Appraisers Have New Time Adjustment Requirements Starting Feb. 4

Appraisers are getting more responsibilities.

As of Feb. 4, appraisers will be required to submit a report that the market analysis they produced supports both the indicated overall market trend and market-derived time adjustments for changes in market conditions. They will also have to include an illustration of the methodology used to determine specific comparable sale time adjustments for changes in market conditions, according to a Fannie Mae selling guide published in early November.

Fannie Mae said these changes were occurring in collaboration with Freddie Mac.

In addition to the new reporting requirements, the selling guide outlines that appraisers must establish a minimum timeframe of 12 months from which the overall market trend must be derived, and identify that the overall market trend may be different from the adjustments applied to individual comparable sales.

These changes come as the Federal Housing Finance Agency (FHFA) released a paper showing that in some communities, 67% of low appraisals in Black communities and 49% in Hispanic neighborhoods could be corrected by fixing time adjustments.

According to John Liss, the CEO and founder of True Footage, the new selling guide requirements “could bring back thousands of deals that die due to low appraisal.”

“About 10% of appraisals come in under the contract price. Many of those were incorrectly low,” Liss wrote. “The number one reason an appraisal comes in low when it shouldn’t have is because the appraiser failed to make a time adjustment.”

Time adjustments are a part of an appraiser’s analysis when he or she take the comparables sold in the past and brings them to present value.

“In 2021, in Austin, that July to December adjustment could have been 20%. In spite of record acceleration, appraisers were only making time adjustments 10% of the time. If you did not make that 20% time adjustment in July, you would never get the right contract price, because the December value would appear above market,” Liss said.

Liss believes the new mandated time adjustments have the ability to being “tens of thousands” of homeowners back to the market.

The FHFA report comes as the appraisal industry has been plagued for years by accusations of racial bias.

“Racial pricing differentials or failed transactions that keep specific groups out of certain neighborhoods can contribute to larger social dilemmas like persistent segregation, limited civic participation, reduced educational opportunities, and limited wealth creation,” the FHFA report states. “In short, it is important to arrive at accurate and consistent appraisal values that do not vary by borrower or neighborhood demographics.”