but you still wish they were completed a bit faster.
I’m here to help. Here we go.
I’m going to list five ways the appraisal process can be shortened. By taking these steps, you might not shorten each and every appraisal, but you’ll definitely be able to notice a huge difference overall.
1. Documents. I would say that the #1 reason my reports are delayed is due to a lack of documentation. And I really don’t know why. The whole appraisal thing has been going on for a while now, and the process hasn’t changed all that much in the last decade. Still, appraisals are ordered too early, too late, or without the property documentation the appraiser needs, and these all delay the process. So the first step in speeding up the process actually begins before the appraisal order is sent. Get with the borrower(s), Realtors (if applicable) and your Title rep and make sure you have a purchase agreement signed and dated by both parties (if it’s a purchase), a complete legal description of the property (especially if it’s a newly formed parcel), any applicable tax documentation, assessor’s information or MLS sheets that might be helpful. If the home is under construction, the appraiser will need to have a set of plans of specifications in order to complete the assignment.
2. Property Type. Today I inspected a home in a rural part of my county. The appraisal request came over as a Conventional 1004 Single Family Appraisal. This means that any type of single family home could be placed on this form, excluding a manufactured home. When I arrived at the home, it was in fact manufactured. After I finished my inspection, our office immediately notified the lender through their portal that the home was manufactured, and that it would need to be appraised using the 1004C Manufactured Home Appraisal Report form. This was at 9:00 am. At the close of business today, I still hadn’t heard anything from my client, which means that we’re now looking at a delay of who knows how many days before the correct request is sent to me and the report is finished. Why can’t I just do the appraisal and move on? Well, some lenders require the product type on the engagement letter to match the appraisal uploaded, so in this instance, if I try to upload a 1004C appraisal and their system is showing it requires a 1004 appraisal form, then it will get rejected.
All of this is assuming the lender will even lend on manufactured homes. A couple of months ago this same scenario happened, only to find out that the lender wouldn’t lend on manufactured homes, and the deal fell through completely.
3. Contact Info. Make sure the appraiser has correct contact info and make sure your borrower isn’t going on vacay anytime soon. This one’s always funny to me for some reason. We get the appraisal order, make the call to schedule…and then another…and another…only to find out that we’ve been calling the wrong number! Or a number is disconnected. Or we only get the work number to a massive manufacturing plant that won’t connect to an employee. And then, there are the times when we get an order, call multiple times to set up the appraisal and then find out the borrowers went on a two-week vacation to the Bahamas the day after they signed the loan application!
So just check and double check that you have the right info for the right person, give the appraiser multiple ways of contacting the point of contact (multiple phone numbers, an email address, etc), and then communicate with your borrower about any plans for vacation. I’m not telling anyone not to go on vacation. Lord knows I need one just as much as the next guy. Just find out if they’re planning on being gone anytime soon and relay that information to the appraiser so we can schedule accordingly.
4. Repairs. Home improvement projects can delay an appraisal in more than one way. First, if the borrower hasn’t told you they’ve ripped out their master bathroom, and you’ve ordered an as-is appraisal, that could delay things. The appraiser should get in touch with their client and see if they truly want an as-is appraisal. The vast majority of times we see this, the loan officer is completely unaware the borrowers were in the middle of home renovations, so it throws them for a loop. It may take a few days to decide how they want to proceed. And then, depending on the level of renovation or remodel, it may mean the appraiser now has to search new comparable sales which may delay the process further. So just have that conversation when you’re talking with your borrower and see if they’re currently in the process of any repairs or renovations.
Second, if you’re aware that they’re remodeling the bathroom and it’s currently down to the studs, and the appraisal needs to be completed subject-to completion, get all the information to the appraiser. What materials are they using to finish the bathroom? What flooring? Are they changing the size of the room? What’s the expected cost? And so on. You get the idea.
5. The Ordering System. Finally, let’s discuss how appraisers typically receive assignments. We’ll look at two of the most common ways, as well as a hybrid version, and then I’ll give my opinion on which way is best.
These assignments come directly from a lender to an appraiser, usually by email (although I did get asked a few months ago if I could receive an order via fax! Anybody still using a fax machine?!). The loan officer or their representative sends the appraiser the order, and once the report is finished, the report is emailed back to the same person. Sometimes, lenders choose to employ a compliance officer or separate appraisal department to send and receive appraisals, and that’s fine too. It serves to provide a layer of protection against undue influence.
The majority of larger lenders use a third party system called Appraisal Management Companies, or AMCs for short. Although AMCs have been around for decades, they really came to the forefront of the industry after the 2008 real estate crash. What an AMC does is similar to what the compliance officer discussed above does, although with more layers of protection. Most AMCs are completely unrelated to the financial institution. So you may be a loan officer at First National Bank of Tulsa and you use Acme AMC out of Pittsburgh to handle the appraisal process. So you send Acme the request for an appraisal, and they choose an appraiser for you, who is on their list of approved appraisers. Sometimes this choice is random and others it is based on a scoring system, or perhaps they just choose whichever appraiser they want for that particular assignment. Once the report is completed, the appraiser usually emails it or uploads it to the AMC portal. After that, there’s quite a bit of variance. Some AMCs just make sure the name and address match, and then send it on to the lender. The lender then completes whatever type of review they want (if any), and then on to underwriting. Other AMCs spend much longer reviewing the appraisal. Usually, they have a list of boxes they need checked because they’ve made promises to lenders that their appraisals will have two listings, three sales within 90 days, the cost approach completed, and 53 other not-really-important things they think they need. So if anything is incorrect or missing, then here come the revision requests. And that causes delays. Sometimes those revisions are helpful, but most appraisers agree that the vast majority of requests for revisions are unnecessary. Either the reviewer doesn’t understand the appraisal process, makes up protocols that don’t exist, or simply didn’t read the report. Again, this is all unnecessary and costs the borrower time and money.
There is a third model I’m calling Hybrid, because this type of model incorporates elements of both models we’ve discussed so far. I won’t use names, but I’m happy to talk more about them in private if you want suggestions. Just email me at email@example.com. The hybrid model I’m referring to is simply a portal. The lender or their representative uploads an appraisal request to the portal and then usually assigns it to an appraiser at that time. The appraiser has everything they need right there, as contracts, bids, tax docs, etc can all be uploaded here, centrally. Then, the report and invoice are uploaded back to the portal where the lender can download them. The cost for this service is up to the lender, but most of my clients charge an upload fee between $5-$20 per appraisal. This is much different than the sometimes hundreds of dollars AMCs charge. The small cost of using the portal can either be absorbed by the appraiser, or the appraiser can increase their fee to cover this portal fee. Usually, however, appraisers cannot increase their fees to cover an AMC fee.
This method also reduces those pesky revisions, for the most part. The lender has more control over the report, and what they want to see in the appraisal, so they can choose to skip over or ignore what AMCs will sometimes dwell on.
And if you haven’t been able to tell from my tone, my favorite is the hybrid portal system. Systems like this can be used by any number of lenders, so it’s nice for an appraiser. I am used to the 2-3 portals we use, because we have 10+ lenders that use them. I don’t have to get familiar with 10 different websites and upload protocols that way. Also, the fees are cheaper to the borrower, which is always a good thing. And, I don’t have to worry if I’m emailing the report to the wrong person, or if that person is on vacation, or if they received my email or not. It all goes to one central location. To me, this is the way to go. You may use an AMC model that’s quick and that’s great! But if you’re using an AMC that adds another two weeks to the appraisal process and hundreds of dollars for their service, just know that there are cheaper and faster ways to get the same product.
I know I went on a little longer than I probably should have on that last part, but hopefully, it was helpful to you! I’d love to talk more about shortening the appraisal process with you, so feel free to drop me a line with your questions or suggestions. Just email me at firstname.lastname@example.org
Committed to helping you understand your home’s market value,
Ryan Bays, SRA, AI-RRS