APPRAISAL CHANGES ⚠️ EFFECTIVE AUGUST 31ST

There is a major change happening to 
real estate appraisals that every agent 
needs to know about right now.

Effective August 31st all conventional 
appraisals must use a brand new 
standardized form — and it is going 
to affect how you list properties 
how values are determined how repairs 
are called out and how long appraisals 
take to complete.

This week Nikki Erickson from Kevnik 
Mortgage breaks down everything you 
need to know before your next listing 
or purchase agreement.

This week we are covering:
✅ Interest rate update — mid to upper 
   sixes with some perspective on 
   how far rates have actually come
✅ The brand new appraisal form 
   required for all conventional 
   loans as of August 31st
✅ One standardized form for all 
   property types — condo single 
   family investment property — 
   what that means for you
✅ Goodbye gross living area — the 
   new breakdown of above grade 
   below grade and non-standard 
   finished square footage
✅ Why your MLS square footage 
   accuracy is more critical 
   than ever right now
✅ Condition ratings C1 to C6 — 
   now applied room by room not 
   just to the overall property
✅ How a remodeled kitchen can 
   now be rated separately and 
   actually help your listing's 
   value
✅ Sales comparison adjustments — 
   more standardized and more 
   transparent than ever before
✅ ADUs outbuildings and unique 
   property features — finally 
   counted properly in valuations
✅ Repairs and deficiencies — 
   appraisers must now specify 
   exactly what needs to be fixed 
   with unlimited photos and 
   detailed descriptions
✅ AI reading appraisals — what 
   Fannie Mae is doing right now 
   to review appraisal forms
✅ Why appraisals will temporarily 
   cost $60 to $100 more and 
   what to tell your clients
✅ The timeline — conventional 
   now FHA VA and rural housing 
   coming within six months

If you have active listings or 
purchase agreements right now 
give yourself an extra five to 
six days for appraisals until 
appraisers get comfortable with 
the new form.

This is the kind of information 
that separates the agents who 
know what is happening from 
the agents who find out when 
it affects their deal.

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📞 Connect with Nikki Erickson at Kevnik Mortgage:
📱 Call or Text: 952-484-1584
📧 Email: nikki@kevnikgroup.com
📘 Facebook | TikTok | Instagram: 
   @mortgagesfrommntoaz

00:00 Introduction – Market Update 
      Week of August 25th
01:00 Interest Rate Update – Mid to 
      Upper Sixes and Rate Perspective
02:30 MAJOR CHANGE – Brand New 
      Appraisal Form Required August 31st
04:00 One Standard Form for All 
      Property Types – What That Means
06:00 Goodbye Gross Living Area – 
      The New Square Footage Breakdown
08:00 Below Grade vs Basement – 
      Why Your MLS Accuracy Matters Now More Than Ever
10:00 Condition Ratings C1 to C6 – 
      Now Room by Room Not Just Overall
12:30 Sales Comparison Adjustments – 
      More Standardized and More Transparent
14:30 ADUs Outbuildings and Unique 
      Features – Finally Counted Properly
16:30 Repairs and Deficiencies – 
      No More Guessing What Needs to Be Fixed
19:00 AI Reading Appraisals – What 
      Fannie and Freddie Are Doing Right Now
21:00 Appraisals Will Cost More 
      Temporarily – What to Tell Your Clients
22:30 Timeline – Conventional Now 
      FHA VA and Rural Housing Coming
23:30 How to Reach Nikki Erickson 
      at Kevnik Mortgage
#realestate #lender  #mortgagerates

Transcript

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SPEAKER_00 0:35

All right. This is your week's update. It's uh for the week of August 23rd already. Nikki, how are you doing? Good, good.

SPEAKER_01 0:44

So from an interest rate standpoint, uh, we kind of seen the same things that we were seeing last week, which is there is some volatility in the market, but we are sticking into that mid to upper six range from an interest rate standpoint. Um, with everything going on and, you know, just kind of remaining steady from where things were. It was interesting because I was talking to a client um last week about doing a second mortgage or a home equity line of credit on their home because their first mortgage obviously was at 2.6% or something of that nature. So when I sent over interest rates for second mortgages, I was explaining to them like, yeah, they're gonna be a little bit higher than what you would find in the normal market. And at the point, um, I was giving them an interest rate of like eight and a half or nine percent on a second mortgage. And he was like, his reaction was like, Whoa, I didn't realize interest rates had changed that much. And I said, Well, this is for second mortgages, they're always gonna be higher a year ago or year and a half ago, I would have given you a rate of 10 and a half to 11. So just kind of just some perspective there from an interest rate standpoint of how, you know, even though we are in the mid to upper sixes, interest rates have really came down. Um, the highest mortgage that I wrote as far from an interest rate standpoint in the last year and a half has been at 8.625. So keep that in mind as we're kind of running through different scenarios and talking to different clients about where interest rates are and where they are relative to the rest of the market. So just a reminder there from from interest from an interest rate standpoint. Um, I wanted to talk today about the appraisal changes that are happening. So there's a brand new form for appraisals that's going to be required now across all lending. It's starting with conventional loans only right now, but there's a lot of major changes into the appraisal form that actually are going to reflect, that are actually going to impact how you guys report things on the on the MLS as far as listing notes, things of that nature, and going to affect comps that are used and values on appraisals. So I'm going to get into some of the specifics. There's a lot, a lot, a lot of changes. So this is no way an exhaustive list of changes that are happening, but it are the it is a kind of a list of the ones that are going to affect you as realtors. So first and foremost is the change to the appraisal form. Now we used to have tons of different forms, you know, a 1004, a 1073, a 2025, you know, all these different like forms to the appraisal. Now it's going to be just one standard appraisal form. So the condo, the condo appraisal will look the same to you guys as a single family appraisal, will be the same as, you know, an investment property appraisal and all those little integrations. Like we used to have to do separate forms to calculate rental income. We used to have to do separate forms to calculate um, you know, gross living area in a condo is different than gross living area and a single family. Things of that nature are all going to be on a standard form and it's going to have drop downs that are that's going to make the form fluid. So it's no longer going to be like this standardized PDF. The appraiser is going to actually be able to go in there and pick the uh property type, and then the appraisal and what it reports will change based on that. So it's going to be kind of just this fluid, flexible form now versus where it was just a PDF that they would fill in the blank. So it's going to take appraisers a little bit longer to do appraisals in the beginning because they're going to be getting used to these forms. So please keep that in mind as you're listing properties and as you're writing purchase agreements that to give us an extra five, six days so that we can get that appraisal form proper done properly. So this is a standard that as of August 31st, all conventional appraisals need to have this new form. Um the other thing it's going to do is it's going to get rid of the term gross living area. So in the reason that we used to use gross living area is always above grade living area. And we would, the appraiser would give value to basements, but it wasn't considered part of the gross living area. Now we're going to have separate breakdowns for above grade square footage, below grade square footage, non-standard finished square feet, and non-continuous finished square feet. So, for example, let's say you have a basement in a property, but part of it is unfinished. That square footage is going to be taken into account as below grade unfinished square foot, which means that from that standpoint, that utility room is going to be counted as part of the square footage of the home, but it's not necessarily going to affect the value, but it is going to be noted that it is unfinished. So that's just an example of the changes. The old, we don't use the term basement anymore. We are now using the term below grade. So it makes it even more important from your guys' standpoint to make sure you have accurate square footage on the MLS. Because when it comes to comps and when it comes to other properties in the area, you know, appraisers rely heavily on what the stated square footage is. And, you know, they check it with county records. But you guys need to be very diligent now in making sure that your square footage is accurate for the listings because that's only going to help values and only going to help comps. Some of you may be familiar with the condition rating on appraisals. So we used to use a rating from C1 to C6. C1 would be like a new construction property that's never been lived in. Whereas like a C3 might be a home that's like 20 to 30 years old but still good in good shape. Whereas C6 is like this thing's holding on by duct tape and bubblegum and it's going to fall apart any minute. So we those were the prior ratings. We are still going to have those ratings. However, they are going to be specific for the overall condition of the home, but also they can be broken down room by room. So for example, if you have a home that's in pretty good condition and you have a kitchen that's falling apart, they can actually grade the house overall and then grade the kitchen as something like a C2 or a C3 versus the rest of the house might be a C1, depending on what it looks like in the condition. This is important again because as realtors take photos of homes that are comps in the area, having more photos and having photos of all the rooms in the home on that listing is going to be important for other people that are purchasing and buying and selling homes in the neighborhood. And the value may be affected if you have a room that's run down or you have a room that's torn up or whatever that is from an appraisal standpoint. That room can be graded differently than the other, than the house overall. So for two houses in a neighborhood that might appear to be C3 overall, your home that you're listing may have an advantage because it's got a remodeled kitchen. And then that kitchen can be rated as a C1, which can help the overall value versus a C3 overall, if that makes sense. So a lot of times, you know, a lot of the questions that I get when appraise when realtors actually get to see appraisers, appraisals, is what is why is they, why are they giving us a C2 rating versus a C1 versus a C3? And why are there all these adjustments? Well, it could be that, you know, one of these homes has a remodeled kitchen. So they have to rate it as a C1 overall, even though it's not. So you just gotta kind of it's gotta be more fluid and more adaptable to what's actually going on in each property versus you know things that that have to be graded overall. Um so the other thing, okay, so we do a sales comparison approach. So in other words, whenever we if we take a property, the property that we're lending on, and we compare it to the property down the road, they do a certain sales comparison adjustments where it's like, hey, if you were to sell this property, subject property at 400,000 and the one down the road sold at 415, what is the difference between the two? Why is this one only selling for 400 and this one is selling for 415? And they'll make adjustments based on condition, things of that nature, and sales comparison. So different timing in the market, um, things of that nature. That is going to be actually become more obvious to you as to why they're comparing the two the way that they are. So some appraisals will, for example, this is a very common thing. Some appraisers will give a $5,000 adjustment for a fireplace, depending on the location. That's a very common one. And I'm just throwing $5,000 out there. Other appraisers will give that same adjustment, but it'll only be $2,500. So it really just depends. This will give us more continuity and more um availability of different sales comparison approaches from each property one to the next and have more standardized amounts for those adjustments, which is kind of nice. Um, because then you'll be able to say, okay, we can definitely help to pin down how things are selling overall. Um, let's see here. Another one. Oh, if you have a unique um part of the property. So for example, you have an ADU or an a dwelling, an additional dwelling unit on the property, or you have um outbuildings, or you have, you know, extra garages, or things of that nature that can affect the value. The appraiser is now able to go in there and specifically detail out what those unique property characteristics are for, and um be able to tell you exactly how that has adjusted the value of the property, which will be really nice because prior to this, there was no real way for them to do it unless they manually entered the information and talked about it, et cetera. This will have different characteristics and different drop downs and different availability for them to be able to count those unique property features into the value without and not having to find comps with those same unique features. So you could compare, hey, we have a single family home with five acres that has zero outbuildings, and we can now make a good comparison to a single family home with five acres with outbuildings and make that comparison approach to make sure that we have accurate values and accurate sale values and um for the property as a whole. So it's important again, as a realtor, to make sure you detail out we have this many outbuildings, the existment square foot, we have this, you know, garage, we have this, et cetera. So that when the real when the appraiser is looking for comps in the area and they're pulling their own CMA and pulling their information from the MLS, the more information you have in there, the better. Um, making sure again that you're taking accurate square footage, but also making sure you have accurate lot sizes and compare your records to the county records. And if the county records are wrong, make note of it. Um, you know, so that the appraiser can see that, so that your buyers can see it, so that your, you know, sellers can see it, and make any adjustments with the county for those, but nevertheless, make sure that you are having as accurate information as possible. So any repairs and deficiencies are now going to be part of the appraisal report. They are not going to be on a general addendum. There's going to be a specific part in the appraisal report that helps us as lenders communicate to you as realtors on problems, deficiencies, things that repair items that need to be fixed. A lot of times all we get is a picture and a short description. And we're like, here you go, fix it. This will allow the this will require the appraisers to not only identify the problem, specif specify the repair and tell us exactly what needs to be done in order to fix it with pictures. They aren't going to be limited to two or three pictures like they are now. I mean, if they want to put in 55 pictures all in detail of what needs to happen at this house, they can, which is actually going to be really helpful, especially for clients. Um, we I had a client who had um a purchase agreement where they were having deck issues. Well, this deck was three and four different layers of deck, and the appraiser was only able to put in three pictures or three or four pictures of this deck that needed to be fixed. And it's like, does the whole thing need to be fixed? Is it just these four specific spots? Are you only outlining, you know, the rot that you're seeing, or is the whole thing rotted? And we had to go back and forth and back and forth and back and forth with this appraiser six or seven times to get a very specific detail on what needed to be fixed from a deck standpoint. That is very important because it could be the difference between keeping the deal together and having the deal go south and having to find a different property. And in this case, unfortunately, there was just too much repair that needed to happen. But had we have known that earlier, we could have helped either negotiate or helped you guys under have the realtor understand, like, hey, this is a big issue and this is everything that needs to happen. So um that'll be a good, I think a good change to the appraisal that's going to help us clarify these things. So it's not changing the appraiser's job. Let me be clear, it's not changing the appraiser's job, it's not changing their scope of work, it is not changing whether they call out whether a septic system is good or bad or ugly. It is only changing how they report things and the greater detail that they can report things in. Now, that and the AI side of this is that on Fanny and Freddie right now, they've put in different um AI reading information that's going to take this appraisal and it's going to basically go through it very quickly line by line and identify any issues that the lender needs to call out to the agents or to um from a lending standpoint as well. So a lot of changes really fast as a warning just for yourself and your buyers and your sellers, appraisers appraisals are going to be at least temporarily more expensive as they work through the details of the appraiser taking more time to do this, how it's going to run through Fannie Mae, how the lenders are going to absorb it, and the amount of work that's going to have to go back to the appraisal appraiser to make changes or updates or anything from that standpoint. So just so you know, we're saying we're seeing appraisers, you know, really tell us they're bidding out appraisals about $60 to $100 higher, depending on the market. Um, so just so you guys are aware that appraisals are going to become more expensive at least temporarily until we can get this form down. And then as they are able to do these appraisals faster, then the even the appraisals that they do now, we do expect that price to come back down um over time as things are getting faster. And you know, the more AI that happens, et cetera, and the less time that the appraiser's spending on each appraisal is going to take effect for that. Like I said, make sure you know conventional only right now, it will be integrated into FHA and VA and rural housing here, probably I would say within the next six months.

SPEAKER_00 14:53

So yeah, so knowing yeah, knowing this information and get getting ahead of it. Yes. I mean, I don't feel appraisals or how they're done have has changed much at all in the last. It has not.

SPEAKER_01 15:06

It is the same appraisal form from when I started lending 28 years ago. Very little changes, very little adaptability. And every adaptability that's needed to happen over time, they've either added a form or done a general addendum that allows you to do all the other things that I was talking about, the unique property characteristics, the repairs, you know, things of that nature, but they haven't given enough room for enough pictures, enough, you know, guidance on the appraiser, and enough of that stuff. So now with this change, they're allowing for a lot more flexibility and a lot more information to be on the same form and have it be a more fluid form versus very static PDF form. And interestingly enough, just from a purely technology standpoint, if you think about just an appraisal form and the fluidity it has to have and integrating in that into the automated underwriting system, a lot of those things needed to happen. A lot of that data needed to be cross-checked and be able to flood through on the automated approval in order for something like this to be rolled out. So this is a huge change in the industry and could really affect values, both in a positive and not so positive way, but overall positive in the idea that there's more detail. And when we come to you and we say, hey, we're getting a low appraisal, it's low by 15,000. You guys are coming back to us saying, But what about this? What about this? What about this? What about this? All of that stuff will already be in the appraisal. And hopefully we won't have as many challenges when it comes to low values.

SPEAKER_00 16:30

Well, yeah, no, absolutely. And so as an agent, I mean, I often, uh you being the lender, you do a great job of explaining all this. Is there anything that we can do? Let's say I'm in a buyer presentation, um, having them sign exclusive representation, and I always talk about out-of-pocket costs. Um, anything that we can um say as agents to our clients?

SPEAKER_01 16:53

Yeah, I would just generally say, you know, the out-of-pocket upfront fund costs are gonna be your inspection, obviously, on your guys' side. But keep in mind on the lender side, some lenders will collect for a credit report. I don't, um, a lot, that's very few and far between, but they need to know that it could happen. And then also an appraisal upfront. So the appraisal cost is gonna be somewhere. I would say quoted before, I would say five to seven hundred. Now I would quote something like 600 to 800. Um, you know, depending on the property type and the busyness of the appraiser and the market conditions at that time, um, I would say, yeah, that's another upfront cost because we do ask for borrowers now to pay for their appraisals up front. That's why it's important as a reminder, you as an agent, if you are with a buyer, they do have an accepted purchase agreement and you want to wait to get through the inspection period before you order the appraisal, which totally makes sense. We are fine with that. Just know that if the inspection time takes up too much time and the negotiation is extended and needs to go on, that the cost of the appraisal could go up because we may have to order it on a rush. So just an FYI for you as well is to make sure you can get through that inspection time as quickly as possible as well.

SPEAKER_00 18:03

Yep. And that's where you said even in this learning period, or as we're rolling this out, maybe an extra five to six days or even just throw on a week.

SPEAKER_01 18:11

Yeah, before five days, you know, give me, yeah, honor, use your honor before language at least for the next six months, because I just I don't know, we don't know how these appraisers are going to how much time they're gonna want to take. And those are some things that we can kind of adjust up front. So if like let's say we have a closing in 30 days, I'm sure it'll be more than sufficient time. But since we don't know, let's say we have an appraisal in 35 days, you have a five-day inspection period, or 30 days, you have a five-day inspection period, then you order your appraisal with 25 days left. If the appraiser comes back and says, no, I needed two full weeks to do this appraiser, or I want at least two full weeks and I'll get it to you when I can. That's going to cut into our time. Now we can definitely do all of the lending, all of the clearing of conditions, all the approval items while we're waiting for that appraisal. But keep in mind that we need to have an appraisal in at least 48 hours before closing day so that it can go through underwriting. Any changes and updates can be made. We can get any updates of a closing disclosure or anything out to the borrower and still have time to get closing documents out. So a lot of that can be cut close. I say 48 hours at the, you know, at the bare minimum, but usually we like to have three days. Uh just as another reminder, a borrower does have three days to review that appraisal before closing if they want to. They can waive that right. Um, if, and that's what we have a lot of clients do is just waive that three-day right. But if it comes down to it and they want to have their three days, we have to give it to them. So if we can, you know, plan out these closings and plan out the appraisal timing. And then if I do get an appra, you know, appraiser that says, hey, I need two full weeks to do that, then I can call you and say, Hey, do we need, do you want me to add a rush to this? You know, do and talk to the borrower about the added cost. You know, there's a rush. If we want to close on time, this is what it's gonna be. I'm a little nervous, you know, those types of things. So keeping open communication is going to be absolutely essential. Again, I would say with the biggest changes, making sure you have your um square footage correct um on and and compare that square footage to what the county has and draw out any, you know, abnormalities or any discrepancies in that. Um, also making sure that you have photos of unique property characteristics or um new kitchens or you know, things that could affect the value of homes in general, and that you would want any potential buyers to see that would value the home higher than it already is. Not that you guys aren't already doing that, but just from a purely appraisal standpoint, those appraisers really have to rely a lot on MLS pictures of other properties from a comparison standpoint. So the more pictures, the better job you can do of presenting that property as what it actually is, is going to be better overall as time goes on and in general for the appraisals for other properties in the area.

SPEAKER_00 21:00

Yep, absolutely. And I think again, listening to you and knowing this up front, you have a leg up because a lot of agents aren't going to know this, they're not going to understand this. So, as you're, you know, either whether you're on the listing or the buy side, uh, know this information because it will come in handy if again inspection gets extended. Well, we'll have to look at this. Or are you aware of this? So, this is where we can really show up and help educate the um market and educate the industry because this uh is not being taught at many brokerages at very various levels. So, really uh again, every week is outstanding, but this is this is quite right uh yeah, informative. So a lot of changes.

SPEAKER_01 21:46

And just as a reminder, on any inspection items that come across your desk from a negotiation standpoint, from a property condition standpoint, give your lender a call, give your loan officer a call and say, hey, we're working on this part of the inspection. Is this gonna show up on the appraisal? Is this going to affect the appraisal? How do we need to word this addendum so that the lending is gonna be fine on this? What does this addendum need to say? How do we need to propose this? Please lean, lean, lean on us as lenders because what you say and how you say it on the addendum can blow up a deal. So I've seen it happen a million times. You know, if things aren't done by closing, you know, you could have a couple outlets that you mentioned. Well, I got to send an appraiser out there to make sure these outlets are taken care of. That seems ridiculous. That's $150 extra cost to the borrower if I know about these outlets that need to be taken care of and it's on an addendum in that fashion. So a lot of times there's a lot of guidance that can happen from an addendum standpoint, from a lending standpoint, that can make it more lender-friendly. And that is not breaking any rules, it's not violating any laws, we're not doing anything that's, you know, obviously shady or anything, but it can be done. The language can be done in such a way where it tells the right story to the underwriter and the right story to the appraiser that can really head off a lot of issues in the beginning.

SPEAKER_00 23:05

Absolutely. Wow, lots to go over. I would listen to this twice. Yes, please do. Yes.

SPEAKER_01 23:11

And as this evolves, I'll get more and more detail. I just didn't want to overwhelm you. I mean, I'm sure there's a lot of information already, but like there's a lot more detail that's going to go into this appraisal. But those are just the highlights as far as real true specific things that you guys can do that can help the appraisal process along.

SPEAKER_00 23:25

Yeah. And that's why you should come back every week, because every week she drops priceless information that you will not hear anywhere else. At least I don't know.

unknown 23:36

Yeah.

SPEAKER_00 23:36

I'm listening to other things and hearing other things, and not many people are showing up the way you do and and and educating us and keeping us in the know and ahead of the curve. So, so amazing. And I know the next six months, I'm sure we'll hear plenty, plenty more. So definitely stay tuned. Stay tuned in.

SPEAKER_01 23:55

Absolutely.

SPEAKER_00 23:56

Awesome. Well, thank you, Nikki, as always. Appreciate you. And how do they get a hold of you if they have questions or want to know more specifics about this appraisal changes? Sure.

SPEAKER_01 24:05

You can find me on social media, TikTok, Facebook, Instagram at mortgages from M N to A Z. You can also call, text me at 952-484-15E1584, or you can email me at Nikki at Kevnik Group.com.

SPEAKER_00 24:20

Perfect. All right. Till next week. Appreciate you and everyone. Um reach out to Nikki if you have any questions at all. She's an amazing resource, and we're lucky to have her. Awesome. Thanks, guys. Thanks.