Desktop appraisals are one of the hottest topics in the mortgage industry at the moment. Our first webinar with Fannie Mae and Freddie Mac drove so much attention, with over 1,000 mortgage industry professionals, that we participated in a second webinar on the topic. Clearly this topic is a hot talking point throughout the industry. Shortly after the first webinar, Fannie Mae released an updated FAQ on desktop appraisals, providing excellent guidance for both lenders and appraisers. Likewise, Freddie Mac recently published its insights in an article written by one of our desktop appraisal webinar panelists, Freddie Mac Chief Appraiser Scott Reuter.
With all the guidance from the GSEs, perhaps the biggest question on desktop appraisals was around the requirement of floor plans and what third-party data is acceptable for use when creating the report. Especially given appraisers themselves won’t physically visit the property to verify provided information in the creation of a desktop appraisal, it’s crucial to know what third-party data is OK to use.
Third-Party Data for Desktop Appraisals
A lot of the confusion around desktop appraisals has come from concerned appraisers wondering, “Hey, are we supposed to trust information that’s given to us?” There’s a floor plan requirement that needs to be met for desktop appraisals, so appraisers want to know what they can do with information provided by interested parties, such as the homeowner or real estate agent.
Yes, the appraiser can use the information provided by the interested party — if it is verified through a disinterested source. This process is not unlike what an appraiser will do today, with multiple listing service (MLS) photos for comps or something similar.
When completing a desktop appraisal, an appraiser may be provided photos from someone else and then needs to verify that they are reliable. Some examples of verification methods include use of aerial imagery, prior listings and tax assessor records. While there may be inherent difficulty in verifying that interior photographs are reliable through the use of online imagery, when images come through databases such as MLS, agents are often held to rules governing the authenticity of photographs, and the appraiser should take into account those rules when making a determination of reliability. Additionally, appraisers often source tax assessor's data, prior appraisals, 3D scans, MLS data and photos, or even a virtual inspection as ways to verify information. There is nothing that prevents an appraiser from requesting a real-time video conferencing session to verify the images and other details of the improvements presented to the appraiser are reliable. It is going to take time for modifications on the photographs and information gathering provided by listing agents to adapt, as it is uncommon to some of the nuanced lender required images in today’s listing packages (i.e. rear photographs, street scenes, fuel storage tanks, smoke and fire detectors, recent replacements or modernized features etc.).
No matter who provides the property information, the appraiser must be certain the information provided is helpful in developing their assessment. Ultimately, it is their responsibility to make the call on whether or not the data provided is sufficient to develop a credible report.
We surveyed more than 1,600 appraisers across the country, and 92% of appraisers plan to use MLS data and photos, while 83% of respondents will lean on public records to verify data. Appraisers have several options to verify data and can choose their preferred method, which may include a mixed model like our respondents presented. Rest assured, if an appraiser can verify data provided by an interested party through a disinterested source like the methods outlined, then the data is okay to use.
Floor Plans for Desktop Appraisals
What may be the bombshell in the latest learnings from Fannie Mae is that interested parties themselves can create their own floor plan. That floor plan is perfectly fine for an appraiser to use, provided a digital tool such as a sketching tool was used to generate it.
Suppose an interested party to the transaction provides the appraiser with a floor plan generated using a 3D scanning technology; it does not need to be separately verified. The digital tool itself meets the requirements of being a disinterested source.
The thought process from Fannie Mae is that the third-party app is the one that generated the floor plan. The real estate agent can’t mess with or tweak the generated floor plan in their favor since they’re using the tech, so the app is considered a disinterested source. If a floor plan was developed via a digital sketching tool or 3D scan tool where the gathering of measurements and floor plan features is controlled by the software, it can be used, even when the floor plan output is conveyed to the appraiser by an interested party.
So while the obligation to verify does not apply here, the appraiser should still analyze the floor plans in the context of the regular body of information, just like any other data. That’s a huge deal that anyone, from the homeowner to the real estate agent, can be the one to obtain a floor plan product using a disinterested third-party app that meets the criteria established by both Fannie Mae and Freddie Mac.
Noteworthy Items to Ensure the Desktop Appraisal is Accepted by the GSEs
Now that we’ve addressed the third-party data and floor plan requirements, we should address a few additional items to ensure Fannie and Freddie accept a desktop appraisal. There are a few things to keep in mind to ensure the desktop appraisal is ready for the GSEs.
The Difference Between a Floor Plan and Sketch
It’s crucial to remember the difference between a desktop-eligible floor plan and a sketch. A floor plan makes note of interior partitions, providing a representation of the room locations and functional aspects of the layout. A sketch doesn’t need to show the room identifiers or functional qualities. Another key item to remember is that the floor plan can’t be hand-drawn, but using a sketch tool or software to generate the floor plan will work.
Gross Living Area Calculations Must Be Included
Additionally, the appraiser must show the appropriate dimensions or calculations to determine the gross living area (GLA) with the floor plan and include the exterior wall dimensions. The GSEs will not accept desktop appraisals without the floor plan diagram exhibit done correctly. Many sketching tools create the digital exhibits required to satisfy the exhibit, so while the GSEs won’t outright point to a given software, they do encourage the use of a digital tool. Early successful submissions of Desktop Appraisals include accurate floor plans, a building sketch showing exterior dimensions when the floor plan does not include exterior dimensions and the calculations the appraiser used to show how Building Area calculations are derived (also known as “show your work”).
Standards for Photos in Desktop Appraisals
Freddie Mac stated in its requirements for desktop appraisals that included photos at a minimum have the following:
- Front view of the property
- Rear view of the property
- Street scene showing the surrounding area
- The kitchen
- All bathrooms
- The main living area
What if the Provided Floor Plan Doesn’t Comply with ANSI Standards?
While full appraisals for Fannie Mae will need to comply with ANSI standards for sketches and floor plans, desktop appraisals do not. Standards for calculating finished and unfinished area, including GLA and the new floor plan requirement were a source of confusion for many, but Fannie Mae clarified that ANSI is not required on desktop appraisals.
For a desktop appraisal, building area calculations can be provided in a non-ANSI standard way, but if it is ANSI standard, that works, too. It’s not required on desktop appraisals but encouraged. Again, the key here is for an appraiser to show their work and include their method for determining calculations of building area.
Answering Your Questions on Desktop Appraisals
It is an important reminder for anyone on the fence about the practice that desktop appraisals didn’t pop up out of the blue. Fannie Mae assures in its desktop appraisal guidance rigorous testing showed similar risk performance for desktop appraisals compared to traditional ones.
There were tons of questions asked by the audience of our desktop appraisal webinar that we couldn’t get to during the roundtable. We asked Reggora’s director of appraisal compliance and initiatives, Ken Dicks, to provide clarity on outstanding questions around desktop appraisals in our ultimate desktop appraisal FAQ.
There is still much to learn from the GSEs about desktop appraisals' practical uses and applications. Determining best practices will come with time as more and more appraisers become comfortable with desktop appraisals. In case you missed it, many of these points are covered in our first webinar on desktop appraisals with Fannie Mae and Freddie Mac. We answered even more questions about desktop appraisals and helped outline the ideal state for desktop appraisals in our second webinar with Fannie and Freddie, so check it out!
Continue checking back with us at Reggora, as we will be a source of information for you on desktop appraisals, ACE + PDR, and more innovation from the GSEs as we head toward the future of appraisal.
Want to see how Reggora is driving appraisal modernization? Get a demo to see how you can reduce cycle times, impress borrowers, and lead the charge to modern appraisals with Reggora.
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