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