coestervms - explaining the appraisal process to your borrower

Explaining the appraisal to your Realtor and Borrower

What we will cover:

▪What appraisers look for in a home▪How Lenders Guidelines Effect Appraisals▪What they are required to report back vs observing▪How the inspection process takes place▪FHA Guidelines and overlays▪Appraiser communication▪Comparable Search▪Value rebuttal process

What in an appraisal?

▪A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate. The appraisal can include recent sales information for similar properties, the current condition of the property, and the location of the property, i.e., insight as to how the neighborhood impacts the property’s value.

To Become an Appraiser

▪4 Year college education▪300 Hours of tested education ▪3,000 logged field experienced hours▪Pass a criminal background check▪2 year apprenticeship ▪Take a very lengthy test and score 80% or more▪FHA Certification training

Appraisal Process▪Gather, record and verify data needed▪General Data:▪Region▪City▪Neighborhood

▪Specific Data:▪Address▪Subject Site▪ Improvements

▪Data for each approach:▪Sales Data▪ Income Data▪Building Data

Appraisal Process▪Determine the Highest and Best Use▪Estimate the Land Value▪Estimate Value by each of the three approach▪Cost Approach ▪Sales Comparison Approach▪Income Approach

▪Reconcile the estimated value▪Report Final Estimate Value

Scope of Work

▪According to the Uniform Standards of Professional Appraisal Practice (USPAP), it is the appraiser’s responsibility to develop and report a scope of work that results in credible results that are appropriate for the appraisal problem and intended user(s). In identifying the proper scope of work, an appraiser must:▪1. Identify the problem to be solved;▪2. Determine the scope of work to necessary to produce credible assignment

results;▪3. Disclose the scope of work in the appraisal.▪Though the appraiser consults as to the proper scope for the overall situation, it is

helpful for clients to understand what the scope of work means to the appraisal report. This is because the extent of research and analyses within the appraisal report will reflect the scope of work.

Market Value:▪Market value is the most probable price that a property should bring in a competitive and open market under all

conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

– buyer and seller are typically motivated;– both parties are well informed or well advised, and each acting in what he or she considers his/her own best interest;– a reasonable time is allowed for exposure in the open market;– payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and– the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions

granted by anyone associated with the sale.

▪Note: Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs that are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable because the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.

www.sacrementoappraisalblog.com

Inspection Process▪Full interior and exterior inspection of the property

▪Exterior building sketch with dimensions

▪Interior Dimensions

▪Floor Plan

▪Gross Living Area (GLA) Calculations

▪Street Map – Subject Map and Comps

▪Neighborhood Information and general characteristics

▪Inspection of the comparables from the street.

The inspection process typically takes 1 hour – 2 hours depending on the size of the property and scope of the assignment.

Before the inspection

▪Ask the borrower about information on the home they are refinancing or purchasing.

– How many bedrooms does your home have? – Is the home on acreage? – What is the size of the home? – Is it on well and septic? – Are there any repairs that need to be done to the home? – Are there any outbuildings on the property? – Does the home have and commercial or agricultural use? – What is the approximate value of your home?

Inspection Process▪Market value is the most probable price that a property should bring in a competitive and open market under all





FHA Inspection Process▪Overview of FHA Appraisal Guidelines for 2016

– According to the 2016 FHA appraisal guidelines, all properties being purchased with an FHA-insured mortgage loan must be appraised by a licensed, HUD-approved home appraiser.

– At a minimum, the appraiser must complete the following steps:– Visually inspect the subject property both inside and out.– Take photos of the property to be included within the loan file. The photos must show the

sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio.

– Take a photo of each comparable sale transaction that is being used to support the appraisal.

– Obtain and provide a copy of a street map that shows the location of the property and each comparable sale, or "comp," used during the valuation.

– Take photos that show the grade of the lot, if it's a proposed construction.– These are the minimum steps that must be performed during an FHA home appraisal

FHA Inspection Process▪HUD's primary concern is the health and safety of the home buyer who will actually live in the house. Thus, most

of their appraisal / inspection checkpoints have to do with health and safety aspects of the property. Above all, the home must be habitable and comfortable, without any potential hazards to the occupant.

▪The lot should be graded in a way that prevents moisture from entering the basement and/or foundation. In other words, the lot should be sloped to allow water to drain away from the house -- not toward it.

▪All bedrooms should have egress to the exterior, for reasons of fire safety. A bedroom window will suffice, as long as it's large enough to allow egress.

▪Many homes built before 1978 still contain lead-based paint, which is a potential health hazard. In these homes, the appraiser will check for damaged paint (peeling, chipping, etc.). Such conditions must be corrected before the loan will go through.

▪All steps and stairways must have a handrail for safety. This is a commonly cited discrepancy during FHA appraisals.

▪The heating system must be sufficient to create "healthful and comfortable living conditions" inside the home.

▪The roof should be in a good state of repair and must keep moisture from entering the home. It should "provide reasonable future utility, durability and economy of maintenance."

▪The foundation should be in good repair and able to withstand "all normal loads imposed" on it.

▪According to HUD Handbook 4150.2, the home "must be free of all known hazards and adverse conditions that may affect the health and safety of the occupants."

▪The bottom is that if something poses a threat to the health and safety of the occupant, or to the structure itself, it will probably be marked as "subject to repair." This is the central theme that runs throughout the appraisal guidelines.

FHA Inspection Process▪Head and Shoulders Inspection of the crawl space and attic area

▪Observe all areas of the home

▪Airport Contour Maps – if the subject is near an airport

▪Two Years of Roof Life

▪Sump Pump in good working order

▪Legal nonconforming – Can the subject be rebuilt in current use

▪Photos of every room

▪Consider the 3 approach to value– Sales Comparison Approach– Cost Approach– Income Approach

Inspection Process

Street Map With Comps

Subject Photos

Reports

• Comps• Adjustments• Grids• Addendums• Reconciliation• Value

Reports

Eligible

Propertie

s

Ineligible

Propertie

s

Mixed Use Properties

FHA will financeproperties with

minimalnonresidential use…

Mixed Use Properties

•Must be self-sufficient•Net rental > monthly

payment•Net rental income is theappraiser’s estimate for

vacancies OR the vacancyfactor used by the

jurisdictional HOC orwhichever is greater

Unacceptable Locations

HazardsEnvironmental

contaminants

Noxious odorsOffensive sights and

excessive noises to thepoint of endangering thephysical improvements

Soil Contamination

Conditions that could indicatesoil contamination include:

Pools of liquidPits, ponds, lagoons

Stressed vegetationStained soils or pavement

DrumsOdors

If any of these conditions exist,further analysis or testing is

required.

Private Water and Sewer Systems

Connection Is considered feasible if the cost is less than 3% of appraised value.

If home has been vacant from 30 days or several months inspection and dye test will be required.

Private Roads

Private streets and shareddriveways

Each property must havevehicular or pedestrian access

Road surface over whichemergency vehicles can pass

The absence of these itemsmust be noted

Accessory Units

Habitable living unit addto, created within, ordetached from a single-family dwelling

Accessory units may notbe subdivided orsegregated


Below 100 year flood level

Flood Insurancenot available

Unacceptable area near airport


Not approved

InstabilityEasement


• Three noise zones

• Clear zones

• Accidental potential zones


• Appraisers who workin CBRS areas mustobtain the appropriatemaps from the U.S.Fish and WildlifeService

• Prohibited areas onthe maps are thoseinside the red areas

Comparable Selection ▪Market value is the most probable price that a property should bring in a competitive and open market under all





Appraisal Form▪Market value is the most probable price that a property should bring in a competitive and open market under all





Company Overview

▪Well established national appraisal management company.▪20 of the top 50 lenders utilize CoesterVMS▪Distinguished customer service meets advanced

appraisal management technology▪Full-service, in-house development team ▪Custom Encompass interface with data point delivery▪Full compliance and legal team▪Vendor Management manages appraiser panels

Culture & Values

▪Mission and Values– CoesterVMS provides clients the tools to navigate the

valuation process in an evolving lending environment. Through innovative technology solutions and customized service strategies, our mission is to serve as the engine that runs the real estate valuation world.

Community

Service

▪East Coast and West Coast Operations– Corporately located in Rockville, MD– Operations center located in Irvine, CA

▪Designated team with 20 years experience in the mortgage industry

Service, cont.

▪Service Levels– Nationwide competitive average turn times– Vendor management recruiting campaigns for appraisers– Nationwide fee calculator and TRID friendly fee schedule– Appraiser SLA: acceptance and scheduled within 24 hours– Appraisal must be submitted within 48 hours after

inspection– Over 1,500 appraiser mobile users

Compliance▪Full AIR and Dodd-Frank Regulatory Compliance▪Integrations directly with GSE’s for ULDD and UCDP

Compliance▪Full Audited Compliance Management System▪Full-time Compliance and Legal team▪Borrower facing Appraisal Delivery System▪Comprehensive Value Rebuttal process

QC Process

▪Team of certified staff appraisers▪Tiered QC Process

– Appraiser training for entire network– Appraiser Intelligent Review (AIR) system based on GSE

and HUD guidelines– Client, state and investor review checklist

▪Provide UCDP and EAD submissions

Technology

▪Integrations with major service providers▪TRID calculator and estimated turn time feature▪Workflows and notifications▪Data integrations with multiple LOS and portal systems▪Recognized by Housing Wire as one of the Top 100

mortgage tech companies

Encompass Integration ▪Custom Interface▪Mimics Cloud Control System▪Features

– Order placement– Pipeline management– Add\update processors– Multiple payment options– Disclosure calculator– Borrower valuation delivery queue– Field mapping to eFolder

Who We Serve▪20 of the top 50 mortgage lenders use CoesterVMS

– Freedom Mortgage– Loan Depot– Sierra Pacific Mortgage– Mortgage Masters/iMortgage – First Guaranty Mortgage Company– George Mason Mortgage– Wyndham Capital Mortgage– American Financial Resource - eLend– American Financial Network– PRMG

Serving your branch ▪The right choice for every branch manager

– Designated relationship manager – Appraisers on staff for value rebuttal assistance– Monthly performance scorecard calls– Appraiser Panel management and training– Direct Encompass Integration – Monthly Visits – 24/7/365 Dedication to service – Contact your local market

leader anytime.

Case Study

Pain Points:

▪ 7 Billion in yearly revenue▪ 19,000 appraisals ordered

per year▪ Losing 200k per quarter on

appraisal invoices▪ Ten dedicated operation staff▪ Branch level issues with ordering

and invoicing▪ Ordering double and triple

appraisals without knowing

How We Helped:▪ Boarded their panel ▪ Cleaned up their panel▪ Established scorecards▪ Visited branch offices▪ Established accountability▪ Training procedures▪ TILA intent to proceed within

Encompass▪ Centralized invoicing and

accounting

How We Can Help You

▪Significantly decrease overhead/ billing nightmares▪Provide accountability, transparency, and communication▪Panel management

– Review and board appraisers– Train appraisers by specialty– Establish proper panels – Provide scorecards

▪Streamline appraisal process

Accolades

▪2013, 2014 and 2015 500 Fastest Growing Companies – Awarded by: Inc

▪2014 Fastest 50 Growing Companies– Awarded By: Washington Business Journal

▪2014 Innovation Award– Awarded By: October Research

▪2015 and 2016 - Top 100 Tech Companies– Awarded By: Housing Wire

Thank You“CoesterVMS' integration with Encompass has made my job easier because my staff can focus on production, not compliance, which saves time. The marriage between these two systems seamlessly ties the Encompass data into our appraisal ordering process. We have gained time efficiencies and reduced keystroke errors!"

- Andria Lightfoot, VP of Project Management at George Mason Mortgage.

“Working with CoesterVMS will allow us to improve the speed, efficiency and quality of our valuation services. More importantly, the software platform used by CoesterVMS will bolster our compliance efforts.” - Andrew Peters, CEO of FGMC