Big changes are coming to appraisal reports that affect both Sellers and Buyers. Beginning November 2, Fannie Mae and Freddie Mac are requiring all mortgage lenders to use a new appraisal report form, the biggest change they’ve made since 1993. These changes affect both your Sellers and your Buyers, so I recorded a short video for my Realtor partners with a high-level overview. Here are the highlights.

Video can be viewed on YouTube here: https://youtu.be/xlHV7qFddE4

Key Takeaways

• Starting November 2, the new appraisal form is required on conventional (Fannie Mae and Freddie Mac) loans. FHA, VA, USDA, and non-QM loans are expected to follow, likely by the end of the year.
• Expect appraisal fees to rise about $60 in urban and suburban areas and about $100 in rural areas.
• The new report is much easier to read, with the opinion of value and the “as-is” or “subject-to” condition right at the top.
• Sellers will be asked more specific questions about the home, so start preparing them at the listing appointment.
• Appraisal gaps aren’t going away, but our Appraisal Assurance program can help a certified buyer waive the appraisal contingency with confidence.

What’s Changing and When

Beginning November 2, every mortgage lender must use the new appraisal report form on conventional loans. We’ve already adopted it on our current appraisal orders, so you may already see it on an appraisal from us. Government loans (FHA, VA, and USDA) and non-QM loans haven’t come along yet, but they will follow suit, likely by the end of the year.

Why Appraisal Fees are Going Up

For buyers the impact is nominal, but they may notice it. In urban and suburban areas, we expect about a $60 increase in the cost of an appraisal. In rural markets farther out, it’s probably closer to $100. Appraisers will be required to collect more data and spend more time at the inspection. During the first few months there’s a learning curve, so the new form may take extra time in the office. Some appraisers will need to invest in technology, and some, especially those doing it as a side gig, will simply drop out.

A Report That’s Finally Easier to Read

Even back when I was a Realtor, and now after eight or nine years in lending, I’ve never found an appraisal report easy to read. You could find the value if you knew to look in the bottom left corner of page two (sometimes three), but anything more specific was a struggle. The new form replaces the 1993 version that was designed for the typewriter. Here’s what’s better:

• The summary comes first. The top lines show the opinion of value and whether it’s “as-is” (no repairs required) or “subject-to” (repairs required). Digging through old reports to find which repairs need to be addressed has been one of the hardest parts of my job. Now it will be right there, along with the customer’s name and the contract price.
• No more “see addenda.” Each part of the home gets its own section, and photos are grouped with it. Garage photos, for example, will be in the vehicle storage section.
• More detail and transparency. Appraisers will clearly state the condition and quality of construction. On the condition scale, C1 is the very best, basically a new or like-new home, and most homes fall around a C3, sometimes a C2. There are also new fields for things like the view. Is it a pond? Is it beneficial?
• Comparable weighting. Each comp will show a Comparable Weight, such as “Most” or “Less.” It’s not an exact scientific number, but it shows what the appraiser was thinking and how they arrived at the value.
• Goodbye, GLA. Gross living area is being phased out. Square footage will be reported as finished or unfinished, above-grade or below-grade. Highly finished below-grade space should carry significant value.

Prepare Your Sellers at the Listing Appointment

Sellers will be asked more specific questions about the home and its history, such as:

• Is broadband available? Is there natural gas service?
• Was any space converted to living area from its original use?
• When was the flooring last updated, and is it real wood? What is the roof material?

The report will show items like Overall Update Status for flooring, with comments such as “Significantly Updated,” which makes it easier to compare interior updates on each comp to the subject property. Appraisers will also provide photos in seven categories: below-grade areas, updates, outbuildings, views, vehicle storage, amenities, and condition issues such as defects, damages, or deficiencies.

Why a Lender-Managed Appraiser Panel Matters

Ask whether your lender uses a lender-managed appraiser panel. We manage our own appraisers, and those who work with me know how strongly I feel about our panel here in Dallas-Fort Worth. Ask me anytime and I’ll explain why. With a lender-managed panel, the appraisers receive the fee the customer pays. With many third-party appraisal management companies (AMCs), the company takes a significant cut and the appraiser gets what’s left. When appraisers are paid more, we attract higher-quality appraisers, which matters even more during this transition.

Reconsideration of value is also still available. If we review the new, more detailed report and still feel it missed the mark, we can request a review. I’m always willing to do that.

The New Form won’t End Appraisal Gaps

In competitive situations especially, the price is often higher than what the home appraises for. A buyer who keeps the appraisal contingency can lose to a cleaner offer. A buyer who waives it carries the risk of the appraisal gap and may need to bring a lot more cash to closing.

Say your seller accepts a $500,000 offer with an appraisal contingency, and the appraisal comes in at $475,000. That’s a $25,000 shortfall. The buyer might terminate or bring the extra cash, the seller might meet them in the middle, or the seller might give up the full $25,000. There’s really no good outcome.

How Appraisal Assurance helps

With our Appraisal Assurance program, if there’s an appraisal shortage, we can cover the gap. In the same example:

• The buyer’s cash to close stays the same.
• The monthly payment stays the same.
• The seller still gets the price agreed to in the contract.
• We cover the difference.

Here’s how it works. You or your buyer sends us the listing, and our appraisers on staff review the data and certify the value of the home. A certified buyer can then waive the appraisal contingency knowing that if the appraisal comes in low, we’ll pay the difference. Even if your buyer isn’t worried about a gap, waiving the contingency puts them in a stronger negotiating position.

Questions? Call or Text Me Anytime

I hope this has been helpful. Even if I’m not doing the loan for your customer, I’m always glad to answer questions and help. That’s why we’re in this business. Call or text me anytime, nights and weekends included, at 214-542-4095. I can also be reached via email at Rob@TeamRobHomeLoans.com .

Rob Kuehne, Loan Officer, AnnieMac Home Mortgage

NMLS # 1785878 | AnnieMac Home Mortgage company NMLS # 338923 | Equal Housing Opportunity Lender

Appraisal Assurance applies to eligible buyers and properties with an approved Appraisal Assurance Certification. Program availability is subject to eligibility.

Full video transcript

Read the full transcript

Hi. There are some big changes coming to appraisal reports effective November 2nd, so just around the corner. I wanted to make sure you have all the information and are prepared, because it does impact both sellers and buyers. These are some great changes. It’s the biggest change that Fannie Mae and Freddie Mac have made since 1993. So I just want to give you a very high-level overview of what to expect. OK, let’s just dive right in.

Beginning November 2nd, Fannie Mae and Freddie Mac are requiring the new appraisal report form be used by all mortgage lenders, and so you’re going to see that shortly. We have already adopted it on our current appraisal orders, and so you’ll see it on an appraisal from us. It’s for conventional only right now, that’s Fannie Mae and Freddie Mac. But the government loans, FHA, VA, USDA, and non-QM loans, they will follow suit, likely by the end of the year.

I don’t know about you guys, but even when I was a Realtor, and now that I’ve been in lending for eight or nine years, it’s never been easy to read an appraisal report. If you know where to go to find the value, usually that’s the bottom left corner of page two, sometimes it’s three. But I struggled looking for very specific information within the report. It’s very difficult to find it. And so it’ll be very simplified, and it will also provide greater insights into the appraiser’s valuation process. So for your sellers, you need them to be prepared, because they are going to be asked more specific questions about the home and its history. And for the buyer, it’s nominal, but they may notice a slightly higher cost for appraisals.

Again, we’re starting it effective tomorrow, and November 2nd, all lenders will have to do this for conventional loans. So FHA appraisals, we can use the form, where it is not required to yet. VA and non-QM loans have not come along yet, but they will.

Appraisal fee changes: for your non-rural, basically in the urban and suburban areas, we’ll see about a $60 increase on the cost of an appraisal. The rural markets farther out, probably around a $100 increase to the cost of the appraisal. Why are they increasing? The appraisers are going to be required to do more data collection. They’re going to be required to spend more time at the inspection. Of course, these first few months, while appraisers are adapting, their learning curve, per se, it just may take a little bit more time in the office to fill out the new form and make sure they’re doing it right. They may have to invest in some technology, and there’ll be a lot of appraisers that simply drop out because they don’t want to deal with it, and maybe it’s a side gig. So there’ll be some changes there as a result.

So, a little bit more about what’s changing. It’s going to be so much easier for all of us to find the information we need. As shown on the screen here, the summary will very specifically tell you, right at the top lines, the opinion of value, as well as the market value condition. As-is means there are no repairs required. Subject-to means there are repairs required. And that’s been one of the hardest parts for me as a lender. When it’s subject to repairs, it’s very difficult to sift through the current or previous appraisal reports to find what the issues are that need to be addressed. But that’s going to be much clearer. It’s all going to be right there: the name of the customer, the contract price. You’ll see a lot simpler presentation.

All right, so this form is replacing the one from 1993 that was designed for the typewriter. No more “see addenda” when it feels impossible to find the addenda. There are going to be sections for each part of the home. Photos will be grouped together by which part of the home. For example, garage photos will be found in the vehicle storage section.

And this is a really good thing, I think, for everybody. There’s going to be more detail and more transparency. They’re going to clearly state the condition of the home and the quality of the construction, and they’re going to go a little bit deeper than that too. Just for reference, for those who don’t know, the condition is C1 through C5, where C1 is the very best. It’s basically a new or like-new home. C5 is the worst condition. OK, so most homes fall around a C3, maybe C2 sometimes. In addition, they have to provide fields for the view. Is it a pond? Is it beneficial? So there are more details expected to help provide more accurate valuations.

All right, on the comparable home sales, you will see a weighting of the comps: which comps are more heavily focused on in determining the value of the subject property. And you’ll see that Comparable Weight will be down there, and there’ll be ones that say “Most.” These are the ones that the appraiser is using the most to consider value. And there’s another one that is “Less.” It just gives us an idea. It’s not an exact scientific number, but it gives us an idea of what the appraiser is thinking and how they came to their valuation.

So you want to prepare your sellers starting with the listing appointment. There are going to be some new questions for sellers, such as: Is broadband available? Natural gas service? Whether any space was converted to living area from its original use. Updates and materials: When was the flooring last updated? Is it real wood? What is the roof material? So they need to be prepared for those questions. And then in the report, we’re going to see Overall Update Status for Flooring, and then the appraiser’s comment: Significantly Updated. So it’s going to be very helpful if you’re looking through the details of each of the comparable homes sold, to see very specifically how the updates of the interior compare to the subject property.

The appraisers will be required to capture more about the property via photos, and they’re going to have seven categories of photos that they have to provide photos for: below-grade areas, updates, outbuildings, views, vehicle storage, amenities, and then also they will notate condition issues via photo, whether it’s defects, damages or deficiencies. So it’ll be clear photos in its own category, and that’ll be very helpful for us.

One thing you want to find out is if your lender is using a lender-managed appraiser panel. Now, those who work with me know that I have the very best appraiser panel in Dallas-Fort Worth, and I can say that in all sincerity, and there’s a very good explanation as to why. Let me know if you ever want to know. But we do manage our own appraisers. It’s important to get good appraisers, especially as they’re transitioning to these new forms, but we always want a good appraiser. And so, lender-managed means that the appraisers themselves are getting the fee that the customer pays. A lot of times, when it’s external third-party appraisal management companies, or AMCs, the company will take a very, very significant cut from the fee, and then the appraiser gets what’s left. So when the appraiser is getting paid more, we’re going to attract higher-quality appraisers. And so that’s just very important.

Reconsideration of value is still going to be available. If we go through all the information that will be provided in so much better detail, and we still feel it missed the mark, then we can request the review. I’m always happy and willing to do that on every appraisal report we get.

You’ll also see the terminology of GLA, or gross living area, is being phased out. They’re going to report the square feet by the finish and the location: finished above-grade, finished below-grade, unfinished above-grade, unfinished below-grade. Highly finished below-grade space should have significant value.

So, does any of this mean that we won’t have any issues with appraisal shortages anymore? Of course not. We all know a lot of times the price is higher, especially in competitive situations, than the home is actually worth. Your buyers, if they make an offer that is contingent, they can quite often lose to a cleaner offer. The seller will pick one that does not have the appraisal contingency. Or your buyer can waive the appraisal contingency, and then they’re going to carry the risk of the appraisal gap, the shortage between the price and the appraised value. So they either risk losing the opportunity to buy the home, or they risk the possibility of having to come up with a lot more cash out of pocket in order to move forward if the appraisal comes in short.

Here’s an example. Your seller accepts a $500,000 offer with an appraisal contingency. Now, if the appraisal comes in at $475,000 and there’s a $25,000 shortfall, there are a few different possible outcomes. The buyer terminates, or the buyer comes up with all the extra cash, or maybe the seller meets them in the middle, or the seller has to forfeit $25,000. There’s really no good outcome when the appraisal comes in short.

But as I mentioned, we’ve got a product called Appraisal Assurance, where essentially, if there is an appraisal shortage, we can cover the gap. So without it, keeping with the same example, the buyer would be bringing $25,000 more to closing, or the seller cuts the price, or the whole deal is at risk. But with our Appraisal Assurance, the buyer’s cash to close remains unchanged. The monthly payment remains unchanged. The seller still gets the same price he or she agreed to at the time of executing the contract. And the difference, we cover it. So a certified buyer with us can confidently waive the appraisal contingency.

The way it works, real quick: if you, the Realtor, or the customer sends a listing, we’ll submit it to our appraisers on staff. They’ll review the data, they’ll certify the value of the home, and then the buyer can waive the appraisal contingency with the confidence of knowing that if the appraisal does come in low, we’ll pay the difference. It’s that simple. And so it’s a great opportunity for your customer. Even if they’re not concerned about having an appraisal gap, waiving that contingency will always put them in a stronger position for negotiating.

And that’s it. So folks, I hope this has been helpful for you. If I can help with anything, even if I’m not helping your customer or I’m not doing the loan, I’m always glad to answer questions and just help people. That’s why we’re in this business, right? So feel free to call me anytime, nights and weekends included. My cell phone number is right there: 214-542-4095. Thank you.