![Appraisals, Data, and the Proposed NAR Settlement](https://www.gaar.com/images/uploads/blog/people_communicating.jpg)
With practice changes coming that include the prohibition of offers of compensation on MLSs, it’s imperative that brokers and appraisers keep an open line of communication.
Data is the main ingredient in the appraisal process. Clear, concise and verifiable data helps to ensure an accurate appraisal report.
Where do appraisers get such data? They depend on the multiple listing service. In states with non-disclosure laws—i.e., where sales prices aren’t included in the public record—an MLS is typically the only source of the data. In disclosure states, an MLS is still generally the most accurate source.
So, what happens when the data is not there or is inaccurate?
A big topic of discussion among appraisers today is the missing link between brokers and appraisers that will result from the proposed settlement between the National Association of REALTORS® and class-action plaintiffs representing sellers in a residential transaction.
Visit facts.realtor for more information and settlement resources.
Under the practice changes following the settlement, MLS participants are prohibited from using the MLS to communicate offers of compensation for buyers’ representatives. This practice change, which goes into effect Aug. 17, has raised questions about how appraisers take compensation into account when conducting valuations. To measure the market reaction of compensation paid, or not, appraisers need to know the details of the transactions we are analyzing. This includes all the sales we consider as possible comparables.
The compensation paid on the subject property will be readily available to the appraiser through analysis of the sales contract. What will be unknown is the amount of compensation paid to brokers for sales that the appraiser is considering as comparables. This will require us to ask brokers what compensation was paid or will be paid at closing.
It’s imperative that brokers, agents and appraisers keep an open line of communication.
When an appraisal is underway, time is of the essence. I can’t stress this enough: Please save our numbers in your phones and respond to our questions as quickly as possible. This will be a learning curve for all of us. To serve our clients as well as we can, cooperation is a must.
There’s a lot of discussion in our business about whether brokers and appraisers are allowed to communicate during the appraisal process. We are! Under Fannie Mae’s Appraisal Independence requirements, though we must refrain from discussing the value of the property, it is explicitly permissible for brokers to communicate with appraisers about many aspects of the process.
I would be remiss if I did not take this opportunity to discuss the importance of all the data needed to accurately analyze comparable properties. Remember, while appraisers generally see the subject property, they usually are not physically seeing the properties used for comparables. To measure market reaction, they need to be made aware of all amenities and the details of each sale.
Usually, the most valuable information an appraiser must verify is what’s included in the building’s square footage being reported. When inputting MLS data:
- Note if there is an exterior building on the property, such as a casita, pool house, converted garage, or accessory dwelling unit. (To be considered as an ADU, the space generally must include a kitchen; be aware of your own state and local laws that apply to ADUs.) These areas typically may not be counted as gross living area by appraisers, but they may be included as separate areas that contribute to value. Therefore, don’t add all these spaces together as one dwelling.
- Note how many rooms are included in each area and include photos with labels for these specific areas.
- Is there an enclosed patio included? Please add a labeled photo of it.
- Is there a laundry room? Where is it? Please add a labeled photo of it.
- Please add photos of the sides of the house, and the rear of the house.
Photos of all these amenities help us to determine the factors contributing to differences in sales prices. And these are just a few questions that appraisers often have. Don’t hesitate to include additional information that you think may be useful in closing remarks on an MLS. (However, under the NAR settlement, you cannot use the closing remarks, or any MLS fields, to report offers of broker compensation.) Additional data is helpful for both the subject and comparable properties. This has often taken the form of “appraiser packets.”
For more information, see NAR’s Residential Appraisal Process—FAQs for Agents.
While the use of MLS data by appraisers may seem like a secondary concern, it’s not. Our mortgage lending system depends on accurate valuations. The ability to analyze data on closed sales remains crucial to the process and will affect future home sales.
Finally, third parties often review appraisal reports and may challenge appraisers regarding the data included in reports. Sometimes investors will reject a sale because of that. The greater our clarity about the data and its accuracy, the better we’ll be at explaining all contributory factors in the initial report to the lender—and the smoother the process will go.
Let’s do this together! Cathy Harper
Cathy L. Harper is the owner of C. L. Harper & Associates in Corpus Christi, Texas, and has been appraising residential properties in South Texas for 21 years.
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