Even years after UAD was first implemented, there remains some confusion over the quality and condition rating regulations within the appraiser community. Let’s talk briefly about Fannie Mae’s regulations concerning Q and C ratings.
The quality and condition of a home can certainly improve or worsen over time. However, the quality and condition of a comparable as of a certain sale date never changes. In the past, many appraisers would use quality and condition ratings “as compared to the subject.” In other words, “compared to the subject, sale 1 is in ‘good’ condition.” Perhaps the next time the same comparable with the same sale date was used, it would change to “compared to the subject of this report, sale 1 is in ‘average’ condition.” It was not right then, and it can flat out get you in hot water now. But, can the quality or condition ratings change if you find you made a mistake or learned new information?
Let’s say that you have a comp (123 Any Street) that you list as a C3 rating in Report A. Sometime after turning in Report A, you get the opportunity to walk through the home at 123 Any Street and discover that it is actually more deserving of a C4 rating. After making further inquiries, you learn that nothing has been done to the home since its last sale date which is the date you used for your comp. It is pretty hard to change Report A (as it has already been submitted weeks ago), and you used the best information that was available to you at the time. However, if you wish to use the same comp in a new report (Report B) now that you know better, you would use the C4 rating and simply explain in the report that you used a different rating from before because additional information came to light about the comp since using it in Report A. As appraisers, it is our job to go with the best information available. The same protocol can be used if you found you made a typo on a prior report.
Of course, the situation I outlined above rarely happens. If no additional information has become known about a comparable, you cannot use different ratings for the same comparable in different reports just because it ‘fits better.’ If you are not consistent with your ratings, when your report passes through the FannieMae system, UAD may flag it. Appraisers need to be careful that they are not comparing the comp to the subject to derive their ratings. Sales stand on their own based on the UAD definitions. If the comp is compared to standards, then the rating should never change unless you happen to acquire additional information about the comparable or realize you made a mistake previously.
It is important to make sure you know when you have used comps in prior reports, know the ratings you gave last time, and that you remain consistent throughout any report you use the same sales on.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 323 – Do Quality and Condition Ratings Change on Different Appraisal Reports
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Assuming that Report A and Report B have different intended users, I would think that it makes more sense to leave a note in your work file that you have changed the quality/condition rating of the comparable based on new information.
I doubt that it would be advisable to put that note in Report B as that user has no idea that you used that comp in a previous report, correct?? Unless I misread your example. 🙂
So your note left in your work file would be strictly for yourself……and who ever decided to question your change in quality/condition…..
Just my opinion. 🙂
Please remember that a property (comp) can have had many updates but by definition does not meet the C2, condition rating definition. The subject could by definition have the C3, condition rating but could be closer to being in a C4, condition but could not be given the C4, condition rating because it didn’t meet the C4, definition. This is where the appraiser’s experience and judgement comes until play. You may very well have a situation where the subject and a comp both have a C3, condition rating by definition and a condition adjustment might still be necessary for the comp. It is perfectly acceptable but the key is the appraiser has to provide an explanation for the indented user to understand why an adjustment was made.
Within any condition rating, you still find variations in effective age and I still may make an adjustment within the condition line item to account for that variation even if I rate both the subject/comp the same “rating”..
I have had this happen at least 10 or more times over the last 5 years. In EVERY CASE, I have noted in Report B that the Comp was used previously at a different Condition Rating and that since that time, additional information has become available and the rating has been changed. I have never been questioned about it and have had Revewers/Underwriter email me on more than one occasion and thank me for putting it in the report. Sometimes, they do actually read our reports……Sometimes…….
I understand the position with the quality and condition ratings, however I still disagree. (There is always one right!) There is no magic formula to determine the difference between a Q4 and a Q3 other than the relative comparisons your making in your report. The entire appraisal process is based on relative comparisons to the subject and these definitions overlap. Therefore, it is not inconceivable in my mind to have properties at the lower end of a Q3 or the higher end of a Q4 be reported on different reports differently. This is the area I have had the most difficulty with in my reports. (And my software does catch most of the discrepancies) I personally think clearer definitions need to be provided on these two ratings to prevent less confusion.
Not a bad idea at all to note the difference in your report, especially if the previous report was for the same Client. The Client most definitely (at some point) will question why you gave the same Comp different condition ratings.
Isn’t it a USPAP violation to convey assignment results from a previous report to a different client? USPAP defines assignment results in part as, “•opinions or conclusions developed in an appraisal assignment, not limited to value.” In my mind, this includes C ratings as they are fluid and opined by each appraiser unlike constant physical characteristics such as bed/bath count or sq ft which USPAP states are not assignment results. Placing the information in your workfile is definitely the best way to go to ensure compliancy. IMO.
I agree with Christine. The definitions are so vague that sometimes I’m not sure which rating to give. It may be a C4 in some ways but a C3, as well. Then, I use it in another report and can’t remember which I decided on…
I don’t think that the Q rating system does anything more for us than Excellent, Good, etc. Just resets what we do with it. Every appraiser is going to have a different mark for Q3 and Q4 and every market and price range may have different benchmarks in each appraiser’s mind as to what that is. Market derived $ adjustments between Q ratings or within (quantifiable)? Most areas I have a lack of volume to derive any meaningful measurable adjustment. Isn’t i just better to state that comp a is inferior and comp b is superior for some features/conditions and develope th opinion from there?
I agree with Christine and Joyce – the difference between a C3 and C4 and be a fine line. The other C ratings are pretty cut and dried- I have stated in some reports if there was such a thing as C31/2 or C41/2 then that is what the subject would be. I love it (not really) when I get a note from an AMC telling me other appraisers have given this one a different C or Q rating in their reports – Of course all you need to do is make an intelligent reason ( or snide remark) for your rating, and they are ok.
… anyone check out that new ALAMODE feature “Smart Exchange”.. ridiculous!
As far as Quality goes I refer back to Marshall & Swift and if I would cost it out as average then I use Q4 if I would cost it out as Good then I use Q3. Still subjective but helps. Condition is the worst as mentioned the definitions are vague and the realtors use verbiage to sell the property. If there are noted significant updates I would rate it C3 but if the house has not been improved and just some maintenance doen I use C4 (which I count as average from the old uses prior to UAD). As far as Smart exchange I have checked it out. The problem is that is used all comps and not just the subject that the appraiser measured so we still run into whether they define it the same way I do. The good thing about it is it will stop the lender from saying your peers stated this. As I see what they stated.
Nothing Smart about anything CoreLogic does other than the attempt to get us, appraisers, to give our hard found information to them willingly… sounds a lot like social media to me. Note to all appraisers: Do not participate in the “smart exchange”! It is a tactic to get your information and you pay them to steal it.