As our industry continues to rebound from the turbulence of late 1998, many lenders find themselves faced with the challenge of operating in an increasingly competitive market that offers decreasing loan quality.
Appraisal reviews are one area that seems to really highlight this problem. Many lenders have successfully relied on additional software to improve appraisal reviews. But some have improperly tried to base loan decisions on supplemental reports that have inferior data, such as drive-by appraisals and field reviews. Applying a more uniform standard to appraisal analysis has become an increasingly daunting task.
Many agree that the appraisal review process is both art and science. But we still see many inconsistencies with the supposedly more objective part of this analysis, the science or technical application of appraisal reviews.
For example, in April 1996, with little fanfare, a voluntary standard was adopted for measuring and calculating the gross living area of detached and attached single-family residential buildings.
Though approved two years ago by the American National Standards Institute, use of the guidelines is not mandatory, and they have yet to be embraced or promoted by the real estate profession.
ANSI functions as the coordinator of the private-sector voluntary standardization system in the United States. The intent of the standard is to ensure that the size of single-family homes is measured in a uniform and consistent manner by tax assessors, Realtors, builders, architects, and appraisers. Though professional organizations representing each of these groups participated in drafting the standard, differing techniques for measurement and calculation of square footage are still used.
This has proven confusing to the consumer, the end-user of this information, and it has prompted increasing litigation.
Why can't anyone comparing blueprints of two homes be able to tell which one will truly offer the most usable living space? Can the judge resolving a tax appeal dispute feel confident that an appraisal report in evidence will reflect the same data as the public record? Shouldn't the prospective buyer of a home expect that an enclosed porch or finished basement will not be included in the listed square footage?
Interaction among real estate professionals must become more meaningful and productive so that comparisons are meaningful.
Perhaps those with significant influence in the lending and real estate industries should begin a grass-roots call for the universal application of the ANSI standards and make adherence to them a requirement for clients and vendors.
By standardizing the key information we deal with on a regular basis, we not only improve the way we do business but also protect the consumer. Mr. Moore is a corporate appraiser at MLN USA, a Middletown, Conn., subprime mortgage company.
