In the Fannie Mae “Appraiser Update” section of the December 2022 newsletter, the subject of desktop appraisals is discussed, providing tips for appraisers utilizing this method of valuation.

A common concern the Fannie Mae Collateral Policy Team hears from appraisers deals with using third-party data in desktop appraisals; specifically, what is the risk to appraisers in relying upon third-party data, and are appraisers expected to validate such data?

It is important to recognize, Fannie Mae points out, that appraisers have long used third-party data routinely. For example, every time an appraiser uses real estate multiple listing services (MLS), they rely on photos, measurements, and other data from a third party.

“Often appraisers use tax records, surveys, inspection reports, satellite imagery, and more — all from third parties,” the Fannie Mae Collateral Policy Team said in the newsletter. “Appraisers can use third-party data with confidence by analyzing its reliability in the context of the body of information available in the normal course of business.”

Furthermore, the Limiting Condition 3 from Form 1004 Desktop sets forth the same concept. It says:

“The appraiser has relied on data provided by third parties in this appraisal report. Such data may include, but is not limited to, flood maps, multiple listing real estate services, tax assessment records, public land records, satellite imagery, virtual street views, property data services, surveys, engineering reports, and property data aggregations. After examination of the data and data sources, the appraiser has used only the data he or she considers reliable. The appraiser assumes there are no material omissions and makes no guarantees, express or implied, regarding the accuracy of this data.”

Similarly, Certification 2 of Form 1004 Desktop states that the appraiser is not expected to “perform a personal visual inspection of the subject property,” instead, “relying on subject property information from third-party data sources,” according to Fannie Mae.

“These statements should reassure appraisers about their risk exposure in using third-party data, but appraisers still have a professional obligation to analyze the data for accuracy and resolve any significant discrepancies,” Fannie Mae states in the newsletter. “For example, if MLS photos of a possible comparable sale show a two-story colonial, but virtual street views reveal a one-story ranch, the appraiser would conduct further research to discover which data source is correct. The same holds true for data provided for desktop appraisals.

“If the floor plan provided does not match photos of the subject, appraisers are expected to do further research to resolve the inconsistency. Finally, appraisers should be specific in describing in the report the observations and analyses that led them to conclude that the data used is reliable,” Fannie Mae added.