Fannie & Freddie’s UAD 3.6 – An Opportunity for Appraisers

This week, I attended the Train the Trainer Training Program by Fannie Mae and Freddie Mac. The training is focused on the upcoming UAD 3.6 implementation for residential single-unit properties (the industry is updating the term single-family to single-unit, just for clarification). I am thoroughly impressed by the common sense behind this new adaptation, honestly.

To my fellow appraisers, this will be a once in a lifetime opportunity for those of us that complete single-unit appraisals for mortgage lending, which is most of us, quite frankly, to kickstart a true paradigm shift in our industry. I cannot ring this bell loudly enough.

First, some background. Fannie Mae and Freddie Mac developed UAD 2.6, the first version of standardized data collection in residential appraisals, in 2010. From what I recall, most of us began using the new UAD 1004 Form (also known as the URAR) around 2012. It was a shift in the reporting, but not exactly groundbreaking. Essentially, instead of reporting a condition of the subject property or a comparable as “average” or “average+” or “good”, we used 1 of 6 ratings, C1, C2, C3, etc…We did the same for quality and sales dates. But, we are using the same old URAR we’ve used since 2005, the last time it was redesigned.

Now, Fannie and Freddie are implementing a major change in appraisal reporting. Not only are they combining multiple forms, such as single-unit, multi-unit, condos, condops and coops into one form, they have completely redesigned the entire data collection and market analysis requirements for the appraisal report. The report format is modernized and can expand or contract as needed and only display sections of the report pertinent to your analysis.

What does this mean for the single-unit sale and refinance markets?  Answer: a significant increase in the level of detail of data collected at the subject property, a more in-depth analysis of supply and demand of housing stock and the impact on the subject property, better organization of the report, plus longer turnaround times for residential reports.

For those appraisers that just fill out an appraisal form so it gets through underwriting, who have weak analytical skills, are resistant to change or hate learning new things or adapting new technology, and who are in an endless complaint loop about ‘underwriters’ or ‘Realtors’ or <insert anyone>, it is probably time to retire. I’m not trying to be harsh, but this will require a higher level of skill and analysis than any of us that complete residential appraisals are used to. I’m including myself here too.

For those of us that remain, this is a wake-up call that the financial world isn’t exactly confident about our valuation skills, particularly market analysis and the dynamics of supply and demand. They have already tried with the 1004MC Market Conditions addendum and we didn’t perform. Then, they tried to keep adding requirements to the engagement letters in an attempt to get us more compliant, but we ignored that. Now, the new form will force us to report AND analyze. It will take more time. Our fees should increase. Our turnaround times will stretch and the housing market might slow down a bit while we right the ship. However, if we don’t get this right now, what choice does the secondary market have but use AVMs and field data collectors.

To my fellow appraisers, recognize the opportunity that is in front of us. Get out there, get a tablet for 100% digital field data collection, start converting your office to paperless now, and get prepared to learn more skills, and hopefully, hopefully, earn more money. I am excited to implement this new tech into my practice and teach my fellow appraisers as well.