Step Six – Property Documents & Appraisal

Step 6 focus’s in on the required property documents surrounding the subject property AND an accurate value for the subject property.    Step 6 does have two different stages during the first stage you will be reviewing key property documents which will also tie back to step 3 to complete the step of adding up debts.  This is not the only thing you focus on during the property document review but it is a big part of it.

Items to review in the first stage of Step 6

Purchase Agreement

  • confirm the sales price
  • confirm all parties have signed and initialed all required lines in the P.A.
  • confirm the EMD given by the borrower to the seller
  • look for seller contribution amounts
  • look for concessions that will require you to reduce the sales price (IE a carpet credit)

Title work

  • Confirm the legal description and mailing address matches your application and L.O.S.
  • Confirm (for refi only) the previous liens vesting matches the current borrower(s) name on the 1003
  • Review for tax liens, judgments, or undisclosed mortgages
  • Confirm taxes. Most states the yearly taxes will be disclosed on title

Condominium or P.U.D. documents

  • condo or PUD reviews can be complex be sure to reference agency guidelines for the checklist
  • review proper insurance requirements for the condo or PUD HOA

Home owners insurance ( H.O.I.)

  • match the property address to the “premises insured” on the insurance declarations page
  • review the policy for the proper dwelling coverage
  • confirm the mortgagee clause has your companies’ correct information

Other items to consider

  • Surveys
  • Flood Insurance
  • Home owners association

Now on to the actual appraisal, appraisal review is one of the most important steps in the 10 point process, it is also one of the hardest to master.  A core function of an underwriter is to expertly answer the question “Is the stated value of the subject property a reasonable value”.

“I want to clear up one myth about appraisals right now, there is no such thing as an EXACT value of any property”

If you read any appraisal on the form where the appraiser gives you a number I want you to read what it says next to the value and this is key “opinion of value”.  So that means there is not an exact number, it is simply that appraisers “opinion” of value.  As the old saying goes “beauty is in the eye of the beholder”.  Now that is not to say if you had four different appraiser go to one home there would be wild 30-40% value swing, but instead (depending on the location) all appraisals should be within a 1%-5% range of each other.  That range of 1%-5% is closer to 1% on properties that are in densely populated areas with many similar properties.  This number is more toward the 5% on subjects that are in rural less populated areas, or unique property areas such as around lakes where you have quite the mix of home types and sizes.

Let me give you the bird’s eye view of the core steps I use to evaluate appraisals

Review the photographs of the subject as they say “a picture says a thousand words”.  While I am looking at the photos I am making little notes on what the pictures are telling me for example RANCH – BRICK – ATT GARAGE – LAKE FRONT- CROWDED NEIGHBORHOOD – GRANITE COUNTERS IN KITCHEN – DATED MASTER BATROOM – WALK OUT BASEMENT.  What I try to do is to take notes that is someone called me and asked me in 30 seconds or less to describe the home I would be able to give them a good feel for what I am looking at.

Review the photos of the comps and try to pick the comps that looks most like the subject. Since you only have outside photos of comps just try your best decide which comp is the one the most looks like the subject and keep rating each comp down the line in a “ranking” from best to worst.  If my subject is a large ranch in one acre and the pictures of comp 2 shows it is an apartment style condo in a dense city area that should be a red flag and based of the picture I would mentally discount the weight of that comp in the appraisal.
Check the comparable map, now that I know which comp looks most like the subject I will then look at the map and rank the best comp overall based on “most similar” in curb appeal or looks to the subject and the closest in distance.

Review the grid’s and data sheet, this step just became a whole lot easier since you now have a good strong visual on what the subject is and what the comps look like. When you reading through the grid and the appraiser states the home is a DT2 ranch home you will know what a DT2 ranch home design looks like!

Let me give you an example where this becomes very helpful.  When you are looking at the grid and the appraiser puts a + $10,000 adjustment on the condition area of the grid and states the master bathroom is superior to all the comparables (it would make sense the picture showed lots of money put into the space).  Since you have reviewed the photos of an older dingy dated bathroom with pink and black tile, this will fire the “red flag” in your head to the value being “pushed”.

Or another example you, you observe that comp one is right next door to the subject and the photo is virtually identical between comp one and the subject BUT the appraiser puts most “weight” in a comp that is two miles away and clearly is in better shape than the subject.  The photo shows you that the two homes are very similar so why is the appraiser taking value from such a different comp?

Having a good picture in your mind of what all of the properties look like will make reading the grid and descriptions much easier to judge the accuracy of the adjustments, detect value issues, and overall help you successfully determine the accurate value range.

Here are a few more tips I use to evaluate appraisals

  • Read your A.V.M.’s AFTER you have reviewed the appraisal, look for “better” comps than the appraiser provided
  • Use and Zillow to get a better look at comparable and the subjects interiors
  • Use FNMA CU or FHLMC HVE to assist in getting a value