The Modern Revolution of Real Estate Appraisal

Appraisers will see a major change to the URAR this year, effective September 1, 2011, when all appraisals submitted to Fannie and Freddie are required to use the Uniform Appraisal Dataset (UAD). This data set will standardize key verbiage in the URAR and change the way we write appraisals. The argument will be raised (again) that this is another way to force appraisers out of business by taking their data and using it against them to create more accurate automated valuation models. It is likely that the data will be “mined” and used for other purposes, but the purpose of this article is not to debate pros and cons, but rather educate everyone on the changes that are ahead this year.

What is the MISMO?

Mortgage Industry Standards Maintenance Organization is a corporation that develops electronic commerce standards for the mortgage industry. They have based their platform on Extensible Markup Language (XML). The purpose of XML is to communicate data to any computer from any other computer through standardization. The UAD will be the “standardized” language used for XML.

What is UAD?

The Uniform Appraisal Dataset is the backbone of the XML programming scheme. In order for data to be collected in a usable format many of the fields in the appraisal form will be transformed into restricted fields where the data must be entered in a specific manner, or selected from a drop down list. For example:

An appraiser may enter the tax year as ’10, but the new UAD will require the full year 2010 (yyyy)

Full dates will be in the mm/dd/yyyy format (such as the indicated contract date)

The data must be entered in the specific format or an error message will prompt the appraiser to change the information, similar to some online forms.

The data set requirements released for the most common appraisal forms on December 16, 2010 contains 241 pages. The document can be found at this link, but it is written for computer programmers and it may be difficult to understand. We have highlighted many of the notable changes below:

Listing history section

This section will require specific information when the, “yes the subject was offered for sale”, box is checked. DOM, original listings price, original listing date, and data sources used will be mandatory. Because this data is mandatory software vendors will likely break these fields into separate side "form" where you will fill out the information and then the software will alter the data to put it in the exact format required by MISMO (DOM150;Subject property was offered for sale on 03/01/2010 for $200,000. The data source is MRIS#12345AB.)

Sale contract

The appraiser will be required to note what type of sale the subject is from a “drop down” selection limited to only the following choices: REO sale, Short sale, Court ordered sale, Estate sale, Relocation sale, Non-arm’s length sale, or Arm’s length sale. This section will be mandatory for all purchases.

Site section

If the site size is less than one acre it must be reported in square feet, and if it is greater, it will be reported in acres. The XML language even requires abbreviations in specific formats for square feet (sf) and acres (ac). Some software provides will likely only allow numeric values to be entered, which the computer will then automatically provide the required abbreviation.

View

The view section is one of the largest changes in the new UAD. Describing the view will have two dropdowns. The first will be a rating of the view as Neutral, Beneficial, or Adverse (abbreviated “N”, “B”, or “A”). The second drop down will be the actual view, which will have an open fill in section and will allow multiple selections if applicable. Each view has its own abbreviation that will carry forward to the sales grid. The following views will be available in the drop down: Water View, Pastoral View, Woods View, Park View, Golf Course View, City View or Skyline View, Mountain View, Residential View, City Street View, Industrial View, Power Lines, Limited Sight, and Other (user defined; may not contain “none”, “n/a”, “typical”, or “average”).

Improvement Section

Appraisers that use ambiguous terminology in the improvement section will have a lot to change, but some very basic changes will affect all appraisers. The number of levels section will only allow numbers (“1 level” will not be permitted, only “1”). The design will be an appropriate description and the use of “average” or “typical” will be rejected. If there is no fireplace or woodstove, a “0” will be required in the space. A home with two full bathrooms and one-half bathroom will be denoted as “2.1”, or two-half bathrooms as “2.2”.

Condition

There are major changes in the condition related fields and new specific information that will be required. There will be a drop down for condition allowing only the following ratings: New (C1), Excellent (C2), Good (C3), Average (C4), Fair (C5), or Poor (C6). These definitions are specifically defined on page 33 of this link. Additionally, the appraiser must indicate ‘Yes’ or ‘No’ if there was any work done to the kitchen or bathrooms in the prior 15 years, and upon a yes response additional information is required. The following indications will be required: Level of work completed (not updated, updated or remodeled), time frame (less than one year ago, one to five years ago, six to ten years ago, eleven to fifteen years ago, timeframe unknown; timeframes should indicate when the majority of work was completed). Examples provided by FNMA and Freddie Mac include the following:

C4; No updates in the prior 15 years

C3; Kitchen- updated less than one year ago; Bathrooms-remodeled-one to five

years ago

C2; Kitchen- not updated; Bathrooms-remodeled-less than one year ago

Sales Comparison Approach

Financing will have a drop down containing the following fields: FHA, VA, Conventional, Seller, Cash, USDA – Rural housing, or Appraiser defined.

Date of sale will allow for the following abbreviations before the sale date: “c” for Contract Date, “s” for Settlement Date, “w” for Withdrawn Date, “e” for Expiration Date. The date must be entered in the format “mm/dd”, and If the contract date is known and the sale date is known they may both be entered per the following example: s01/11;c06/10

Location will utilize the same Neutral, Beneficial or Adverse rating as the view field, and it will require the selection of at least one but not more than two of the following “location factors”: Residential, Industrial, Commercial, Busy Road, Water Front, Golf Course, Adjacent to Park, Adjacent to Power Lines, Landfill, Public Transportation, or Appraiser Defined.

View for the comparable sales will follow the same format outlined above for the subject property.

Quality will have six selections, which will be later defined (Q1 through Q6). Each selection has been defined on page 34 of this link, but the exact terminology has not been determined.

Condition also follows the same format as the subject; however, no rating of the kitchen or bathrooms is required.

Basement will require several specific items including the type of basement (walk-out, walk-up, or interior only), the finish, and the room type or types (recreation room, bedroom, bathroom, or other).

Lender / Client

The name of the appraisal management company will appear in the appraisal report, or ‘No AMC’ will be required.

Conclusions

Many appraisers will find that most of the changes will have little effect on their day-to-day procedures, but some fields may result in extra clarification in the narrative of the report.

The view section contains some apparent positive and negative changes. The addition of a rating, neutral, beneficial or adverse, is welcomed; however, the limited term “Water View” may be abused by some foul appraisers. In Orlando, a pond water view with no recreational activity permitted is “beneficial” over having rear neighbors, but rarely comparable to the benefit of a water view of a lake where you can boat. The ambiguity of the term is dangerous, and comments that are more extensive will be necessary when comparing beneficial or adverse views that are not truly equal. The view field is often market driven, and some specific intricacies may prove challenging for the reader to completely comprehend.

The location field in the sales approach provides some redundancy to the view comment. There may also be some extra clarification needed when two beneficial residential locations are not equally adjusted. If an appraiser selects “adjacent to power lines” for the location and “power line” view, they may make a mistake in double counting the negative attribute.

Appraisers have become used to specific lender requirements for terminology and verbiage, but the UAD will bring all lenders to the same very specific page. There are many pros and cons to the new system, which will exhaustively be discussed in the months leading up to its implementation, but for now consider these changes and plan ahead as an expert on the new technology.

This document is being written based on the “Initial Version” release on December 16, 2010 of the UAD. Information is deemed reliable, but data should be verified. ©2011 Nicholas D. Pilz