Written By: Frankie Lacy, Op-Ed Writer
Appraisal rebuttals occur when the appraised value comes in lower than expected. The low appraised value has a negative impact on the LTV causing the loan to require mortgage insurance, or the loan becomes a decline. In an effort to avoid this, loan originators will often seek out additional comparable sales data from realtors and the Multiple Listing Service (MLS). This data can then be submitted to the appraiser to determine if any of these comparable sales are useful in yielding a higher value.
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When reviewing appraisal rebuttals, the first area we should examine is the appraiser’s comments. Usually they will add a comment stating the loan originator reached out to them to review additional comparable sales. They will list each comparable sale address and give comments about why the comp was useful or not. There are often additional comments explaining why the value stays the same, or how an updated value was determined.
If additional comps were added review the comparable sales grid. Despite using new comparable sales, it is important that the grid not show an excessive number of comps. For example, if the original appraisal report had four comps and the appraiser is willing to consider three new comps, we do not want a total of seven closed sale comps on the grid. One or two of the original comps need to be replaced with the new comps if they are truly the best sources of data for market value. Excessive comparable sales on the grid are considered a red flag and will cause the investor to scrutinize the appraisal more closely, and possible even reject the appraisal altogether.
As the underwriter, you are still responsible for reviewing the newest comparable sales. You must determine if the sales are truly better than those originally submitted and whether the higher value is supported. Many underwriters choose to pull AVM’s on the updated appraised values to help them determine whether the update value will stand under investor scrutiny.
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When the updated comps are not acceptable, the underwriter should escalate the appraisal review to management. Sometimes the appraiser may feel pressured to return a higher value, but we cannot allow that to determine whether we accept the value. We are the last step of the quality review process in this area and must ensure the value is not inflated to accommodate a higher loan amount or purchase price. When the value is inflated and the borrower defaults on the loan, the lender will not be able to recoup costs through the sale of the subject property.
About The Author
Frankie Lacy - As an op-ed writer, Ms. Frankie Lacy is a 15+ year mortgage industry veteran with extensive conventional mortgage underwriting experience. Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration.
