Is time an adjustment? What is “acceptable” appraisal practice?
The new GSE (FannieMae, FreddieMac) guidelines still require adjustments for market conditions.
Market conditions are different at different points in time. Duh!
Time adjustments have always been required. Seldom enforced. Seldom done. Now lenders will be required to actually expect market analysis on every professional appraisal.
The FHFA 24-07 Working Paper correlates some bias types to time adjustment size and existence. Possible?
Some facts:
- Adjusting for market conditions has always been required.
- It’s a market adjustment, not a property adjustment!
- It’s twofold: 1) value of the dollar; 2) value trend.
- It was hard to do 30 years ago. Today it’s easy.
- It’s perceptually new, different, and difficult.
- There is, and will be, resistance to change.
- It’s a great opportunity for appraisers.
This series in the weekly Analogue Blog will consider each of the GSE noted “acceptable” methods in turn. The context is USPAP (standards), licensing education, and GSE guidelines.
First, we set the table.
“Time adjustments” have always been required: in USPAP (appraisal standards), mandated education, and GSE guidelines. In practice, they have been effectively ignored.
The FHFA Working paper 24-07 appears to have generated the very strong interest to compel lenders to always require, review for, and ‘checklist’ for calculated, “supported” time adjustments.
The most important element of the new emphasis is that some adjustment is required, with supporting analysis. Blank is not permitted. Zero is a number and must also be a supported (calculated) result. This applies to “stable” neighborhoods, with zero trend slope for competitive sales. Some entry is required. Even if the analysis shows a perfectly level competitive market segment.
Zero is an actual number. It doesn’t mean “not available,” nor “not attempted” (NA).
The preliminary issue is the nature of which methods are “acceptable” by the GSEs. “Acceptability” is defined in the Fannie Mae Selling Guide update SEL-2024-08, which provides an indiscriminate list of methods. The statement is clear: “commonly accepted methods are acceptable for supporting appraisal time adjustments.”
Accepted methods are acceptable. Hmmm!
The guide continues in stating that “Failure to make market-derived time adjustments,” when indicated by market data, is unacceptable.
This blog series now intends to explore and critique each of the suggested “accepted” methods, as well as those mentioned in the FHFA Working Paper, and present the best method(s).
To sum up:
Where market data is available, the adjustment must be based on that supporting evidence.
Our next “time adjustment” blog in this series will list and summarize the nature of each of the “commonly accepted methods” and score the advantages and disadvantages of each.