Earlier this year, we shared a Quality Tip with examples of commentary to support adjustments. Since then, we’ve observed that two of the most frequently requested client revisions continue to focus on providing additional support for Condition and Quality Adjustments. In response, we’ve compiled a few more tips to help strengthen your reports in these areas, ensuring they meet client expectations and maintain our high standards.
Expectations to support condition and quality
Fannie Mae provides guidance (B4-1.3-09, Adjustments to Comparable Sales (09/04/2024)): “A statement only recognizing that an adjustment has been made is not acceptable. The appraiser must provide fact-based and objective comment(s) that detail the work performed and data sources utilized for the market supported adjustments used.” Based on this guidance, and concern for repurchase risk, lenders expect the following elements to be included in the appraisal report commentary.
- Detailed comments explaining the source used to evaluate each comparable’s condition/quality
- Specific examples of condition/quality differences between each comp and the subject
- Appraisal methodology used to analyze the impact of the differences
- Reconciliation to explain why the applied adjustment rate was selected
The following are some tips to consider when reporting condition/quality ratings and adjustments as well as examples of acceptable commentary.
Tips to support condition and quality
- Review MLS or contact the listing agent, for each comparable, to verify the quality (finishes, materials, and construction such as hardwood flooring, quartz countertops, custom features) and/or condition (age, level of maintenance, necessary repairs, recent updates).
- Include comments to support each of the comparable sales UAD ratings and explain any differences or similarities between the subject and the comps.
- Explain the appraisal adjustment methodology (matched pairs, group data analysis, etc.) utilized to capture the market reaction for the applied quality/condition adjustment. Cite the specific sales or explain the range of the analysis results and why the applied rate was selected.
Examples of acceptable condition/quality commentary
Based on review of MLS photos, Comp #1 is considered to be similar in condition and quality to the subject. Kitchen and baths recently updated with materials such as quartz countertops, new appliances, new cabinets, LVP flooring.
Although no MLS photos are available for comp #2, it was previously inspected by the appraiser. Condition is similar to the subject with kitchen and bath updates occurring in the last 5-10 years. Quality of materials is superior with custom built-ins, millwork, cabinets and lighting as well as solid surface countertops. Quality adjustment was determined by comparing sales #1 and #4 with sales #2 and #3.
After discussion with the listing agent for comp #3, condition is confirmed as similar to the subject with updates occurring in the last 12 months. Quality of finishes is reported to include stock cabinets and formica style countertops. Quality adjustment was determined based on comparison of updated/non-updated sales over the past 36 months in the subject’s neighborhood. The analysis resulted in a range of $15,000 – $30,000. The median of the range was selected.
Including the elements and commentary above will provide readers with fact-based support and increased comprehension of what you did and why, and could help avoid revisions for these items.
