Dave Heidegger is a real-estate appraiser in Medford. Julia Moore photo - Julia Moore

Lenders are asking more of appraisers

Q: How are appraisers looking at houses differently than five years ago?

A: The basic appraisal process has not changed. The way we do an inspection and search for (comparables) and go through the process is tried and true over the years. However, underwriting requirements have increased. Lenders are requiring us to do more things: provide more pictures and verbiage about a house. They just want more knowledge about the house than they used to want and more analysis in every area.

Q: What are the underwriters trying to discover with more pictures and verbiage?

A: It's a response to Fannie Mae. If there are mistakes in the loans or appraisals, the lenders have to buy the house back, so the banks are being more careful in underwriting. If there is anything out of the ordinary, they want us to talk about it.

Q: What's an example of something being out of the ordinary?

A: Say, if the zoning is nonconfirming, they want discussion about whether the house conforms to the neighborhood. If it's (exclusive farm use) zoning, they want to make sure they are not doing farm production on the property for residential loans. There are a lot of EFU properties on five to eight acres, and you can't make a living doing farming on that small of acreage.

Another example is when there is deferred maintenance needed. Roofs are a pretty obvious one, and there are other things that are pretty obvious. Even on standard loans, they are looking at those issues more. If the market is declining, they are more stringent.

Q: In what way?

A: They want more listings and more current sales.

Q: Are there enough sales right now to provide current information?

A: There is always a method to appraise. If there are not as many sales, you have to go further back in time and farther out in distance and explain it. Right now, there are fewer active sales as opposed to pending or closed sales. Typically, you get three to four closed sales and one to two pending or active listings when working on a property. If you have active-listing sales that are lower than a closed sale, then it's hard to come in at (a) higher price than what the active listings are going for. It's pretty stabilized now, but for a while that was the case with things going downhill.

Q: After submitting a report, do you find lenders ask for additional information more often than in the past?

A: Sometimes they will ask for clarification or have questions. Back in 2005-2006, unless there was something glaring, they would send them through. Different banks have different requirements. You are dealing with a basic set of standards, but each lender has their own take. Generally, there is more scrutiny now — some (is) computer-filtered, and there is human review also.

Q: What is the general condition of the distressed homes for sale?

A: I'm an FHA appraiser, but I have to make sure the systems are operable, but I'm not a whole-house inspector. When I'm dealing with distressed properties, they are usually inferior. Some are cleaned and left in beautiful shape, sometimes they kick all the doors and take all the appliances and then there's everything in between. You find the yards have not been watered for a while. There might be a lot of deferred maintenance.

Q: How much impact do the distressed properties have on values?

A: Banks are doing more repairs than they used to, but it's all price-driven. I haven't seen houses with damage sell any slower; it's all based on price — they move them. Distressed properties sell anywhere from 5 percent to 30 percent less than nondistressed. The fact they are distressed sales gives it a stigma, and sometimes the banks just dump them.

Q: What factors are changing your industry?

A: Fannie Mae requires us to use a Uniform Appraisal database. Beginning in September, we have to use a form that cuts down on the leeway we used to have. Now there are drop-downs with five choices for home conditions. Things such as view amenities, we used to be able to put anything we wanted: "excellent," "360," "expansive," "horrible." Now it's "beneficial," "mountain view," "negative," "commercial." You have to pick from this list now. They are trying to make it so a computer can read the appraisals and pull a bunch of information out of the appraisals. It's made it a little more challenging to learn the new software.

Q: Has there been an industry shakeout?

A: There haven't been a lot of people coming into the industry, and a substantial number have left. It's become a tougher job with more headaches. We did go through a time of reduced work — at the end of 2008 and early 2009 — and the nature of how you get assignments has changed. Some were left out of the loop, and a lot of them who were close to retirement cashed in because they didn't want to deal with it. The requirements coming into the industry have changed, and you still are required to apprentice under a licensed appraiser.

Q: What's driving the market right now?

A: In the last few months, there have been a lot of refis based on interest rates. We're pretty blessed: We have four appraisers in our partnership, so we have a wide base of banks we work for and are staying busy. I know of others who haven't been as busy.

Reach Mail Tribune business editor Greg Stiles at 541-776-4463 or email business@mailtribune.com. Read his blog, Economic Edge, at www.mailtribune.com/economicedge or follow @GregMTBusiness on Twitter.

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