Appraisal Updates for Realtors®

Michelle Czekalski Bradley, chair of the Appraisal Standards Board of the Appraisal Foundation, highlighted the new Reconsideration of Value policies released by the U.S. Department of Housing and Urban Development in a recent PAR webinar.

What is Reconsideration of Value?

The ROV process, effective starting Oct. 31, is a new standard process for borrowers to request a reconsideration of an appraisal through their lender if they believe the appraisal has deficiencies.

The ROV process must be initiated by the borrower, who can request an ROV through a lender who offers Fannie Mae, Freddie Mac, HUD and the Federal Housing Administration loan products. This specific new ROV process does not apply to Veterans Affairs guaranteed mortgages.

“This ROV process is brand new and came out of the appraisal bias issue. The government wanted a more formal and uniform reconsideration process” Czekalski Bradley said. “While the process must be the same, individual lenders may customize their own forms to use in the process.”

Borrowers are required to receive two disclosure notices letting them know they can appeal their appraisal by requesting an ROV.

What happens if the borrower makes an ROV request?

If the borrower requests an ROV, four things must happen:

1. They must include a description of the areas of the appraisal report and any additional information that they require the appraiser to respond to.
2. They must provide detailed information for the appraiser to consider, such as comparable sales.
3. They should only include relevant comparable sales as of the effective date of the appraisal.
4. They should present a maximum of five comparable sales.

“The lender is mandated to analyze that information from the buyer to determine if it has relevance,” Czekalski Bradley noted. “The lender has to determine if the ROV has merit before forwarding the ROV to the appraiser.”

The appraiser must review the information, provide a summary of the results of that review and put the analysis in the appraisal report to be reissued back to the lender.

Notably, if there are material deficiencies in the report, the lender has the option of ordering a second appraisal.

“If there’s a material deficiency found in the appraisal by the lender that remains uncorrected by the appraiser, that lender is required under this new ROV process to report the appraiser to the state licensing authority,” Czekalski Bradley said. “Material deficiency is not just ‘the number didn’t come in where I wanted it to come in.’ Getting reported to the state means something much more stringent.”

Resolution of the ROV must be done prior to loan closing. Additionally, the borrower cannot be charged for the ROV.

Can an added comparable have a closed date shortly after the date of appraisal?

Lenders typically require the first three comparables to be closed sales as of the effective date of the appraisal. If there’s another similar property that is under contract, pending or set to close soon (for example, closing Dec. 31, but the appraisal is due Dec. 25), it can and should be used as an additional source of information, but typically cannot be used as one of the first three comparables.

Can the buyer submit less than five comparables in an ROV?

“More relevant information is always better,” Czekalski Bradley stated. You can use less than five comparables. Make sure all comparables present relevant information and avoid throwing in extra, irrelevant data.

Is the ROV the same or similar to appraisal review?

“They’re completely different. The term appraisal review in the appraisal world is a formalized process completed by one appraiser on another appraiser’s work.”

What if there’s an error in the report, like a missed room? Do you then have to find new comparables?

“We’re human. We all make mistakes,” she said. “You don’t have to go through the ROV process. You can simply call the lender and say, ‘I found a mistake in the report. Can you please ask the appraiser to correct it? This can be done without a formal ROV.’”

What timeframe should we anticipate for an ROV?

“Every lender is required to put in writing what the general timeframe is that borrowers should expect,” Czekalski Bradley said. After the implementation of this new process on October 31, 2024, she’s expecting many ROVs to happen as more borrowers are educated about the option.

If the appraiser addressed the ROV in a revised report and there is no change, can the borrower ask for another ROV?

“The borrower has one opportunity to submit a ROV so it should include relevant, factual and objective information the first time. The lender is not permitted to accept a back and forth as part of this new process.”

As the NAR settlement changes take effect on Aug. 17, does the change in disclosing commissions in the MLS have any effect on appraisers?

At this time, it’s unsure how exactly settlement changes will affect appraisers, but Czekalski Bradley assured that appraisers will continue to do what they know best. She stressed it’s important to remember that commissions are not concessions and concessions are not commissions.

“In years past, commissions didn’t influence the appraisals, but now appraisers will have to analyze what effect the commissions may have on the sale of a home if the commission is not common or typical for an area. In my company, we’re developing specific questions to ask agents like what was the commission, who did it go to, what is common and typical in your market. An appraiser is concerned with what is common and typical in the market and if it affected the price in the transaction.

“Appraisers are going to continue after these commission disclosures come out of the MLS to do what we’ve always been doing: analyze what influenced the sales price of the home.”

New appraisal forms being introduced in 2025

“The appraisal forms that you as an agent typically see are going to look very different next year,” Czekalski Bradley noted. “This has been coming now for multiple years, where the government-sponsored enterprises are completely revolutionizing and changing the way our appraisals are being reported on forms.”

Appraisal forms will become digitized, more interactive and cloud based, offering more convenience and ease of use for the lenders. However, with new forms comes a new learning curve, and Czekalski Bradley warned people to be prepared to take a little more time as appraisers become acclimated once the new forms are implemented in the new year.

“Appraisal turnaround times are going to slow down when the new forms come into play in 2025,” she said. “Think about that when you’re writing your contracts.”

To hear more about appraisal updates from Czekalski Bradley, view the webinar recording in the Webinars section of PAR’s website.