Undervaluation Flag

Statistical modeling is used to identify appraisals with higher probability of material undervaluation. Collateral Underwriter (CU) is an appraisal review utility and is not an automated valuation model, or AVM. Lenders will be alerted to appraisals with potential undervaluation but will not receive a value or a range of values. The undervaluation flag is not currently being used to determine the CU risk score.

Whenever the undervaluation flag is present, a single undervaluation reason code representing the strongest statistical correlation to the undervaluation risk will also be displayed. Messages 1031 - 1046 are the reason codes. They point users to potential root causes.

In the example below, an undervaluation flag is indicated by message number(s). Directly below message 1010, the reason-code message of 1044 is provided. As indicated in the reason-code text, the primary issue that is triggering the undervaluation flag is identified in the first sentence, "CU has identified comparable sales that may be more similar in geographical location than those relied on by the appraiser.” Then the following sentence(s) suggest an action item to help the lender resolve the concern, "Ensure that the appraiser has relied on comparables with a similar geographical location. See the CU Comparables tab for details." With this information, users can take the steps noted to identify the geographical location attributes that most strongly correlate with the undervaluation risk.

Before engaging the appraiser with any alternative sales or questions, lenders should carefully review the appraisal report to see if there are any other features of the subject that should be considered. For example, swimming pools, accessory units, porches, patios, and other features not defined in the Uniform Appraisal Dataset (UAD) are not considered by Collateral Underwriter. Again, the CU score is about risk and not necessarily an implication that the appraisal is good or bad. Either way, CU can be used to validate potential concerns and make more informed requests of the appraiser when necessary.