Mortgage Resources

Featured Tools

Loan Topics

Special Circumstances

Scott's Team Pages

Company Information

red flags again

Top 5 Red Flags for Appraisals

(Direct From The Eyes Of An Underwriter)

1) Value Must Be Bracketed

Underwriters need to see that the sales prices of the comparable properties (hereafter called comps) "bracket" the value of the subject property value. For example, if the appraised value is $200,000, there should be comps that sold under $200,000 AND over $200,000 before any adjustments are made for square footage, number of bathrooms, etc. 


2) "Across the Board" Adjustments 

Underwriters do not like to see "across the board" adjustments.  For example, a common "across the board" adjustment might be for property condition.  An appraiser may do a positive adjustment on each comp for "average" condition vs "superior" or "updated" condition of our subject property.  This adjustment can be an indication of a negative "across the board" adjustment, or that the property is over-improved.  Either can be a potential "red flag" and the underwriter could ask for a comp that is similar without the "across the board" adjustment. To avoid this, condition should be bracketed just like value above.

3) Sale Date of Comps

Underwriters prefer comps in a suburban area to be no more than 90 days old.  Comps sold over 90 days prior to the appraisal can be considered, but the underwriters will put the most weight on the more recent comps.  

4) Distance of Comps

In this market, underwriters prefer comps in a suburban area to be no more than approximately one mile away from the subject property. The underwriter is trained to review the appraisal map to check this and insure that there is a good mix of comps and sales prices to support our value from our immediate subdivision.  If the comps in our subdivision do not necessarily support value, but comps out of our subdivision across a major road support value, this could be a red flag.

 5) Exceeding Acceptable Net and Gross Adjustments 

Appraisers calculate "net" adjustments and "gross" adjustments.  Net adjustments are calculated based on adding all of the adjustments on each comp and taking into consideration in the calculation, that each adjustment has a positive and negative with it.  For example, Comp #1 has sales price of $100,000.  It has adjustments of + $4,000 for square footage, - $1000 for no half bath = + $3000 net adjustment.  That figure is then divided by the original sales price of the Comp #1 ($3000/100,000 = 3%).  That number should NOT exceed 15%.  The gross adjustment is calculated by taking all adjustments on each comp and dividing by the original sales price and should NOT exceed 25%.  For example, take figures from example above and IGNORE + and - signs and add all numbers, i.e. +$4000 sq footage, - $1000 for half bath = $5000/100,000 = 5% gross adjustment.  So if the numbers exceed 15/25% for net/gross adjustments, it can send up an instant red flag.