definitions
330) Exit Value
05/30/08
Dear Henry,
What is an EXIT VALUE? I had a Lender Assistant tell me he wanted an exit value. I am an appraiser for the past 30-years, and have never heard of the phrase.
Please help!
Thelma McQuade tjappraise@suddenlink.net
Dear Thelma,
I too have never heard such a term. When you use the URAR, the appraisal must be of Market Value unless you clearly state that it is of some other value which you and the lender/client have agreed upon as part of the scope of work discussion. If you use another value, the appraisal must contain a definition of that value.
H2
What is an EXIT VALUE? I had a Lender Assistant tell me he wanted an exit value. I am an appraiser for the past 30-years, and have never heard of the phrase.
Please help!
Thelma McQuade tjappraise@suddenlink.net
Dear Thelma,
I too have never heard such a term. When you use the URAR, the appraisal must be of Market Value unless you clearly state that it is of some other value which you and the lender/client have agreed upon as part of the scope of work discussion. If you use another value, the appraisal must contain a definition of that value.
H2
319) Neighborhood Definition
05/15/08
Dear Henry,
In my quest to continue to improve my skills, I am focusing on the Present Land Use section of Neighborhood on the 1004 URAR.
My questions are (1.) How narrow of an area do you consider for this section to be the town or neighborhood? and (2.) What are some good sources or areas to look for such data? I have not been really satisfied with the ones that I use and it has been tough finding alternatives.
Ted cscappraisals@comcast.net
Dear Ted,
There are no hard and fast rules about what is a neighborhood. It can be as small as a city block in some large cities, to a whole community is some rural areas. Sometimes neighborhoods have natural or manmade boundaries such as rivers or highways, but often they do not. Sometimes they appear on maps. The best place to start is by asking the owners or occupants of the subject property what neighborhood they are in and what its boundaries are.
I have said before (somewhat tongue in cheek) that you should define the neighborhood as large as you can to avoid having to make neighborhood adjustments.
H2
In my quest to continue to improve my skills, I am focusing on the Present Land Use section of Neighborhood on the 1004 URAR.
My questions are (1.) How narrow of an area do you consider for this section to be the town or neighborhood? and (2.) What are some good sources or areas to look for such data? I have not been really satisfied with the ones that I use and it has been tough finding alternatives.
Ted cscappraisals@comcast.net
Dear Ted,
There are no hard and fast rules about what is a neighborhood. It can be as small as a city block in some large cities, to a whole community is some rural areas. Sometimes neighborhoods have natural or manmade boundaries such as rivers or highways, but often they do not. Sometimes they appear on maps. The best place to start is by asking the owners or occupants of the subject property what neighborhood they are in and what its boundaries are.
I have said before (somewhat tongue in cheek) that you should define the neighborhood as large as you can to avoid having to make neighborhood adjustments.
H2
168) Oversupply Definition
11/29/07
Dear Henry,
What is the definition of oversupply? How much is considered oversupply and what is the best way to figure it? Thanks!
Name withheld by request
Dear Friend,
Without looking at a dictionary, off the top of my head the word "oversupply" as used to describe the present real estate market means that the inventory of unsold homes is steadily increasing and normal marketing time is increasing. This in turn results in prices going down as sellers must compete for buyers.
For information about appraising in a declining market, especially for Fannie Mae, check out our lead article in the current issue of Real Estate Valuation Magazine Online at www.revmag.com
H2
What is the definition of oversupply? How much is considered oversupply and what is the best way to figure it? Thanks!
Name withheld by request
Dear Friend,
Without looking at a dictionary, off the top of my head the word "oversupply" as used to describe the present real estate market means that the inventory of unsold homes is steadily increasing and normal marketing time is increasing. This in turn results in prices going down as sellers must compete for buyers.
For information about appraising in a declining market, especially for Fannie Mae, check out our lead article in the current issue of Real Estate Valuation Magazine Online at www.revmag.com
H2
165) Value Definitions
11/26/07
Dear H2:
I feel as though I know the answer to my question but would appreciate confirmation from an authority.
My question is this: What is the difference in an appraisal for a reverse mortgage, a foreclosure appraisal, or an REO appraisal from a market value appraisal for purposes of a conventional loan. I know that a relocation appraisal relates to value at 180 days from date of inspection (unless requested otherwise.) Would there be different timeframes involved with the reverse mortgage, foreclosure or REO?
By the way, I look forward to your magazine every quarter. It is a great publication; the best I’ve seen so far.
Barbara Mesa, AZ mail@mountainservices.net
Dear Barbara,
What can make an appraisal of the same property different is what type of value is being estimated.
The USPAP requires as part of the Scope of Work discussion with the client that the appraiser and the client agree upon which definition of value will be used. The USPAP further requires that every appraisal contain a definition of the value being estimated. The Fannie Mae forms have built into them that they are for Market Value and they contain the standard Market Value definition.
Clients who want REO and foreclosure appraisals may require different types of value. They don't always say this directly, they just want you to change the marketing time from "a reasonable time exposed to the market" to something else. This automatically makes the value being estimated something other than Market Value. A foreclosure client may want a distress value. I am not sure why someone giving a reverse mortgage would want something other than Market Value, however. You have to sort this out before you proceed.
Personally, my advice is to do only Market Value appraisals unless you have written instructions from the client as to what value they want and what the definition of that value is.
H2
P.S. Thanks for your warm comments about Real Estate Valuation Magazine Online [www.revmag.com] . We work hard to make it timely and useful.
I feel as though I know the answer to my question but would appreciate confirmation from an authority.
My question is this: What is the difference in an appraisal for a reverse mortgage, a foreclosure appraisal, or an REO appraisal from a market value appraisal for purposes of a conventional loan. I know that a relocation appraisal relates to value at 180 days from date of inspection (unless requested otherwise.) Would there be different timeframes involved with the reverse mortgage, foreclosure or REO?
By the way, I look forward to your magazine every quarter. It is a great publication; the best I’ve seen so far.
Barbara Mesa, AZ mail@mountainservices.net
Dear Barbara,
What can make an appraisal of the same property different is what type of value is being estimated.
The USPAP requires as part of the Scope of Work discussion with the client that the appraiser and the client agree upon which definition of value will be used. The USPAP further requires that every appraisal contain a definition of the value being estimated. The Fannie Mae forms have built into them that they are for Market Value and they contain the standard Market Value definition.
Clients who want REO and foreclosure appraisals may require different types of value. They don't always say this directly, they just want you to change the marketing time from "a reasonable time exposed to the market" to something else. This automatically makes the value being estimated something other than Market Value. A foreclosure client may want a distress value. I am not sure why someone giving a reverse mortgage would want something other than Market Value, however. You have to sort this out before you proceed.
Personally, my advice is to do only Market Value appraisals unless you have written instructions from the client as to what value they want and what the definition of that value is.
H2
P.S. Thanks for your warm comments about Real Estate Valuation Magazine Online [www.revmag.com] . We work hard to make it timely and useful.
152) Custom Value Definition
11/13/07
Dear Henry,
I have been asked to provide a \"Bulk Value\" and \"Aggregate Value\" for a bulk purchase of singe family residences through foreclosure. I am a little confused on the \"Aggregate Value\" vs. the \"Bulk Value.\" Can you further explain? What should I be looking for in the market, discounts, etc for this purchase?
David Nolte dappraisal@earthlink.net
Dear David,
The USPAP requires that every appraisal be of a specified value and that the appraisal contain a definition of that value.
If you are going to take the assignment, you must agree in the scope of work discussion with you client what type of value they want and then work out with them an acceptable definition of that value. To comply with USPAP, you will also have to decide if you have the necessary expertise to do the assignment, or can get the help needed to complete it in a credible manner, before you accept it.
Also keep in mind that what you are doing should not be helping the client commit a fraud or mislead anyone.
If you can deal with all that and get enough money to make the work worth your while, I say go for it.
H2
I have been asked to provide a \"Bulk Value\" and \"Aggregate Value\" for a bulk purchase of singe family residences through foreclosure. I am a little confused on the \"Aggregate Value\" vs. the \"Bulk Value.\" Can you further explain? What should I be looking for in the market, discounts, etc for this purchase?
David Nolte dappraisal@earthlink.net
Dear David,
The USPAP requires that every appraisal be of a specified value and that the appraisal contain a definition of that value.
If you are going to take the assignment, you must agree in the scope of work discussion with you client what type of value they want and then work out with them an acceptable definition of that value. To comply with USPAP, you will also have to decide if you have the necessary expertise to do the assignment, or can get the help needed to complete it in a credible manner, before you accept it.
Also keep in mind that what you are doing should not be helping the client commit a fraud or mislead anyone.
If you can deal with all that and get enough money to make the work worth your while, I say go for it.
H2
113) Custom Valued Definition
07/17/07
Dear Henry,
Is there a difference in the estimated value reported for an estate or divorce appraisal and a market value appraisal?
Some say that the first two should not include the estimated cost of the marketing cost, viz, sales commision and estimated closing costs usually estimated at 2% for closing cost, and the estimated sales commission of 4-8% in my area in Florida
Charles Lipford Lip-4@msn.com
Dear Charles,
What type of value you estimate and the definition of that value is one of the things that must be agreed upon when you have the mandatory "Scope of Work" discussion with your client before you accept an assignment. Since most assignments are for the FIREEA definition used by Fannie Mae and Freddie Mac, it doesn't take much discussion to decide this.
However, you are talking about a custom definition. If this is what the client agrees to, I don't see any problem. However, the USPAP requires the appraisal to contain a statement as to what type of value is being estimated and a definition of that value. Often a custom-defined value will result in a different resulting value estimate from the more common FIREEA one.
H2
Is there a difference in the estimated value reported for an estate or divorce appraisal and a market value appraisal?
Some say that the first two should not include the estimated cost of the marketing cost, viz, sales commision and estimated closing costs usually estimated at 2% for closing cost, and the estimated sales commission of 4-8% in my area in Florida
Charles Lipford Lip-4@msn.com
Dear Charles,
What type of value you estimate and the definition of that value is one of the things that must be agreed upon when you have the mandatory "Scope of Work" discussion with your client before you accept an assignment. Since most assignments are for the FIREEA definition used by Fannie Mae and Freddie Mac, it doesn't take much discussion to decide this.
However, you are talking about a custom definition. If this is what the client agrees to, I don't see any problem. However, the USPAP requires the appraisal to contain a statement as to what type of value is being estimated and a definition of that value. Often a custom-defined value will result in a different resulting value estimate from the more common FIREEA one.
H2
17) Abstract Vs. Extract
12/10/06
Hi Henry --
I recently read your article on the Cost Approach and Abstraction in Real Estate Valuation Magazine Online:
http://www.revmag.com/fall2006/14.html
With all due respect, if the definition of Abstract and Extract were compared, I believe you will concur that the third method of estimating site/land value lends itself more to Extraction than Abstraction.
Also, I found Extraction to be very reliable, lending to support to allocation in relatively new developments where there is a good estimate of improvement costs, and where the improvements represent a greater proportion of the overall sales price.
Ted Norbert, Jr. MAI, SRA askted@earthlink.net
Dear Ted,
It is always interesting to try to understand the subtle differences between terms that have similar meanings, and are sometimes used interchangeably.
In my Dictionary of Real Estate Appraisal, I define Abstraction, Extraction and Allocation as follows:
Abstraction Method: An appraisal process wherein the appraiser selects comparable properties, estimates the value of the improvements, and then subtracts this estimate from the total property value, to abstract an estimate of land value. This is also called the Extraction Method.
Allocation Method: This method uses typical ratios of site-to-improvement value in the market area for the type of property being appraised. These ratios can be developed from market data, or you can use ratios developed by assessors, if you cannot develop one from the market.
The methodology is different, but the result should be very similar when using either or both of these methods.
H2
I recently read your article on the Cost Approach and Abstraction in Real Estate Valuation Magazine Online:
http://www.revmag.com/fall2006/14.html
With all due respect, if the definition of Abstract and Extract were compared, I believe you will concur that the third method of estimating site/land value lends itself more to Extraction than Abstraction.
Also, I found Extraction to be very reliable, lending to support to allocation in relatively new developments where there is a good estimate of improvement costs, and where the improvements represent a greater proportion of the overall sales price.
Ted Norbert, Jr. MAI, SRA askted@earthlink.net
Dear Ted,
It is always interesting to try to understand the subtle differences between terms that have similar meanings, and are sometimes used interchangeably.
In my Dictionary of Real Estate Appraisal, I define Abstraction, Extraction and Allocation as follows:
Abstraction Method: An appraisal process wherein the appraiser selects comparable properties, estimates the value of the improvements, and then subtracts this estimate from the total property value, to abstract an estimate of land value. This is also called the Extraction Method.
Allocation Method: This method uses typical ratios of site-to-improvement value in the market area for the type of property being appraised. These ratios can be developed from market data, or you can use ratios developed by assessors, if you cannot develop one from the market.
The methodology is different, but the result should be very similar when using either or both of these methods.
H2