Southern New Hampshire Real Estate and Short Sales: Will Fannie Mae's New Tool Sink Your Southern NH Home Sale?

Will Fannie Mae's New Tool Sink Your Southern NH Home Sale?

Getting to closing in an appreciating market, when the buyer needs a loan (which means the bank requires an appraisal) has always been a challenge as it can be difficult for the appraiser to find adequate sold comparables to justify the sale price if values are going up rapidly.

Well things may have gotten exponentially more difficult with the addition of Fannie Mae's new "tool", Collateral Underwriter.

Collateral Underwriter is a software program which is supposed to be a "risk management tool" that lenders can use to have a "constructive dialogue with the appraiser to resolve specific appraisal questions or concerns".

The reality is that, despite Fannie Mae's protests to the contrary,  the program is basically a juiced up Automated Valuation Model (AVM) - think Zestimate on steroids.  The problem with Zestimates and all AVMs, including Fannie's new tool, is that they lack the ability to differentiate between geographic locations and we all know the first tenet of real estate is location, location, location!  (They also lack the ability to tell which house had 30 cats and a cigar smoker living there but that's a whole other issue.)  They all take every sale within a proscribed radius and average the sale price.

I recently had a very telling experience with two of my new listings and their Zestimates.  One listing is an updated and upgraded townhouse in a very desirable and well maintained development.  The development is small and units don't become available there too often but when they do, they sell well.  The other listing is a small, basement level, garden style condo (think converted brick apartment building).  The listings are in two different towns. 

The interesting thing here is that the Zestimate for the townhouse came in about $25,000 lower than where it will sell because the development it is in is within a certain number of miles from another much larger, more congested and less well maintained development where properties sell for less.  Zillow can't tell the difference.

On the other hand, my little basement condo received a Zestimate that is easily $100K more than it would EVER sell for because of it's proximity to another more desirable development that has much larger townhouses (as opposed to the subject property's apartment-like units) and is much more well maintained.  Apples to oranges!  A newbie real estate agent with the ink still wet on their license would know that, despite geographic proximity, you cannot compare the two developments...but Zillow doesn't know that...and neither does Fannie Mae's new tool.

And that, my friends, is the problem.  This new tool will potentially generate numerous erroneous comps which will raise flags (interestingly, Fannie admits that comps that come in above the appraisers value WILL NOT raise a flag but comps that come in below WILL raise a flag) which will cause appraisers to either spend a lot of time justifying the comps they did use and justifying why they did not use the comps that CU comes up with OR they will have to go with the lower comps.Will Fannie Mae's New Tool Sink Your Southern NH Home For Sale?

Will this sink your sale?  The National Association of Realtors has reported an uptick in the number of contracts that have fallen through in the last three months because of appraisal issues and The Mortgage News Daily recently published an article which indicated that there has been a sudden increase in appraisals reflecting market values well below what has been expected.  Mortgage News Daily queried their members about this phenomenon and Fannie's new tool was mentioned more than frequently.

What can you do as a seller?  The first thing is to just be aware that this is going on so that you can make realistic and informed decisions about the sale of your home and your next purchase and the second is to realize that listing your home for a price that is beyond the most recent (truly) comparable sold comps is probably not going to end well.

For a realistic evaluation of your home's value, you can contact me at 603-490-5344.

P.S.  This appraisal issue does not just affect Southern NH home sales.  It is a national issue.

Comment balloon 18 commentsJoy Baker • June 04 2015 06:10AM


Joy there are many areas of the country that are experiencing a hot market with multiple bids way over list price.  Appraisers aren't keeping up and this so called 'tool' won't help.

Posted by Anna Banana Kruchten CRB, CRS 602-380-4886, Arizona's Top Banana! (Phoenix Property Shoppe) about 4 years ago

With inventory so low in so many places, prices are escalating and appraisers are having a hard time justifying the contract price. This won't help them at all! Or our clients!

Posted by Susan Haughton, Susan & Mindy Team...Honesty. Integrity. Results. (Long and Foster REALTORS (703) 470-4545) about 4 years ago

Hi Anna, it's very difficult for appraisers to justify rapidly appreciating sale prices to start with.  If you add the possibility of Fannie's new tool generating erroneously low comps, you have a real recipe for disaster.


Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) about 4 years ago

It definitely won't help our clients, Susan!

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) about 4 years ago

Joy - unfotunately, you are right, these systems are robots. Funny, that the bank would rather trust a robot, but would try to take the agent out of the picture.

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) about 4 years ago

Sad, but true, Jon.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) about 4 years ago

When we allow the world to be ran by robots and algorithms, we set ourselves up for the system to get into mischief!

Posted by Myrl Jeffcoat, Greater Sacramento Real Estate Agent (GreatWest Realty) about 4 years ago

Unfortunately, that does seem to be the direction we are heading in, Myrl.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) about 4 years ago

This is not an exact science!  I so disagree with the Zestimates and other online tools that seem to "know" our markets.

Posted by Paula McDonald, Granbury, TX 936-203-0279 (Magnolia Realty ~ Granbury) about 4 years ago

I disagree with them also, Paula, and we, who are in the business all know they DON'T know our market and are therefore giving out erroneous information.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) about 4 years ago

Joy Baker - AVM or Zestimates, they can never compete with a REAL person like you are me! And that's what I like....

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) about 4 years ago

You're right, Praful!

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 4 years ago

I have found that collateral underwriting has delayed closings because of the scoring system and it requires appraisers to justify their appraisal and rework them, and everybody has been complaining, but it has yet to sink a sale.

Posted by Elizabeth Weintraub Sacramento Realtor Top 1%, Put 40 years of experience to work for you (RE/MAX Gold) almost 4 years ago

Hopefully, it never will.  I recently read that Fannie reissued instructions clarifying what constitutes the appropriate use of the tool. In paticular that CU is not meant to be used in place of the lender's own due diligence in performing an appraisal review and that it's license prohibits a lender from using it in a manner that interferes with the independent judgment of the appraiser.

There are really two issues here.  One is that you have now added this tool into the mix that lacks geographic competence and may well come up with numerous, erroneous comps and the other issue is the tendency toward over dependence on technology that causes some lenders to want to just dump the CU results on the appraiser to sort out instead of looking at the results themselves to determine whether any of the flags raised have validity.

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 4 years ago

Automated logic, or as is usally the case in our industry with automation that which shouldn't be, this leads to automated nonsense.

Many will be hurt.

Posted by Claude Labbe, Realty for Your Busy Life (Real Living | At Home) almost 4 years ago

Besides "location, location, location", Z does not have the ability to evaluate local, local, local which is the credo RE is built on.

Posted by John DL Arendsen, Crest Backyard Homes "ADU" dealer & Contractor (CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS) almost 4 years ago

You've got that right, John!  Thanks for re-blogging!  I'm glad you found this article helpful.


Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 4 years ago

"Automated Nonsense"...that's exactly it, Claude!

Posted by Joy Baker, So NH RE & Short Sale Specialist (RE/MAX Insight) almost 4 years ago