Appraisers Concerned Over Fannie Mae's Proprietary Home Valuation Databases

Posted by Steph Kaye on Monday, January 12th, 2015 at 2:21pm.

Will This Lead to Slower and Costlier Home Sale Closings?

A controversial new program is set to launch nationwide this month by the large mortgage investor Fannie Mae. However, many are concerned this will lead to slower and costlier home sale closings and more disputes over prices between sellers and buyers, which will break up deals when the appraised value comes in below what the parties agreed to in the contract.

Fannie Mae doesn't agree with this, but many appraisers are worried that the new program will mess up the marketplace. Here is the issue and what it could mean to you as a seller or buyer:

Starting Jan. 26, Fannie Mae plans to offer mortgage lenders access to "proprietary home valuation databases" that they will be able to use to assess the accuracy and risks presented by the reports submitted by appraisers. Data from Fannie will flag possible errors in the appraiser's work before the lender commits to fund the loan, score the appraisal for the overall risk of inaccuracy and could provide as many as 20 alternative "comps" (properties in the area that have sold recently and are roughly comparable to the house the lender is considering approving for financing but were not used by the appraiser). Lenders can then forward Fannie's alternative comps and risk scores to the appraiser and the management company that hired the appraiser seeking explanations and changes to the appraisal.


Professional appraisers depend on comps as key indicators for value. If houses "A" and "B" in the neighborhood sold within the last three months for $250,000 and are similar in size and features to the house being considered by the lender, the appraisal should come in close to that number, if there are not any dramatic recent marketplace changes.

However, if the appraiser values the house at the contract price of $300,000 agreed by the seller and buyer, the appraisement may be thought too high. Excessive appraisals create the risk of future losses to lenders and investors if the borrower defaults and the house gets forclosed.

To begin with delays to closings and higher costs.

Appraisers say if they have to continuously justify why they chose the comps for their appraisal rather than those selected by Fannie Mae's computers, it could add days, weeks or more in some extreme cases to closing times. Meanwhile, sellers and buyers who had made plans for specific dates for moving may suddenly find themselves in a bind because the appraisal report was flagged.

Realtors' commission payouts also will be delayed. Mike Turner, an appraiser in Northridge, told me it will be "an utter waste of time" if he has to explain point by point why he didn't use the comps supplied by Fannie Mae. An appraiser in Richmond, Va.,stated appraisers will have to raise their fees to compensate for the additional time. "You think I'm going to do this for free?" he asked. "Hell no!" He predicted that his per-job fee could jump $150 to $200 or more simply because of Fannie Mae's new program, which is all paid for by consumers at settlement.

Another problem: Fannie Mae won't give appraisers access to the "black box" databases that it uses to producethe risk-rating scores. A national petition sponsored by the Illinois Coalition of Appraisal Professionals is now circulating and demanding transparency.

Some critics project that Fannie's data will not be able to recognize differences between adjacent neighborhoods, which is an important factor in appraisals, because it is based on census tract groupings, which may bunch together lower-priced and higher-priced homes from different neighborhoods.  Mike Turner predicts that "Lower-risk comps will tend to kill deals," which will force sellers and buyers into needless disputes when appraisals come in below the agreed contract price.

Fannie Mae says appraisers' concerns are overblown and that if widespread problems come up it will make adjustments. Andrew Wilson, a Fannie spokesman, denied that the system will be biased to the downside. "It's going to flag mistakes," he said, "and frankly everybody should want that."

If you are in the market for a new house and would like information on homes for sale, or are first time home buyer not working with a Realtor and would like to schedule a consultation with a qualified Oakland County and Macomb County Realtor, please complete the Lang Premier Properties contact form to have a real estate agent contact you. 

Lang Premier Properties are Birmingham Realtors specializing in Oakland County Real Estate. Stephanie is an agent with Lang Premier Properties. See what past clients have to say about Stephanie Lang.  Lang Premier Properties looks out for your best interests when you purchase a new custom luxury home. We always recommend working with an experienced luxury real estate agent when buying a new luxury estate.

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