Appropriate and Meaningful Commentary

I am a member and follow a group on Facebook called “I am a Real Estate Appraiser- The National Appraisal Coalition.” The other day a fellow appraiser posted this photo and commented, “Ok everyone knows by my post I hate snakes. See what you have to say about this one.”

Needless to say, the photo generated a lot of good-hearted commentary. However, one comment caught my eye and, at least in my opinion, was quite amusing. It said:

“Please comment if snake has any adverse effects on marketability. Is this common and typical for the neighborhood? Include 2 similar comps. Provide cost to cure for removal and how cost estimate was derived.”

This comment is funny because it isn’t to far from the truth. Today, lenders are demanding that appraisers provide more commentary in their reports than ever before. In fact, one of our largest clients recently sent me an email stating, “Most negative QC findings on appraisals are for inadequate explanations”. However, don’t take our word for it, below is only a couple of examples regarding what Fannie Mae has to say about appropriate and meaningful commentary.

• Failure to comment on negative factors with respect to the subject neighborhood, the subject property, or proximity of the subject property to adverse influences is unacceptable.

• The appraiser must provide appropriate comment(s) reflecting the logic and reasoning for the adjustments provided, especially for the characteristics reported on the appraisal report form between the Sales or Financing Concessions and the Condition line items. A statement only recognizing that an adjustment has been made is not acceptable. When appropriate, the appraiser’s analysis should also include narrative comments about a current contract, offering, or listing for the subject or comparable sales, current ownership, and recent prior sales or transfers. Additionally, the appraiser’s comments must reflect his or her reconciliation of the adjusted (or indicated) values for the comparable sales and identify why the sale(s) were given the most weight in arriving at the indicated value for the subject property.

Simply identifying a concern isn’t sufficient. A quality appraisal report will provide adequate detail, support, and commentary to clearly convey the issue and how it affects value. In short, the following three steps need to be thoroughly addressed to communicate the details of the concern.

1. Acknowledge the concern – This goes beyond simply checking a box or relying on the reader of the report to identify the concern on his or her own. For example, if an across the board adjustment is made for site size, a comment should be provided that states that an across the board adjustment is made for site size. Doing so is an additional alert to the reader so they can take a closer look at the adjustments.

2. Provide an adequate description – The report should provide enough detail for the reader to fully understand the concern. This can include, but is not limited to, commentary, extra photos and aerial photography. If the subject is located next to a commercial property, details are needed so the reader can fully understand the specifics. What type of commercial property? What are the hours of operation? Are there any concerns with traffic, noise, or odors? There is a big difference between proximity to a mechanic and an insurance agent.

3. Report and support any affect on value – Ultimately this is the most important consideration. After all, the purpose of the assignment is to provide the client with an accurate, and adequately supported, opinion of market value. Are comparable properties with similar concerns included in the market analysis and specifically addressed with commentary? Is the subject an over or under improvement for the area? Are there other properties in the area that are similar but have not sold recently? Does the reconciliation of the sales comparison approach adequately describe why the appraiser elected the value they did within the adjusted range? Does the reader fully understand all requirements (hypothetical conditions & extraordinary assumptions) of the report? Is the use of old and distant sales adequately explained?

The above is only the bare minimum expectations in regards to addressing industry-know concerns. Doing so provides the reader with the “big picture”. Ultimately, the appraiser needs to provide enough information so all potential questions are already addressed within the initial report. Taking the time up-front and being proactive ultimately saves time for everyone involved. The client doesn’t need to send the appraisal back to the appraiser and wait for a response, the appraiser doesn’t need to reopen and re-familiarize a report to answer the client’s questions, and the AMC doesn’t need to manage the back and forth between both. The result is a win-win for all.

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