George Paquette,
Chief Operating Officer of Valligent
With the U.S. Department of Housing and Urban Development (HUD) reconsideration of value (ROV) policy change through the Federal Housing Administration (FHA) effective in September 2024, and Fannie Mae® and Freddie Mac® following suit with Selling Guide ROV updates effective August 29, 2024, some appraisers anticipate an increase in the number of appraisals being challenged. Also, ROVs are a standard part of the appraisal business, and they are allowed under exceptions in the Appraiser Independence Requirement under the Dodd-Frank Act, so they are here to stay.
As a real estate appraiser, you conduct a great deal of research and analysis to provide the most accurate residential appraisal report for each property. Receiving a “reconsideration of value” or “dispute” notification can be frustrating. Still, it can also be an opportunity to strengthen your relationship with the requesting client(s) if handled positively, objectively, and professionally.
Start with the Right Mindset
So, how can appraisers approach handling ROVs in a positive manner? First, adopt a proper mindset. Appraisers need to move past questioning whether addressing an ROV is worth their time. Financially, appraisers rarely get paid for completing ROVs or revision requests, so it may not seem advantageous. However, the real value lies in the opportunity to strengthen your reputation. Handling ROVs well can lead to positive word-of-mouth and more business in the long run.
Second, remember that while the primary reason for a revision request is often the appraised property value, it may also be driven by a lender, mortgage underwriter, or Appraisal Management Company (AMC) to ensure compliance with legal or regulatory requirements. Additional clarification or language modification might be necessary to comply with regulatory disclosures.
Under the new ROV policies and guidelines, a lender must always complete an appraisal review before initiating the ROV process. The lender must provide a standardized format for presenting the rationale, requirements, and information supporting the ROV request to the appraiser. This includes:
- The borrower’s name, property address, appraisal effective date, appraiser’s name, and the date of the ROV submission.
- Identification of specific issues and deficiencies in the appraisal report.
- Detailed information, data, or alternative comparable properties (up to five), including the source of the data and the rationale for their inclusion.
When the requestor puts in the necessary time and effort to verify the details and language of the dispute request, the feedback an appraiser receives may highlight a sale, information, or situation the appraiser may have missed or did not know about, potentially affecting the appraisal. Recognize and acknowledge the time and effort it took to draft the ROV. A second set of eyes or an additional opinion can be valuable if the information provided is accurate and relevant.
Review the Details
Once you have a proper mindset to respond, double-check all the fine details of the ROV request. Confirm that the ROV request is coming from the client or a confirmed party designated by the client, ensuring compliance with the Uniform Standards of Professional Practice (USPAP) and regulatory requirements. USPAP prohibits appraisers from sharing the results of an appraisal with anyone other than the client or those authorized by the client. Do not respond to an ROV if it is sent directly by a real estate agent, borrower, seller, or any other party who is not the client or the client’s designated agent.
Next, take note of the required return-by date for reporting the ROV results. The lender has set specific turnaround expectations for communicating these results to borrowers. It is the lender’s responsibility, not the appraiser’s, to convey the ROV results to the borrower. If the ROV has an unattainable deadline, inform the client immediately and state how soon the request can be completed. Meeting the client’s requested deadline is advisable, as the lender may need it for time-sensitive matters like loan approvals or closings.
Third, look at the specific issues outlined in the ROV request. Appraisers who receive revision requests frequently are not necessarily wrong in their valuation but may oversimplify the write-up of the appraisal report from an insider’s perspective or use terms less familiar to the reader, which can leave many questions unanswered for non-appraisers. Keeping in mind the various audiences that the appraisal report passes through is important. Double-check that the appraisal report has details that could help clarify important points relating to the value, such as a summary of the appraiser’s findings and a thorough description of the real estate market related to the subject property. If the issues outlined in the ROV request are unclear or difficult to follow, reach out to the client to clarify their statements. It is good to respectfully ask for clarification when needed to avoid future back-and-forth engagements.
Reassess and Respond
Once you understand what needs clarification in the appraisal report, research the facts related to the ROV, such as any alternative comparables provided, the multiple listing services details which may also reveal a prior listing or sale, living area calculation, floor plans and/or sketches of the property, public records, etc. The amount of review and research will depend on the outlined issues stated in the ROV request.
When responding to the challenged appraisal report, do so professionally, avoid rude undertones, be accurate and timely, and always remain ethical. Remember, it is key for an appraiser to maintain a solid reputation and relationship with clients. Take care in addressing each individual concern that was outlined. If the client provided four alternative comparables, address each individually, providing a specific reason each one is or is not considered a reasonable comparable.
As a courtesy to the reader, it is strongly recommended that the appraiser add a new and separate paragraph titled “Reconsideration of Value Comments” along with the date. This should be at or near the top of the prior comments comment section of the appraisal report. This makes it quicker and easier for the reader to review and process the reconsideration of value request which are usually time sensitive.
If an adjustment is needed in the appraisal report, acknowledge and revise the report accordingly. Even the most experienced appraisers can make an error at times. Whether an error has a positive, negative, or neutral impact on the outcome of the property valuation, own it and correct it.
If the appraisal needs revision, summarize the changes in the report and update the date to comply with USPAP. Even if the appraisal report remains unchanged, it is recommended to update the report’s date and include an outline of the ROV request along with a summary of the response to the client. The goal is always to provide the most credible appraisal report to clients.
Wrapping it Up
As all parties involved in the valuation process know, the appraisal is a crucial step in the loan process. Many times, the ROV is backed with a lot of emotion from a buyer, seller, agent or loan officer, so try to remain professional and not take it as a personal attack on your report. Appraisers play a particularly vital role. While appraisal disputes can slow down the process, they may provide an opportunity to improve client relationships. Lenders and AMCs rely on appraisers to provide clarity and transparency in the valuation process. The next time a dispute or ROV comes your way, consider it as an opportunity to strengthen client relationships.
If you’d like to learn more, please contact a Valligent representative at 877-490-0390, or email contactus@valligent.com.
For more information about HUD and its programs visit www.hud.gov. To learn more about HUD’s property appraisal and valuation equity work click here.
For more information about Fannie Mae and the Selling Guide updates, visit Single-Family Homepage | Fannie Mae.
For more information about Freddie Mac and the Guide Bulletin, visit https://guide.freddiemac.com/app/guide/home
