as is
501) AS IS Appraisals
06/11/09
Hi Henry,
I have a lender that is doing a FHA 203k loan for a property with roof damage. He sent me a proposal from a roof company with the estimated cost for a new roof, but he wants a "subject to" appraisal report with a comment in the addenda explaining the "as is" value of the property without the repair of the roof. Is that legal?
Thanks in advance for your advice.
Lele coriale4@comcast.net
Dear Lele,
There is nothing in the USPAP to prevent you from doing what the lender/client wants, provided you follow the USPAP requirements. The problem is that you have to comply also with the FHA requirements for 203K loans. The lender/client is asking for two different values. Therefore you are going to need two definitions of value and you need to take the steps necessary for what amounts to two separate appraisals. You cannot report an appraisal of "as is" value using the URAR without making serious changes to the form. This is a common problem and I suggest you talk to your FHA Regional office and see what forms they want you to use in this situation.
H2
I have a lender that is doing a FHA 203k loan for a property with roof damage. He sent me a proposal from a roof company with the estimated cost for a new roof, but he wants a "subject to" appraisal report with a comment in the addenda explaining the "as is" value of the property without the repair of the roof. Is that legal?
Thanks in advance for your advice.
Lele coriale4@comcast.net
Dear Lele,
There is nothing in the USPAP to prevent you from doing what the lender/client wants, provided you follow the USPAP requirements. The problem is that you have to comply also with the FHA requirements for 203K loans. The lender/client is asking for two different values. Therefore you are going to need two definitions of value and you need to take the steps necessary for what amounts to two separate appraisals. You cannot report an appraisal of "as is" value using the URAR without making serious changes to the form. This is a common problem and I suggest you talk to your FHA Regional office and see what forms they want you to use in this situation.
H2
401) As Is Value
09/04/08
Dear H2,
Here is my question. A person is "gifting" (tax event) a single family home to his daughter. The interior has been gutted and a remodel is in progress, with the majority of the framing complete as of the date I inspected it. What advice, direction, or guidance can you give me on the methods to determine the "as is" estimated market value.
Thank you,
Ralph Nugent rnhd@aol.com
Dear Ralph,
The best way to estimate any market value is to find comparable sales, which in this situation is highly unlikely. Another way is to find comparable sales of finished houses similar to the subject property. You could then estimate the cost to complete the subject and deduct it as an adjustment. You also should consider adding something to the cost for the time and energy needed to complete the renovation. On the other hand, maybe nothing needs to be added, as the house needed a major renovation and the fact that it has be started may be a plus in a buyer's mind. Both of these considerations should also be addressed in your comments.
H2
Here is my question. A person is "gifting" (tax event) a single family home to his daughter. The interior has been gutted and a remodel is in progress, with the majority of the framing complete as of the date I inspected it. What advice, direction, or guidance can you give me on the methods to determine the "as is" estimated market value.
Thank you,
Ralph Nugent rnhd@aol.com
Dear Ralph,
The best way to estimate any market value is to find comparable sales, which in this situation is highly unlikely. Another way is to find comparable sales of finished houses similar to the subject property. You could then estimate the cost to complete the subject and deduct it as an adjustment. You also should consider adding something to the cost for the time and energy needed to complete the renovation. On the other hand, maybe nothing needs to be added, as the house needed a major renovation and the fact that it has be started may be a plus in a buyer's mind. Both of these considerations should also be addressed in your comments.
H2
301) "AS IS" vs. "SUBJECT TO"
04/18/08
Dear Henry,
I recently completed an appraisal for a mortgage broker. The property is located in LA County and purchase price is $345k. Seller is the bank/ reo. The home is listed as a "fixer upper" in the MLS. The home is lacking any flooring, has chipped paint, some broken drywall, kitchen has broken cabinetry and lacks appliances, and there are cracked bathroom mirrors. Also, landscape needs to be re-established and properly maintained.
I used 6 comps in the report. 4 of 6 comps were REOs and this area is REO driven. All recent listings and pendings in this market are either REO or "short sales". The condition of 3 of the comps was similar to subject property, per their MLS descriptions, and I gave them a similar "fair" rating. They sold between $360,000-380,000 while the homes in "average" condition were selling between $400,000-450,000.
Today the broker comes back and wants me to change my report to indicate that the subject is in "average" condition and include in a cost to cure. I told them that I cannot indicate that the subject is average, because it wasn't. They have been pressuring me all day to change this rating because I am killing their deal, as the broker said to me. Why would the underwriter deny a loan based on a property being in fair condition? This is a bank owned sale transaction and it is selling for less than even the listings in the area, mainly due to its condition. Am I just the scapegoat for the lender? I am sticking to my guns and not changing my condition rating, because I reported the actual condition of the subject and not what anyone else is telling me to do, so they can fund a loan. What else can I do?
-Mike
Dear Mike,
The client has two choices. They can order an "as is" appraisal which is what you have given them, disclosing the current condition of the property. They can also ask you to include a list of what has to be done to put it into better condition. Alternatively, they can order a "subject to" appraisal. A "subject to" appraisal provides an estimate of value as of the effective date of the appraisal with the assumption — which you must document as such— that the needed work will be done in the future. With this appraisal, you would supply a list of what has to be done and an estimate of the cost to do the work.
Your client seems to want to have it both ways, which is not permitted by the USPAP.
H2
I recently completed an appraisal for a mortgage broker. The property is located in LA County and purchase price is $345k. Seller is the bank/ reo. The home is listed as a "fixer upper" in the MLS. The home is lacking any flooring, has chipped paint, some broken drywall, kitchen has broken cabinetry and lacks appliances, and there are cracked bathroom mirrors. Also, landscape needs to be re-established and properly maintained.
I used 6 comps in the report. 4 of 6 comps were REOs and this area is REO driven. All recent listings and pendings in this market are either REO or "short sales". The condition of 3 of the comps was similar to subject property, per their MLS descriptions, and I gave them a similar "fair" rating. They sold between $360,000-380,000 while the homes in "average" condition were selling between $400,000-450,000.
Today the broker comes back and wants me to change my report to indicate that the subject is in "average" condition and include in a cost to cure. I told them that I cannot indicate that the subject is average, because it wasn't. They have been pressuring me all day to change this rating because I am killing their deal, as the broker said to me. Why would the underwriter deny a loan based on a property being in fair condition? This is a bank owned sale transaction and it is selling for less than even the listings in the area, mainly due to its condition. Am I just the scapegoat for the lender? I am sticking to my guns and not changing my condition rating, because I reported the actual condition of the subject and not what anyone else is telling me to do, so they can fund a loan. What else can I do?
-Mike
Dear Mike,
The client has two choices. They can order an "as is" appraisal which is what you have given them, disclosing the current condition of the property. They can also ask you to include a list of what has to be done to put it into better condition. Alternatively, they can order a "subject to" appraisal. A "subject to" appraisal provides an estimate of value as of the effective date of the appraisal with the assumption — which you must document as such— that the needed work will be done in the future. With this appraisal, you would supply a list of what has to be done and an estimate of the cost to do the work.
Your client seems to want to have it both ways, which is not permitted by the USPAP.
H2
219) Hypothetical Conditions
01/23/08
Dear Henry --
Your books and websites are such great resources. Thank you, thank you.
I have a question regarding a client's request for the "as Is" market value of an owner-occupied commercial property. Providing the "As Is" using the market and cost approaches is obviously no problem. However, when it comes to the income approach and using the assumption that the subject is leased at market rents, would you include this under the "As Is" umbrella, since "As Is" is defined as the value without hypothetical conditions, assumptions, etc. Would you use another term even though the client wants the "As Is" value? Also,would you assume stabilization or use a lease up period? And finally, would you consider this a hypothetical condition? Thanks so much!
Mary L. Krozack mkrozack@treffergroup.com
Dear Mary,
"As Is" usually refers to the condition of the property -- not to who is the tenant. The income approach is always based on Economic Rent, and not the contract rent the tenant is paying. If the client wants you to base your appraisal on contract rent, this is a hypothetical condtion. You must be careful when using hypothetical conditions to comply with all the USPAP requirements. What you are describing sounds atypical and possibly a source of trouble. Be sure to read the 2008-9 USPAP before you proceed further.
H2
Your books and websites are such great resources. Thank you, thank you.
I have a question regarding a client's request for the "as Is" market value of an owner-occupied commercial property. Providing the "As Is" using the market and cost approaches is obviously no problem. However, when it comes to the income approach and using the assumption that the subject is leased at market rents, would you include this under the "As Is" umbrella, since "As Is" is defined as the value without hypothetical conditions, assumptions, etc. Would you use another term even though the client wants the "As Is" value? Also,would you assume stabilization or use a lease up period? And finally, would you consider this a hypothetical condition? Thanks so much!
Mary L. Krozack mkrozack@treffergroup.com
Dear Mary,
"As Is" usually refers to the condition of the property -- not to who is the tenant. The income approach is always based on Economic Rent, and not the contract rent the tenant is paying. If the client wants you to base your appraisal on contract rent, this is a hypothetical condtion. You must be careful when using hypothetical conditions to comply with all the USPAP requirements. What you are describing sounds atypical and possibly a source of trouble. Be sure to read the 2008-9 USPAP before you proceed further.
H2
205) As Is Value
01/09/08
Dear Henry --
In doing a final inspection on a condo unit, (newly rehabbed and converted from an apartment building) I found a few minor problems and reported them, with a cost to cure and the estimated effect on value.
But in addition I made these comments based on the inspection:
(1) While not all common elements were expected to be completed at the time of the completion of the subject unit, the common elements directly associated with the subject unit were expected to be completed. This is not consistent with the estimated value opinion.
(2) The appraiser's experience is that when there are units not yet completed, the common areas directly associated with unit are finished or very nearly so. Further, it is typical for all the common areas in the particular 'tier' or floor be at least nearly finished. That is NOT true in this case. The landings, stairways, security doors, both front and rear are incomplete.
(3) The owners must walk through busy and unheated construction areas to reach the unit, with little or no security.
(4) The developer is not providing typical snow removal at this time. The subject is deep into the courtyard and the walkway was icy and no attempt at removal was made.
I am certain that the minor items will be cleared up quickly, and I will be asked to re-inspect. My question is, how can I estimate the effect on value of these ‘unfinished common areas? Personally, I wouldn’t live in a place where I had to negotiate through a construction area to reach my own door. Any ideas?
Chuck Moser chuck@eagleappraisalgroup.com
Dear Chuck,
As part of the scope of work discussion you should let your lender/client decide if they want an "as is appraisal" or one that is based on the assumption that the work you list will be completed at some specified time in the future.
I do not recommend adding a complex paragraph such as you suggest. It is up to the lender to do whatever they want to do (if anything) to determine if the work is actually done. That is not your problem.
H2
In doing a final inspection on a condo unit, (newly rehabbed and converted from an apartment building) I found a few minor problems and reported them, with a cost to cure and the estimated effect on value.
But in addition I made these comments based on the inspection:
(1) While not all common elements were expected to be completed at the time of the completion of the subject unit, the common elements directly associated with the subject unit were expected to be completed. This is not consistent with the estimated value opinion.
(2) The appraiser's experience is that when there are units not yet completed, the common areas directly associated with unit are finished or very nearly so. Further, it is typical for all the common areas in the particular 'tier' or floor be at least nearly finished. That is NOT true in this case. The landings, stairways, security doors, both front and rear are incomplete.
(3) The owners must walk through busy and unheated construction areas to reach the unit, with little or no security.
(4) The developer is not providing typical snow removal at this time. The subject is deep into the courtyard and the walkway was icy and no attempt at removal was made.
I am certain that the minor items will be cleared up quickly, and I will be asked to re-inspect. My question is, how can I estimate the effect on value of these ‘unfinished common areas? Personally, I wouldn’t live in a place where I had to negotiate through a construction area to reach my own door. Any ideas?
Chuck Moser chuck@eagleappraisalgroup.com
Dear Chuck,
As part of the scope of work discussion you should let your lender/client decide if they want an "as is appraisal" or one that is based on the assumption that the work you list will be completed at some specified time in the future.
I do not recommend adding a complex paragraph such as you suggest. It is up to the lender to do whatever they want to do (if anything) to determine if the work is actually done. That is not your problem.
H2