by John Dingeman, Chief Appraiser

In early 2022, a permanent change was made to the Selling Guide when both Fannie Mae and Freddie Mac announced desktop appraisals are coming soon and that floor plans are required. The new guidelines took effect in March of this year.

While this change is considered by many to be a positive move for the industry, it has the potential to create questions in the minds of the professional appraiser. In this article, we will highlight the impact the new desktop appraisal guidelines will have on the industry. We’ll also answer some common questions appraisers are asking as they implement the new rules.

Industry Impact
The appraisal profession has traditionally been resistant to change and slow to adopt new technology. The modernization of the appraisal process promises to integrate the best-in-class technology readily available to us today and should have a major impact on how the appraisal profession performs. Furthermore, the availability of desktop appraisals has the potential to help accelerate this modernization by opening doors for the use of these technologies.

Unexpected Prevalence
Before the announcements from Fannie and Freddie, it was anticipated that desktop appraisals would only be accepted for loans with a maximum of 80% loan-to-value ratio (LTV), where buyers were making at least a 20% down payment. However, the new guidelines apply to properties with up to 90% LTV. For appraisers, this means they’ll have the option to conduct a desktop appraisal much more frequently than they might have thought.

Efficiency
With quick and easy access to the information needed to complete a desktop appraisal, appraisers should be able to submit the data and receive appraisal reports back in time to meet appraisal deadlines more easily.

In the case of rural properties located away from town, desktop appraisals will allow appraisers to still work on an assignment where they have geographic competency and no longer have to spend additional time and money driving for hours to reach the homes they need to valuate.

Learning Curve
Any time new guidelines are introduced, it’s tempting for industry stakeholders to make operational changes before they fully understand those guidelines. This is also likely to happen with the new desktop appraisal guidelines. The mistakes that result could create short-term challenges and increase cycle-times rather than reduce them.

As for appraisers, the new guidelines also come with new requirements. Fannie Mae outlined several such requirements in order for loans to qualify for a desktop appraisal reported on the 1007/70 Desktop form. The basic requirements include:

• A complete subject property address
• The loan must be for a purchase transaction only
• The subject must be a one-unit principal residence

Floorplan Exhibits
Looking at the fine print, there are other requirements that could be less obvious. Floorplan exhibits are one example of a less obvious requirement that could complicate things for appraisers.

When DU issues a desktop appraisal eligibility message, and if a desktop appraisal is selected by the lender, then the appraiser must include a floorplan exhibit that has room-labeled doorways, staircases, points of ingress/egress, and provide the dimensions of all exterior walls used to calculate the square footage. This is in addition to all other required exhibits listed in the Fannie Mae Selling Guide.

The requirement for floorplan exhibits could create pains in the industry, at least in the short term while appraisers master the new rules and sourcing for reliable and compliant floorplans is established. Floorplan exhibits, ANSI standards, and who is responsible for satisfying those requirements will be covered in more detail later in this article.

Common Appraiser Questions
Here are some of the most common questions valuation professionals might have as they navigate the new rules governing desktop appraisals.

1. Will the GSE (government-sponsored enterprises such as Fannie Mae and Freddie Mac) continue to use Submission Summary reports (SSR scores) to verify the validity and quality of the appraisal?
   Yes, the GSEs will continue to use SSRs to score appraisals, just as they would with a traditional 1004.This also means that the same data and SSR scores will be required by the GSE to support their due diligence. 

   Appraisers should not expect differences in the way desktop appraisals are evaluated. Lenders will be reviewing SSR scores and collateral underwriter findings just as they always have, seeking clarification where necessary.

2. Will the American National Standards Institute (ANSI) apply when Realtors® supply the floorplan?
   As of this writing, ANSI does not technically apply to desktop appraisals. However, even though it’s not expressly required, many appraisers are wisely using ANSI standards in their measurements to ensure accuracy and consistency.As the use of desktop appraisals evolves and takes hold, it is likely that ANSI standards will become required in floorplan submissions. Appraisers are urged to adhere to ANSI standards now, to save themselves hassle in the future when they will likely be a requirement.
3. From an Appraisal Management Company (AMC) perspective, will a desktop appraisal be the same as a 1004 appraisal?
   While the desktop appraisal is recognized by an AMC as a different product in terms of how the analysis is conducted, desktop appraisals are required to pass through the same quality control standards as a traditional appraisal.Desktop and 1004 appraisals result in the same data being submitted; the data is just collected by different means. Rather than an appraiser walking through the home with a camera and clipboard as they would with a traditional appraisal, the data for a desktop appraisal is gathered digitally. 

   Whether desktop or traditional, the industry standard remains: to submit a complete and accurate appraisal without the use of extraordinary assumptions. Therefore, a desktop appraisal cannot be any less comprehensive than a traditional one.

4. Will the introduction of desktop appraisals have any impact on the number of appraisal waivers offered by DU or Loan Product Advisor (LPA)? For a GSE like Fannie Mae, the benefit of systems like DU and LPA is that they allow them some control over the flow of appraisals. By fine tuning the data, the GSE can influence the number of appraisals that are waived versus those that require a traditional, hybrid, or desktop appraisal.There could be some overlap in the data parameters that place loans into different appraisal categories. For example, some loans may qualify for either a desktop appraisal or a traditional 1004, and as such be pushed by the GSE toward a 1004. Others may qualify for a waiver but based on the data could breach into the desktop appraisal category. The GSE would have the ability to push those toward a desktop appraisal.

   Because of the potential for overlap and the control a GSE has, there could be a decrease in the number or percentage of appraisal waivers that are granted.

   There has also been a significant spike in waivers granted over the last two years, which may prompt GSEs and the Federal Housing Finance Agency (FHFA) to push more loans out of waiver territory where possible. This could be a factor in the decision to create an actual policy around desktop appraisals as part of DU.

5. In light of the new desktop appraisal rules, who will be responsible for satisfying floorplan requirements?
   While the appraiser is not responsible for procuring a floorplan, they are, ultimately, required to determine and submit the most reliable floorplan measurements. Appraisers should make sure they understand what floorplan measurement tools or data will be provided by the AMC or lender before accepting an appraisal assignment.

   Depending on the circumstances, an appraiser may be required to find the detailed floorplan or procure interior photos. This is part of getting the data they need to complete a proper desktop appraisal.

   Gathering that information can be complex. This is why it’s important for an appraiser to understand the breadth of what they are committing to when accepting an assignment.

6. How will desktop appraisal disputes work?
   Disputes over desktop appraisals will work the same way they do now. The difference is that all parties will be looking at the same set of hard data.

   In a traditional appraisal, the appraiser experiences the property personally, collecting photos or sketches and writing notes. This experience creates data, but also has the potential to create subjective impressions.

   In a desktop appraisal, there are no subjective impressions — just a set of black and white objective data. In theory, this factor alone could reduce the number of disputes and revision requests.

   Any disputes that do arise on a desktop appraisal will be solved by taking a closer look at the data, which will not be colored by any subjective opinions formed during a personal inspection. This could make resolving those disputes more clear-cut.

7. What if I am missing an important piece of information?
   If an appraiser is able to complete the desktop appraisal, then it’s an expected assumption that all the necessary data is there. If necessary, should data be missing or cannot be located, the appraiser must communicate to the lender or AMC that there is insufficient data to credibly complete the appraisal. In these cases, upgrading the casefile for traditional appraisal is always an option.
8. Where will I get comparable photos?
   With desktop appraisals, the Scope of Work has changed so that an appraiser does not have to view a comparable property from the street or submit an original photo. Instead, appraisers are allowed to use any reputable and readily available online source to for the comparable photographs, such as Zillow, Redfin, or Google.

   The new guidelines governing desktop appraisals will undoubtedly raise questions for a lot of valuation professionals. As rules and requirements continue to evolve, having tools and technology at their disposal will prove incredibly valuable to helping appraisers keep their businesses profitable.

   One of those tools is Class Valuation’s digital desktop, which features AI-enabled quality assurance, easier data extraction, and 3-D property scans for accurate, ANSI-compliant floorplans. More information and demos can be found at https://www.classvaluation.com/digital-appraisals/.

   About the Author
   John Dingeman is a Certified Residential Appraiser in 11 states, a Registered Property Tax Agent in Arizona, and a Qualifying and Continuing Education Instructor for multiple course providers. Dingeman is the Past President of the National Association of Appraisers and the Coalition of Arizona Appraisers. He has also served on several boards, including the Arizona Board of Manufactured Housing, Phoenix Village Planning Committee, Homeowners Association and a charitable organization supporting foster children in Arizona called Arizona Helping Hands.