521) Rural Data for 1004MC
09/25/09 Keyword: rural
Dear H2
In appraising small rural towns with no MLS, how do you address the 1004MC ? Also, how would you address the request to provide additional listings after the appraisal is done?
Thanks,
Steve O'Neal fcs1@tds.net
Dear Steve,
If the data is not available in your rural market area, all you have to do is report this on the form.
As far as reporting additional listings after the appraisal is done, the USPAP says if the client asks you to consider this additional data in making your value judgment, you are making a new appraisal.
H2
In appraising small rural towns with no MLS, how do you address the 1004MC ? Also, how would you address the request to provide additional listings after the appraisal is done?
Thanks,
Steve O'Neal fcs1@tds.net
Dear Steve,
If the data is not available in your rural market area, all you have to do is report this on the form.
As far as reporting additional listings after the appraisal is done, the USPAP says if the client asks you to consider this additional data in making your value judgment, you are making a new appraisal.
H2
520) General Certification Exam
Dear Mr. Harrison:
I am an appraiser here in New York. I have been practicing since 1997 and am writing you to get your advice. I was initially licensed as a residential appraiser. I was able to complete my educational requirements to sit for my NY State general certified appraisal exam. As you know, the new requirements went into effect as of January of last year. I took the exam on 09/09/2008 and did not pass. I received a scaled score of 69. Not willing to let six points discourage me, I devised a preparation course for myself that consisted of the following 2 sources:
1. "The Complete Preparation Guide: Real Estate Appraisal Exam" by Learning Express; and
2. Appraisal CompuCram, which is an online, computer simulated program.
After 5 weeks of home study, I recently sat for the exam again on 07/21 and did not fare much better. At best I made a score of 72.
I have identified some deficiencies on my part and am in the process of developing an action plan to address them. I feel as there are limitations to home study. While the problems and exercises are excellent indicators of what to expect from the test, the explanations provide little or no insights. That is to say, that if you do not understand the explanations, there is no recourse. Any assistance from you would be GREATLY appreciated.
Sincerely,
Douglas K. Marshall dkhary@nyc.rr.com
Dear Douglas,
Based on many requests by readers like yourself, I have just published a new exam preparation book based on all the new requirements for 2009. How to Pass the AQB General Appraiser Certification Exam is designed to be a home study course - but with a difference. There are 18 chapters plus four additional practice exams all of which are keyed to the text.
What I recommend you do is start at the first chapter and take the exam at the end of the chapter. Next, correct your exam with the answers that are provided in the text. Mark any questions that you miss and go back and read the material in the chapter that covers that material. This is easy to do using the page and location references that are supplied for each question. Follow this procedure for all of the chapters.
Next take the first of the four practice exams at the back of the book. Again correct your exam and go to the locations indicated that provide the material you need to know to answer the question. Repeat the process for each of the other three practice exams too. If at this point you are getting more than 70% of the answers correct, you should be ready to retake the exam. What makes this process work is that it stops you from wasting time studying material you already know and forces you to study only things you don't know.
The book is available from Forms and Worms at 1-800 243-4545 or www.formsandworms.com GOOD LUCK - let me know how you do.
H2
I am an appraiser here in New York. I have been practicing since 1997 and am writing you to get your advice. I was initially licensed as a residential appraiser. I was able to complete my educational requirements to sit for my NY State general certified appraisal exam. As you know, the new requirements went into effect as of January of last year. I took the exam on 09/09/2008 and did not pass. I received a scaled score of 69. Not willing to let six points discourage me, I devised a preparation course for myself that consisted of the following 2 sources:
1. "The Complete Preparation Guide: Real Estate Appraisal Exam" by Learning Express; and
2. Appraisal CompuCram, which is an online, computer simulated program.
After 5 weeks of home study, I recently sat for the exam again on 07/21 and did not fare much better. At best I made a score of 72.
I have identified some deficiencies on my part and am in the process of developing an action plan to address them. I feel as there are limitations to home study. While the problems and exercises are excellent indicators of what to expect from the test, the explanations provide little or no insights. That is to say, that if you do not understand the explanations, there is no recourse. Any assistance from you would be GREATLY appreciated.
Sincerely,
Douglas K. Marshall dkhary@nyc.rr.com
Dear Douglas,
Based on many requests by readers like yourself, I have just published a new exam preparation book based on all the new requirements for 2009. How to Pass the AQB General Appraiser Certification Exam is designed to be a home study course - but with a difference. There are 18 chapters plus four additional practice exams all of which are keyed to the text.
What I recommend you do is start at the first chapter and take the exam at the end of the chapter. Next, correct your exam with the answers that are provided in the text. Mark any questions that you miss and go back and read the material in the chapter that covers that material. This is easy to do using the page and location references that are supplied for each question. Follow this procedure for all of the chapters.
Next take the first of the four practice exams at the back of the book. Again correct your exam and go to the locations indicated that provide the material you need to know to answer the question. Repeat the process for each of the other three practice exams too. If at this point you are getting more than 70% of the answers correct, you should be ready to retake the exam. What makes this process work is that it stops you from wasting time studying material you already know and forces you to study only things you don't know.
The book is available from Forms and Worms at 1-800 243-4545 or www.formsandworms.com GOOD LUCK - let me know how you do.
H2
519) No Closet
09/23/09 Keyword: marketing
area
Dear Henry,
When is a bedroom a bedroom? Does it have to have a closet? If it does have to have a closet, where is that written? I can't seem to find anything on this. Your opinion and/or advice is appreciated.
Tom Harwood tharwood@truvista.net
Dear Tom,
What is considered to be a bedroom depends upon your market area. In NYC, for example, what is called a bedroom is often a very small room without a closet. That would not be true in most other market areas. You must decide whether the room is a bedroom, with or without a closet, based on your judgment and considering the norms of your market area.
H2
When is a bedroom a bedroom? Does it have to have a closet? If it does have to have a closet, where is that written? I can't seem to find anything on this. Your opinion and/or advice is appreciated.
Tom Harwood tharwood@truvista.net
Dear Tom,
What is considered to be a bedroom depends upon your market area. In NYC, for example, what is called a bedroom is often a very small room without a closet. That would not be true in most other market areas. You must decide whether the room is a bedroom, with or without a closet, based on your judgment and considering the norms of your market area.
H2
518) Incomplete Inspection
Hello Henry,
I just finished inspecting my first REO property and what a mess it was! The property is a 3-family house (in a very bad neighborhood) and has been winterized. All utilities were off during the time of inspection. The first floor has major damage to the drywall and there was also evidence of mold/mildew throughout the unit, possibly caused from a pipe that burst or because thieves were trying to steal the copper in the house. The exterior has some broken asbestos composite shingles and also torn and damaged roof shingles that are hanging from the house that I took a picture of. I did not access the basement due to the fact one of the windows was completely missing and there was signs of possible forced entry as this area is knows for having squatters, homeless people and vandals enter the homes. I took a quick look into the basement but did not enter for my own protection. Please inform me how to calculate the cost to cure for the issues and also how to address the fact that I did not enter the basement.
Thanks a lot,
Angelo angelo215@verizon.net
Dear Angelo,
There is nothing in the USPAP that requires you to inspect the property. However, if the appraisal is for Fannie Mae, Freddie Mac, etc. a complete inspection is required. Making a cost to cure estimate without a complete inspection is difficult but not impossible. You should discuss the problem with your Lender/Client and tell them the problem and what assumptions about the conditions you would have to make in order to complete the assignment.
H2
I just finished inspecting my first REO property and what a mess it was! The property is a 3-family house (in a very bad neighborhood) and has been winterized. All utilities were off during the time of inspection. The first floor has major damage to the drywall and there was also evidence of mold/mildew throughout the unit, possibly caused from a pipe that burst or because thieves were trying to steal the copper in the house. The exterior has some broken asbestos composite shingles and also torn and damaged roof shingles that are hanging from the house that I took a picture of. I did not access the basement due to the fact one of the windows was completely missing and there was signs of possible forced entry as this area is knows for having squatters, homeless people and vandals enter the homes. I took a quick look into the basement but did not enter for my own protection. Please inform me how to calculate the cost to cure for the issues and also how to address the fact that I did not enter the basement.
Thanks a lot,
Angelo angelo215@verizon.net
Dear Angelo,
There is nothing in the USPAP that requires you to inspect the property. However, if the appraisal is for Fannie Mae, Freddie Mac, etc. a complete inspection is required. Making a cost to cure estimate without a complete inspection is difficult but not impossible. You should discuss the problem with your Lender/Client and tell them the problem and what assumptions about the conditions you would have to make in order to complete the assignment.
H2
517) GRM Determination
09/21/09 Keyword: GRM Income
Approach |
comps
Dear H2,
I have been asked to complete the income approach to value for a single family-investor owned property in San Lorenzo, CA. I have completed the Single Family Comparable Rent Schedule and have established a market rent for the subject property, that is supported by good comps in the subject neighborhood. I have not been able to find a recent sale of a similar, proximate, investor-owned property that I could use to establish a Gross Rent Multiplier (GRM). Other than using the subject's estimated market value, and my established market rent to calculate the GRM, do you have any suggestions how I may independently establish a GRM?
Thanks,
Richard Hildebrand Dickhilder@aol.com
Dear Richard,
In order to use the GRM income approach you have to find comparable sales that were rented at the time they sold. If this is not possible, you cannot use the GRM Income approach.
H2
I have been asked to complete the income approach to value for a single family-investor owned property in San Lorenzo, CA. I have completed the Single Family Comparable Rent Schedule and have established a market rent for the subject property, that is supported by good comps in the subject neighborhood. I have not been able to find a recent sale of a similar, proximate, investor-owned property that I could use to establish a Gross Rent Multiplier (GRM). Other than using the subject's estimated market value, and my established market rent to calculate the GRM, do you have any suggestions how I may independently establish a GRM?
Thanks,
Richard Hildebrand Dickhilder@aol.com
Dear Richard,
In order to use the GRM income approach you have to find comparable sales that were rented at the time they sold. If this is not possible, you cannot use the GRM Income approach.
H2
516) Trainees in California
09/20/09 Keyword: economy
Dear Henry,
I obtained my appraisal trainee license a couple of years ago in California. I joined the Appraisal Institute, go to the local AI monthly meetings and attend seminars in order to network with other appraisers and learn as much as I can about the industry. I spend time practicing report writing, working with Win Total software, make phone calls to local appraisers, all in the hopes of obtaining a mentor. I then took some classes and obtained an Associate's degree in real estate – still no mentor. The appraisers I have talked to said they prefer to work alone – when times are busy they do not have enough time to teach anyone, when times are slow they do not have enough work!! I obtained my business license and will begin marketing to local CPAs, trust attorneys, and etc. in the hopes I can obtain my own clients and market myself to an appraiser to review my work. However, it appears I need to have someone on board now so I can let my clients know what my turn around time will be. Also I am having a hard time getting insured since many of the insurance companies will not issue insurance to an appraiser unless their mentor is insured with them. For those of us that do not have anyone we know in the industry it is nearly impossible to get started. It is quite a Catch-22 situation. Do you have any helpful suggestions or comments?
Thanks so much in advance for any advice you can provide. I have learned a lot by reading Real Estate Valuation Magazine and your Ask Henry Harrison website as well.
Name Withheld by Request
Dear Friend:
You are not alone. It has been really tough for trainee appraisers to find mentors. However, things seem to be getting a little better so all I can suggest is that you keep trying. You might discuss your situation with the education director of your AI chapter, and ask them to address it in an upcoming meeting.
H2
I obtained my appraisal trainee license a couple of years ago in California. I joined the Appraisal Institute, go to the local AI monthly meetings and attend seminars in order to network with other appraisers and learn as much as I can about the industry. I spend time practicing report writing, working with Win Total software, make phone calls to local appraisers, all in the hopes of obtaining a mentor. I then took some classes and obtained an Associate's degree in real estate – still no mentor. The appraisers I have talked to said they prefer to work alone – when times are busy they do not have enough time to teach anyone, when times are slow they do not have enough work!! I obtained my business license and will begin marketing to local CPAs, trust attorneys, and etc. in the hopes I can obtain my own clients and market myself to an appraiser to review my work. However, it appears I need to have someone on board now so I can let my clients know what my turn around time will be. Also I am having a hard time getting insured since many of the insurance companies will not issue insurance to an appraiser unless their mentor is insured with them. For those of us that do not have anyone we know in the industry it is nearly impossible to get started. It is quite a Catch-22 situation. Do you have any helpful suggestions or comments?
Thanks so much in advance for any advice you can provide. I have learned a lot by reading Real Estate Valuation Magazine and your Ask Henry Harrison website as well.
Name Withheld by Request
Dear Friend:
You are not alone. It has been really tough for trainee appraisers to find mentors. However, things seem to be getting a little better so all I can suggest is that you keep trying. You might discuss your situation with the education director of your AI chapter, and ask them to address it in an upcoming meeting.
H2
515) Time Adjustments
09/19/09 Keyword: adjustments
Dear H2,
Is the best way to determine a reasonable time adjustment through matched pair analysis of sale prices of older, similar closed sales and current sales and/or current listings??
Name Withheld By Request
Dear Friend,
The method you describe is a good method and is the one used by the Case-Shiller S & P index. However, using listings rather than closed sales makes it much less accurate especially in the current market. As every Realtor know, a listing price is NOT a sale price.
H2
Is the best way to determine a reasonable time adjustment through matched pair analysis of sale prices of older, similar closed sales and current sales and/or current listings??
Name Withheld By Request
Dear Friend,
The method you describe is a good method and is the one used by the Case-Shiller S & P index. However, using listings rather than closed sales makes it much less accurate especially in the current market. As every Realtor know, a listing price is NOT a sale price.
H2
514) Appraisal Fees
07/21/09 Keyword: fees
Dear H2,
I could use your help. I need to figure out some kind of fee schedule for short narrative self-contained reports I am about to do. SFR, 5+ unit buildings, retail and industrial properties. Can you give me a ballpark range for these properties or an hourly basis? I live in Los Angeles.
Thank You
sc steve.appraise@gmail.com
Dear Steve,
It is hard for me to help with suggestions for fees in a state 3,000 miles from me. Normally, fees are a combination of time and the difficulty of the assignment. Keep in mind that it may take you a while to do a short form narrative if you don't do many of them. Many of the pages in a narrative are "boiler plate" so you should develop a group of templates so you don't keep reinventing the wheel. Your must also take into consideration what competition you have for the assignment. Before I retired from appraising to write full time, I used to to appraise mansions all over the country for a national real estate company. I used a short form narrative and many templates. I charged about 10 times what I charged for a URAR, plus travel expenses, because I had the skill to do the job and there was no competition. If you can develop expertise in a hard-to-reach area, or in a specialty use, that would make your fees higher as well.
H2
I could use your help. I need to figure out some kind of fee schedule for short narrative self-contained reports I am about to do. SFR, 5+ unit buildings, retail and industrial properties. Can you give me a ballpark range for these properties or an hourly basis? I live in Los Angeles.
Thank You
sc steve.appraise@gmail.com
Dear Steve,
It is hard for me to help with suggestions for fees in a state 3,000 miles from me. Normally, fees are a combination of time and the difficulty of the assignment. Keep in mind that it may take you a while to do a short form narrative if you don't do many of them. Many of the pages in a narrative are "boiler plate" so you should develop a group of templates so you don't keep reinventing the wheel. Your must also take into consideration what competition you have for the assignment. Before I retired from appraising to write full time, I used to to appraise mansions all over the country for a national real estate company. I used a short form narrative and many templates. I charged about 10 times what I charged for a URAR, plus travel expenses, because I had the skill to do the job and there was no competition. If you can develop expertise in a hard-to-reach area, or in a specialty use, that would make your fees higher as well.
H2
513) AMCs selection of appraisers
07/19/09 Keyword: AMCs
Dear Henry:
How does an appraiser, as I am, go about changing the procedures that some AMCs use in assigning appraisals to appraisers?
One AMC in particular sends an email to all the appraisers in a given area with the info for an appraisal assignment. The first appraiser to click the link on the computer will get the assignment. In the month or two that I've been receiving these "requests" I have yet to be successful in receiving an assignment.
In contrast, other AMCs send the appraisal request directly to one appraiser which is good.
What does one do?
Marvin Kaleky ableappr@yahoo.com
Dear Marvin,
What you've described is a really ugly and unprofessional way for AMCs to select appraisers. The appraisal organizations have been trying to stop the procedure, but so far don't seem to be too successful. One thing you can do is contact those lenders who were previously good customers of yours, and ask that they request the AMC they are using to give you a fair share of the work. You might also remind them that it is not required for them to use an AMC which probably is not getting the same quality appraisal they could easily obtain themselves. All a lender really has to do is select someone in their organization who is not in the underwriting department to hire the appraisers.
H2
How does an appraiser, as I am, go about changing the procedures that some AMCs use in assigning appraisals to appraisers?
One AMC in particular sends an email to all the appraisers in a given area with the info for an appraisal assignment. The first appraiser to click the link on the computer will get the assignment. In the month or two that I've been receiving these "requests" I have yet to be successful in receiving an assignment.
In contrast, other AMCs send the appraisal request directly to one appraiser which is good.
What does one do?
Marvin Kaleky ableappr@yahoo.com
Dear Marvin,
What you've described is a really ugly and unprofessional way for AMCs to select appraisers. The appraisal organizations have been trying to stop the procedure, but so far don't seem to be too successful. One thing you can do is contact those lenders who were previously good customers of yours, and ask that they request the AMC they are using to give you a fair share of the work. You might also remind them that it is not required for them to use an AMC which probably is not getting the same quality appraisal they could easily obtain themselves. All a lender really has to do is select someone in their organization who is not in the underwriting department to hire the appraisers.
H2
512) Appraisal Copy to Third Party
07/18/09 Keyword: USPAP
Violation
Hi Henry,
I have been contacted by a loan servicer asking for a copy of my original report on a property that has gone into foreclosure. The loan servicer claims that the file on this property does not have a copy of the original appraisal and therefore cannot file a claim with the PMI carrier that insured the loan. My client on this file appears to be closed and out of business. I have no authorization to release a report to a third party. Is it advisable to release this report without proper consent or should I tell the third party "sorry and have a good day"?
Sharon Wicklas wicklasappraisal@verizon.net
Dear Sharon,
The USPAP Confidentially rule states that the appraiser cannot disclose the results of an appraisal to anyone other than the client or anyone authorized by the client. One exception is if the foreclosure court ordered you to give the third party the appraisal. I think you should tell the third party you are sorry, but there is nothing to stop them from ordering another appraisal with the effective date of the original appraisal. However, you should point out there is no guarantee that the result would be the same, as the scope of work might be different.
H2
I have been contacted by a loan servicer asking for a copy of my original report on a property that has gone into foreclosure. The loan servicer claims that the file on this property does not have a copy of the original appraisal and therefore cannot file a claim with the PMI carrier that insured the loan. My client on this file appears to be closed and out of business. I have no authorization to release a report to a third party. Is it advisable to release this report without proper consent or should I tell the third party "sorry and have a good day"?
Sharon Wicklas wicklasappraisal@verizon.net
Dear Sharon,
The USPAP Confidentially rule states that the appraiser cannot disclose the results of an appraisal to anyone other than the client or anyone authorized by the client. One exception is if the foreclosure court ordered you to give the third party the appraisal. I think you should tell the third party you are sorry, but there is nothing to stop them from ordering another appraisal with the effective date of the original appraisal. However, you should point out there is no guarantee that the result would be the same, as the scope of work might be different.
H2
511) 6 Family Building
Dear H2,
I have your guide to completing the 2-4 unit Small income Property report. Please advise if this form can be used for a 6 unit building or what form you think would be appropriate.
Thank you,
Martitia Mortimer Martitia@elliottco.com
Dear Martitia,
It is possible to adapt the form 1025/72 to do a six family unit. However, it will not be acceptable to Fannie Mae, Freddie Mac or the FHA. Be sure that your client will accept it. I think it is a better idea -- and more effective -- to use a short form narrative than to try to use some of the other forms that are available.
H2
I have your guide to completing the 2-4 unit Small income Property report. Please advise if this form can be used for a 6 unit building or what form you think would be appropriate.
Thank you,
Martitia Mortimer Martitia@elliottco.com
Dear Martitia,
It is possible to adapt the form 1025/72 to do a six family unit. However, it will not be acceptable to Fannie Mae, Freddie Mac or the FHA. Be sure that your client will accept it. I think it is a better idea -- and more effective -- to use a short form narrative than to try to use some of the other forms that are available.
H2
510) Competing Property
Dear H2,
I am a little confused by the 1004MC form. In the instructions area at the top of the form it says sales and listings must "compete" with the subject and then in the inventory analysis it ask for "comparable" sales and listings. I was appraising a 50 year old home of about 950 sq ft and although there were other similar size homes in the area, some were built as recently as 2004 and are selling for about the same as the 50 year old subject due to some REO activity. But I would not try to use a 5 year old comp for a 50 year old subject even though it may be a "competing property". What do you think they mean ?
E. Brown ebrown@atc.cc
Dear E. Brown,
The concept of a competing property that I use for the 1004MC form is that assuming the subject property became unavailable, what listings/sales would a potential buyer of the subject property consider as a reasonable substitute in the same neighborhood.
H2
I am a little confused by the 1004MC form. In the instructions area at the top of the form it says sales and listings must "compete" with the subject and then in the inventory analysis it ask for "comparable" sales and listings. I was appraising a 50 year old home of about 950 sq ft and although there were other similar size homes in the area, some were built as recently as 2004 and are selling for about the same as the 50 year old subject due to some REO activity. But I would not try to use a 5 year old comp for a 50 year old subject even though it may be a "competing property". What do you think they mean ?
E. Brown ebrown@atc.cc
Dear E. Brown,
The concept of a competing property that I use for the 1004MC form is that assuming the subject property became unavailable, what listings/sales would a potential buyer of the subject property consider as a reasonable substitute in the same neighborhood.
H2
509) Log House Comps
07/05/09 Keyword: 1004MC
Dear H2,
Your new 1004MC book is GREAT!
Question: Suppose I am appraising an unusual home (a log home for example) in an established residential neighborhood of Cape Cod homes. There are no log homes either listed for sale or sold in a 30 mile radius for the last 1 year. On the 1004MC, would the entries be 0 (zero) for listings and sales?
Thanks!
Bob walker.realestate@verizon.net
Dear Bob,
I think you have to ask yourself "what would a buyer accept as a substitute if the log house you are appraising were not available and they had to buy something else in the same market area." These houses would be acceptable comparable sales, and should be considered when you complete the 1004MC form.
H2
P.S. Glad you like the book!
Your new 1004MC book is GREAT!
Question: Suppose I am appraising an unusual home (a log home for example) in an established residential neighborhood of Cape Cod homes. There are no log homes either listed for sale or sold in a 30 mile radius for the last 1 year. On the 1004MC, would the entries be 0 (zero) for listings and sales?
Thanks!
Bob walker.realestate@verizon.net
Dear Bob,
I think you have to ask yourself "what would a buyer accept as a substitute if the log house you are appraising were not available and they had to buy something else in the same market area." These houses would be acceptable comparable sales, and should be considered when you complete the 1004MC form.
H2
P.S. Glad you like the book!
508) Well in basement
Dear H2,
I am doing an FHA appraisal on a sale of a home where the water well is in the basement. The well is located in an alcove-like area of the basement and is not directly under the house. Would this be acceptable?
Thomas Crooks ttcrooks@comcast.net
Dear Thomas,
I am not an FHA expert. I suggest you call your FHA regional office for their opinion. FHA regional offices are usually easy to deal with. If you do the appraisal, I suggest it include a recommendation that the well be inspected. Use wording similar to what you would use for a termite inspection.
H2
I am doing an FHA appraisal on a sale of a home where the water well is in the basement. The well is located in an alcove-like area of the basement and is not directly under the house. Would this be acceptable?
Thomas Crooks ttcrooks@comcast.net
Dear Thomas,
I am not an FHA expert. I suggest you call your FHA regional office for their opinion. FHA regional offices are usually easy to deal with. If you do the appraisal, I suggest it include a recommendation that the well be inspected. Use wording similar to what you would use for a termite inspection.
H2
507) Certified Level Required
Dear H2,
In California, you now have to have your Certified license level to do appraisals or an Associates degree. As of Oct 1st, of 2009 FHA will also require a Certified Level. I will be out of business come October. I worked hard as a single mother to get my Appraisal License working two jobs, while training under another appraiser and am still working two jobs to try and keep my business going. Now they are going to take it all away from me! What can be done? How unfair!
Thanks in advance for any suggestions.
DEBBIE GARALDE deb_g@sbcglobal.net
Dear Debbie,
It is not a petty picture. The FHA seems determined to implement the new requirements as of 10/1/09, leaving little time for many appraisers to meet them. My only suggestion (which is a long shot) is to write to the FHA and ask for an extension, and then send a copy of your letter to you congressional representative(s) asking them to help you get the extension. In the long run, if you want to continue getting FHA work you are going to have to take the courses and pass the required exam in order to become a certified residential appraiser.
H2
Editor's note: Due to countless requests, Henry and his colleague Burton Lee have updated his 1001 Questions & Answers book and are have produced three new exam prep books to help appraisers pass the revised exams. IN STOCK NOW!!! Click on the link below.
In California, you now have to have your Certified license level to do appraisals or an Associates degree. As of Oct 1st, of 2009 FHA will also require a Certified Level. I will be out of business come October. I worked hard as a single mother to get my Appraisal License working two jobs, while training under another appraiser and am still working two jobs to try and keep my business going. Now they are going to take it all away from me! What can be done? How unfair!
Thanks in advance for any suggestions.
DEBBIE GARALDE deb_g@sbcglobal.net
Dear Debbie,
It is not a petty picture. The FHA seems determined to implement the new requirements as of 10/1/09, leaving little time for many appraisers to meet them. My only suggestion (which is a long shot) is to write to the FHA and ask for an extension, and then send a copy of your letter to you congressional representative(s) asking them to help you get the extension. In the long run, if you want to continue getting FHA work you are going to have to take the courses and pass the required exam in order to become a certified residential appraiser.
H2
Editor's note: Due to countless requests, Henry and his colleague Burton Lee have updated his 1001 Questions & Answers book and are have produced three new exam prep books to help appraisers pass the revised exams. IN STOCK NOW!!! Click on the link below.
506) Photos with People
06/28/09 Keyword: photographing
Greetings H2,
I’ve been told that it’s against Fannie/Freddie appraisal guidelines to depict a person in any photo included in an appraisal. Can you confirm if this is true and, if so, can you provide the actual citation in Fannie/Freddie guidelines?
Many thanks!
Catherine Coy catherinecoy@charter.net
Dear Catherine,
I am not aware of any such requirement. However, you can contact Fannie Mae directly at 1-888-326-6438 and ask them for their requirements. You can also email them at: resolutions@fanniemae.com
H2
I’ve been told that it’s against Fannie/Freddie appraisal guidelines to depict a person in any photo included in an appraisal. Can you confirm if this is true and, if so, can you provide the actual citation in Fannie/Freddie guidelines?
Many thanks!
Catherine Coy catherinecoy@charter.net
Dear Catherine,
I am not aware of any such requirement. However, you can contact Fannie Mae directly at 1-888-326-6438 and ask them for their requirements. You can also email them at: resolutions@fanniemae.com
H2
505) No Inspection
06/27/09 Keyword: inspection
Hello H2,
I have a situation. I showed up at a 4-unit property for my inspection. Inspecting 3 units went fine, but I had no answer at the 4th unit which is apparently a mirror image of the unit it is attached to that I was just inside. I called the owner and she came to the property to try to let me in; however apparently the locks were changed as her keys did not work on the unit.
Question:
1. Do I contact the client and ask if they would like me to proceed with the extraordinary assumption that the unit I did not get inside is considered similar to the other unit?
2. Do I just proceed that way with my report and deliver it to the client without contact first.
or
3. Do I contact the lender and decline assignment.
What is the best way to handle this?
Thank you,
Steve Brinks mnbvcv2004@yahoo.com
Dear Steve,
There is nothing in the USPAP that requires you to inspect the property or comparable sales. However, Fannie Mae, Freddie Mac and the FHA have inspection requirements. My recommendation is that you contact the lender/client and ask them what you should do. If it is still okay with the lender after you have made them aware of the Fannie Mae, Freddie Mac and the FHA requirements, then you should proceed -- making whatever assumptions you feel are most likely to be correct and base your appraised value upon these assumptions being correct. Of course, you will have to include them as extraordinary assumptions.
H2
I have a situation. I showed up at a 4-unit property for my inspection. Inspecting 3 units went fine, but I had no answer at the 4th unit which is apparently a mirror image of the unit it is attached to that I was just inside. I called the owner and she came to the property to try to let me in; however apparently the locks were changed as her keys did not work on the unit.
Question:
1. Do I contact the client and ask if they would like me to proceed with the extraordinary assumption that the unit I did not get inside is considered similar to the other unit?
2. Do I just proceed that way with my report and deliver it to the client without contact first.
or
3. Do I contact the lender and decline assignment.
What is the best way to handle this?
Thank you,
Steve Brinks mnbvcv2004@yahoo.com
Dear Steve,
There is nothing in the USPAP that requires you to inspect the property or comparable sales. However, Fannie Mae, Freddie Mac and the FHA have inspection requirements. My recommendation is that you contact the lender/client and ask them what you should do. If it is still okay with the lender after you have made them aware of the Fannie Mae, Freddie Mac and the FHA requirements, then you should proceed -- making whatever assumptions you feel are most likely to be correct and base your appraised value upon these assumptions being correct. Of course, you will have to include them as extraordinary assumptions.
H2
504) Counting Rooms
06/26/09 Keyword: new
construction
Dear Henry,
I am doing the second appraisal in a new home purchase. They have decided that the other appraiser was more correct than I was because he matched the builder's sketch for all of the rooms noted on the sketch. The total above grade rooms are 13 according to the other appraiser.
The first floor includes: Foyer, Living room, Dining Room, Conservatory, Half bath, Den, Family room, Kitchen, Sunroom, Breakfast room, Laundry room
The second floor includes: 5 Bedrooms
He is somehow counting either the breakfast room (which is an open area that is really part of the kitchen) and either the laundry room or the foyer as a room. I only count 7 rooms on the first floor. I also never count sitting rooms as they are an integral part of a bedroom.
Who is correct?
Robert O'Brien obrienconsultants@hotmail.com
Dear Robert,
There is no single national standard about how to count rooms that is widely accepted. The best thing is to use whatever is customary in your market area. Often a local MLS system will have rules about counting rooms. The FHA has some guidelines too.
H2
I am doing the second appraisal in a new home purchase. They have decided that the other appraiser was more correct than I was because he matched the builder's sketch for all of the rooms noted on the sketch. The total above grade rooms are 13 according to the other appraiser.
The first floor includes: Foyer, Living room, Dining Room, Conservatory, Half bath, Den, Family room, Kitchen, Sunroom, Breakfast room, Laundry room
The second floor includes: 5 Bedrooms
He is somehow counting either the breakfast room (which is an open area that is really part of the kitchen) and either the laundry room or the foyer as a room. I only count 7 rooms on the first floor. I also never count sitting rooms as they are an integral part of a bedroom.
Who is correct?
Robert O'Brien obrienconsultants@hotmail.com
Dear Robert,
There is no single national standard about how to count rooms that is widely accepted. The best thing is to use whatever is customary in your market area. Often a local MLS system will have rules about counting rooms. The FHA has some guidelines too.
H2
503) Repeat Appraisals
06/13/09 Keyword: USPAP
2008-2009
Dear Mr Harrison:
I am writing to you to see if you can help me with this situation that I'm in the middle of: I completed an appraisal in January 2009, and in May of 2009 the lender sent me a new assignment for the same property because the underwriter could not accept an appraisal over 90 days. I completed the new assignment on May 22, 2009.
Today, I received a new assignment for the same property because the same underwriter will not accept an appraisal under 6 months time after the first one. Can I keep doing appraisals on the same property without having problems with my FHA license? Also another client sent me an assignment yesterday for a property I did in April 2009 because the FHA case number was canceled. Can I do another appraisal so soon after the original one?
In all cases, the appraised value has been lower due to the continuing drop in prices in the area -- but how long can I continue this?
Sincerely,
Jay Jaytheappraiser@aol.com
Dear Jay,
Currently there is nothing in the USPAP to prevent you from appraising a property as many time as you want except the Confidentially rules which don't seem to apply in your situation. The new 2010-11 USPAP which goes into effect 1/1/2010 contains some additional requirements about repeat appraisals, including additional disclosure requirements. Right now the USPAP requires a new appraisal every time the effective date of the appraisal changes and whenever the lender/client changes. There are no limits on how many times you can appraise the same property. One of the best assignments I had when I was an active appraiser was from a New York Trust Company who hired me to appraise a mansion in New Haven that was in Trust and was used by a member of the family who was on the Yale faculty. I did a full narrative appraisal of this large mansion every year for over 10 years and they never questioned my fee.
H2
I am writing to you to see if you can help me with this situation that I'm in the middle of: I completed an appraisal in January 2009, and in May of 2009 the lender sent me a new assignment for the same property because the underwriter could not accept an appraisal over 90 days. I completed the new assignment on May 22, 2009.
Today, I received a new assignment for the same property because the same underwriter will not accept an appraisal under 6 months time after the first one. Can I keep doing appraisals on the same property without having problems with my FHA license? Also another client sent me an assignment yesterday for a property I did in April 2009 because the FHA case number was canceled. Can I do another appraisal so soon after the original one?
In all cases, the appraised value has been lower due to the continuing drop in prices in the area -- but how long can I continue this?
Sincerely,
Jay Jaytheappraiser@aol.com
Dear Jay,
Currently there is nothing in the USPAP to prevent you from appraising a property as many time as you want except the Confidentially rules which don't seem to apply in your situation. The new 2010-11 USPAP which goes into effect 1/1/2010 contains some additional requirements about repeat appraisals, including additional disclosure requirements. Right now the USPAP requires a new appraisal every time the effective date of the appraisal changes and whenever the lender/client changes. There are no limits on how many times you can appraise the same property. One of the best assignments I had when I was an active appraiser was from a New York Trust Company who hired me to appraise a mansion in New Haven that was in Trust and was used by a member of the family who was on the Yale faculty. I did a full narrative appraisal of this large mansion every year for over 10 years and they never questioned my fee.
H2
502) REOs and Short Sales as Comps
Dear H2,
It is getting increasingly difficult to locate recent comparable "market" sales when engaged in an assignment to determine the "market value" of a property. A search of comparable sold properties in just about any location now includes "short" and "REO" sales. My interpretation of the definition of market value would preclude me from considering these as comparable sales to determine market value since these sales, by definition, do not represent market value. Am I off base with this point? It is my opinion that the 1004 MC is intended to show what is happening in the market place, and is not intended to indicate the market value of a property or an indication of value for a property. An example is the sale of a bank owned property that has been through foreclosure and has been listed in MLS at a price. My determination of market value (for this or any other property) has nothing to do with the sale price, but rather, its market value, correct? So, in my search for sales, only sales that are true market sales can be used, correct? I have been told that these bank & short sales are the ones to use because they are what is taking place in the market. I disagree and call their attention to the DEFINITION OF MARKET VALUE as preprinted in every report and further that NO MODIFICATIONS ARE PERMITTED.
Who is correct? These are very trying times for appraisers. Thanks for all that you do for us in the trenches. You are the man!!!
David Bramuchi David@BramuchiAppraisals.com
Dear David,
The definition of Market Value that is printed on the URAR pertains to the value of the subject property and not to the comparable sales. You must consider everything that is going on in the market area, which includes such things as future development, employment trends, etc., etc. Therefore you must consider all known sales and listings, both present and historical. Most clients require that you display at least three comparable sales in the report. These are supposed to be the best comparables in your opinion. The USPAP says that it is solely up to the appraiser to determine which comparables to select, what adjustments to make, and how much weight each should be given. Short sales and REOs affect each market area differently. A big consideration is whether they are competing with the subject property and if so, what effect this competition will have on the value of the subject property. The 1004MC/72 is another matter. This requires additional factual information that Fannie Mae, Freddie Mac and others ask as part of their scope of work requirements to help them make underwriting decisions. How much weight you give this data is still up to you.
H2
It is getting increasingly difficult to locate recent comparable "market" sales when engaged in an assignment to determine the "market value" of a property. A search of comparable sold properties in just about any location now includes "short" and "REO" sales. My interpretation of the definition of market value would preclude me from considering these as comparable sales to determine market value since these sales, by definition, do not represent market value. Am I off base with this point? It is my opinion that the 1004 MC is intended to show what is happening in the market place, and is not intended to indicate the market value of a property or an indication of value for a property. An example is the sale of a bank owned property that has been through foreclosure and has been listed in MLS at a price. My determination of market value (for this or any other property) has nothing to do with the sale price, but rather, its market value, correct? So, in my search for sales, only sales that are true market sales can be used, correct? I have been told that these bank & short sales are the ones to use because they are what is taking place in the market. I disagree and call their attention to the DEFINITION OF MARKET VALUE as preprinted in every report and further that NO MODIFICATIONS ARE PERMITTED.
Who is correct? These are very trying times for appraisers. Thanks for all that you do for us in the trenches. You are the man!!!
David Bramuchi David@BramuchiAppraisals.com
Dear David,
The definition of Market Value that is printed on the URAR pertains to the value of the subject property and not to the comparable sales. You must consider everything that is going on in the market area, which includes such things as future development, employment trends, etc., etc. Therefore you must consider all known sales and listings, both present and historical. Most clients require that you display at least three comparable sales in the report. These are supposed to be the best comparables in your opinion. The USPAP says that it is solely up to the appraiser to determine which comparables to select, what adjustments to make, and how much weight each should be given. Short sales and REOs affect each market area differently. A big consideration is whether they are competing with the subject property and if so, what effect this competition will have on the value of the subject property. The 1004MC/72 is another matter. This requires additional factual information that Fannie Mae, Freddie Mac and others ask as part of their scope of work requirements to help them make underwriting decisions. How much weight you give this data is still up to you.
H2
501) AS IS Appraisals
06/11/09 Keyword: as is
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
500) Appraising Partial Interest
06/10/09 Keyword: partial
valuation
Good Morning, H2:
How do you approach an appraisal in which the lender asks you to include only a portion of the tract of land for an appraisal on new construction? I have a 120 acre tract of land where the lender wants only 25 acres valued. I am of the understanding that the appraiser is now required to include an entire tract of land in the report. Can the lender provide me a description of the land for the purpose of the report, or do I have to value the 120 acres as a whole?
Have a Great Day!
Shawn C. Neer sneer@centurytel.net
Dear Shawn,
There is nothing in the USPAP that requires you to appraise the whole tract of land. The USPAP does have requirements as to what you do when you do not appraisal the whole tract in terms of the legal description, etc.. Fannie Mae and Freddie Mac do require that you appraise the whole tract in such a situation.
H2
How do you approach an appraisal in which the lender asks you to include only a portion of the tract of land for an appraisal on new construction? I have a 120 acre tract of land where the lender wants only 25 acres valued. I am of the understanding that the appraiser is now required to include an entire tract of land in the report. Can the lender provide me a description of the land for the purpose of the report, or do I have to value the 120 acres as a whole?
Have a Great Day!
Shawn C. Neer sneer@centurytel.net
Dear Shawn,
There is nothing in the USPAP that requires you to appraise the whole tract of land. The USPAP does have requirements as to what you do when you do not appraisal the whole tract in terms of the legal description, etc.. Fannie Mae and Freddie Mac do require that you appraise the whole tract in such a situation.
H2
499) 1004MC & Mobile Homes
06/09/09 Keyword: 1004MC
Dear H2,
No one seems to know if the 1004 applies to mobile homes.
Baron Kahle appraisalquick@hotmail.com
Dear Baron,
Good question! However, if you are using a Mobile Home form from Fannie or Freddie or FHA, we think the answer is YES, as it is required for all 1-4 family residences and a mobile home that would meet Fannie/Freddie underwriting requirements would meet that definition.
H2
No one seems to know if the 1004 applies to mobile homes.
Baron Kahle appraisalquick@hotmail.com
Dear Baron,
Good question! However, if you are using a Mobile Home form from Fannie or Freddie or FHA, we think the answer is YES, as it is required for all 1-4 family residences and a mobile home that would meet Fannie/Freddie underwriting requirements would meet that definition.
H2
498) HVCC rumors
06/08/09 Keyword: HVCC
Dear H2,
The grapevine is saying that mortgage brokers and some banks are going to use small lists of appraisers for rotation instead of HVCC mandated AMCs. These small lists supposedly consist of "preferred" appraisers that in the past that have "not offended", if you know what I mean. Doesn't this go against the whole intent of the HVCC?
Name withheld by request
Dear Friend,
This is just one of the many rumors that are floating around. A major unknown now is what will happen as a result of the pending HVCC law suits.
H2
The grapevine is saying that mortgage brokers and some banks are going to use small lists of appraisers for rotation instead of HVCC mandated AMCs. These small lists supposedly consist of "preferred" appraisers that in the past that have "not offended", if you know what I mean. Doesn't this go against the whole intent of the HVCC?
Name withheld by request
Dear Friend,
This is just one of the many rumors that are floating around. A major unknown now is what will happen as a result of the pending HVCC law suits.
H2
497) Financial Segregation
06/01/09 Keyword: agricultural
property
Dear H2:
Subject Property is a 78 acre hay farm & pasture ground with a small owner occupied home in Oregon. A bank has provided a "financial segregation" legal description from the local title company for a 9 acre parcel including the home and buildings to be appraised for a conventional refinance. The legal description involved reads "For Lender Use only" and is not being recorded. What is your viewpoint? . Can I appraise the 9 acre parcel in the legal description hat has been provided to me? I am concerned that it may not be a valid legal description since it is not being recorded and did not go through any County Planning & Zoning Review. I have heard that some title companies will not do these so-called "financial segregations" because of possible legal issues.
brent bainbridge bwbainbridge@cableone.net
Dear Brent,
You can do this appraisal providing you do a few things. First, during your required scope of work dialogue with the lender/client you should advise them that most likely this loan will not be acceptable to Fannie Mae or Freddie Mac. Your appraisal must prominently disclose that it was based on the description of the property provided to you by the lender/client which you have not verified and which you assume to be correct. Finally, you must be satisfied that this assignment is not being done to deceive anyone.
H2
Subject Property is a 78 acre hay farm & pasture ground with a small owner occupied home in Oregon. A bank has provided a "financial segregation" legal description from the local title company for a 9 acre parcel including the home and buildings to be appraised for a conventional refinance. The legal description involved reads "For Lender Use only" and is not being recorded. What is your viewpoint? . Can I appraise the 9 acre parcel in the legal description hat has been provided to me? I am concerned that it may not be a valid legal description since it is not being recorded and did not go through any County Planning & Zoning Review. I have heard that some title companies will not do these so-called "financial segregations" because of possible legal issues.
brent bainbridge bwbainbridge@cableone.net
Dear Brent,
You can do this appraisal providing you do a few things. First, during your required scope of work dialogue with the lender/client you should advise them that most likely this loan will not be acceptable to Fannie Mae or Freddie Mac. Your appraisal must prominently disclose that it was based on the description of the property provided to you by the lender/client which you have not verified and which you assume to be correct. Finally, you must be satisfied that this assignment is not being done to deceive anyone.
H2
496) Describing Distance
05/28/09 Keyword: guidelines
Dear H2,
Where does it state in appraisal guidelines that comparable distances are reported "as the crow flies"
jean raitt jeannineraitt@gmail.com
Dear Jean,
I know of no such source. However, for legal purposes it is my understanding that distances are measured as a straight line on a map between two places. I am not aware of appraisers doing it otherwise, with a few exceptions -- such as the distance to schools, highway entrances, and shopping facilities when there is a big difference between the straight line distance and the distance to drive or walk there.
H2
Where does it state in appraisal guidelines that comparable distances are reported "as the crow flies"
jean raitt jeannineraitt@gmail.com
Dear Jean,
I know of no such source. However, for legal purposes it is my understanding that distances are measured as a straight line on a map between two places. I am not aware of appraisers doing it otherwise, with a few exceptions -- such as the distance to schools, highway entrances, and shopping facilities when there is a big difference between the straight line distance and the distance to drive or walk there.
H2
495) Lack of Data for 1004MC
05/27/09 Keyword: 1004MC
Dear H2,
I received your newest guide on the Market Conditions Addendum. I appreciated your comment about needing at least 18 items to basically make sense of the statistics. I live in an area where in each neighborhood there are usually 1 or 2 comparable properties, and often none at all. Because there were only 42 total sales in our entire county last year, I decided to do the market conditions addendum for the entire county and commented on it. Also, our MLS doesn't provide most of the information required. Any suggestions for me on how I should provide this information? Basically, I state at the end that this market conditions addendum is not relevant to our area, because of the lack of available data, but underwriters, obviously, don't like that comment. Any suggestions on how to complete the report for my area would sure be appreciated!
Holly A. Harwig holly@northofnorth.com
Dear Holly,
Your complaint is being expressed by many appraisers. The instructions on the form make it clear that you are expected to provide only what is available. However, as part of the Scope of Work, as stated on the form, you must provide an explanation of what you did to try and get the data and further state why you were unsuccessful. Do not be afraid to use the word "unknown" and an asterisk in boxes leading to a comment that there was not sufficient data available to provide the asked for trend, average etc. I don't recommend that you comment that the whole form is not relevant as this is probably not true. Most likely you will have provided some information and explanations about what you did and found that may be relevant to an underwriter.
H2
I received your newest guide on the Market Conditions Addendum. I appreciated your comment about needing at least 18 items to basically make sense of the statistics. I live in an area where in each neighborhood there are usually 1 or 2 comparable properties, and often none at all. Because there were only 42 total sales in our entire county last year, I decided to do the market conditions addendum for the entire county and commented on it. Also, our MLS doesn't provide most of the information required. Any suggestions for me on how I should provide this information? Basically, I state at the end that this market conditions addendum is not relevant to our area, because of the lack of available data, but underwriters, obviously, don't like that comment. Any suggestions on how to complete the report for my area would sure be appreciated!
Holly A. Harwig holly@northofnorth.com
Dear Holly,
Your complaint is being expressed by many appraisers. The instructions on the form make it clear that you are expected to provide only what is available. However, as part of the Scope of Work, as stated on the form, you must provide an explanation of what you did to try and get the data and further state why you were unsuccessful. Do not be afraid to use the word "unknown" and an asterisk in boxes leading to a comment that there was not sufficient data available to provide the asked for trend, average etc. I don't recommend that you comment that the whole form is not relevant as this is probably not true. Most likely you will have provided some information and explanations about what you did and found that may be relevant to an underwriter.
H2
494) Percentage of Ownership for FHA
05/23/09 Keyword: FHA | ownership
percentage
Dear H2,
I built a 10 unit condo building and kept two to rent out. Now an owner is trying to sell his unit. His buyer is going FHA and the owner tells me for him to get an FHA mortgage, I cannot own more than 10% of units. Is this true? Obviously, I own 20% at this time.
Scott Buckingham buildone101@aol.com
Dear Scott,
I am not an FHA expert and do not keep current on the ever-changing FHA regulations. On page D-88 of the current edition of FHA Handbook 4150.2 there is a requirement that the appraiser report "if a single entity owns more than 10% of the units." I suggest you contact the FHA Regional Office for your area and ask them to help you. They are usually quite responsive.
H2
I built a 10 unit condo building and kept two to rent out. Now an owner is trying to sell his unit. His buyer is going FHA and the owner tells me for him to get an FHA mortgage, I cannot own more than 10% of units. Is this true? Obviously, I own 20% at this time.
Scott Buckingham buildone101@aol.com
Dear Scott,
I am not an FHA expert and do not keep current on the ever-changing FHA regulations. On page D-88 of the current edition of FHA Handbook 4150.2 there is a requirement that the appraiser report "if a single entity owns more than 10% of the units." I suggest you contact the FHA Regional Office for your area and ask them to help you. They are usually quite responsive.
H2
493) 1004MC Condo
Dear H2,
On the new 1004MC -- the first one I'm doing is a condo. Should I leave the top completely blank and fill out just the condo section?
Diane Graham dgraham295@comcast.net
Dear Diane,
As I explain in my book, Harrison's Illustrated Guide: How to Fill Out the Market Conditions Addendum to an Appraisal (1004MC-71), for a condo or co-op project you must complete the whole form.
H2
Editor's note: To order your copy of the FHA Handbook, click here.
On the new 1004MC -- the first one I'm doing is a condo. Should I leave the top completely blank and fill out just the condo section?
Diane Graham dgraham295@comcast.net
Dear Diane,
As I explain in my book, Harrison's Illustrated Guide: How to Fill Out the Market Conditions Addendum to an Appraisal (1004MC-71), for a condo or co-op project you must complete the whole form.
H2
Editor's note: To order your copy of the FHA Handbook, click here.
492) Interior Sketch
05/21/09 Keyword: 1004MC
Dear H2,
I was just looking through your guide to completing the 1004MC form and the condominium guide. On page CS-32 you have a sketch of improvements which shows the interior walls and the rooms are labeled. I was under the impression that you only did room sketches and room labels if there is a functional obsolesence. Am I wrong in my thinking?
Thank you,
Don W Dillard dillardappraisal@aol.com
Dear Don,
The USPAP is silent on this subject. Different lender/clients have their own rules about what kind of exhibits are required. You need to determine this as part of the scope of work dialogue. Our sample appraisal contains many things that some lender/clients may or may not require.
H2
I was just looking through your guide to completing the 1004MC form and the condominium guide. On page CS-32 you have a sketch of improvements which shows the interior walls and the rooms are labeled. I was under the impression that you only did room sketches and room labels if there is a functional obsolesence. Am I wrong in my thinking?
Thank you,
Don W Dillard dillardappraisal@aol.com
Dear Don,
The USPAP is silent on this subject. Different lender/clients have their own rules about what kind of exhibits are required. You need to determine this as part of the scope of work dialogue. Our sample appraisal contains many things that some lender/clients may or may not require.
H2
491) 1004MC Sale
05/17/09 Keyword: 1004MC
Hello Henry,
I purchased your guide on How to Fill Out a Market Conditions Addendum to the Appraisal Report. Per your instructions, in order to come up with the Median Sale Price as % of List Price, we should divide the Median Comparable Sale Price by the Median Comparable List Price of Unsold Listings. However, the eFannieMae.com 1004MC training video reports that we should divide the Median Comparable Sale Price by the Median Comparable List Price of only the closed settled comparable sales. This was also confirmed in an email sent to me by Mark Rattermann, who presented the 1004MC training video.
Frank Zappia fzappia@realvaluations.com
Dear Frank,
You and Mark Rattermann are correct. This was one of the clarifications Fannie Mae made when they issued the 3/09 version of the form. For a complete update on the new version of the form, with analysis and comments, go to our Update page at: www.revmag.com/1004MCupdate.
H2
I purchased your guide on How to Fill Out a Market Conditions Addendum to the Appraisal Report. Per your instructions, in order to come up with the Median Sale Price as % of List Price, we should divide the Median Comparable Sale Price by the Median Comparable List Price of Unsold Listings. However, the eFannieMae.com 1004MC training video reports that we should divide the Median Comparable Sale Price by the Median Comparable List Price of only the closed settled comparable sales. This was also confirmed in an email sent to me by Mark Rattermann, who presented the 1004MC training video.
Frank Zappia fzappia@realvaluations.com
Dear Frank,
You and Mark Rattermann are correct. This was one of the clarifications Fannie Mae made when they issued the 3/09 version of the form. For a complete update on the new version of the form, with analysis and comments, go to our Update page at: www.revmag.com/1004MCupdate.
H2
490) Desktop Valuation Reports
05/16/09 Keyword: USPAP
Dear H2,
Recently a long time client (an AMC) started to order "Desktop Valuation Reports". This is a one page report where they expect an opinion of value without any inspections. They want 3 comparable sales listed and a value opinion. I am very uncomfortable with this request. I have spoken to several appraisers in my area and some are completely against these DVRs, and some are performing them. These requests are for equity lines of credit only. HELP! I have declined these requests; however I would like to know where you stand on these assignments. Thank you in advance for your opinion.
Christine cfrench.appraisals@cox.net
Dear Christine,
The USPAP states that whenever you render an opinion of value you must make a complete appraisal that meets all the USPAP requirements for an appraisal. However, there is nothing in the USPAP that requires you to inspect the subject property or the comparable sales. The USPAP does not specify what type of report you and the lender/client choose to use. There are three different types of reports permitted by the USPAP with requirements for each type of report. Most likely, you would make a Summary Appraisal Report. Making it on one page would be next to impossible but you did not state that the lender/client does not permit you to add pages.
I can understand why you are uncomfortable with this type of assignment, but I think you could comply with the USPAP as long as there was some flexibility in the Lender/Clients reporting requirements.
H2
Recently a long time client (an AMC) started to order "Desktop Valuation Reports". This is a one page report where they expect an opinion of value without any inspections. They want 3 comparable sales listed and a value opinion. I am very uncomfortable with this request. I have spoken to several appraisers in my area and some are completely against these DVRs, and some are performing them. These requests are for equity lines of credit only. HELP! I have declined these requests; however I would like to know where you stand on these assignments. Thank you in advance for your opinion.
Christine cfrench.appraisals@cox.net
Dear Christine,
The USPAP states that whenever you render an opinion of value you must make a complete appraisal that meets all the USPAP requirements for an appraisal. However, there is nothing in the USPAP that requires you to inspect the subject property or the comparable sales. The USPAP does not specify what type of report you and the lender/client choose to use. There are three different types of reports permitted by the USPAP with requirements for each type of report. Most likely, you would make a Summary Appraisal Report. Making it on one page would be next to impossible but you did not state that the lender/client does not permit you to add pages.
I can understand why you are uncomfortable with this type of assignment, but I think you could comply with the USPAP as long as there was some flexibility in the Lender/Clients reporting requirements.
H2
489) 1004MC Form
05/15/09 Keyword: 1004MC
Dear H2,
Do we need to do the 1004MC for all drive bys or drive bys with interior inspections?
DAN CU.APPRAISAL@PACBELL.NET
Dear Dan,
Fannie Mae and Freddie Mac require a 1004MC/71 Market Conditions Addendum for "all mortgage loans delivered to them for one to four unit properties." If the loan is not going to be for delivered to Fannie Mae or Freddie Mac, it is up to the lender/client to tell you what type of report they need.
H2
Do we need to do the 1004MC for all drive bys or drive bys with interior inspections?
DAN CU.APPRAISAL@PACBELL.NET
Dear Dan,
Fannie Mae and Freddie Mac require a 1004MC/71 Market Conditions Addendum for "all mortgage loans delivered to them for one to four unit properties." If the loan is not going to be for delivered to Fannie Mae or Freddie Mac, it is up to the lender/client to tell you what type of report they need.
H2
488) WATER TURNED OFF
05/10/09 Keyword: water
problem
Dear H2,
When appraising a vacant single family that has been winterized (water turned off) can the the appraisal be made "as is", subject to the extraordinary assumption that subject's plumbing is in working order and that the overall condition will not change after water utility is turned back on?
D.Tozeski stozeski@aol.com
Dear D.,
Your lender/client would have to agree to your using this extraordinary assumption as part of the required scope of work dialogue. All extraordinary assumptions must be reasonable and they cannot be used if you think the lender/client might use them to deceive someone.
H2
When appraising a vacant single family that has been winterized (water turned off) can the the appraisal be made "as is", subject to the extraordinary assumption that subject's plumbing is in working order and that the overall condition will not change after water utility is turned back on?
D.Tozeski stozeski@aol.com
Dear D.,
Your lender/client would have to agree to your using this extraordinary assumption as part of the required scope of work dialogue. All extraordinary assumptions must be reasonable and they cannot be used if you think the lender/client might use them to deceive someone.
H2
487) Trustee Deed Sales
05/09/09 Keyword: USPAP
Dear H2,
I was taught to never use a trustee deed sale as a comparable. But in my area, it is becoming increasingly hard to find comparables that aren't trustee sales. Do you have any advice? Would I be wrong to start using some of these as comparables as long as I notate them as such? In some areas of our city, the trustee sales outnumber the other comparables 9:1.
name and email address withheld.
Dear Friend,
The USPAP says that only the appraiser can decide which comparable sales to use. From your description, it appears that trustee deed sales are a large factor in the market. You should always use the best comparable sales available based on your analysis of the market data.
H2
I was taught to never use a trustee deed sale as a comparable. But in my area, it is becoming increasingly hard to find comparables that aren't trustee sales. Do you have any advice? Would I be wrong to start using some of these as comparables as long as I notate them as such? In some areas of our city, the trustee sales outnumber the other comparables 9:1.
name and email address withheld.
Dear Friend,
The USPAP says that only the appraiser can decide which comparable sales to use. From your description, it appears that trustee deed sales are a large factor in the market. You should always use the best comparable sales available based on your analysis of the market data.
H2
486) USING the 2055 FORM
05/08/09 Keyword: 2055
Dear H2,
Can we still do an appraisal report on the "short form", the drive-by 2055 Form with no interior inspection?
Sondi Eden sondieden@hotmail.com
Dear Sondi,
The USPAP does not address what appraisal form to use. Fannie Mae, Freddie Mac, FHA and ERC have different requirements depending upon at variety of things. As of April 1st, Fannie Mae, Freddie Mac and FHA all require the new 1004MC Market Conditions Addendum form for any appraisal with a effective date starting 4/1/09. For each appraisal assignment you take on, the USPAP requires that you have a scope of work dialogue with the client. One of the subjects that should be covered is what form the appraisal will be made on. Remember that no matter what form you use, a full appraisal is required that complies with all the USPAP requirements for making an appraisal.
H2
Can we still do an appraisal report on the "short form", the drive-by 2055 Form with no interior inspection?
Sondi Eden sondieden@hotmail.com
Dear Sondi,
The USPAP does not address what appraisal form to use. Fannie Mae, Freddie Mac, FHA and ERC have different requirements depending upon at variety of things. As of April 1st, Fannie Mae, Freddie Mac and FHA all require the new 1004MC Market Conditions Addendum form for any appraisal with a effective date starting 4/1/09. For each appraisal assignment you take on, the USPAP requires that you have a scope of work dialogue with the client. One of the subjects that should be covered is what form the appraisal will be made on. Remember that no matter what form you use, a full appraisal is required that complies with all the USPAP requirements for making an appraisal.
H2
485) 1004MC Backup
05/07/09 Keyword: 1004MC
Dear H2,
Where do I find the facts on having to submit a graph or worksheet showing the data used in the new 1004mc form? Is it required along with the 1004mc form in the body of the appraisal report that is being submitted to a lender? Thanks!
Lisa lhippard@wisperhome.com
Dear Lisa,
The USPAP does not address what appraisal form to use or what must be reported. Fannie Mae, Freddie Mac, FHA and ERC have different requirements depending upon the overall assignment. Fannie Mae, Freddie Mac and FHA require the new Market Conditions Addendum form for any appraisal with a effective date starting 4/1/09. I am not aware of any requirement to include in the report the data used to fill out the report. For each appraisal assignment you take, the USPAP requires that you have a scope of work dialogue with the Lender/Client. One subject you should discuss is what backup data they require.
H2
Where do I find the facts on having to submit a graph or worksheet showing the data used in the new 1004mc form? Is it required along with the 1004mc form in the body of the appraisal report that is being submitted to a lender? Thanks!
Lisa lhippard@wisperhome.com
Dear Lisa,
The USPAP does not address what appraisal form to use or what must be reported. Fannie Mae, Freddie Mac, FHA and ERC have different requirements depending upon the overall assignment. Fannie Mae, Freddie Mac and FHA require the new Market Conditions Addendum form for any appraisal with a effective date starting 4/1/09. I am not aware of any requirement to include in the report the data used to fill out the report. For each appraisal assignment you take, the USPAP requires that you have a scope of work dialogue with the Lender/Client. One subject you should discuss is what backup data they require.
H2
484) Condo vs SFR
Dear H2,
In my neighborhood, there are many multi-families that have been converted to condos. I actually have a single family, but there are very few other single family comps in my neighborhood. Though it is technically a single family, it is attached on both sides and is really more comparable to a condo. My question is, would an appraiser ever use other condos in the neighborhood as comps? Or, since it is technically a single family, would they only look at other single families? Thanks much for your help!
Michelle O'Meara michelle112575@hotmail.com
Dear Michelle,
According to the Uniform Standards of Professional Appraisal Practice (USPAP), the final decision as to what are the best comparable sales to use and what weight to give them, as well as what adjustments to make, is always up to the appraiser. From your description, your home is a "townhouse" style single family residence. A condo is actually not a "style" at all, but rather, a form of ownership. The fact that adjacent townhouses are condos may significantly affect their value, and render them unsuitable as comparables to your home in fee simple ownership, despite their similar appearance to your home. That is something the appraiser would have to research, consider and comment on in their appraisal. It is a rare neighborhood where you cannot find any single family house sales (except in Moscow, Russia). I suggest that you expand the area where you are searching for comparable sales.
H2
In my neighborhood, there are many multi-families that have been converted to condos. I actually have a single family, but there are very few other single family comps in my neighborhood. Though it is technically a single family, it is attached on both sides and is really more comparable to a condo. My question is, would an appraiser ever use other condos in the neighborhood as comps? Or, since it is technically a single family, would they only look at other single families? Thanks much for your help!
Michelle O'Meara michelle112575@hotmail.com
Dear Michelle,
According to the Uniform Standards of Professional Appraisal Practice (USPAP), the final decision as to what are the best comparable sales to use and what weight to give them, as well as what adjustments to make, is always up to the appraiser. From your description, your home is a "townhouse" style single family residence. A condo is actually not a "style" at all, but rather, a form of ownership. The fact that adjacent townhouses are condos may significantly affect their value, and render them unsuitable as comparables to your home in fee simple ownership, despite their similar appearance to your home. That is something the appraiser would have to research, consider and comment on in their appraisal. It is a rare neighborhood where you cannot find any single family house sales (except in Moscow, Russia). I suggest that you expand the area where you are searching for comparable sales.
H2
483) Comparable Sales
05/02/09 Keyword: comps
Dear H2,
For refinance purpose, how am I supposed to choose comparable sales that fit the USPAP guidelines where 95 percent of the homes in the neighborhood are non arms-lengh transactions? It's impossible to find comps within 3 months in our market area that are not distress sales. Please advise. Thank you.
Amy angiel99@yahoo.com
Dear Amy,
The USPAP says it is up to the appraiser, not anyone else, to determine which comparable sales provide the best indication of the value of the subject property. The USPAP says nothing about what period of time they should be in, where they should be located, and whether or not they are foreclosure or REO sales, etc. It is a rare property where no comparable sales are available. The appraiser selects the best ones, adjusts them if possible based on market data, and uses them to provide an indication of the value of the subject property. The lender/client cannot dictate which comparable sales are to be used. However, they can require an explanation as to why you selected the ones you did.
H2
For refinance purpose, how am I supposed to choose comparable sales that fit the USPAP guidelines where 95 percent of the homes in the neighborhood are non arms-lengh transactions? It's impossible to find comps within 3 months in our market area that are not distress sales. Please advise. Thank you.
Amy angiel99@yahoo.com
Dear Amy,
The USPAP says it is up to the appraiser, not anyone else, to determine which comparable sales provide the best indication of the value of the subject property. The USPAP says nothing about what period of time they should be in, where they should be located, and whether or not they are foreclosure or REO sales, etc. It is a rare property where no comparable sales are available. The appraiser selects the best ones, adjusts them if possible based on market data, and uses them to provide an indication of the value of the subject property. The lender/client cannot dictate which comparable sales are to be used. However, they can require an explanation as to why you selected the ones you did.
H2
482) Remaining Economic Life
05/01/09 Keyword: economic
life
Dear H2,
A house was built in 1970, and the remaining economic life is 21 years. The borrower is doing a 30 year fixed loan, but with the remaining economic life noted on the appraisal, the lender will not do the loan. Please advise if anything can be done about this. What do you recommend?
David L. Waller dlwall1@mchsi.com
Dear David,
It is not up to the appraiser to try and make a mortgage work. However, it is also not clear how you could come up with exactly a 21 year remaining economic life. It sounds like you may have used some mathematical formula, which is not an acceptable way to do this. The estimate of remaining economic life should be based on your judgment about the condition of the improvements, and what you find in your market. If you add the existing age of 39 years to your 21 year remaining economic life estimate, you get a total economic life of 70 years for similar houses in your market area. Is this true based on your observations?
H2
A house was built in 1970, and the remaining economic life is 21 years. The borrower is doing a 30 year fixed loan, but with the remaining economic life noted on the appraisal, the lender will not do the loan. Please advise if anything can be done about this. What do you recommend?
David L. Waller dlwall1@mchsi.com
Dear David,
It is not up to the appraiser to try and make a mortgage work. However, it is also not clear how you could come up with exactly a 21 year remaining economic life. It sounds like you may have used some mathematical formula, which is not an acceptable way to do this. The estimate of remaining economic life should be based on your judgment about the condition of the improvements, and what you find in your market. If you add the existing age of 39 years to your 21 year remaining economic life estimate, you get a total economic life of 70 years for similar houses in your market area. Is this true based on your observations?
H2
481) Multi-Family & 1004MC
04/28/09 Keyword: 1004MC
Dear H2,
Does the market conditions report have to be used on a multi-family?
Thank you
Cindy Grantham clgappraisals@forestranch.com
Dear Cindy,
Yes, as of April 1st, the 1004MC/71 form must be used for all Fannie Mae, Freddie Mac and FHA multi-family appraisals.
H2
Does the market conditions report have to be used on a multi-family?
Thank you
Cindy Grantham clgappraisals@forestranch.com
Dear Cindy,
Yes, as of April 1st, the 1004MC/71 form must be used for all Fannie Mae, Freddie Mac and FHA multi-family appraisals.
H2
480) Update Requests
04/25/09 Keyword: additional
information
Dear H2,
I have been having a problem where the lender comes back weeks, and in the current case, 2 months after the appraisal has been finished and delivered, asking for additional comparables, or for me to research comparables supplied by the lender. How long after the report has been delivered is an appraiser obligated to respond to these requests?
Dale R. Thompson Thompsapp@comcast.net
Dear Dale,
The first thing to consider is whether the lender/client is asking you to reconsider the value you have estimated or just to supply additional data. If they are asking you to reconsider the value, then you must make a new appraisal. However, this does not mean that you cannot use much if not most of the data that was in the original appraisal. Often a great deal of the original appraisal is reusable. If you are just supplying additional data, and not analyzing it, and the effective date of the appraisal is the same, then how much additional work you are willing to do depends only on what you have previously agreed to with the lender/client. If a client often makes requests for additional work, you should make it clear in your USPAP-required scope of work dialogue what you will do for the agreed upon fee, and charge for extra work. As far as I know there are no time limits except those imposed by the lender/client.
H2
I have been having a problem where the lender comes back weeks, and in the current case, 2 months after the appraisal has been finished and delivered, asking for additional comparables, or for me to research comparables supplied by the lender. How long after the report has been delivered is an appraiser obligated to respond to these requests?
Dale R. Thompson Thompsapp@comcast.net
Dear Dale,
The first thing to consider is whether the lender/client is asking you to reconsider the value you have estimated or just to supply additional data. If they are asking you to reconsider the value, then you must make a new appraisal. However, this does not mean that you cannot use much if not most of the data that was in the original appraisal. Often a great deal of the original appraisal is reusable. If you are just supplying additional data, and not analyzing it, and the effective date of the appraisal is the same, then how much additional work you are willing to do depends only on what you have previously agreed to with the lender/client. If a client often makes requests for additional work, you should make it clear in your USPAP-required scope of work dialogue what you will do for the agreed upon fee, and charge for extra work. As far as I know there are no time limits except those imposed by the lender/client.
H2
479) Condemnation Appraisal
04/21/09 Keyword: condemnation
Dear H2,
I have a condemnation situation where the leased fee interest was valued at $755,000. The fee simple interest was valued at $850,000. Contract rent is less than market rent. Is the condemning authority required to pay the $755,000 or $850,000?
Name withheld by request
Dear Friend,
The rules as to what a condemnation authority pays depends upon where the property is located and who is condemning the property (federal government, State government, Redevelopment Agency, School District, etc., etc.) The most common method is that the property is appraised based on the market rent, a leasehold appraisal is made to determine if there is any leasehold interest, and the money received is divided between the two interests.
H2
I have a condemnation situation where the leased fee interest was valued at $755,000. The fee simple interest was valued at $850,000. Contract rent is less than market rent. Is the condemning authority required to pay the $755,000 or $850,000?
Name withheld by request
Dear Friend,
The rules as to what a condemnation authority pays depends upon where the property is located and who is condemning the property (federal government, State government, Redevelopment Agency, School District, etc., etc.) The most common method is that the property is appraised based on the market rent, a leasehold appraisal is made to determine if there is any leasehold interest, and the money received is divided between the two interests.
H2
478) Comps in Neighborhood
04/18/09 Keyword: comps
Dear H2,
When doing a residential appraisal in a gated community or any development, do you have to include at least 1 comparable sale from another development or could all the sales come from the subject development?
JOHN LYNCH johnkantonrealty@comcast.net
Dear John,
The USPAP says it is up to the appraiser to select which comparable sales to use in an appraisal. When possible, using data from the same development is common.
H2
When doing a residential appraisal in a gated community or any development, do you have to include at least 1 comparable sale from another development or could all the sales come from the subject development?
JOHN LYNCH johnkantonrealty@comcast.net
Dear John,
The USPAP says it is up to the appraiser to select which comparable sales to use in an appraisal. When possible, using data from the same development is common.
H2
477) Comps on 1004MC
Dear H2,
How should both sections of the 1004MC be filled out in relation to condos? I have a lender that has rejected the form as I have filled it out. They are requesting the the top portion be filled out to reflect all comps in the neighborhood and the bottom filled out to reflect only the comparables from the specific development. Is this correct?
Marlene Deason marlenepacheco@sbcglobal.net
Dear Marlene,
Yes - the lender is correct. Of course, even in the upper section of the form, only sales that are comparable to (competitive with) the subject property should be use.
H2
How should both sections of the 1004MC be filled out in relation to condos? I have a lender that has rejected the form as I have filled it out. They are requesting the the top portion be filled out to reflect all comps in the neighborhood and the bottom filled out to reflect only the comparables from the specific development. Is this correct?
Marlene Deason marlenepacheco@sbcglobal.net
Dear Marlene,
Yes - the lender is correct. Of course, even in the upper section of the form, only sales that are comparable to (competitive with) the subject property should be use.
H2
476) Cell Tower
04/12/09 Keyword: scope of
work |
disclosure
Dear H2,
I'm appraising a bank-owned home (for a new borrower) on acreage that has an existing Cell Phone Tower. Per the title company, there was a long term lease signed with the prior owner and a lease was recorded. They have lost the home but the tower remains and is even a potential source of significant income for this residential zoned home. The bank/owner and Cell company will not talk to me, citing privacy concerns. Any thoughts on whether this is non-conforming or just a residential house with extra income potential?
Thank you much!
Shane Rivers shane@thevision.net
Dear Shane,
As part of your scope of work dialogue you need to discuss with the lander/client what you should do. Most likely you will make some kind of assumption about the tower and its potential income. As long as the assumption is reasonable and not intended to deceive anyone, it is permitted by the USPAP. No matter what you do, you must disclose that the tower exists and what you did to obtain information about it.
H2
I'm appraising a bank-owned home (for a new borrower) on acreage that has an existing Cell Phone Tower. Per the title company, there was a long term lease signed with the prior owner and a lease was recorded. They have lost the home but the tower remains and is even a potential source of significant income for this residential zoned home. The bank/owner and Cell company will not talk to me, citing privacy concerns. Any thoughts on whether this is non-conforming or just a residential house with extra income potential?
Thank you much!
Shane Rivers shane@thevision.net
Dear Shane,
As part of your scope of work dialogue you need to discuss with the lander/client what you should do. Most likely you will make some kind of assumption about the tower and its potential income. As long as the assumption is reasonable and not intended to deceive anyone, it is permitted by the USPAP. No matter what you do, you must disclose that the tower exists and what you did to obtain information about it.
H2
475) Settled Sale
Dear H2,
First - Thanks for publishing the How to Fill Out a Market Conditions Addendum guide. I have purchased the book and am filling out my first 1004MC form for a new construction condo appraisal. Can I find out what the term "settled" sale means? I'm not familiar with the term. Does it mean closed sales only, or pending and closed, or other? Thank you.
By the way -- I have purchased many of your earlier guides and have found them helpful in many cases. Thank you for writing them!
Sandra L. Pike sandrapike@appraisenow.com
Dear Sandra,
A settled sale is one that has closed (the closing has been completed). Thanks for the kind words about my books. I am very glad you've found them helpful.
H2
First - Thanks for publishing the How to Fill Out a Market Conditions Addendum guide. I have purchased the book and am filling out my first 1004MC form for a new construction condo appraisal. Can I find out what the term "settled" sale means? I'm not familiar with the term. Does it mean closed sales only, or pending and closed, or other? Thank you.
By the way -- I have purchased many of your earlier guides and have found them helpful in many cases. Thank you for writing them!
Sandra L. Pike sandrapike@appraisenow.com
Dear Sandra,
A settled sale is one that has closed (the closing has been completed). Thanks for the kind words about my books. I am very glad you've found them helpful.
H2
474) Prior Transfer
04/05/09 Keyword: USPAP
Dear H2,
There is a USPAP requirement and a place on the 1004 URAR form to consider and analyze "prior sales or transfers of the subject property" within the 3 years prior to the effective date of the appraisal. I have a current FHA 203K valuation where there was a transfer for $0 from the current owner to the current owner. I simply placed this information in the line regarding it as a transfer in the past 3 years for $0 and noted it was a non-arms' legnth transfer. The underwriters are demanding that I remove this transfer from my report. That would not confrom to USPAP. Should it remain on my report or should I remove it?
Bob O'Brien obrienconsultants@hotmail.com
Dear Bob,
AO 1 in the 2008-2009 USPAP makes it very clear as to what you are required to do. Clearly, you have to comply with the USPAP and in my opinion not to report this sale or provide reasons why you are not reporting it would be a violation of the USPAP. I think you should show them AO - 1; and I agree that you should refuse to withhold the information.
H2
There is a USPAP requirement and a place on the 1004 URAR form to consider and analyze "prior sales or transfers of the subject property" within the 3 years prior to the effective date of the appraisal. I have a current FHA 203K valuation where there was a transfer for $0 from the current owner to the current owner. I simply placed this information in the line regarding it as a transfer in the past 3 years for $0 and noted it was a non-arms' legnth transfer. The underwriters are demanding that I remove this transfer from my report. That would not confrom to USPAP. Should it remain on my report or should I remove it?
Bob O'Brien obrienconsultants@hotmail.com
Dear Bob,
AO 1 in the 2008-2009 USPAP makes it very clear as to what you are required to do. Clearly, you have to comply with the USPAP and in my opinion not to report this sale or provide reasons why you are not reporting it would be a violation of the USPAP. I think you should show them AO - 1; and I agree that you should refuse to withhold the information.
H2
473) 1004MC Listing Periods
04/03/09 Keyword: 1004MC
Dear H2,
1004MC Form question: Should only the listings that came onto the market during the specific time range be included in the form? Or should the cummulative listing be included?
Davis M. Watson davisw@centurytel.net
Dear Davis,
A listing that was active during the period (current to 3 months, prior 4 to 6 months and prior 7 to 12 months) should be included in each period on the 1004MC/71 form. For example, a listing that came on the market 10 months prior to the effective date of the appraisal and was still active and unsold on the effective date of the appraisal should be shown in all three periods.
H2
1004MC Form question: Should only the listings that came onto the market during the specific time range be included in the form? Or should the cummulative listing be included?
Davis M. Watson davisw@centurytel.net
Dear Davis,
A listing that was active during the period (current to 3 months, prior 4 to 6 months and prior 7 to 12 months) should be included in each period on the 1004MC/71 form. For example, a listing that came on the market 10 months prior to the effective date of the appraisal and was still active and unsold on the effective date of the appraisal should be shown in all three periods.
H2
472) Inter Family Sales
04/01/09 Keyword: comps
Dear H2,
Can an appraiser use a comp that is a family to family transaction that falls within the value range of subject and other similar comps in the neighborhood?
Bernice Rice-Baker bhrb@cox.net
Dear Bernice,
Only the appraiser can determine which comparable sales are the best indicators of the value of the property being appraised. If you think this is the best comparable, you should use it. However, sales that are not arms-length transactions are rarely good comparable sales. First of all you must disclose what the relationship between the buyer and seller is and then try to explain why you think the transaction was at market value rather than some special deal.
H2
Can an appraiser use a comp that is a family to family transaction that falls within the value range of subject and other similar comps in the neighborhood?
Bernice Rice-Baker bhrb@cox.net
Dear Bernice,
Only the appraiser can determine which comparable sales are the best indicators of the value of the property being appraised. If you think this is the best comparable, you should use it. However, sales that are not arms-length transactions are rarely good comparable sales. First of all you must disclose what the relationship between the buyer and seller is and then try to explain why you think the transaction was at market value rather than some special deal.
H2
471) 1004MC Not Required
03/23/09 Keyword: 1004MC
Dear H2,
I've received conflicting information regarding the 1004MC form. If an appriasal is done for mortgage lending purposes, does this form need to be included? What if the client says they are not selling to FNMA or FHLMC and they don't request it? I will not do this extra work without an additional fee and do not want to penalize clients who are not asking for it. I would prefer not to have my name and email address published with this question. Thanks!
Name Withheld By Request
Dear Friend,
As of March 23, only Fannie Mae and Freddie Mac are requiring the Market Conditions Addendum form. Lender/clients who are not planning to sell the mortgages to Fannie Mae or Freddie Mac may not want the form and may be unwilling to pay for it. This is something you need to determine as part of the required scope of work dialogue you have with the lender/client. You need to protect yourself from being asked to supply the form later, when the lender/client decides that they need it. The best way is to get the appraisal assignment in writing. If this is not possible, your work file should contain notes saying that you explained to the client why the form is sometimes needed and who authorized you not to provide it with your appraisal.
H2
I've received conflicting information regarding the 1004MC form. If an appriasal is done for mortgage lending purposes, does this form need to be included? What if the client says they are not selling to FNMA or FHLMC and they don't request it? I will not do this extra work without an additional fee and do not want to penalize clients who are not asking for it. I would prefer not to have my name and email address published with this question. Thanks!
Name Withheld By Request
Dear Friend,
As of March 23, only Fannie Mae and Freddie Mac are requiring the Market Conditions Addendum form. Lender/clients who are not planning to sell the mortgages to Fannie Mae or Freddie Mac may not want the form and may be unwilling to pay for it. This is something you need to determine as part of the required scope of work dialogue you have with the lender/client. You need to protect yourself from being asked to supply the form later, when the lender/client decides that they need it. The best way is to get the appraisal assignment in writing. If this is not possible, your work file should contain notes saying that you explained to the client why the form is sometimes needed and who authorized you not to provide it with your appraisal.
H2
470) Conversions and GLA
03/22/09 Keyword: Garage
| conversion
Dear H2,
Could you elaborate a bit on garage conversions. It has always been my impression that the conversion needs to be at the same level(i.e., no step down,such as a sub floor added) and that is should share or have the equivelant of the same heat source. My subject has a converted garage, sliding glass door replaces the garage door, a ceiling fan, definitely "step down" to the conversions, and an indiviudal wall heat/ac unit. Please be as specific as possible, the lender is arguing that I should include this as above grade GLA, and I have added it as below grade GLA and only assigned contributory value. (Love your website!)
Thanks,
Stacy Farmer stacyhfarmer@aol.com
Dear Stacy,
There are no absolute rules about when a garage, breezeway, or open porch are converted into living area and then become part of the house's GLA. Generally, any part of the converted space that is finished and heated substantially like the rest of the house can be described as gross living area (with the notation as to what it was before it was converted) provided that it is 100% above ground. Even this rule is not iron clad, it is only a guideline. It all depends what is common in your market area. If the space was a garage previously, it is not clear to me by what you mean "step down". A step down that is still fully above ground level is not a problem. However, if you are going to make an exception to the general GLA guideline that to be included the area must be 100% above ground, you must prominently disclose what you are doing.
H2
Could you elaborate a bit on garage conversions. It has always been my impression that the conversion needs to be at the same level(i.e., no step down,such as a sub floor added) and that is should share or have the equivelant of the same heat source. My subject has a converted garage, sliding glass door replaces the garage door, a ceiling fan, definitely "step down" to the conversions, and an indiviudal wall heat/ac unit. Please be as specific as possible, the lender is arguing that I should include this as above grade GLA, and I have added it as below grade GLA and only assigned contributory value. (Love your website!)
Thanks,
Stacy Farmer stacyhfarmer@aol.com
Dear Stacy,
There are no absolute rules about when a garage, breezeway, or open porch are converted into living area and then become part of the house's GLA. Generally, any part of the converted space that is finished and heated substantially like the rest of the house can be described as gross living area (with the notation as to what it was before it was converted) provided that it is 100% above ground. Even this rule is not iron clad, it is only a guideline. It all depends what is common in your market area. If the space was a garage previously, it is not clear to me by what you mean "step down". A step down that is still fully above ground level is not a problem. However, if you are going to make an exception to the general GLA guideline that to be included the area must be 100% above ground, you must prominently disclose what you are doing.
H2
469) FHA Requirement
Dear H2,
I was asked to do an appraisal for an FHA loan. There is an addition (second floor) that has no heat source. Is this an issue on FHA loans?
Steve Borrelli sborrelli@sbcglobal.net
Dear Steve,
Anyone doing FHA appraisal work needs a copy of the FHA Handbook 4150.2 The information you seek is on page D-128. It depends upon the size of the addition and how much work needs to be done.
You can download all 12 chapters of the FHA Handbook 4150.2 on their website at: http://www.hud.gov/groups/appraisers.cfm -- look under RESOURCES (green banner on right side of page). You'll need to print it out and collate it (there is no single PDF download available.)
The alternative we recommend is to purchase the book already printed, collated and spiral bound from Forms and Worms.
Use this link: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300245
This printed copy comes with a FREE CD-Rom with several excellent articles, and important HUD numbers and contact information.
H2
I was asked to do an appraisal for an FHA loan. There is an addition (second floor) that has no heat source. Is this an issue on FHA loans?
Steve Borrelli sborrelli@sbcglobal.net
Dear Steve,
Anyone doing FHA appraisal work needs a copy of the FHA Handbook 4150.2 The information you seek is on page D-128. It depends upon the size of the addition and how much work needs to be done.
You can download all 12 chapters of the FHA Handbook 4150.2 on their website at: http://www.hud.gov/groups/appraisers.cfm -- look under RESOURCES (green banner on right side of page). You'll need to print it out and collate it (there is no single PDF download available.)
The alternative we recommend is to purchase the book already printed, collated and spiral bound from Forms and Worms.
Use this link: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300245
This printed copy comes with a FREE CD-Rom with several excellent articles, and important HUD numbers and contact information.
H2
468) Lender Edits
03/20/09 Keyword: scope of
work
Dear Henry,
One lender/client keeps asking me on a regular basis to go back, after I have finished and delivered the appraisal, and change the subject legal description to match the lender provided title search. I am requested to just cut and paste the legal description from the title search which I am emailed by them. This is not because the subject legal description as found in the MLS tax record (my source of infomation) which I relied on is wrong, but basically because the title search -- at least according to the lender representative, who happens to be a staff appraiser -- "is more believable and/or more accurate." I am arguing that using the title search information they supply after my appraisal is complete is wrong. It is not previously agreed on in the scope of work, not a source of information typically available to the appraiser within his/her daily course of business, and may not even be legal (without having the title search company's permission that I can rely on their information). Please give me your thoughts on this. I appreciate and admire your priceless contribution to the appraisal industry. Thank you in advance.
Name and email withheld by request
Dear Friend,
As you suggest in your question, the correct place to settle this is during your "Scope of Work" dialogue. If the matter was not covered, then all you would be expected to do is what is customary for appraiser to do in your market area. For anything extra, you could charge extra if you thought it was a good business decision. There is nothing in the USPAP that would prevent you from adding this information to a completed appraisal report if the lender/client asks you to do so -- as long as you do not change the effective date of the appraisal and the lender/client is not asking for an opinion as to what effect this new information has on the value of the property. (If you do either of these things, you are making a new appraisal.)
H2
One lender/client keeps asking me on a regular basis to go back, after I have finished and delivered the appraisal, and change the subject legal description to match the lender provided title search. I am requested to just cut and paste the legal description from the title search which I am emailed by them. This is not because the subject legal description as found in the MLS tax record (my source of infomation) which I relied on is wrong, but basically because the title search -- at least according to the lender representative, who happens to be a staff appraiser -- "is more believable and/or more accurate." I am arguing that using the title search information they supply after my appraisal is complete is wrong. It is not previously agreed on in the scope of work, not a source of information typically available to the appraiser within his/her daily course of business, and may not even be legal (without having the title search company's permission that I can rely on their information). Please give me your thoughts on this. I appreciate and admire your priceless contribution to the appraisal industry. Thank you in advance.
Name and email withheld by request
Dear Friend,
As you suggest in your question, the correct place to settle this is during your "Scope of Work" dialogue. If the matter was not covered, then all you would be expected to do is what is customary for appraiser to do in your market area. For anything extra, you could charge extra if you thought it was a good business decision. There is nothing in the USPAP that would prevent you from adding this information to a completed appraisal report if the lender/client asks you to do so -- as long as you do not change the effective date of the appraisal and the lender/client is not asking for an opinion as to what effect this new information has on the value of the property. (If you do either of these things, you are making a new appraisal.)
H2
467) Contingent Fees
03/15/09 Keyword: fees | contingent
fees
Dear H2,
I have clients who constantly ask me "Please -- can you help me -- I have a loan that did not close!"
Can you tell me if there is a website that actually cites the rules regarding fees -- and not charging a client for a completed appraisal? i Know I cannot accept work that is on a contingency basis -- but I do not want my clients to think that I don't want to work with them. If there is a citing I can actually quote explaining the rules, I'd like to know about it.
P.S. I really appreciate your website and your online magazine! Both are extremely helpful and you are very knowledgeable.
Thanks!
Jeremy Smart jeremy.smart@comcast.net
Dear Jeremy,
The 2008-9 USPAP prohibits doing appraisal where the fee is contingent upon anything -- in your case the sale closing. For good wording you can use to explain this to your clients, see page F-12 FAQ #25 "Reducing Appraisal Fees When Transactions Fail to Close" in the 2008-9 USPAP.
H2
I have clients who constantly ask me "Please -- can you help me -- I have a loan that did not close!"
Can you tell me if there is a website that actually cites the rules regarding fees -- and not charging a client for a completed appraisal? i Know I cannot accept work that is on a contingency basis -- but I do not want my clients to think that I don't want to work with them. If there is a citing I can actually quote explaining the rules, I'd like to know about it.
P.S. I really appreciate your website and your online magazine! Both are extremely helpful and you are very knowledgeable.
Thanks!
Jeremy Smart jeremy.smart@comcast.net
Dear Jeremy,
The 2008-9 USPAP prohibits doing appraisal where the fee is contingent upon anything -- in your case the sale closing. For good wording you can use to explain this to your clients, see page F-12 FAQ #25 "Reducing Appraisal Fees When Transactions Fail to Close" in the 2008-9 USPAP.
H2
466) Leased Land
03/14/09 Keyword: leased
fees |
fees
Dear H2,
I am confused as to how (and where to) show site value of lease fee and fee simple values on the URAR form. Annual lease fee = $480 and capitalization rate @ 6% = $8,000 lease value. Fee simple value of the site is $20,000. Everything I read just gets me more and more confused as to how to show this in the URAR sales comparison comparison grid area. Someone has said that you subtract and add back ?? Any help in explaining this or telling me where to go to get a "KISS" explanation would be appreciated.
Name Withheld by Request
Dear Friend,
When you are appraising a property on leased land, the value of the site is not included in the appraised value. On the sales comparison grid you should indicate with an asterisk or footnote or in some other way that the value of the site is not included in the appraised value.
If you believe there is a leasehold value, it can be included on a separate line. However, as part of your scope of work dialogue you should determine if the leasehold value should be included in the appraised value. For comparable sales it is best if they are all leasehold comparables. If they are not, you would have to make an adjustment to reflect the value of the site which was part of the value of each of the comparable sales. This is hard to do unless there are many active land sales in your area. In your example, if the value of the site for each of the comparable sales is $20,000 you would make a minus $20,000 adjustment to each of them -- along with an explanation in the comments as to what you have done and why you have done it.
H2
I am confused as to how (and where to) show site value of lease fee and fee simple values on the URAR form. Annual lease fee = $480 and capitalization rate @ 6% = $8,000 lease value. Fee simple value of the site is $20,000. Everything I read just gets me more and more confused as to how to show this in the URAR sales comparison comparison grid area. Someone has said that you subtract and add back ?? Any help in explaining this or telling me where to go to get a "KISS" explanation would be appreciated.
Name Withheld by Request
Dear Friend,
When you are appraising a property on leased land, the value of the site is not included in the appraised value. On the sales comparison grid you should indicate with an asterisk or footnote or in some other way that the value of the site is not included in the appraised value.
If you believe there is a leasehold value, it can be included on a separate line. However, as part of your scope of work dialogue you should determine if the leasehold value should be included in the appraised value. For comparable sales it is best if they are all leasehold comparables. If they are not, you would have to make an adjustment to reflect the value of the site which was part of the value of each of the comparable sales. This is hard to do unless there are many active land sales in your area. In your example, if the value of the site for each of the comparable sales is $20,000 you would make a minus $20,000 adjustment to each of them -- along with an explanation in the comments as to what you have done and why you have done it.
H2
465) COLLECTING FEES
03/13/09 Keyword: collecting
fees
Dear H2,
What course of action do you recommend, and what recourse do appraisers have in order to collect open/past due appraisal invoices -- especially with clients whom we have current business with ?
-Joe
Dear Joe,
I assume that most of your clients are lenders. If so, start by sending a letter to the President of the lending company, telling him or her that you are not getting paid. You can also go to small claims court in many states. You can also turn the collection over to a collection company such as Dun & Bradstreet (aka D&B). I would start by sending a certified letter to the client spelling out in detail just what they owe you. You are going to need this anyway if you actively pursue the collection. Finally, our friend Ann O'Rourke, of Appraisal Today, has published specific strategies for collecting past due invoices. Check her website for details: www.appraisaltoday.com
H2
What course of action do you recommend, and what recourse do appraisers have in order to collect open/past due appraisal invoices -- especially with clients whom we have current business with ?
-Joe
Dear Joe,
I assume that most of your clients are lenders. If so, start by sending a letter to the President of the lending company, telling him or her that you are not getting paid. You can also go to small claims court in many states. You can also turn the collection over to a collection company such as Dun & Bradstreet (aka D&B). I would start by sending a certified letter to the client spelling out in detail just what they owe you. You are going to need this anyway if you actively pursue the collection. Finally, our friend Ann O'Rourke, of Appraisal Today, has published specific strategies for collecting past due invoices. Check her website for details: www.appraisaltoday.com
H2
464) LISTINGS IN SALES GRID
Dear H2,
I have been asked to add listings to a URAR form appraisal for a lender. I am relucant to adjust for these listings as their sales are a future event from my date of inspection. I feel that making adjustments in the grid would make my report misleading, and I state that no weight is given to the listings. What is your opinion on adjusting listings in a grid?
Robin drtl12@adelphia.net
Dear Robin,
If the lender/client wants listings, you should provide them. You can expand the report to include a grid with more sales and listings if you think it is appropriate. How much weight you give a listing is up to you. In a fast declining market, they can be very helpful.
H2
I have been asked to add listings to a URAR form appraisal for a lender. I am relucant to adjust for these listings as their sales are a future event from my date of inspection. I feel that making adjustments in the grid would make my report misleading, and I state that no weight is given to the listings. What is your opinion on adjusting listings in a grid?
Robin drtl12@adelphia.net
Dear Robin,
If the lender/client wants listings, you should provide them. You can expand the report to include a grid with more sales and listings if you think it is appropriate. How much weight you give a listing is up to you. In a fast declining market, they can be very helpful.
H2
463) Garage Conversion
03/07/09 Keyword: Garage
| conversion
Dear Henry,
Thanks for the great website! My question is regarding a dwelling with an attached garage which has been converted into usable living area. The converted garage has flooring (ceramic tile), finished walls(painted sheetrock), and an air/heating source. All materials are similar in quality and design to the rest of the dwelling. The space is also accessible from the interior of the house. The only drawback is that the garage door is still in existence. They have installed sliding doors on the exterior facade which, from the front, makes it look ike the garage doors aren't there. But on the inside, they are, including tracks and all. Would this still be considered a garage, or should it be added onto the GLA?
Mike Bourgeois mickey@mpbappraisals.com
Dear Mike,
The general rule about garage conversions is that if they are finished and heated like the rest of the house, they cease to be a garage and become whatever they are converted into (bedroom, recreation room. etc). The garage door issue depends upon your market area. In many cities like Philadelphia where many townhouses have front facing garages converted into living areas, it is customary to leave the garage door in place. However, this may not be true in other areas.
H2
Thanks for the great website! My question is regarding a dwelling with an attached garage which has been converted into usable living area. The converted garage has flooring (ceramic tile), finished walls(painted sheetrock), and an air/heating source. All materials are similar in quality and design to the rest of the dwelling. The space is also accessible from the interior of the house. The only drawback is that the garage door is still in existence. They have installed sliding doors on the exterior facade which, from the front, makes it look ike the garage doors aren't there. But on the inside, they are, including tracks and all. Would this still be considered a garage, or should it be added onto the GLA?
Mike Bourgeois mickey@mpbappraisals.com
Dear Mike,
The general rule about garage conversions is that if they are finished and heated like the rest of the house, they cease to be a garage and become whatever they are converted into (bedroom, recreation room. etc). The garage door issue depends upon your market area. In many cities like Philadelphia where many townhouses have front facing garages converted into living areas, it is customary to leave the garage door in place. However, this may not be true in other areas.
H2
462) Taxed Land
Dear H2,
I was checking out questions regarding how to determine if a property is a condominium. Other than checking the deed, I believe a good indication is to see if the land is being assessed/taxed since condominium ownership doesn't include land but rather a percentage of interest in the common areas. What do you think?
John
Dear John,
Your method is not as good as checking the deed since the subject could also be a cooperative or on leased land.
H2
I was checking out questions regarding how to determine if a property is a condominium. Other than checking the deed, I believe a good indication is to see if the land is being assessed/taxed since condominium ownership doesn't include land but rather a percentage of interest in the common areas. What do you think?
John
Dear John,
Your method is not as good as checking the deed since the subject could also be a cooperative or on leased land.
H2
461) New 1004MC Mini-Guide
03/01/09 Keyword: 1004MC
Dear H2,
Have you received any questions about the new 1004MC form market conditions addendum to the appraisal report?
Cathy Goutierrez cathyg358@bellsouth.net
Dear Cathy,
I have been flooded with requests. As a result I am just finishing up a Mini-Guide on how to fill out the 1004MC Form that will be available from Forms and Worms next week. We will also feature an article on the form in our upcoming online issue of REV Magazine.
1. You can pre-order the Mini-Guide -- Item #300113; price $24.95 -- from Forms and Worms at 1-800-243-4545 or www.formsandworms.com
2. There's also a CD-Rom available with the entire book in PDF format, which includes a copy of an Excel freeware program that you can use to fill out and print a copy of the completed 1004MC Form. The CD-Rom is Item #200200 for $24.95.
3. A combo deal of the printed Book & CD-Rom is also available: Item #300213 for $29.95.
4. Finally - there's a special offer: Buy the URAR Illustrated Guide & the Exterior Only (2055) Illustrated Guide combo, and get a FREE COPY of the new Mini-Guide to the 1004MC Form. Request Special Offer item #400286 for just $49.95.
H2
Have you received any questions about the new 1004MC form market conditions addendum to the appraisal report?
Cathy Goutierrez cathyg358@bellsouth.net
Dear Cathy,
I have been flooded with requests. As a result I am just finishing up a Mini-Guide on how to fill out the 1004MC Form that will be available from Forms and Worms next week. We will also feature an article on the form in our upcoming online issue of REV Magazine.
1. You can pre-order the Mini-Guide -- Item #300113; price $24.95 -- from Forms and Worms at 1-800-243-4545 or www.formsandworms.com
2. There's also a CD-Rom available with the entire book in PDF format, which includes a copy of an Excel freeware program that you can use to fill out and print a copy of the completed 1004MC Form. The CD-Rom is Item #200200 for $24.95.
3. A combo deal of the printed Book & CD-Rom is also available: Item #300213 for $29.95.
4. Finally - there's a special offer: Buy the URAR Illustrated Guide & the Exterior Only (2055) Illustrated Guide combo, and get a FREE COPY of the new Mini-Guide to the 1004MC Form. Request Special Offer item #400286 for just $49.95.
H2
460) Retrospective Appraisals
02/28/09 Keyword: USPAP
2008-2009
Dear H2,
Assume a new rental income apartment building was built in 2003. The property will not be assessed and the actual property taxes are not known until 2004 or 2005, the same for utilities. Assume not even an estimate is known for both expense items for the subject building. In 2006, you are asked to provide a 2003 value estimate. In doing the retrospective appraisal, you come to know that the actual 2004 property taxes are $75,000 per annum, and the utilities are $125,000. Can you use these figures for the 2003 retrospective valuation when you only became aware of these facts in 2006 when you were hired? The question is really this: for retrospective work, what data is reasonable to consider? Thanks in advance for your prompt reply. Keep up the excellent work.
Your appraisal brother in Toronto, Canada
Steve Mullins stephen.mullins@cra-arc.gc.ca
Dear Steve,
The 2008-9 USPAP FAQ #90 points out that the USPAP in effect on the date of the report is the one that applies, not the one on the date of the appraisal. The 2008-9 USPAP Statement #3 tries to draw a line between how the market would react on the date of the appraisal knowing what was then available and how using data that becomes available after the effective date helps in estimating the value. In the situation you ask about, what you do would depend on whether the new tax and utility information was substantially different that what the market would have estimated or expected the taxes and utilities to be or whether it just validates what the market would have anticipated. I believe it is reasonable to consider any new data that is available, but how much weight you give it must be based on what the market would have anticipated the (then unknown) data to be. I suggest that you also look at my answers to Ask Henry questions #204 and #304.
H2
Assume a new rental income apartment building was built in 2003. The property will not be assessed and the actual property taxes are not known until 2004 or 2005, the same for utilities. Assume not even an estimate is known for both expense items for the subject building. In 2006, you are asked to provide a 2003 value estimate. In doing the retrospective appraisal, you come to know that the actual 2004 property taxes are $75,000 per annum, and the utilities are $125,000. Can you use these figures for the 2003 retrospective valuation when you only became aware of these facts in 2006 when you were hired? The question is really this: for retrospective work, what data is reasonable to consider? Thanks in advance for your prompt reply. Keep up the excellent work.
Your appraisal brother in Toronto, Canada
Steve Mullins stephen.mullins@cra-arc.gc.ca
Dear Steve,
The 2008-9 USPAP FAQ #90 points out that the USPAP in effect on the date of the report is the one that applies, not the one on the date of the appraisal. The 2008-9 USPAP Statement #3 tries to draw a line between how the market would react on the date of the appraisal knowing what was then available and how using data that becomes available after the effective date helps in estimating the value. In the situation you ask about, what you do would depend on whether the new tax and utility information was substantially different that what the market would have estimated or expected the taxes and utilities to be or whether it just validates what the market would have anticipated. I believe it is reasonable to consider any new data that is available, but how much weight you give it must be based on what the market would have anticipated the (then unknown) data to be. I suggest that you also look at my answers to Ask Henry questions #204 and #304.
H2
459) History of Prior Sales
02/26/09 Keyword: market
value
Dear H2,
I had a property, 2 units; the purchase price was $250,000. The appraisal came in at $300,000. I commented that this property was a "short sale" REO property, and that these properties generally sell below market. A reviewer told me that was "an inadequate analysis of the market actions and the current transaction." Do you have any suggestions as to what I could have said to to better describe the market actions and satisify the reviewer? Thank You in advance.
Mary maugusta@charter.net
Dear Mary,
The best evidence of the value of a property are current comparable sales. You should also provide information about the trend of values in the market area. Comparable sales of similar properties that are not REOs as well as recent sales of other REO properties should be used to support your conclusions.
H2
I had a property, 2 units; the purchase price was $250,000. The appraisal came in at $300,000. I commented that this property was a "short sale" REO property, and that these properties generally sell below market. A reviewer told me that was "an inadequate analysis of the market actions and the current transaction." Do you have any suggestions as to what I could have said to to better describe the market actions and satisify the reviewer? Thank You in advance.
Mary maugusta@charter.net
Dear Mary,
The best evidence of the value of a property are current comparable sales. You should also provide information about the trend of values in the market area. Comparable sales of similar properties that are not REOs as well as recent sales of other REO properties should be used to support your conclusions.
H2
458) Basement Rental Unit
02/24/09 Keyword: basement
| guidelines
Dear H2,
What are the guidelines regarding a rental unit in the basement of a single family dwelling when there is no access from the interior?
John Smith purdun4@comcast.net
Dear John,
The first problem is that this may be an illegal use. You should check with the building inspector or some other appropriate official in your community. Remember that you must report whatever you find out. Also, unless it is 100% out of the ground, such a unit cannot be included in the GLA. However, even if it is an illegal use, it may still add value. You'll have to try to support whatever opinion you come to about the value with some market data. (In our market area, illegal attic rental units are very common, and add market value.)
H2
What are the guidelines regarding a rental unit in the basement of a single family dwelling when there is no access from the interior?
John Smith purdun4@comcast.net
Dear John,
The first problem is that this may be an illegal use. You should check with the building inspector or some other appropriate official in your community. Remember that you must report whatever you find out. Also, unless it is 100% out of the ground, such a unit cannot be included in the GLA. However, even if it is an illegal use, it may still add value. You'll have to try to support whatever opinion you come to about the value with some market data. (In our market area, illegal attic rental units are very common, and add market value.)
H2
457) Using the 1004MC
02/22/09 Keyword: 1004MC
Dear H2,
1004MC Require April 1, 2009. I just went through a pratice run in filling out this form. I see it taking an hour or more to complete. Would a fee increase be justified beginning in April? And, if so, can you say what a reasonable amount would be?
Leroy Thomas III LT3Appraisers@aol.com
Dear Leroy,
There is no doubt that it will take longer to do an appraisal when the 1004MC is required. Unfortunately, it is against the law for me to recommend fees.
H2
1004MC Require April 1, 2009. I just went through a pratice run in filling out this form. I see it taking an hour or more to complete. Would a fee increase be justified beginning in April? And, if so, can you say what a reasonable amount would be?
Leroy Thomas III LT3Appraisers@aol.com
Dear Leroy,
There is no doubt that it will take longer to do an appraisal when the 1004MC is required. Unfortunately, it is against the law for me to recommend fees.
H2
456) Special Financing
02/20/09 Keyword: URAR
Dear Henry,
On the URAR form, Fannie Mae 1004, under the definition of Market Value, it indicates an asterik that says: "Adjustments to comparables must be made for special or creative financing or sales concessions." Then it goes on to say: "No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area." Can you give examples of what would be adjusted for and what would not? Thanks very much.
Rose
Dear Rose,
I have partially answered this question in "Ask Henry" Question #369.
Specifically, some examples of where a special financing adjustment is needed are when the seller gives the buyer a purchase money mortgage; when the closing costs are usually paid by the buyer in a market area but the seller agrees to pay these costs; where some personal property is included in the sale, etc.
H2
On the URAR form, Fannie Mae 1004, under the definition of Market Value, it indicates an asterik that says: "Adjustments to comparables must be made for special or creative financing or sales concessions." Then it goes on to say: "No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area." Can you give examples of what would be adjusted for and what would not? Thanks very much.
Rose
Dear Rose,
I have partially answered this question in "Ask Henry" Question #369.
Specifically, some examples of where a special financing adjustment is needed are when the seller gives the buyer a purchase money mortgage; when the closing costs are usually paid by the buyer in a market area but the seller agrees to pay these costs; where some personal property is included in the sale, etc.
H2
455) Verifying Comps
02/18/09 Keyword: comps
| verifying
information
Dear H2,
If there are several homes in the subject's market area which are similar to the subject in all respects, but one of them is a lot lower in selling price than the others, should you use the lower one as a comp, even if you cannot determine the reason for the lower sale price?
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
In my opinion you should not reject what appears to be a good comparable sale just because you could not determine why it seems to have sold for less than you expected in the market. Remember that the USPAP requires that you try to verify comparable sales by contacting the buyer, seller, broker or attorney. Perhaps they can enlighten you about why the sale was seemingly below market.
H2
If there are several homes in the subject's market area which are similar to the subject in all respects, but one of them is a lot lower in selling price than the others, should you use the lower one as a comp, even if you cannot determine the reason for the lower sale price?
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
In my opinion you should not reject what appears to be a good comparable sale just because you could not determine why it seems to have sold for less than you expected in the market. Remember that the USPAP requires that you try to verify comparable sales by contacting the buyer, seller, broker or attorney. Perhaps they can enlighten you about why the sale was seemingly below market.
H2
454) Cost to Cure
Dear Henry,
A client asked me to reflect the cost to cure of items which in this circumstance may or may not cause a market reaction. The property has a garage conversion and the garage doors are still intact and could be operational; however, the rest of the conversion is finished like the rest of the home. The client wanted a cost to cure figure to remove the garage doors and finish the resulting doorway area more conventionally as interior living space. I provided them with an estimated range of a cost to cure; however, now they want me to make this adjustment in the sales comparision approach grid. I feel making this adjusment in the sales comparison grid would be misleading, due the fact that all my adjustments in the grid are market based using paired sales. I cannot show either a postivie or negative reaction to this in the market -- so therefore I would not make an adjustment. Are there any USPAP or other standards I can cite to show them why you would not make this cost to cure adjusment in the sales comparision approach? Do you think that I am correct?
Thanks
Cassie Everett cassie@okappraiser.com
Dear Cassie,
There is nothing in the USPAP that covers how to make adjustments. The new 13th Edition of The Appraisal of Real Estate on page 319 addresses your question. It points out that the cost to cure is not a perfect adjustment. How the market reacts to the needed work must also be considered. I suggest that you also look at the answers to Ask Henry questions #29, #31 and #167 below.
H2
A client asked me to reflect the cost to cure of items which in this circumstance may or may not cause a market reaction. The property has a garage conversion and the garage doors are still intact and could be operational; however, the rest of the conversion is finished like the rest of the home. The client wanted a cost to cure figure to remove the garage doors and finish the resulting doorway area more conventionally as interior living space. I provided them with an estimated range of a cost to cure; however, now they want me to make this adjustment in the sales comparision approach grid. I feel making this adjusment in the sales comparison grid would be misleading, due the fact that all my adjustments in the grid are market based using paired sales. I cannot show either a postivie or negative reaction to this in the market -- so therefore I would not make an adjustment. Are there any USPAP or other standards I can cite to show them why you would not make this cost to cure adjusment in the sales comparision approach? Do you think that I am correct?
Thanks
Cassie Everett cassie@okappraiser.com
Dear Cassie,
There is nothing in the USPAP that covers how to make adjustments. The new 13th Edition of The Appraisal of Real Estate on page 319 addresses your question. It points out that the cost to cure is not a perfect adjustment. How the market reacts to the needed work must also be considered. I suggest that you also look at the answers to Ask Henry questions #29, #31 and #167 below.
H2
453) Appraisal Update
02/15/09 Keyword: USPAP
2008-2009
Dear Henry,
I did an appraisal of a HUD foreclosed property June 1, 2008. Now the property is being sold and the lender is using that appraisal report (this seems to be commonplace.) The loan officer stated that the lender/underwriter has asked that I re-inspect the property for purpose of verifying no damage from Hurricane Gustav. The loan officer stated that the underwriter said that an addendum to my previous appraisal would be okay. However, when the request was received, it also asked for "verifying no damage from Hurricane Gustav" and "no value or marketability change." Hurricane Gustav hit the Louisiana and Texas coast on September 1, 2008. My initial thoughts concern the effective date of the value opinion. If I state anything about value after Hurricane Gustav, then I will have to do research as of that date for the subject property, and possibly provide additional supporting data for any new value or market change despite the fact that the lender/underwriter claims I would not. Can you give me some guidance with addressing this issue?
Thanks,
Joseph Floyd joefloyd@cableone.net
Dear Floyd
The 2008-2009 USPAP is very clear that when the date of the appraisal is changed or if the value is reconsidered, you are making a new appraisal. See their Advisory Opinion 3 and Ask Henry letters below #175, #201, #215 and #293.
H2
I did an appraisal of a HUD foreclosed property June 1, 2008. Now the property is being sold and the lender is using that appraisal report (this seems to be commonplace.) The loan officer stated that the lender/underwriter has asked that I re-inspect the property for purpose of verifying no damage from Hurricane Gustav. The loan officer stated that the underwriter said that an addendum to my previous appraisal would be okay. However, when the request was received, it also asked for "verifying no damage from Hurricane Gustav" and "no value or marketability change." Hurricane Gustav hit the Louisiana and Texas coast on September 1, 2008. My initial thoughts concern the effective date of the value opinion. If I state anything about value after Hurricane Gustav, then I will have to do research as of that date for the subject property, and possibly provide additional supporting data for any new value or market change despite the fact that the lender/underwriter claims I would not. Can you give me some guidance with addressing this issue?
Thanks,
Joseph Floyd joefloyd@cableone.net
Dear Floyd
The 2008-2009 USPAP is very clear that when the date of the appraisal is changed or if the value is reconsidered, you are making a new appraisal. See their Advisory Opinion 3 and Ask Henry letters below #175, #201, #215 and #293.
H2
452) Additional Information
02/14/09 Keyword: additional
information | comments
Dear H2,
I have started to get underwriter conditions like the following: "The comps grids must specifically state that the sales were Arms or Non-Arms Length Transactions; simple being listed on MLS is insufficient." They are referring to my response of MLS and the MLS # as part of my disclosure of Data and Verification Source(s). Where is the proper place to disclose whether the transaction is Arms Length or not?
Dan Daubenspeck ddaubenspeck@d2appraisals.com
Dear Dan,
There is no rule as to where this information should go. Additional information such as this can go on any of the comments lines where there is space or in the addenda of the report.
H2
I have started to get underwriter conditions like the following: "The comps grids must specifically state that the sales were Arms or Non-Arms Length Transactions; simple being listed on MLS is insufficient." They are referring to my response of MLS and the MLS # as part of my disclosure of Data and Verification Source(s). Where is the proper place to disclose whether the transaction is Arms Length or not?
Dan Daubenspeck ddaubenspeck@d2appraisals.com
Dear Dan,
There is no rule as to where this information should go. Additional information such as this can go on any of the comments lines where there is space or in the addenda of the report.
H2
451) 1004MC
Dear Henry,
Do you have any advice or help you can offer in completing the new 1004MC form which will be required by Fannie and Freddie as of April 1st? It looks really complicated!
Thanks!
Cathy Goutierrez cathyg358@bellsouth.net
Dear Cathy,
We've just sent the new Illustrated Guide: How to Fill Out the Market Conditions Addendum to the Real Estate Appraisal (Fannie Mae 1004MC-Freddie Mac 71) to the printer. It will be available from Forms and Worms for shipping next week. We will also be running a significant article on the form in our upcoming online issue of REV Magazine.
1. You can pre-order the Illustrated Guide plus CD-Rom -- Item #300213; price $49.95 -- from Forms and Worms right now, at 1-800-243-4545 or www.formsandworms.com Get $10 off with Coupon Code REV09.
2. There's also a CD-Rom available with the entire book in PDF format, which includes the Condominium Case Study and a sample completed 1004MC Form. The CD-Rom is Item #200200 for $34.95.
3. Finally - there's a special offer: Buy the URAR Illustrated Guide & the Exterior Only (2055) Illustrated Guide combo, and new Guide to the 1004MC Form and SAVE $60. Request Special Offer item #400286 for just $69.95.
H2
Do you have any advice or help you can offer in completing the new 1004MC form which will be required by Fannie and Freddie as of April 1st? It looks really complicated!
Thanks!
Cathy Goutierrez cathyg358@bellsouth.net
We've just sent the new Illustrated Guide: How to Fill Out the Market Conditions Addendum to the Real Estate Appraisal (Fannie Mae 1004MC-Freddie Mac 71) to the printer. It will be available from Forms and Worms for shipping next week. We will also be running a significant article on the form in our upcoming online issue of REV Magazine.
1. You can pre-order the Illustrated Guide plus CD-Rom -- Item #300213; price $49.95 -- from Forms and Worms right now, at 1-800-243-4545 or www.formsandworms.com Get $10 off with Coupon Code REV09.
2. There's also a CD-Rom available with the entire book in PDF format, which includes the Condominium Case Study and a sample completed 1004MC Form. The CD-Rom is Item #200200 for $34.95.
3. Finally - there's a special offer: Buy the URAR Illustrated Guide & the Exterior Only (2055) Illustrated Guide combo, and new Guide to the 1004MC Form and SAVE $60. Request Special Offer item #400286 for just $69.95.
H2
450) Adjusting Short Sales
01/19/09 Keyword: adjustments
Dear H2,
Is it appropriate and acceptable to make an adjustment to a bank owned or short sale comparable using the percentage difference between the average sale price for arms-length sales vs. the average sale price for bank owned or short sale sales? In other words, if the average sale price of arms-length sales in a neighborhood is 5% higher than the average sale price of bank owned or short sale sales in the same neighborhood, can a 5% adjustment be made to the bank owned and short sale comparables used in the report? An explanation of the adjustment would be stated in the report and backup for the conclusion would be part of the work file.
Linda Sigari benfranklin-lin@charter.net
P.S. Thank you for all your invaluable information and assistance.
Dear Linda,
Your idea of making an adjustment based on data you have developed from the market is a very good one. This is the best basis for most adjustments. Your explanation of the methodology you used to obtain your data and your process of analysis should be part of the comments included in the report.
H2
Is it appropriate and acceptable to make an adjustment to a bank owned or short sale comparable using the percentage difference between the average sale price for arms-length sales vs. the average sale price for bank owned or short sale sales? In other words, if the average sale price of arms-length sales in a neighborhood is 5% higher than the average sale price of bank owned or short sale sales in the same neighborhood, can a 5% adjustment be made to the bank owned and short sale comparables used in the report? An explanation of the adjustment would be stated in the report and backup for the conclusion would be part of the work file.
Linda Sigari benfranklin-lin@charter.net
P.S. Thank you for all your invaluable information and assistance.
Dear Linda,
Your idea of making an adjustment based on data you have developed from the market is a very good one. This is the best basis for most adjustments. Your explanation of the methodology you used to obtain your data and your process of analysis should be part of the comments included in the report.
H2
449) Condition Verification
01/16/09 Keyword: verifying
information
Dear H2,
With lenders ordering pre-foreclosure assignments, I attempt to get the client to allow the use of the old 2055 Fannie or Freddie form and redact the certifications referencing limited appraisal, departure etc. (Items #8 & #9). Some lenders insist on the new 2055 form (March 2005). When the client expressly prohibits contact with the owner/occupant due to the assignment being a pre-foreclosure, do you have any suggestions on how to cover cert #10 (disinterested source for interior condition)?
Thank you
Name and Address withheld by request
Dear Friend,
There is nothing in the USPAP about what appraisal report you use.This is something that is determined in the Scope of Work dialogue with the Lender/Client. If you cannot agree with what they want, or feel you cannot do a credible job based on their requirements, I suggest you turn down the assignment. Certification #10 is a Fannie Mae Scope of Work requirement. If your client understands that your appraisal will not be usable for Fannie Mae without an interior inspection or verification all you would have to do is cross out Certification #10.
H2
With lenders ordering pre-foreclosure assignments, I attempt to get the client to allow the use of the old 2055 Fannie or Freddie form and redact the certifications referencing limited appraisal, departure etc. (Items #8 & #9). Some lenders insist on the new 2055 form (March 2005). When the client expressly prohibits contact with the owner/occupant due to the assignment being a pre-foreclosure, do you have any suggestions on how to cover cert #10 (disinterested source for interior condition)?
Thank you
Name and Address withheld by request
Dear Friend,
There is nothing in the USPAP about what appraisal report you use.This is something that is determined in the Scope of Work dialogue with the Lender/Client. If you cannot agree with what they want, or feel you cannot do a credible job based on their requirements, I suggest you turn down the assignment. Certification #10 is a Fannie Mae Scope of Work requirement. If your client understands that your appraisal will not be usable for Fannie Mae without an interior inspection or verification all you would have to do is cross out Certification #10.
H2
448) USDA Requirements
01/15/09 Keyword: appraisal
qualifications | USDA
Dear H2,
I have been asked by a lender if I am qualified to do appraisals for a USDA loan. This is a new master planned development in an area which qualifies for this type of loan. I called the USDA office and no one seems to have a clear answer regarding appraiser qualifications. I have read the RD 1922-14 form pages 26-35 which is still unclear. I believe that for a single family residence, the current Fannie Mae 1004 form is used, and that the property meets the HUD handbook requirements 4150.2 and 4905. Do you know of any other USDA requirements? Thanks in advance.
James Smith lvappraisalco@cox.net
Dear James,
USDA RD Instruction 1922-A section 1922.6 covers their appraisal requirements. I think you have to go with what this document says or get a clarification from the USDA regional office that covers your area. The complete document can be downloaded from: http://www.rurdev.usda.gov/regs/an/an4364.pdf
H2
I have been asked by a lender if I am qualified to do appraisals for a USDA loan. This is a new master planned development in an area which qualifies for this type of loan. I called the USDA office and no one seems to have a clear answer regarding appraiser qualifications. I have read the RD 1922-14 form pages 26-35 which is still unclear. I believe that for a single family residence, the current Fannie Mae 1004 form is used, and that the property meets the HUD handbook requirements 4150.2 and 4905. Do you know of any other USDA requirements? Thanks in advance.
James Smith lvappraisalco@cox.net
Dear James,
USDA RD Instruction 1922-A section 1922.6 covers their appraisal requirements. I think you have to go with what this document says or get a clarification from the USDA regional office that covers your area. The complete document can be downloaded from: http://www.rurdev.usda.gov/regs/an/an4364.pdf
H2
447) Experience Requirements
01/14/09 Keyword: appraisal
qualifications
Dear H2,
I received my residential license about 18 months ago, which took me 4 years. My supervisor wouldn't share any of his work, so I had to find my own clients, which was hard as a trainee. Now it's taking me forever to get to the 500 hours needed so I can get my certified license. This is a problem as many companies are only using certified appraisers. I have a 4 year degree, but am stuck until I get the required 500 hours. Any suggestions?
Rosemary rmhapp@earthlink.net
Dear Rosemary,
This is a tough position to be in. It seems to me that you have three choices: Try to get more work from the company you now work for, find another full or part time source of work, or just sweat it out until you acquire the needed hours. Good luck in your endeavors.
H2
I received my residential license about 18 months ago, which took me 4 years. My supervisor wouldn't share any of his work, so I had to find my own clients, which was hard as a trainee. Now it's taking me forever to get to the 500 hours needed so I can get my certified license. This is a problem as many companies are only using certified appraisers. I have a 4 year degree, but am stuck until I get the required 500 hours. Any suggestions?
Rosemary rmhapp@earthlink.net
Dear Rosemary,
This is a tough position to be in. It seems to me that you have three choices: Try to get more work from the company you now work for, find another full or part time source of work, or just sweat it out until you acquire the needed hours. Good luck in your endeavors.
H2
446) Converted Garage
01/13/09 Keyword: illegal
use |
conversion
Dear H2,
Subject garage has been converted to small office configuration, with a reception area, manager's office, conference room and Xerox room. Building & Safety Dept. added the sq ft of the garage into the GLA, but says it was done without permits. Since there are no permits, do I count the added GLA and say "no permits"? Or, since there were no permits, should I just count it as a garage? The garage door is still there and probably could be made to function again.
Leroy Thomas III LT3Appraisers@aol.com
Dear Leroy,
First you need to have a scope of work dialogue with you lender/client to determine the purpose of the appraisal. If it is for a Fannie Mae mortgage you and the client should decide who is going to determine if the house as it is used is legal. You then have to decide if you are going to appraise the house 'as is" and let the chips fall where they may or if it will be appraised as some other use than the existing use and your appraisal will be conditional upon the conversion to that legal use. You must be very careful that your appraisal is not knowingly used by the client to defraud anyone and whatever assumptions you make are reasonable and legal. I highly recommend that you get your scope of work instructions for this assignment in writing.
H2
Subject garage has been converted to small office configuration, with a reception area, manager's office, conference room and Xerox room. Building & Safety Dept. added the sq ft of the garage into the GLA, but says it was done without permits. Since there are no permits, do I count the added GLA and say "no permits"? Or, since there were no permits, should I just count it as a garage? The garage door is still there and probably could be made to function again.
Leroy Thomas III LT3Appraisers@aol.com
Dear Leroy,
First you need to have a scope of work dialogue with you lender/client to determine the purpose of the appraisal. If it is for a Fannie Mae mortgage you and the client should decide who is going to determine if the house as it is used is legal. You then have to decide if you are going to appraise the house 'as is" and let the chips fall where they may or if it will be appraised as some other use than the existing use and your appraisal will be conditional upon the conversion to that legal use. You must be very careful that your appraisal is not knowingly used by the client to defraud anyone and whatever assumptions you make are reasonable and legal. I highly recommend that you get your scope of work instructions for this assignment in writing.
H2
445) Marina Valuation
01/12/09 Keyword: improvements
Dear H2,
I am working on an appraisal of a marina that is in above average condition. Occupancy is at 100%; rents have not changed. The marina has been dredged every 20 years and it is time to dredge. The owner has started the permitting process. A previous appraiser appraised the marina using an "as is" valuation. He first estimated the value of the property as if the dredging had been completed, which included a sinking fund for dredging reserves. He then deducted the cost to dredge plus entrepreneurial profit from the prospective value. I feel that he has double dipped. It is difficult to find any literature which addresses this. I would appreciate any assistance you can provide.
B Fish
Dear B,
It is common to consider a significant announced future improvement to a property when making an appraisal, If the property is in a PUD or Condo where funds have been set aside for the improvement, that must be taken into consideration. If not, then you have to consider how the market will react to the knowledge that the property will be improved, but that new owners/renters will have to pay for the improvement. I don't think any strict mathematical formula will work. It is a question of judgment.
H2
I am working on an appraisal of a marina that is in above average condition. Occupancy is at 100%; rents have not changed. The marina has been dredged every 20 years and it is time to dredge. The owner has started the permitting process. A previous appraiser appraised the marina using an "as is" valuation. He first estimated the value of the property as if the dredging had been completed, which included a sinking fund for dredging reserves. He then deducted the cost to dredge plus entrepreneurial profit from the prospective value. I feel that he has double dipped. It is difficult to find any literature which addresses this. I would appreciate any assistance you can provide.
B Fish
Dear B,
It is common to consider a significant announced future improvement to a property when making an appraisal, If the property is in a PUD or Condo where funds have been set aside for the improvement, that must be taken into consideration. If not, then you have to consider how the market will react to the knowledge that the property will be improved, but that new owners/renters will have to pay for the improvement. I don't think any strict mathematical formula will work. It is a question of judgment.
H2
444) Comparable Sales History
01/09/09 Keyword: comps
Dear H2,
For comparable sales history, how far back are we required to report prior sales? I know that for the subject, it is a 3 year history. However I am confused on how far we are supposed to go back for sales history on comparables.
Lee Jennings silkv@aol.com
Dear Lee,
There is no USPAP requirement for a history of the sales of comparables. It is part of the Fannie Mae scope of work which is printed on the URAR and other Fannie Mae forms. They require a history going back 1 year from the most recent sale of the comparable property.
H2
For comparable sales history, how far back are we required to report prior sales? I know that for the subject, it is a 3 year history. However I am confused on how far we are supposed to go back for sales history on comparables.
Lee Jennings silkv@aol.com
Dear Lee,
There is no USPAP requirement for a history of the sales of comparables. It is part of the Fannie Mae scope of work which is printed on the URAR and other Fannie Mae forms. They require a history going back 1 year from the most recent sale of the comparable property.
H2
443) Client Form Requirement
01/08/09 Keyword: USPAP
2008-2009 | requirements
Hello Henry:
I appraised a Michigan property in August which was a "site condomium". The "site condominium" is similar to a home in a platted subdivision. The owner may make improvements to the dwelling and property and is responsible for maintenance of the dwelling and site. The homeowner owns his site (in this case the site was approximately 25,000 square feet). The homeowner fees for the neighborhood (to help maintain greenbelt areas) are $40 per month. The lender is asking me to switch the appraisal from a 1004 form (which is the form which is used for "site condos") to a 1073 form. Is this allowed according to USPAP? The lender says they won't accept this appraisal on a 1004 form.
Sincerely,
Name Withheld by Request
Dear Friend,
The USPAP does not require any specific type of form. It does require that you specify whether your report is a restricted use appraisal report, summary appraisal report or a self-contained appraisal report. USPAP Standard 2 also has requirements about what must be contained in each of these types of appraisal reports. What report you make is determined during the scope of work dialogue you are supposed to have with the client. You have an obligation to determine if the report that the client wants will serve their purpose, and allow you to make a credible appraisal. If you don't agree with the client, you can refuse the assignment.
H2
I appraised a Michigan property in August which was a "site condomium". The "site condominium" is similar to a home in a platted subdivision. The owner may make improvements to the dwelling and property and is responsible for maintenance of the dwelling and site. The homeowner owns his site (in this case the site was approximately 25,000 square feet). The homeowner fees for the neighborhood (to help maintain greenbelt areas) are $40 per month. The lender is asking me to switch the appraisal from a 1004 form (which is the form which is used for "site condos") to a 1073 form. Is this allowed according to USPAP? The lender says they won't accept this appraisal on a 1004 form.
Sincerely,
Name Withheld by Request
Dear Friend,
The USPAP does not require any specific type of form. It does require that you specify whether your report is a restricted use appraisal report, summary appraisal report or a self-contained appraisal report. USPAP Standard 2 also has requirements about what must be contained in each of these types of appraisal reports. What report you make is determined during the scope of work dialogue you are supposed to have with the client. You have an obligation to determine if the report that the client wants will serve their purpose, and allow you to make a credible appraisal. If you don't agree with the client, you can refuse the assignment.
H2
442) FHA Handbook 4150.2
Dear H2,
Is it a requirement to have the FHA 4150.2 Handbook to do FHA appraisals? Is there a revised handbook coming out or already out?
Sondi Eden sondieden@hotmail.com
Dear Sondi,
I don't know if it is specifically required that you own a copy of the handbook but I can't imagine making any FHA appraisals without using one as a reference. You are required to comply with all the FHA requirements -- and they are only found in the Handbook. The current online version (available for free download) is up-to-date. The alternative is to buy a printed and spiral-bound copy, available from Forms and Worms.
Use this link: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300245
At this point in time, the FHA has not set a date for an update of the Handbook, although they have set new parameters regarding who may apply (or re-apply) to be an FHA appraiser.
H2
Is it a requirement to have the FHA 4150.2 Handbook to do FHA appraisals? Is there a revised handbook coming out or already out?
Sondi Eden sondieden@hotmail.com
Dear Sondi,
I don't know if it is specifically required that you own a copy of the handbook but I can't imagine making any FHA appraisals without using one as a reference. You are required to comply with all the FHA requirements -- and they are only found in the Handbook. The current online version (available for free download) is up-to-date. The alternative is to buy a printed and spiral-bound copy, available from Forms and Worms.
Use this link: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300245
At this point in time, the FHA has not set a date for an update of the Handbook, although they have set new parameters regarding who may apply (or re-apply) to be an FHA appraiser.
H2
441) Appraisal Corrections
01/06/09 Keyword: report
| corrections
Dear H2,
What should I do about times when an appraisal report needs a correction to the street address, the name(s), or an incorrect date entered by mistake. No other changes are made to the report. Can I just
resubmit the report as corrected? I don't find anything in USAP that specifically talks about this...e.g., making such simple corrections. Is it necessary to provide an updated addenda page or comment in the report as to what was corrected? Thanks.
Ralph Petrone ralppet@aol.com
Dear Ralph,
As long as the lender/client and the users are the same and the effective date of the appraisal is the same, and you have not been coerced, you can make changes. If possible, you should get your uncorrected copies back so there will not be two versions of your appraisal in circulation. If this is not possible, your corrected version should be clearly marked as such. Your work file should contain a record of what steps you have taken to get the uncorrected version back (preferably in writing).
H2
What should I do about times when an appraisal report needs a correction to the street address, the name(s), or an incorrect date entered by mistake. No other changes are made to the report. Can I just
resubmit the report as corrected? I don't find anything in USAP that specifically talks about this...e.g., making such simple corrections. Is it necessary to provide an updated addenda page or comment in the report as to what was corrected? Thanks.
Ralph Petrone ralppet@aol.com
Dear Ralph,
As long as the lender/client and the users are the same and the effective date of the appraisal is the same, and you have not been coerced, you can make changes. If possible, you should get your uncorrected copies back so there will not be two versions of your appraisal in circulation. If this is not possible, your corrected version should be clearly marked as such. Your work file should contain a record of what steps you have taken to get the uncorrected version back (preferably in writing).
H2
440) Extra Bath
01/05/09 Keyword: adjustments
Dear H2,
If there is a full bath above grade that is in a home and the town hall does not have any record of it, do I still include it in the room count and make an adjustment if a comparable does not have the same bathroom count?
Name withheld by request
Dear Friend,
Usually, you describe the house and make adjustments based on what you actually find when you do your inspection.
If you discover an illegal addition to the house or an illegal use, that should be a separate adjustment.
H2
If there is a full bath above grade that is in a home and the town hall does not have any record of it, do I still include it in the room count and make an adjustment if a comparable does not have the same bathroom count?
Name withheld by request
Dear Friend,
Usually, you describe the house and make adjustments based on what you actually find when you do your inspection.
If you discover an illegal addition to the house or an illegal use, that should be a separate adjustment.
H2
439) Four Photos
12/03/08 Keyword: FHA | photographing
Dear Henry,
This may seem like a stupid question, but a professor once told me it is better to look like a fool in class rather than to prove it on a test. So my question is FHA requires photos showing all four sides of a structure.
If you are doing a home attached to other buildings or parts of buildings on both sides of the property, such as a row house, condo or townhouse, do you need photos of each side of the building?
Eddie Davis edavis2@earthlink.net
Dear Eddie,
Most buildings have four or more sides even when they are abutting another building. If you are going to do work for the FHA, I suggest you try to comply with their requirements the best that you can. It is far easier to shoot pictures of all four sides of a building even if it is blocked by another building than it is to write an explanation as to why you don't think it is going to do any good.
H2
This may seem like a stupid question, but a professor once told me it is better to look like a fool in class rather than to prove it on a test. So my question is FHA requires photos showing all four sides of a structure.
If you are doing a home attached to other buildings or parts of buildings on both sides of the property, such as a row house, condo or townhouse, do you need photos of each side of the building?
Eddie Davis edavis2@earthlink.net
Dear Eddie,
Most buildings have four or more sides even when they are abutting another building. If you are going to do work for the FHA, I suggest you try to comply with their requirements the best that you can. It is far easier to shoot pictures of all four sides of a building even if it is blocked by another building than it is to write an explanation as to why you don't think it is going to do any good.
H2
438) Tax Appeal Reporting Form
12/02/08 Keyword: USPAP
| tax appeal
Henry:
What are the requirements (USPAP) for an appraiser to do property tax appeals? Thank you.
DOUGLAS FREDERICK dougfrederick222@yahoo.com
Dear Douglas,
There are no special USPAP requirements for Tax Appeal appraisals. Keep in mind that your fee cannot be contingent upon the outcome of the appeal. USPAP does not specify what type of report you should use. This is determined between the appraiser and the client as part of the scope of work dialogue. Once you decide what type of report you are going to use the report must conform to the USPAP reporting requirements. If you use a URAR or other Fannie Mae form you will have to modify it as it contains wording that applies to mortgage lending.
H2
What are the requirements (USPAP) for an appraiser to do property tax appeals? Thank you.
DOUGLAS FREDERICK dougfrederick222@yahoo.com
Dear Douglas,
There are no special USPAP requirements for Tax Appeal appraisals. Keep in mind that your fee cannot be contingent upon the outcome of the appeal. USPAP does not specify what type of report you should use. This is determined between the appraiser and the client as part of the scope of work dialogue. Once you decide what type of report you are going to use the report must conform to the USPAP reporting requirements. If you use a URAR or other Fannie Mae form you will have to modify it as it contains wording that applies to mortgage lending.
H2
437) BPOs by Appraisers
12/01/08 Keyword: BPO
Dear H2,
I have been asked to complete a BPO assignment for a real estate agent. I told them I am competent to complete it, but Is this basically in our terms a drive by appraisal? Can we use the Fannie Mae BPO form, which is less detailed? Any ideas?
Thanks in advance,
Big E scappraisalworks@aol.com
Dear E,
A BPO (Broker's Price Opinion) is when a broker gives a client or potential client an opinion about the value of a property they are trying to list or sell. By law, in most states, they do not have to be a licensed appraiser to offer this opinion. They also do not have to comply with the USPAP.
As you describe your situation you would not fall into this category and therefore would be making an appraisal. You would have to do everything that is required by your state laws and the USPAP. The USPAP does not require any type of report. This is something that is decided between you and the client (in this case the broker). When you decide which form you are going to use, then you must make it contain the required information for the type of report you are rendering.
In your position, I would talk to the broker and suggest that they recommend to their client that they obtain an appraisal rather then a BPO.
H2
I have been asked to complete a BPO assignment for a real estate agent. I told them I am competent to complete it, but Is this basically in our terms a drive by appraisal? Can we use the Fannie Mae BPO form, which is less detailed? Any ideas?
Thanks in advance,
Big E scappraisalworks@aol.com
Dear E,
A BPO (Broker's Price Opinion) is when a broker gives a client or potential client an opinion about the value of a property they are trying to list or sell. By law, in most states, they do not have to be a licensed appraiser to offer this opinion. They also do not have to comply with the USPAP.
As you describe your situation you would not fall into this category and therefore would be making an appraisal. You would have to do everything that is required by your state laws and the USPAP. The USPAP does not require any type of report. This is something that is decided between you and the client (in this case the broker). When you decide which form you are going to use, then you must make it contain the required information for the type of report you are rendering.
In your position, I would talk to the broker and suggest that they recommend to their client that they obtain an appraisal rather then a BPO.
H2
436) Partial Interests
Dear H2,
I have to appraise a residential dwelling, a condo, that has 4 owners and I have to value the interest of only one of the owners. I was planning to proceed by arriving at the value for the dwelling as a whole. After that, what steps do I take to to reduce the whole indicated value to the value of the 1/4 interest of only one owner? (P.S. I love your books!)
Linda Richardson marketvalue@nycap.rr.com
Dear Linda,
Appraising a partial interest is a complex appraisal which requires that you be certified. The USPAP also requires that you have the necessary knowledge and experience to do the appraisal or that you get help from someone who does. This is what I suggest you do.
Generally, all things being equal, the value of the partial interests does not add up to the value of the same property owned by a single owner. My book Advanced Appraisal Methods has a chapter on partial Interests which will give you more information about how to approach these assignments. It is available from www.formsandworms.com
H2
I have to appraise a residential dwelling, a condo, that has 4 owners and I have to value the interest of only one of the owners. I was planning to proceed by arriving at the value for the dwelling as a whole. After that, what steps do I take to to reduce the whole indicated value to the value of the 1/4 interest of only one owner? (P.S. I love your books!)
Linda Richardson marketvalue@nycap.rr.com
Dear Linda,
Appraising a partial interest is a complex appraisal which requires that you be certified. The USPAP also requires that you have the necessary knowledge and experience to do the appraisal or that you get help from someone who does. This is what I suggest you do.
Generally, all things being equal, the value of the partial interests does not add up to the value of the same property owned by a single owner. My book Advanced Appraisal Methods has a chapter on partial Interests which will give you more information about how to approach these assignments. It is available from www.formsandworms.com
H2
435) Distress Sale Comps
11/29/08 Keyword: market
trends
Dear H2,
Can you help with this example of typical assignments in today's market? You are doing an appraisal in a "cookie-cutter" subdivision, and fully 50% of the recent closed sales are foreclosures, bank-owned or short-sales, with extremely low values. You are forced to use a couple of the short sales, due to a low number of recent comparable sales. How do you reconcile these with the normal sales, to come up with a final value estimate?
Steve sbaronproperties@aol.com
Dear Steve,
Form what are telling me it seems that distress sales make up an important part of this market. As long as distress sales are readily available and competitive with non-distress sales they must be given serious consideration. With some investigation and analysis, you should be able to determine why buyers are paying substantially more for non-distress property than distress property and base your adjustment on this information.
H2
Can you help with this example of typical assignments in today's market? You are doing an appraisal in a "cookie-cutter" subdivision, and fully 50% of the recent closed sales are foreclosures, bank-owned or short-sales, with extremely low values. You are forced to use a couple of the short sales, due to a low number of recent comparable sales. How do you reconcile these with the normal sales, to come up with a final value estimate?
Steve sbaronproperties@aol.com
Dear Steve,
Form what are telling me it seems that distress sales make up an important part of this market. As long as distress sales are readily available and competitive with non-distress sales they must be given serious consideration. With some investigation and analysis, you should be able to determine why buyers are paying substantially more for non-distress property than distress property and base your adjustment on this information.
H2
434) Appraising for Employer
11/23/08 Keyword: disclosure
Dear H2,
I am office manager for an appraisal company on Maui. I also perform appraisals for this company. My dilemma is that I have started my own independent company as well.
The owner of the company I manage is a real estate broker and he thinks he can send me appraisal business linked to his real estate business under my own company name. Since I would still be working as office manager for his appraisal company, couldn't this be construed as a conflict of interests?
I haven't done this yet and am very leary of committing myself to anything that could cause me to lose my license. Please advise.
Aloha,
Donna sundara@hawaii.rr.com
Dear Donna,
All the broker can do is recommend you to the potential lender/client, which is a common practice. He cannot directly hire you.
However, I think when you receive an assignment as a result of this connection, it must be disclosed to the potential lender/client. To be safe it should also be disclosed in the appraisal
To be very safe, you should discourage the broker from recommending you while you are his employee.
Mahalo,
H2
I am office manager for an appraisal company on Maui. I also perform appraisals for this company. My dilemma is that I have started my own independent company as well.
The owner of the company I manage is a real estate broker and he thinks he can send me appraisal business linked to his real estate business under my own company name. Since I would still be working as office manager for his appraisal company, couldn't this be construed as a conflict of interests?
I haven't done this yet and am very leary of committing myself to anything that could cause me to lose my license. Please advise.
Aloha,
Donna sundara@hawaii.rr.com
Dear Donna,
All the broker can do is recommend you to the potential lender/client, which is a common practice. He cannot directly hire you.
However, I think when you receive an assignment as a result of this connection, it must be disclosed to the potential lender/client. To be safe it should also be disclosed in the appraisal
To be very safe, you should discourage the broker from recommending you while you are his employee.
Mahalo,
H2
433) 2009 Appraisal Outlook
11/22/08 Keyword: bailout
| market
trends
Dear Henry,
Just curious. From what you may have heard, does it appear that there will be any opportunities for appraisers coming from the government bail out, or does it look more like we will be cut out of the process - i.e. the government using AVMs to value properties?
Terry Shannon tjshannon2@comcast.net
Dear Terry,
I am optimistic that the new Federal Requirements related to the bail out will produce a lot more work for appraisers. You can see signs already that the FHA will be much bigger and they will require appraisals not AVMs. There are also some signs that this will be so for Fannie Mae and Freddie Mac. We shall see.
H2
Just curious. From what you may have heard, does it appear that there will be any opportunities for appraisers coming from the government bail out, or does it look more like we will be cut out of the process - i.e. the government using AVMs to value properties?
Terry Shannon tjshannon2@comcast.net
Dear Terry,
I am optimistic that the new Federal Requirements related to the bail out will produce a lot more work for appraisers. You can see signs already that the FHA will be much bigger and they will require appraisals not AVMs. There are also some signs that this will be so for Fannie Mae and Freddie Mac. We shall see.
H2
432) FHA Appraisal Form
Dear H2,
What form do you use to complete an FHA appraisal?
Mecca meccadappraisals@yahoo.com
Dear Mecca,
Single family residential appraisals for FHA should be done on the URAR form. However, FHA has special directions you must follow for their appraisals.
1. First off, you need to download or purchase a hardcopy of the FHA Handbook, 4150.2. It is offered for sale at www.formsandworms.com or you can call 1-800-243-4545. It gives chapter and verse on what FHA wants you to consider when you make an appraisal for them.
2. To download a copy from the FHA Website instead, click here for further details: http://www.hud.gov/groups/appraisers.cfm. Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2". You will have to download and print each chapter separately. [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
3. We also suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful. Ann's Special Report on FHA Appraising is the first item for sale.
4. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form ihas been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements.
H2
What form do you use to complete an FHA appraisal?
Mecca meccadappraisals@yahoo.com
Dear Mecca,
Single family residential appraisals for FHA should be done on the URAR form. However, FHA has special directions you must follow for their appraisals.
1. First off, you need to download or purchase a hardcopy of the FHA Handbook, 4150.2. It is offered for sale at www.formsandworms.com or you can call 1-800-243-4545. It gives chapter and verse on what FHA wants you to consider when you make an appraisal for them.
2. To download a copy from the FHA Website instead, click here for further details: http://www.hud.gov/groups/appraisers.cfm. Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2". You will have to download and print each chapter separately. [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
3. We also suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful. Ann's Special Report on FHA Appraising is the first item for sale.
4. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form ihas been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements.
H2
431) Cost Approach
11/15/08 Keyword: cost
approach
Dear Henry,
Is the cost approach the best method for appraising a timber framed home when there are no timber framed comparable sales in the market area?
Stacey Allen staceyallen@tds.net
Dear Stacey,
I come from the school of thought that believes it is not a good idea to appraise any house using only the cost approach.
As far a timber framed houses go, it would be better, in my opinion, to find out where they are selling and find out how their prices compare to similar houses constructed using a more conventional method. This would give you some basis for a market adjustment for timber framing. I would then apply that adjustment to the comparable sales you select as being most similar, except for the timber framing.
H2
Is the cost approach the best method for appraising a timber framed home when there are no timber framed comparable sales in the market area?
Stacey Allen staceyallen@tds.net
Dear Stacey,
I come from the school of thought that believes it is not a good idea to appraise any house using only the cost approach.
As far a timber framed houses go, it would be better, in my opinion, to find out where they are selling and find out how their prices compare to similar houses constructed using a more conventional method. This would give you some basis for a market adjustment for timber framing. I would then apply that adjustment to the comparable sales you select as being most similar, except for the timber framing.
H2
430) Scope of Work
11/09/08 Keyword: scope of
work
Dear H2,
I was wondering what would be the proper response to a lender who has had 2 months to accept an appraisal and at the last minute requests that we stop whatever we are working on and add more comps to the report. Should we just simply do it, or justify the request with additional fees to cover the request?
David L. Waller dlwall1@mchsi.com
Dear David,
The USPAP requires that you have a scope of work dialogue with the client before you start the appraisal. Unless the number of comparable sales reported in the report was specifically discussed, I believe it would be up to you to decide. If the lender changes the scope of work as they seem to have done in this situation, you have to decide (a) if you want to comply with their request, and (b) if you think it is good business to charge them extra.
H2
I was wondering what would be the proper response to a lender who has had 2 months to accept an appraisal and at the last minute requests that we stop whatever we are working on and add more comps to the report. Should we just simply do it, or justify the request with additional fees to cover the request?
David L. Waller dlwall1@mchsi.com
Dear David,
The USPAP requires that you have a scope of work dialogue with the client before you start the appraisal. Unless the number of comparable sales reported in the report was specifically discussed, I believe it would be up to you to decide. If the lender changes the scope of work as they seem to have done in this situation, you have to decide (a) if you want to comply with their request, and (b) if you think it is good business to charge them extra.
H2
429) FHA Certification Requirement
11/08/08 Keyword: FHA exam
Dear H2,
Is it true FHA will require any licensed appraiser on their roster to be certified by the expiration date of their license? Do you offer any study manuals for certification? Thanks!
Dianna F.
Dear Dianna,
As of today -- Oct. 2nd, 2008 -- the FHA had not announced the details of what a licensed appraiser will have to do to stay on the FHA Approved Appraiser List. We will be keeping readers of REV Magazine Online up to date as we get current information. FHA stopped applications by Licensed Appraisers as of Oct. 1, 2008 and say on their website they will have more details in about three weeks.
One of the rumors is that you will have to upgrade to continue to be eligible. This is probably true. However, I think any time schedule is just a rumor at the moment. Whatever is required, we will offer both classroom and online courses. I suggest that you check regularly with REV Magazine (www.revmag.com) for current information.
H2
Is it true FHA will require any licensed appraiser on their roster to be certified by the expiration date of their license? Do you offer any study manuals for certification? Thanks!
Dianna F.
Dear Dianna,
As of today -- Oct. 2nd, 2008 -- the FHA had not announced the details of what a licensed appraiser will have to do to stay on the FHA Approved Appraiser List. We will be keeping readers of REV Magazine Online up to date as we get current information. FHA stopped applications by Licensed Appraisers as of Oct. 1, 2008 and say on their website they will have more details in about three weeks.
One of the rumors is that you will have to upgrade to continue to be eligible. This is probably true. However, I think any time schedule is just a rumor at the moment. Whatever is required, we will offer both classroom and online courses. I suggest that you check regularly with REV Magazine (www.revmag.com) for current information.
H2
428) Foreclosure Comp
11/02/08 Keyword: forclosure
Dear H2,
The MLS states that a property is Pending at $349,500...however the "sold price" category and "cont. price" category are both blank. Public records do not indicate a sale as of yet. However, the property was supposed to be auctioned off 9/19/2008. The public records show a Notice of Trustee’s Sale and a $488,402 judgment. I don't know what this "judgment amount" means. Also, there is a credit to the buyer of $12,000. Do I make an upward or downward adjustment to the comparable for this $12,000 credit to buyer?
John Malcybon@boscgi0604.eigbox.net
Dear John,
It is always tricky to use as a comparable sale a property that was part of a foreclosure procedure and sold at auction. Not only do you need to know the final selling price, but you have to know all the conditions of sale. Was there special financing or was it a cash deal? Was any personal property included? Was the property condemned? Was it sold free and clear or were there some uncleared encumbrances? And so on...
Any or all of these things may require adjustments. Without knowing more details, I am unable to help you with the credit to seller adjustment.
H2
The MLS states that a property is Pending at $349,500...however the "sold price" category and "cont. price" category are both blank. Public records do not indicate a sale as of yet. However, the property was supposed to be auctioned off 9/19/2008. The public records show a Notice of Trustee’s Sale and a $488,402 judgment. I don't know what this "judgment amount" means. Also, there is a credit to the buyer of $12,000. Do I make an upward or downward adjustment to the comparable for this $12,000 credit to buyer?
John Malcybon@boscgi0604.eigbox.net
Dear John,
It is always tricky to use as a comparable sale a property that was part of a foreclosure procedure and sold at auction. Not only do you need to know the final selling price, but you have to know all the conditions of sale. Was there special financing or was it a cash deal? Was any personal property included? Was the property condemned? Was it sold free and clear or were there some uncleared encumbrances? And so on...
Any or all of these things may require adjustments. Without knowing more details, I am unable to help you with the credit to seller adjustment.
H2
427) Reusing Comps
11/01/08 Keyword: comps
Dear Henry,
I know USPAP requires a new appraisal if the client wants to change the lender. Can we still use the same comps and same date it was signed? Are there any other requirements to protect ourselves?
Thank you! Your information is a great resource.
Nancy Crossley crosstateappraisal@comcast.net
Dear Nancy,
The USPAP does not prohibit the reuse of any material from a previous appraisal in a new appraisal as long as none of it was confidential.
A new appraisal does require a new scope of work dialogue with the client. You should have a record of this discussion in your permanent field notes.
H2
I know USPAP requires a new appraisal if the client wants to change the lender. Can we still use the same comps and same date it was signed? Are there any other requirements to protect ourselves?
Thank you! Your information is a great resource.
Nancy Crossley crosstateappraisal@comcast.net
Dear Nancy,
The USPAP does not prohibit the reuse of any material from a previous appraisal in a new appraisal as long as none of it was confidential.
A new appraisal does require a new scope of work dialogue with the client. You should have a record of this discussion in your permanent field notes.
H2
426) Unique Configuration
10/26/08 Keyword: adjustments
Dear Henry,
I am currently appraising a raised-ranch style home. Lower level, which is below grade, is where the kitchen, dining room, 1/2 bath, and family room are located. There are windows throughout the basement and a sliding glass door to the rear yard. My problem is that I cannot find a single home in the area or beyond with the kitchen in the lower level! Should I appraise it using as comps similar style homes with partially finished basements? Should I adjust for functional utility in the sales grid? Thank you in advance for your help.
Jill jillmandragouras@msn.com
Dear Jill,
It is tricky to appraise an atypical house. The first thing you should do is expand your comparable sale search both in time and distance to see if you can find any comparable sales. Guessing the amount of functional obsolescence caused by this design can get you into trouble. If you can't find a comparable sale anywhere, I would seriously consider not doing the appraisal.
H2
I am currently appraising a raised-ranch style home. Lower level, which is below grade, is where the kitchen, dining room, 1/2 bath, and family room are located. There are windows throughout the basement and a sliding glass door to the rear yard. My problem is that I cannot find a single home in the area or beyond with the kitchen in the lower level! Should I appraise it using as comps similar style homes with partially finished basements? Should I adjust for functional utility in the sales grid? Thank you in advance for your help.
Jill jillmandragouras@msn.com
Dear Jill,
It is tricky to appraise an atypical house. The first thing you should do is expand your comparable sale search both in time and distance to see if you can find any comparable sales. Guessing the amount of functional obsolescence caused by this design can get you into trouble. If you can't find a comparable sale anywhere, I would seriously consider not doing the appraisal.
H2
425) PUD or CONDO
Hi H2!
I would call this question "to PUD or not to PUD?" I have never found a satisfactory way to determine if a townhouse is a condo or a PUD. The latest go-around was when the Zoning office and the management agent said it was NOT a PUD, but a CONDO. The client said that since the title report had its description as metes and bounds, it was a PUD. I wrote up that the client declared this as part of their statement regarding the scope of work. Any advice on this "cloudy" issue?
Many thanks,
Larry Kowitt KowittL@aol.com
Dear Larry,
A condominium is not a style -- it is a form of ownership. A townhouse is a style, but it can be owned in a variety of ways. Sometimes it seems confusing because a condominium can be within a PUD. All 50 states have condominium laws which are very similar to each other. As far as I know, all of them require that the deed to the property indicate that it is a condominium. Therefore, if the deed is silent, the property is not a condominium.
It is not quite as simple for a PUD, but generally the deed will also indicate if the property is located within a PUD. Any real estate attorney in your state should be able provide this information.
H2
I would call this question "to PUD or not to PUD?" I have never found a satisfactory way to determine if a townhouse is a condo or a PUD. The latest go-around was when the Zoning office and the management agent said it was NOT a PUD, but a CONDO. The client said that since the title report had its description as metes and bounds, it was a PUD. I wrote up that the client declared this as part of their statement regarding the scope of work. Any advice on this "cloudy" issue?
Many thanks,
Larry Kowitt KowittL@aol.com
Dear Larry,
A condominium is not a style -- it is a form of ownership. A townhouse is a style, but it can be owned in a variety of ways. Sometimes it seems confusing because a condominium can be within a PUD. All 50 states have condominium laws which are very similar to each other. As far as I know, all of them require that the deed to the property indicate that it is a condominium. Therefore, if the deed is silent, the property is not a condominium.
It is not quite as simple for a PUD, but generally the deed will also indicate if the property is located within a PUD. Any real estate attorney in your state should be able provide this information.
H2
424) Co-Op Unit
10/19/08 Keyword: co-op
Dear H2,
I have been asked to appraise a unit in a co-op. Can you tell me the difference between that and a condo? Do I use the condo form? This is for a private individual.
Loretta Laubach loretta@vanderwerffandassociates.com
Dear Loretta,
Both condominiums and cooperatives are forms of ownership. The USPAP does not cover what form to use. It requires that this be determined as part of the Scope of Work discussion with the client. Appraising co-ops is a specialized skill. Fannie Mae has a Form 2090 which is specifically designed for appraising individual cooperative ownership interests. If you are going to use a Fannie Mae form, this would be the one to use. You should also consider using a short form narrative report. The USPAP requires that you either have the necessary skills or that you get help from someone who does. Be sure you get the help you need on this assignment.
H2
I have been asked to appraise a unit in a co-op. Can you tell me the difference between that and a condo? Do I use the condo form? This is for a private individual.
Loretta Laubach loretta@vanderwerffandassociates.com
Dear Loretta,
Both condominiums and cooperatives are forms of ownership. The USPAP does not cover what form to use. It requires that this be determined as part of the Scope of Work discussion with the client. Appraising co-ops is a specialized skill. Fannie Mae has a Form 2090 which is specifically designed for appraising individual cooperative ownership interests. If you are going to use a Fannie Mae form, this would be the one to use. You should also consider using a short form narrative report. The USPAP requires that you either have the necessary skills or that you get help from someone who does. Be sure you get the help you need on this assignment.
H2
423) Own House
10/18/08 Keyword: conflict of
interest
Hello Henry,
Can I appraise my own home? I've been told by the local assessor's office that it would be a violation of USPAP (2-3). My reply is if I "disclose" that I'm both the owner and appraiser and have interest in the outcome, it should not violate USPAP. My mentor tells me that I can do it, while the state board has told me it's a "gray area."
I know my home better then anyone else. What do you think?
Dave
Dear Dave,
Frequently Asked Question #14 in the 2008-9 USPAP FAQs on the Subcommittee's website (www.asc.gov) addresses this question. It implies that it is not specifically prohibited by the USPAP. However, the Ethics Rule requires the appraiser to provide an "unbiased opinion."
I find it hard to believe anyone can make an unbiased appraisal on a house that they own.You also have to comply with all the USPAP requirements about disclosure of your ownership and make sure that the certification also reflects what you have done. My advice is simple: don't do it.
H2
Can I appraise my own home? I've been told by the local assessor's office that it would be a violation of USPAP (2-3). My reply is if I "disclose" that I'm both the owner and appraiser and have interest in the outcome, it should not violate USPAP. My mentor tells me that I can do it, while the state board has told me it's a "gray area."
I know my home better then anyone else. What do you think?
Dave
Dear Dave,
Frequently Asked Question #14 in the 2008-9 USPAP FAQs on the Subcommittee's website (www.asc.gov) addresses this question. It implies that it is not specifically prohibited by the USPAP. However, the Ethics Rule requires the appraiser to provide an "unbiased opinion."
I find it hard to believe anyone can make an unbiased appraisal on a house that they own.You also have to comply with all the USPAP requirements about disclosure of your ownership and make sure that the certification also reflects what you have done. My advice is simple: don't do it.
H2
422) FHA Forms
Dear H2,
Have the guidelines for FHA appraisers just recently changed? I am FHA certified and have been doing lots of appraisals but I just read about the 3 page FHA required questions for appraisers regarding the home condition. Has this just recently been added?
Also what is the rule regarding appraising a home that sits on a large acreage. How much of the land can we include in the value of the appraisal.
carol singleton csingleton@cimtel.net
Dear Carol,
Where did you read about form? Is it new or the old VC form? The VC Form is no longer required.
Do you have the current FHA Manual? If not you should get one immediately. As far as your other questions if they are not answered in the latest version of the FHA 5140.2 Manual, you should call your FHA Regional Office for help.
Here is some additional information that may help you get the material you need:
1. First off, you need to download (or purchase)
a copy of the main HUD Manual, 4150.2. It is offered
for sale at www.formsandworms.com or you
can call 1-800-243-4545. It gives chapter and
verse on what FHA wants you to consider when you
make an appraisal for them. Click here.
2. To download a copy from the FHA Website, for further details click here: http://www.hud.gov/groups/appraisers.cfm Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2". You will have to download and print each chapter separately. [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
3. We also suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful.
Click here: http://www.appraisaltoday.com/products.htm Ann's Special Report on FHA Appraising is the first item for sale.
4. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form ihas been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements. Click here: http://www.formsandworms.com/cgi-bin/select.pl?Im
H2
Have the guidelines for FHA appraisers just recently changed? I am FHA certified and have been doing lots of appraisals but I just read about the 3 page FHA required questions for appraisers regarding the home condition. Has this just recently been added?
Also what is the rule regarding appraising a home that sits on a large acreage. How much of the land can we include in the value of the appraisal.
carol singleton csingleton@cimtel.net
Dear Carol,
Where did you read about form? Is it new or the old VC form? The VC Form is no longer required.
Do you have the current FHA Manual? If not you should get one immediately. As far as your other questions if they are not answered in the latest version of the FHA 5140.2 Manual, you should call your FHA Regional Office for help.
Here is some additional information that may help you get the material you need:
2. To download a copy from the FHA Website, for further details click here: http://www.hud.gov/groups/appraisers.cfm Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2". You will have to download and print each chapter separately. [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
3. We also suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful.
Click here: http://www.appraisaltoday.com/products.htm Ann's Special Report on FHA Appraising is the first item for sale.
4. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form ihas been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements. Click here: http://www.formsandworms.com/cgi-bin/select.pl?Im
H2
421) Assemblage
10/11/08 Keyword: comps
Hello Henry -
Is ever appropriate to combine two seperate sales transactions into a single unit selling price to be utilized as a comparable? The seperate sales occured about seven months apart, had two independent non-related sellers and were sperately negotiated transactions. In this case, the buyer was assembling the parcels for development.
During the review process, I was told by the reviewer that I should combine all the data from the two transactions and utilize it as one comp. I've never believed this was appropriate - but if it is acceptable practice, I'd like to know. I requested that the reviewer provide me with documentation from a text that would support this as appropriate and so far he has not.
Name withheld by request
Dear Friend:
There are no USPAP or any other rules I am aware of that cover this subject. You have to use good common sense. You need to use the best comparable sales that are available. In addition to the problem of there being two separate sales at two separate times, you have to deal with the fact that they were not typical transactions as their purpose was to produce an assemblage. It seems to me that the reviewer was out of line providing you with this type of instruction as part of the review process.
H2
Is ever appropriate to combine two seperate sales transactions into a single unit selling price to be utilized as a comparable? The seperate sales occured about seven months apart, had two independent non-related sellers and were sperately negotiated transactions. In this case, the buyer was assembling the parcels for development.
During the review process, I was told by the reviewer that I should combine all the data from the two transactions and utilize it as one comp. I've never believed this was appropriate - but if it is acceptable practice, I'd like to know. I requested that the reviewer provide me with documentation from a text that would support this as appropriate and so far he has not.
Name withheld by request
Dear Friend:
There are no USPAP or any other rules I am aware of that cover this subject. You have to use good common sense. You need to use the best comparable sales that are available. In addition to the problem of there being two separate sales at two separate times, you have to deal with the fact that they were not typical transactions as their purpose was to produce an assemblage. It seems to me that the reviewer was out of line providing you with this type of instruction as part of the review process.
H2
420) Old URAR Certification
10/05/08 Keyword: URAR
Dear Henry,
Please clarify this for me. I understand it is permissible to use the 9/93 URAR for a non-lender appraisal. Is it okay to use the Appraiser's Certification that goes with the 9/93 URAR, or is there a better certification form to use for a non-lender client?
Please withhold my name and e-mail address.
Dear Friend:
There is nothing really wrong with the old URAR certification. Before you use it you should read it again and make sure everything on it is applicable to the appraisal you are doing. You might also consider using the certification on the new Appraisal Institute Residential Appraisal form. You can pick and chose and make your own certification that you feel applies best to what you are doing.
H2
Please clarify this for me. I understand it is permissible to use the 9/93 URAR for a non-lender appraisal. Is it okay to use the Appraiser's Certification that goes with the 9/93 URAR, or is there a better certification form to use for a non-lender client?
Please withhold my name and e-mail address.
Dear Friend:
There is nothing really wrong with the old URAR certification. Before you use it you should read it again and make sure everything on it is applicable to the appraisal you are doing. You might also consider using the certification on the new Appraisal Institute Residential Appraisal form. You can pick and chose and make your own certification that you feel applies best to what you are doing.
H2
419) Pool in GLA
Dear H2,
Does an indoor pool area add to the GLA? The public records totals it in the GLA but I am not sure if that's legal, or correct. Thanks!
Frank Farahani quickcomps@gmail.com
Dear Frank,
I know of nothing that directly addresses this problem. Because it is included in the public records, I would also include it in the appraisal report, while making it very clear that this is what I've done.
H2
Does an indoor pool area add to the GLA? The public records totals it in the GLA but I am not sure if that's legal, or correct. Thanks!
Frank Farahani quickcomps@gmail.com
Dear Frank,
I know of nothing that directly addresses this problem. Because it is included in the public records, I would also include it in the appraisal report, while making it very clear that this is what I've done.
H2
418) Form for Vacation Rental
09/29/08 Keyword: forms
Dear H2,
An associate & I have been assigned to appraise a cabin in Estes Park, CO. It is used only for daily/weekly or occasionally monthly tenants. It is not owner-occupied at any time and is often vacant in the winter months. On what form should the report be presented? Would you use the URAR 1004 with a rental addenda or the Small Residential Income Property form 1025? Please advise.
Russell Beers prappraisers@robrus.com
Dear Russell,
What reporting form to use is one of the things you determine as a result of the scope of work dialogue you have with your client as required by USPAP. I wouldn't recommend the URAR for this type of property. If I were going to use a form, I think I would use the new Appraisal Institute Residential Property Form. However, I think you would find it easier to make a short form narrative report than try to fit the information onto a form.
H2
Editor's note: For Henry's module, "Narrative Report Writing", call Forms and Worms at 1-800-243-4545 or go online to: www.formsandworms.com
An associate & I have been assigned to appraise a cabin in Estes Park, CO. It is used only for daily/weekly or occasionally monthly tenants. It is not owner-occupied at any time and is often vacant in the winter months. On what form should the report be presented? Would you use the URAR 1004 with a rental addenda or the Small Residential Income Property form 1025? Please advise.
Russell Beers prappraisers@robrus.com
Dear Russell,
What reporting form to use is one of the things you determine as a result of the scope of work dialogue you have with your client as required by USPAP. I wouldn't recommend the URAR for this type of property. If I were going to use a form, I think I would use the new Appraisal Institute Residential Property Form. However, I think you would find it easier to make a short form narrative report than try to fit the information onto a form.
H2
Editor's note: For Henry's module, "Narrative Report Writing", call Forms and Worms at 1-800-243-4545 or go online to: www.formsandworms.com
417) Burial Plot Easements
09/26/08 Keyword: easements
Dear H2,
I am appraising a single family residence on 4.3 acres in a rural setting. The site has approximately 8 historical burial plots situated about 125 feet from the actual dwelling. Visitors do frequent the burial site. According to the homeowner, they own the land and there is no recorded easement. What is the appropriate way to adjust for this scenario?
erin bunn ebunn@roadrunner.com
Dear Erin,
The easement need not to be recorded to exist. You are required to report all apparent easements and I think that this falls into that category. A bigger problem is what effect the easement has on the value of the property. Be careful, this is not going to be easy!
H2
I am appraising a single family residence on 4.3 acres in a rural setting. The site has approximately 8 historical burial plots situated about 125 feet from the actual dwelling. Visitors do frequent the burial site. According to the homeowner, they own the land and there is no recorded easement. What is the appropriate way to adjust for this scenario?
erin bunn ebunn@roadrunner.com
Dear Erin,
The easement need not to be recorded to exist. You are required to report all apparent easements and I think that this falls into that category. A bigger problem is what effect the easement has on the value of the property. Be careful, this is not going to be easy!
H2
416) Safety & Health Concerns
Dear H2,
Subject property has an inground concrete swimming pool that was constructed before code required a security fence (and it does not have one). Pool is now empty "pending repairs". Per FHA guidelines is the empty pool a "health, safety or livability" problem and is a security fence required? I've already called HUD and their answer was less than concise (it consisted of maybe/probably).
Thanks in advance for your response.
Kurt Power kjpower@charter.net
Dear Kurt,
I assume you have a current copy of FHA Manual 4150.2 and have read the section on Health and Safety items. It seems to me that you must report what you find on the site and you therefore must describe the pool as you find it.
I believe all appraisers should be reporting any health and safety concerns they find on a property whether it is required by the lender/client or not.
H2
Subject property has an inground concrete swimming pool that was constructed before code required a security fence (and it does not have one). Pool is now empty "pending repairs". Per FHA guidelines is the empty pool a "health, safety or livability" problem and is a security fence required? I've already called HUD and their answer was less than concise (it consisted of maybe/probably).
Thanks in advance for your response.
Kurt Power kjpower@charter.net
Dear Kurt,
I assume you have a current copy of FHA Manual 4150.2 and have read the section on Health and Safety items. It seems to me that you must report what you find on the site and you therefore must describe the pool as you find it.
I believe all appraisers should be reporting any health and safety concerns they find on a property whether it is required by the lender/client or not.
H2
415) Marketing Time
09/24/08 Keyword: marketing
time
Dear Henry,
This may be more of an underwriting question, but it has been one I've been mulling for some time. In REO appraisals typically there is a 90/120 days sale value and market value. Do you think that for risk purposes lenders should also ask for a 90 to 120 day value? It seems like that would be a better measurement of risk.
Doug Quenzer dq@quenzerappraisals.com
Dear Doug,
The problem has been that the URAR and other Fannie Mae forms use the definition of Market Value that was developed by the government and is now law. This definition calls for "normal marketing time." If you change the definition of market value it would have to be a non-URAR appraisal and would also not be acceptable to Freddie Mac or Fannie Mae.
H2
This may be more of an underwriting question, but it has been one I've been mulling for some time. In REO appraisals typically there is a 90/120 days sale value and market value. Do you think that for risk purposes lenders should also ask for a 90 to 120 day value? It seems like that would be a better measurement of risk.
Doug Quenzer dq@quenzerappraisals.com
Dear Doug,
The problem has been that the URAR and other Fannie Mae forms use the definition of Market Value that was developed by the government and is now law. This definition calls for "normal marketing time." If you change the definition of market value it would have to be a non-URAR appraisal and would also not be acceptable to Freddie Mac or Fannie Mae.
H2
414) Downfall of Fannie & Freddie
Henry,
Why for the last several years has the appraisal community, including yourself, done whatever FANNIE MAE has demanded -- including the use of their poorly-drafted new URAR forms. Seems those of us who felt concerns were right, in light of the current disaster in the secondary market. Remember when we were told not to add addemdums to protecting ourselves against FANNIE's poor decisions? Bah humbug!!
Dave Hanson hansondb@charter.net
Dear Dave,
You are wrong regarding my feelings about the new URAR and other new Fannie Mae forms. In several editorials over the past 2-1/2 years I have expressed my disappointment that Fannie Mae had taken over that major forms that had been thoughtfully developed by a committee consisting of representatives of many facets of the appraisal and lending profession. I have also written editorials about what I think is wrong with the forms and how they could be improved.
I also predicted a long time ago that Freddie Mac and Fannie Mae did not have enough reserves to handle any kind of a severe down market. Furthermore, I have always been against the way they were regulated. I wouldn't let the FHA (OFHEO was part of the FHA) regulate anything.
Finally, I have always spoken and written freely about Fannie Mae and Freddie Mac.
H2
Why for the last several years has the appraisal community, including yourself, done whatever FANNIE MAE has demanded -- including the use of their poorly-drafted new URAR forms. Seems those of us who felt concerns were right, in light of the current disaster in the secondary market. Remember when we were told not to add addemdums to protecting ourselves against FANNIE's poor decisions? Bah humbug!!
Dave Hanson hansondb@charter.net
Dear Dave,
You are wrong regarding my feelings about the new URAR and other new Fannie Mae forms. In several editorials over the past 2-1/2 years I have expressed my disappointment that Fannie Mae had taken over that major forms that had been thoughtfully developed by a committee consisting of representatives of many facets of the appraisal and lending profession. I have also written editorials about what I think is wrong with the forms and how they could be improved.
I also predicted a long time ago that Freddie Mac and Fannie Mae did not have enough reserves to handle any kind of a severe down market. Furthermore, I have always been against the way they were regulated. I wouldn't let the FHA (OFHEO was part of the FHA) regulate anything.
Finally, I have always spoken and written freely about Fannie Mae and Freddie Mac.
H2
413) Workfile Contents
09/22/08 Keyword: workfile
Dear H2,
What should be included in an appraisal workfile?
Marti martiwatts@charterinternet.com
Dear Marti,
The 2008-9 USPAP Frequently Asked Question # 47 addresses this question:
"The work file must include: the name of the client and the identity, by name or type, of an other intended users; true copies of any written reports, documents on any type of media; summaries of any oral reports or testimony, or a transcript of testimony, including the appraiser's signed and dated certification; and all other data, information and documentation necessary to support the appraiser's opinions and conclusions and to show compliance with this Rule and all other applicable Standards, or references to the locations(s) of such other documentations."
H2
What should be included in an appraisal workfile?
Marti martiwatts@charterinternet.com
Dear Marti,
The 2008-9 USPAP Frequently Asked Question # 47 addresses this question:
"The work file must include: the name of the client and the identity, by name or type, of an other intended users; true copies of any written reports, documents on any type of media; summaries of any oral reports or testimony, or a transcript of testimony, including the appraiser's signed and dated certification; and all other data, information and documentation necessary to support the appraiser's opinions and conclusions and to show compliance with this Rule and all other applicable Standards, or references to the locations(s) of such other documentations."
H2
412) Square Foot Symbol
09/19/08 Keyword: definitions
I am working on a multi-family report and decided to use FHLMC Form 71-B, Rev. 8/77, it is the first time I've used this form. On page 2 of the form there is a column headed with a symbol and data needs to be entered into this column. The symbol is a horizontal rectangle with a forward slash going through it vertically. Can you tell me what this symbol means?
Deborah Fifer deborahfifer@aol.com
Dear Deborah,
Usually this is the symbol for "square foot" in the real estate and construction industries.
H2
411) Builder's ProForma
09/18/08 Keyword: comps
Dear H2,
I am reviewing an appraisal report where the appraisal problem is the retrospective value of a group of a few hundred serviced, ready to-build SFD residential subdivision lots. In addition to the direct comparative approach used by the appraiser, he also provides a summary of the builder's pro-forma and uses this as support for his lot value conclusion.
He does not say if any of the components in the pro-forma are reasonable; he simply uses the lot value conclusion to say that it supports his conclusion based on the aforementioned comparable sales. I question whether the proforma can be relied upon as a recognized method in which to value residential lots. The proforma refers to sale price revenue from the completed homes, building costs, profit etc.
What do you think?
Steve Mullins s.mullins@sympatico.ca
Dear Steve,
An appraiser may consider almost any information they wish in their analysis. However, I don't think that these proforma statements could be used as comparable sales.
H2
I am reviewing an appraisal report where the appraisal problem is the retrospective value of a group of a few hundred serviced, ready to-build SFD residential subdivision lots. In addition to the direct comparative approach used by the appraiser, he also provides a summary of the builder's pro-forma and uses this as support for his lot value conclusion.
He does not say if any of the components in the pro-forma are reasonable; he simply uses the lot value conclusion to say that it supports his conclusion based on the aforementioned comparable sales. I question whether the proforma can be relied upon as a recognized method in which to value residential lots. The proforma refers to sale price revenue from the completed homes, building costs, profit etc.
What do you think?
Steve Mullins s.mullins@sympatico.ca
Dear Steve,
An appraiser may consider almost any information they wish in their analysis. However, I don't think that these proforma statements could be used as comparable sales.
H2
410) Lender's Comp
09/17/08 Keyword: lender
comps
Henry:
I am performing a retrospective field review in which the appraiser has the final opinion of value on the report as $160,000. An additional comparable was added at a later date and the comments under Comparable 4 state: "This sale had not been reported at the time of the original appraisal. With this new sale, I feel and increase in value is warranted. New appraisal value: $170,000."
The report was not altered in any way with the exception of adding this additional comparable and the above mentioned quote. This appears to be a USPAP violation as well as a new assignment. It appears the appraiser has succumb to lender pressure. How do I explain the violation in my review?
Rob rstilo@lpbroadband.net
Dear Rob,
The USPAP provides good guidance on this type of situation. Look at Statement #3 and Frequently Asked Question #91 on page F-34 of the 2008-2009.
You should apply these guidelines to your particular situation and in your review report state your findings. The key question seems to be the availability of the information in the market at the date of the appraisal. It is quite common for a lender to supply information about a comparable sale they believe the appraiser has overlooked. I am not sure this is always lender pressure.
H2
I am performing a retrospective field review in which the appraiser has the final opinion of value on the report as $160,000. An additional comparable was added at a later date and the comments under Comparable 4 state: "This sale had not been reported at the time of the original appraisal. With this new sale, I feel and increase in value is warranted. New appraisal value: $170,000."
The report was not altered in any way with the exception of adding this additional comparable and the above mentioned quote. This appears to be a USPAP violation as well as a new assignment. It appears the appraiser has succumb to lender pressure. How do I explain the violation in my review?
Rob rstilo@lpbroadband.net
Dear Rob,
The USPAP provides good guidance on this type of situation. Look at Statement #3 and Frequently Asked Question #91 on page F-34 of the 2008-2009.
You should apply these guidelines to your particular situation and in your review report state your findings. The key question seems to be the availability of the information in the market at the date of the appraisal. It is quite common for a lender to supply information about a comparable sale they believe the appraiser has overlooked. I am not sure this is always lender pressure.
H2
409) MIneral Rights
09/16/08 Keyword: legislation
Dear H2,
I have an assignment to appraise an undeveloped lot where the current deed for the property issued by the property grantor of the deed to the current owner reserves all mineral rights, "including oil, coal, gas, metals, mineable rock products, sand, gravel, peat, and any and all other mineral rights, whether or not appearing in the public record in, on and under the above described land to the extent provided by applicable law."
The property is in Florida. With these restrictions, could one actually build on the lot? It would appear that if one built, the previous owner could come in at any time and exercise his access to minerals, etc. that have been reserved regardless of any structure placed on the property.
Leslie Lorenz ljlorenz@comcast.net
Dear Leslie,
Most mineral rights are set up in a way that does permit the owner of the rest of the fee to build on the land. However, this is a legal question, so I believe that you should consult an attorney.
H2
I have an assignment to appraise an undeveloped lot where the current deed for the property issued by the property grantor of the deed to the current owner reserves all mineral rights, "including oil, coal, gas, metals, mineable rock products, sand, gravel, peat, and any and all other mineral rights, whether or not appearing in the public record in, on and under the above described land to the extent provided by applicable law."
The property is in Florida. With these restrictions, could one actually build on the lot? It would appear that if one built, the previous owner could come in at any time and exercise his access to minerals, etc. that have been reserved regardless of any structure placed on the property.
Leslie Lorenz ljlorenz@comcast.net
Dear Leslie,
Most mineral rights are set up in a way that does permit the owner of the rest of the fee to build on the land. However, this is a legal question, so I believe that you should consult an attorney.
H2
408) Marijuana smoke
09/15/08 Keyword: disclosure
| comps
Dear H2,
I am doing an appraisal on a former drug house. This home was used to grow marijuana. My question is in regard to the potential impact of the odor that remains in the home. Is it considered similar to cigarette smoke? If so, are you aware of any long term effects from the odor or any stigma about the home being a former marijuana growers' house?
Thomas E. Adams II tom@appraisertom.com
Dear Thomas,
These are the problems you will need to solve: First, is it a stigmatized house? That depends on your market area. Meth houses are almost always stigmatized. I am less sure about whether marijuana smoke is a significant enough issue to cause stigmatization. As far as the smoke itself goes, there are companies that will come in and remove the odor. They are the same ones that clean up houses after a fire. The main problem I see is how do you get comparable sales to back up whatever adjustment you are going to make.
H2
I am doing an appraisal on a former drug house. This home was used to grow marijuana. My question is in regard to the potential impact of the odor that remains in the home. Is it considered similar to cigarette smoke? If so, are you aware of any long term effects from the odor or any stigma about the home being a former marijuana growers' house?
Thomas E. Adams II tom@appraisertom.com
Dear Thomas,
These are the problems you will need to solve: First, is it a stigmatized house? That depends on your market area. Meth houses are almost always stigmatized. I am less sure about whether marijuana smoke is a significant enough issue to cause stigmatization. As far as the smoke itself goes, there are companies that will come in and remove the odor. They are the same ones that clean up houses after a fire. The main problem I see is how do you get comparable sales to back up whatever adjustment you are going to make.
H2
407) Adult Care Center
09/12/08 Keyword: scope of
work |
compensation
Hi Henry,
I am a certified residential real estate appraiser in Arizona. I have been asked to appraise a single family home that is being used as an adult care home. I faintly remember in one of my classes over the years that if you ever get an order for one of these that you should turn it down! The MLS listing on this property was under "business opportunity" as oposed to being listed as a residential home.
Brad Whitmore dawnwhitmore@qwest.net
Dear Brad,
You probably got good advice back in your class, as the fee you will get will unlikely compensate you adequately for the amount of work involved.
The trouble starts with the scope of work dialogue. Does the client want an appraisal of a going business or a single family house? If it is a going business, you are going to have to determine — as part of your highest and best use analysis — if this is a legal use.
Then you going to have to get comparable sales of other similar properties, with the same use. If it is not a legal use and the client wants it appraised as a single family house, you will have to determine what renovations are needed to convert it back to that use. Keep in mind that the USPAP requires that you be qualified to do the assignment or that you get whatever help is needed. You also should determine what type of report the client needs. None of this is impossible — it is just a question of whether you will be paid for the time and energy it will take to do a good job.
H2
I am a certified residential real estate appraiser in Arizona. I have been asked to appraise a single family home that is being used as an adult care home. I faintly remember in one of my classes over the years that if you ever get an order for one of these that you should turn it down! The MLS listing on this property was under "business opportunity" as oposed to being listed as a residential home.
Brad Whitmore dawnwhitmore@qwest.net
Dear Brad,
You probably got good advice back in your class, as the fee you will get will unlikely compensate you adequately for the amount of work involved.
The trouble starts with the scope of work dialogue. Does the client want an appraisal of a going business or a single family house? If it is a going business, you are going to have to determine — as part of your highest and best use analysis — if this is a legal use.
Then you going to have to get comparable sales of other similar properties, with the same use. If it is not a legal use and the client wants it appraised as a single family house, you will have to determine what renovations are needed to convert it back to that use. Keep in mind that the USPAP requires that you be qualified to do the assignment or that you get whatever help is needed. You also should determine what type of report the client needs. None of this is impossible — it is just a question of whether you will be paid for the time and energy it will take to do a good job.
H2
406) Tax Reporting
09/11/08 Keyword: tax
reporting | scope of
work
Good morning Mr. Harrison,
I just received a request from the underwriter on a loan for a purchase for the taxes on my appraisal report to match the tax figures on the county records. It had been my understanding that the taxes on my report should reflect what the buyer of the property will pay when they complete the purchase. In California, as I am sure you know, taxes are determined by Proposition 13 that was enacted in the late 1970s which set the property taxes at 1% of the purchase price, which will be different than what the current owner is paying.
So, is there a standard for what is reported in the tax box on the form?
Thanks for your help.
Rodney Stewart elscotsmon@aol.com
Dear Rodney,
There is no one answer to this question. You should do what is customary in your area and if in doubt, discuss it with your lender/client as part of the scope of work discussion. The important thing is to make it clear in your report what you have done.
H2
I just received a request from the underwriter on a loan for a purchase for the taxes on my appraisal report to match the tax figures on the county records. It had been my understanding that the taxes on my report should reflect what the buyer of the property will pay when they complete the purchase. In California, as I am sure you know, taxes are determined by Proposition 13 that was enacted in the late 1970s which set the property taxes at 1% of the purchase price, which will be different than what the current owner is paying.
So, is there a standard for what is reported in the tax box on the form?
Thanks for your help.
Rodney Stewart elscotsmon@aol.com
Dear Rodney,
There is no one answer to this question. You should do what is customary in your area and if in doubt, discuss it with your lender/client as part of the scope of work discussion. The important thing is to make it clear in your report what you have done.
H2
405) Ancillary Report
09/10/08 Keyword: scope of
work |
ancillary
report
Dear H2,
I did a land appraisal. Now the lender wants to know if the lot is buildable. The lot is in the Hollywood Hills area of Los Angeles. Other houses are already built on adjacent sites, on either side of the subject, and all around the area.
I was given a Geological and Soil Engineering Report saying the the lot was buildable "if stated conditions are complied with. Conditions: Geologist and soil engineers shall review and approve detailed plans prior to issuance of any permits."
Does much more have to be said than, "Yes,the lot is buildable"? Do I include a copy of the Geological and Soil Engineering Report? Also, this task was not in the orginial scope of work. Do I charge an additional fee? What's appropriate?
Thanks,
Leroy LT3Appraisers@aol.com
Dear Leroy,
I would go back to the client and reopen the scope of work discussion and depending upon what they want and your relationship with the client, consider asking them for an adjusted fee.
At a minimum, I would include a summary of the Geological and Soil Engineering Report in your appraisal report and a statement saying that you have relied on the report, and that if it proves to be incorrect, the value you have estimated may also be incorrect.
H2
I did a land appraisal. Now the lender wants to know if the lot is buildable. The lot is in the Hollywood Hills area of Los Angeles. Other houses are already built on adjacent sites, on either side of the subject, and all around the area.
I was given a Geological and Soil Engineering Report saying the the lot was buildable "if stated conditions are complied with. Conditions: Geologist and soil engineers shall review and approve detailed plans prior to issuance of any permits."
Does much more have to be said than, "Yes,the lot is buildable"? Do I include a copy of the Geological and Soil Engineering Report? Also, this task was not in the orginial scope of work. Do I charge an additional fee? What's appropriate?
Thanks,
Leroy LT3Appraisers@aol.com
Dear Leroy,
I would go back to the client and reopen the scope of work discussion and depending upon what they want and your relationship with the client, consider asking them for an adjusted fee.
At a minimum, I would include a summary of the Geological and Soil Engineering Report in your appraisal report and a statement saying that you have relied on the report, and that if it proves to be incorrect, the value you have estimated may also be incorrect.
H2
404) Report format
09/09/08 Keyword: USPAP
2008-2009
Dear HH:
I have to do an appraisal for a homeowner getting a divorce, who wants to know what his home is worth. Which form should I use? I know the new URAR form says it is for mortgage purposes only. Also, some forms are small. Does every bit of information need to be on the form, even if it is in my work file?
Thank you in advance for your help.
Mark Zeigler ZeiglerAppraisal@aol.com
P.S. I took my classes from you in 1981 in Bloomington, IN. You were great!
Dear Mark,
Thanks for the kind words. I am still in contact with some of the friends I made at IU.
What report you use is not covered by the USPAP. As far at the URAR and other Fannie Mae forms go, you can use them for non-mortgage purposes as long as you alter the wording on the form to apply to your situation. You might also consider using the Appraisal Institute's Single Family Residential Appraisal Report or a short form narrative report. The final decision about the report format should be made based on the scope of work dialogue you have with your client.
H2
I have to do an appraisal for a homeowner getting a divorce, who wants to know what his home is worth. Which form should I use? I know the new URAR form says it is for mortgage purposes only. Also, some forms are small. Does every bit of information need to be on the form, even if it is in my work file?
Thank you in advance for your help.
Mark Zeigler ZeiglerAppraisal@aol.com
P.S. I took my classes from you in 1981 in Bloomington, IN. You were great!
Dear Mark,
Thanks for the kind words. I am still in contact with some of the friends I made at IU.
What report you use is not covered by the USPAP. As far at the URAR and other Fannie Mae forms go, you can use them for non-mortgage purposes as long as you alter the wording on the form to apply to your situation. You might also consider using the Appraisal Institute's Single Family Residential Appraisal Report or a short form narrative report. The final decision about the report format should be made based on the scope of work dialogue you have with your client.
H2
403) E & O Woe
Dear Henry,
Do you have any advice for obtaining E&O insurance after a claim has been filed against you? Is there any life possible as an appraiser after a law suit that is unfounded but required legal assistance?
Primo M.
Dear Primo,
As far as I know there is no insurance that you can buy that will cover a loss that has already resulted in a law suit.
Further bad news is that even applying for a policy that will cover you for future losses is not going to be easy, as they will want to know your loss experience. However, I would apply to all of the companies that advertise in REVMAG Online as they are some of the best in the field. You should tell them the truth about you present claim so that if they issue a policy they cannot later claim you obtained the policy on a fraudulent application and therefore void the policy. Once you settle you present claim you should apply again to see if you can get a lower rate.
I can sympathize with you as I was sued for a large amount when I was an active appraiser and even though I had insurance (with a $5,000 deductible which I had to send to the insurance company before they even started to defend me), it was a terrifying experience. Eventually, I was proven not to be at fault, but it took years.
The bad news is that you must immediately hire an attorney to defend you and hope they will put an end to the problem.
H2
Do you have any advice for obtaining E&O insurance after a claim has been filed against you? Is there any life possible as an appraiser after a law suit that is unfounded but required legal assistance?
Primo M.
Dear Primo,
As far as I know there is no insurance that you can buy that will cover a loss that has already resulted in a law suit.
Further bad news is that even applying for a policy that will cover you for future losses is not going to be easy, as they will want to know your loss experience. However, I would apply to all of the companies that advertise in REVMAG Online as they are some of the best in the field. You should tell them the truth about you present claim so that if they issue a policy they cannot later claim you obtained the policy on a fraudulent application and therefore void the policy. Once you settle you present claim you should apply again to see if you can get a lower rate.
I can sympathize with you as I was sued for a large amount when I was an active appraiser and even though I had insurance (with a $5,000 deductible which I had to send to the insurance company before they even started to defend me), it was a terrifying experience. Eventually, I was proven not to be at fault, but it took years.
The bad news is that you must immediately hire an attorney to defend you and hope they will put an end to the problem.
H2
402) Confidential Information
09/05/08 Keyword: confidentiality
Hi Henry:
I have been attempting to establish my own appraisal office for a little more than a year now. I was recently asked for two sample appraisals to be supplied to potential clients, in an effort to secure more work. The copies were requested via e-mail in pdf format.
My question is regarding confidentiality. If I send these via e-mail, I have no way of blocking out the client's name or the borrower's name. Isn't this considered a violation of confidentiality rules if I send these with this information in plain view of the person reviewing the reports?
Dale R. Thompson thompsapp@comcast.net
Dear Dale,
The USPAP prohibits you from sending any confidential information in an appraisal report to anyone that is not authorized by the lender/client.
The best way to overcome this is to ask the client if you can use their report as an example of your work. Most clients are flattered by this type of request and will grant you permission. If you do not have such permission I think you would have to disguise the report sufficiently so that none of the confidential information in it -- including the fact that you made an appraisal of the subject property -- can be identified. Personally, I would hesitate to send a copy of any report to anyone other than the lender/client without the lender/client's express permission. For further safety, I'd request their permission in writing.
H2
I have been attempting to establish my own appraisal office for a little more than a year now. I was recently asked for two sample appraisals to be supplied to potential clients, in an effort to secure more work. The copies were requested via e-mail in pdf format.
My question is regarding confidentiality. If I send these via e-mail, I have no way of blocking out the client's name or the borrower's name. Isn't this considered a violation of confidentiality rules if I send these with this information in plain view of the person reviewing the reports?
Dale R. Thompson thompsapp@comcast.net
Dear Dale,
The USPAP prohibits you from sending any confidential information in an appraisal report to anyone that is not authorized by the lender/client.
The best way to overcome this is to ask the client if you can use their report as an example of your work. Most clients are flattered by this type of request and will grant you permission. If you do not have such permission I think you would have to disguise the report sufficiently so that none of the confidential information in it -- including the fact that you made an appraisal of the subject property -- can be identified. Personally, I would hesitate to send a copy of any report to anyone other than the lender/client without the lender/client's express permission. For further safety, I'd request their permission in writing.
H2
401) As Is Value
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
400) REO Quick Sale
Dear Henry,
How would you handle the issue of exposure time on the market for an REO "quick sale"
Robert Ebert bob@ebertappraisal.com
Dear Robert,
If the time you use for an REO sale is not the typical marketing time in that market area, then you are changing the definition of market value with all the repercussions associated with doing this. The best thing to do is to ask the lender/client what the marketing time should be and if it is different from typical marketing time, make sure they understand that you are changing the definition of value. This is quite common and is often what the ERC requires, which is one reason they use their own forms with their own definition of value.
H2
How would you handle the issue of exposure time on the market for an REO "quick sale"
Robert Ebert bob@ebertappraisal.com
Dear Robert,
If the time you use for an REO sale is not the typical marketing time in that market area, then you are changing the definition of market value with all the repercussions associated with doing this. The best thing to do is to ask the lender/client what the marketing time should be and if it is different from typical marketing time, make sure they understand that you are changing the definition of value. This is quite common and is often what the ERC requires, which is one reason they use their own forms with their own definition of value.
H2
399) Life Estates
09/02/08 Keyword: scope of
work
Dear Henry,
Where can I find information on valuing life estates and the forms that are required?
Thank You,
Charles A. Smith csmith@smithvalue.com
Dear Charles,
This subject is covered in my book Advanced Appraisal Methods in the “Partial Interests” chapter. It is available from wormsandworms at www.formsandworms.com or by calling: 1-800-243-4545.
There is no special form for this type of appraisal. You should discuss the needed report with your client as part of the scope of work dialogue. If it were up to me, I would use a short form narrative.
H2
Where can I find information on valuing life estates and the forms that are required?
Thank You,
Charles A. Smith csmith@smithvalue.com
Dear Charles,
This subject is covered in my book Advanced Appraisal Methods in the “Partial Interests” chapter. It is available from wormsandworms at www.formsandworms.com or by calling: 1-800-243-4545.
There is no special form for this type of appraisal. You should discuss the needed report with your client as part of the scope of work dialogue. If it were up to me, I would use a short form narrative.
H2
398) Subject As Comparable
08/29/08 Keyword: value
Dear Henry,
When appraising residential properties that have been offered for sale, I inherently give some weight in my final opinion of value to the listing, or more specifically, the contract price. Where in an appraisal report (e.g., the URAR for example) is it appropriate to state this? I have considered the reconciliation section but that seems to be intended for the reconciliation of the sales comparison, cost, and income approaches only. I am thinking it may be more appropriate to just add the subject to the sales comparison grid (as listed or pending)as a 4th or 5th comp. Fannie addresses using the subject as a supplemental comp when it has recently closed escrow but does not specifically comment when it is listed or pending. What do you think?
Sid Giacomo siddhagiacomo@yahoo.com
Dear Sid,
I have always thought that the sale of the subject property was a good comparable if for no other reason than it usually would not require any adjustments. Certification #5 on the URAR and other Fannie Mae forms says: "I have researched, verified, analyzed and reported on any current agreement for sale of the subject property...." It seems to me they are requiring you to consider the sale of the subject property. The USPAP does not say anything about which comparable sales to use. Listing and pending sales usually are given less weight than closed sales and this would apply to the subject property too. It is redundant to say you have considered the sale of the subject, as you report this by signing the certificate. However, I see nothing wrong with saying how you considered it in the reconciliation section.
H2
When appraising residential properties that have been offered for sale, I inherently give some weight in my final opinion of value to the listing, or more specifically, the contract price. Where in an appraisal report (e.g., the URAR for example) is it appropriate to state this? I have considered the reconciliation section but that seems to be intended for the reconciliation of the sales comparison, cost, and income approaches only. I am thinking it may be more appropriate to just add the subject to the sales comparison grid (as listed or pending)as a 4th or 5th comp. Fannie addresses using the subject as a supplemental comp when it has recently closed escrow but does not specifically comment when it is listed or pending. What do you think?
Sid Giacomo siddhagiacomo@yahoo.com
Dear Sid,
I have always thought that the sale of the subject property was a good comparable if for no other reason than it usually would not require any adjustments. Certification #5 on the URAR and other Fannie Mae forms says: "I have researched, verified, analyzed and reported on any current agreement for sale of the subject property...." It seems to me they are requiring you to consider the sale of the subject property. The USPAP does not say anything about which comparable sales to use. Listing and pending sales usually are given less weight than closed sales and this would apply to the subject property too. It is redundant to say you have considered the sale of the subject, as you report this by signing the certificate. However, I see nothing wrong with saying how you considered it in the reconciliation section.
H2
397) Sales Contract Concerns
08/28/08 Keyword: Fannie Mae
| scope of
work
Dear Henry,
I do several appraisals a month for a larger nationwide bank. They have started the practice of not providing the purchase agreement. They say I am to get this from the Realtor. This causes a delay in my work as some Realtors don't respond and some of the work is on FSBO deals. I was under the impression that Fannie Mae guidelines stated that the lender was to provide me a copy of the purchase agreement. What's your opinion?
Thanks,
John j.langas@verizon.net
Dear John,
I am not aware of anything that requires the Lender/Client to provide a ratified copy of the sales contract. If it did exist in the past, it would have been only a guideline, not a requirement. The current URAR and other Fannie Mae forms have the following requirement spelled out in Certificate #5: "I researched, verified, analyzed and reported on any current agreement for sale for the subject property...unless otherwise indicated in this report." (emphasis added)
I think that as part of your scope of work discussion with the Lender/Client you should agree what is to be done about the sales contract. You could point out that getting it from the Realtor may reduce its reliability (as you cannot be sure it is the final version) and that Fannie Mae might object to a report without a verified sales contract. You and the Lender/Client must agree as to what is to be done or you cannot do the appraisal for them.
H2
I do several appraisals a month for a larger nationwide bank. They have started the practice of not providing the purchase agreement. They say I am to get this from the Realtor. This causes a delay in my work as some Realtors don't respond and some of the work is on FSBO deals. I was under the impression that Fannie Mae guidelines stated that the lender was to provide me a copy of the purchase agreement. What's your opinion?
Thanks,
John j.langas@verizon.net
Dear John,
I am not aware of anything that requires the Lender/Client to provide a ratified copy of the sales contract. If it did exist in the past, it would have been only a guideline, not a requirement. The current URAR and other Fannie Mae forms have the following requirement spelled out in Certificate #5: "I researched, verified, analyzed and reported on any current agreement for sale for the subject property...unless otherwise indicated in this report." (emphasis added)
I think that as part of your scope of work discussion with the Lender/Client you should agree what is to be done about the sales contract. You could point out that getting it from the Realtor may reduce its reliability (as you cannot be sure it is the final version) and that Fannie Mae might object to a report without a verified sales contract. You and the Lender/Client must agree as to what is to be done or you cannot do the appraisal for them.
H2
396) General Certification Exam
Dear Henry,
I purchased your “1001 Questions & Answers” last year and passed the Certified Residential.
What materials or books do you recommend for the 8 hour Certified General Examination? One of the Instructors that I was taking classes from last year had a book of sample Commercial Reports. Do you have this book or something similar?
Thank you for your time!
Marilyn McCoy Woods marilynwods@charter.net
Dear Marilyn,
Congratulations on passing your Certified Residential Exam. We are hearing from appraisers that the 1001 Questions and Answers also works well for the General Certification Exam.
You should also get a copy of my book Advanced Appraisal Methods which covers Discounting (Yield Capitalization), IRR and Partial Interest Appraisals. It is available from Forms and Worms: online at www.formsandworms.com or call them toll free at 1-800-243-4545.
H2
I purchased your “1001 Questions & Answers” last year and passed the Certified Residential.
What materials or books do you recommend for the 8 hour Certified General Examination? One of the Instructors that I was taking classes from last year had a book of sample Commercial Reports. Do you have this book or something similar?
Thank you for your time!
Marilyn McCoy Woods marilynwods@charter.net
Dear Marilyn,
Congratulations on passing your Certified Residential Exam. We are hearing from appraisers that the 1001 Questions and Answers also works well for the General Certification Exam.
You should also get a copy of my book Advanced Appraisal Methods which covers Discounting (Yield Capitalization), IRR and Partial Interest Appraisals. It is available from Forms and Worms: online at www.formsandworms.com or call them toll free at 1-800-243-4545.
H2
395) REO Comps
Dear Henry,
When is it proper to use bank sales of foreclosed properties as comparables in an appraisal?
Alix Armand amaapp@bellsouth.net
Dear Alix,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use.
However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
When is it proper to use bank sales of foreclosed properties as comparables in an appraisal?
Alix Armand amaapp@bellsouth.net
Dear Alix,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use.
However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
394) Comments Lines
08/25/08 Keyword: comments
Dear H2,
All 3 comps are the same exact design as the subject except that the basement of the subject has a crawl space in one area due to an addition, about 10'x 14'. In the comp grid it asks if the basement is full or partial. In this case, the subject gets labeled as having a partial basement, even though the subject basement is the same size as the comp basements. This is confusing. What do you suggest I do?
Larry Fenimore Larfeni@hotmail.com
Dear Larry,
The comment lines on the form are provided for precisely this purpose: to give you space to explain anomalies and special conditions. The wording of your explanation in your question would suffice.
H2
All 3 comps are the same exact design as the subject except that the basement of the subject has a crawl space in one area due to an addition, about 10'x 14'. In the comp grid it asks if the basement is full or partial. In this case, the subject gets labeled as having a partial basement, even though the subject basement is the same size as the comp basements. This is confusing. What do you suggest I do?
Larry Fenimore Larfeni@hotmail.com
Dear Larry,
The comment lines on the form are provided for precisely this purpose: to give you space to explain anomalies and special conditions. The wording of your explanation in your question would suffice.
H2
393) Paved Driveways
08/24/08 Keyword: driveways
| adjustments
Dear Henry:
Do you think that we should make an adjustment on the comparable grids for driveways that are paved versus not paved, such as cement vs tar, or pavers vs tar, or stones vs shale, or dirt vs stones or shale? Seems most appraisers don't even consider this. Some of these paving materials and methods are quite costly, and do add value to the properties.
Larry Fenimore Larfeni@hotmail.com
Daer Larry,
YES. Anything that adds (or detracts) from the value of the subject or comps should be reported in your appraisal report. The blank lines on the grid are there for this purpose.
H2
Do you think that we should make an adjustment on the comparable grids for driveways that are paved versus not paved, such as cement vs tar, or pavers vs tar, or stones vs shale, or dirt vs stones or shale? Seems most appraisers don't even consider this. Some of these paving materials and methods are quite costly, and do add value to the properties.
Larry Fenimore Larfeni@hotmail.com
Daer Larry,
YES. Anything that adds (or detracts) from the value of the subject or comps should be reported in your appraisal report. The blank lines on the grid are there for this purpose.
H2
392) Unrecorded Easements
08/23/08 Keyword: easements
Dear Henry,
Seven home owners share a private road/lane that passes over each others' properties leading to their homes. There has never been a recorded easement. When there is no easement in place, but the owners have been using the access road/lane as if there were, would that be an implied easement? How would this be reported?
Jeremy Smart jeremy.smart@comcast.net
Dear Jeremy,
It is most likely that these property owners have some kind of an easement, even if it is not recorded. I would report what you know and make a notation in your appraisal report that you recommend that a survey be made to determine just what easements exist.
H2
Seven home owners share a private road/lane that passes over each others' properties leading to their homes. There has never been a recorded easement. When there is no easement in place, but the owners have been using the access road/lane as if there were, would that be an implied easement? How would this be reported?
Jeremy Smart jeremy.smart@comcast.net
Dear Jeremy,
It is most likely that these property owners have some kind of an easement, even if it is not recorded. I would report what you know and make a notation in your appraisal report that you recommend that a survey be made to determine just what easements exist.
H2
391) Getting RELOs
08/22/08 Keyword: relocation
Dear Henry,
How would I go about getting relocation appraisal assignments? There are many relocations in my area of PA. and I would like to get in on the appraisal side.
Thank you for your time,
Rena renadfox@aol.com
Dear Rena,
One way to try and get relocation work is to contact Realtors in your area and ask them to recommend you to the relocation companies who are active in your market area. You can also contact these companies directly and ask them how to get on their list of approved appraisers in your market area. Finally, check out our friend Ann O'Rourke's special information pamphlet on relocation appraising. She's an "old pro" in this field. Click here: http://www.appraisaltoday.com/products.htm
H2
How would I go about getting relocation appraisal assignments? There are many relocations in my area of PA. and I would like to get in on the appraisal side.
Thank you for your time,
Rena renadfox@aol.com
Dear Rena,
One way to try and get relocation work is to contact Realtors in your area and ask them to recommend you to the relocation companies who are active in your market area. You can also contact these companies directly and ask them how to get on their list of approved appraisers in your market area. Finally, check out our friend Ann O'Rourke's special information pamphlet on relocation appraising. She's an "old pro" in this field. Click here: http://www.appraisaltoday.com/products.htm
H2
390) Additional Comps
08/21/08 Keyword: comps
Dear Henry,
It appears that review appraisals are becoming a norm in the current market; however it appears that the reviewer is often not in the same state and therefore not familar with the market that the subject property is in. With that said, how should I rebut a review that requires sales that are not comparable just because they are closer to the subject?
Example: subject is custom home on an acre with lot minimum 36k/unit sales. The reviewer required 3 tract built homes on 5k/unit sites just because they were closer than other one acre custom homes (which were still under 2 miles from the subject) GRRRR!! Is there not a requirement for reviewers to be competent in the market where they are reviewing?
adele lindquist adelelindquist@yahoo.com
Dear Adele,
While it is understandably annoying to you as a professional with expertise in your market to be "second guessed" in this manner, I would not take it personally.
There is nothing wrong with a review appraiser asking the appraiser to consider additional comparable sales suggested by the reviewer. The correct thing for you to do is to consider the proposed additional comps, and then give them as much weight as you believe is appropriate. If, after considering these additional comparable sales, you want to change your appraised value it is permitted by the USPAP. It is not a new appraisal if you do not change the effective date of the appraisal. If the effective date is changed, however, that make it a new appraisal.
H2
It appears that review appraisals are becoming a norm in the current market; however it appears that the reviewer is often not in the same state and therefore not familar with the market that the subject property is in. With that said, how should I rebut a review that requires sales that are not comparable just because they are closer to the subject?
Example: subject is custom home on an acre with lot minimum 36k/unit sales. The reviewer required 3 tract built homes on 5k/unit sites just because they were closer than other one acre custom homes (which were still under 2 miles from the subject) GRRRR!! Is there not a requirement for reviewers to be competent in the market where they are reviewing?
adele lindquist adelelindquist@yahoo.com
Dear Adele,
While it is understandably annoying to you as a professional with expertise in your market to be "second guessed" in this manner, I would not take it personally.
There is nothing wrong with a review appraiser asking the appraiser to consider additional comparable sales suggested by the reviewer. The correct thing for you to do is to consider the proposed additional comps, and then give them as much weight as you believe is appropriate. If, after considering these additional comparable sales, you want to change your appraised value it is permitted by the USPAP. It is not a new appraisal if you do not change the effective date of the appraisal. If the effective date is changed, however, that make it a new appraisal.
H2
389) Partial Interest Valuation
08/20/08 Keyword: partial
valuation | books
Dear Henry,
Could you recommend a good source for explanation/analysis of partial interest valuations for residential and vacant land properties?
Dave Danza murds@pacbell.net
Dear Dave,
Appraising partial interests is covered in my book Advanced Appraisal Methods and The Appraisal of Real Estate, 13th edition. Both are available from Forms and Worms. Call them at 1-800-243-4545 or go online to order: www.formsandworms.com
H2
Could you recommend a good source for explanation/analysis of partial interest valuations for residential and vacant land properties?
Dave Danza murds@pacbell.net
Dear Dave,
Appraising partial interests is covered in my book Advanced Appraisal Methods and The Appraisal of Real Estate, 13th edition. Both are available from Forms and Worms. Call them at 1-800-243-4545 or go online to order: www.formsandworms.com
H2
388) Mixed Use
08/19/08 Keyword: mixed use
Dear Henry,
I'm appraising a residential townhouse style condo development. The 9 condos are built above 9 commercial properties in the same development. When establishing a "commercial to residential ratio" my instinct is to calculate the total GLA of the condos (not including common areas or parking) and the total of the commercial units (not including common areas & parking). All units have access from the street with no interior hallways or amenities. However, the resulting ratio exceeds lender guidelines. Am I approaching this correctly?
Thanks, Henry
Marsha Sandman mjs1@cablespeed.com
Dear Marsha,
I am not aware of any Fannie Mae or Freddie Mac guidelines that address what you measure when you compare the size of a condo to an adjacent commercial property.
The most important thing is to explain what you did and why you did it. It would seem reasonable to me to compare the GLA of the condo to the rentable area of the commercial space below. However, as part of the scope of work, how to make this comparison could be discussed with the lender/client. If the method they suggest is reasonable and not intended to deceive anyone, you should consider using it. However, "making a mortgage" is not good appraisal practice and prohibited by the USPAP.
H2
I'm appraising a residential townhouse style condo development. The 9 condos are built above 9 commercial properties in the same development. When establishing a "commercial to residential ratio" my instinct is to calculate the total GLA of the condos (not including common areas or parking) and the total of the commercial units (not including common areas & parking). All units have access from the street with no interior hallways or amenities. However, the resulting ratio exceeds lender guidelines. Am I approaching this correctly?
Thanks, Henry
Marsha Sandman mjs1@cablespeed.com
Dear Marsha,
I am not aware of any Fannie Mae or Freddie Mac guidelines that address what you measure when you compare the size of a condo to an adjacent commercial property.
The most important thing is to explain what you did and why you did it. It would seem reasonable to me to compare the GLA of the condo to the rentable area of the commercial space below. However, as part of the scope of work, how to make this comparison could be discussed with the lender/client. If the method they suggest is reasonable and not intended to deceive anyone, you should consider using it. However, "making a mortgage" is not good appraisal practice and prohibited by the USPAP.
H2
387) FHA Handbook
Dear H2,
Could you recommend any books or other resources that cover FHA appraising? THANKS!
Richard Grab rchrd7@aol.com
Dear Richard,
I strongly recommend that every appraiser who does FHA appraisals have their own current copy of the FHA Handbook 4150.2
Here is some information about how to obtain a copy:
1. First off, use this link to FHA's Appraisal Main page. The new Application procedure (online only) is a link in the first paragraph of text. http://www.hud.gov/groups/appraisers.cfm
2. Then, you need to download (or purchase) a copy of the main HUD Manual, 4150.2. It is offered for sale at www.formsandworms.com or you can call 1-800-243-4545.
It gives chapter and verse on what FHA wants you to consider when you make an appraisal for them. Click here: http://www.realestategraphics.com/cgi-bin/select.pl?ImageName=300245
3. To download a copy from the FHA Website, click here for further details: http://www.hud.gov/groups/appraisers.cfm Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2". You will have to download and print each chapter separately. [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
4. We also suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful. Click here: http://www.appraisaltoday.com/products.htm Ann's Special Report on FHA Appraising is the first item for sale.
5. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form has been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements. The books does not include many of the FHA changes made in the new FHA handbook 4150.2 Click here: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300285
H2
Could you recommend any books or other resources that cover FHA appraising? THANKS!
Richard Grab rchrd7@aol.com
Dear Richard,
I strongly recommend that every appraiser who does FHA appraisals have their own current copy of the FHA Handbook 4150.2
Here is some information about how to obtain a copy:
1. First off, use this link to FHA's Appraisal Main page. The new Application procedure (online only) is a link in the first paragraph of text. http://www.hud.gov/groups/appraisers.cfm
2. Then, you need to download (or purchase) a copy of the main HUD Manual, 4150.2. It is offered for sale at www.formsandworms.com or you can call 1-800-243-4545.
It gives chapter and verse on what FHA wants you to consider when you make an appraisal for them. Click here: http://www.realestategraphics.com/cgi-bin/select.pl?ImageName=300245
3. To download a copy from the FHA Website, click here for further details: http://www.hud.gov/groups/appraisers.cfm Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2". You will have to download and print each chapter separately. [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
4. We also suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful. Click here: http://www.appraisaltoday.com/products.htm Ann's Special Report on FHA Appraising is the first item for sale.
5. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form has been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements. The books does not include many of the FHA changes made in the new FHA handbook 4150.2 Click here: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300285
H2
386) Subpoena
08/15/08 Keyword: subpoena
Dear Henry,
I received a subponea to bring my file to court for an appraisal done in March 2008 for the bank, not the borrower. Can I be subpoenaed to appear in court regarding a Family Court matter, when the client/ user was the bank? Honestly, I do not know what to do.
luis lbuitrago@bellsouth.net
Dear Luis,
I recommend that you call the lawyer who sent you the subpoena and ask what is really needed. You can also ask when you really need to be there. You can suggest that you should be paid and ask if his client is prepared to pay you.
If you can work all this out, then proceed as per your agreement. Be sure to keep notes of your conversation as part of your USPAP required records.
If the lawyer is uncooperative, then you must go to the court house as required in the subpoena. You should go a little early and try to talk to the clerk of the court about if and when you should ask the judge about getting paid for your court appearance. If they don't offer to pay you, then you should bill your lender/client for your court time.
H2
I received a subponea to bring my file to court for an appraisal done in March 2008 for the bank, not the borrower. Can I be subpoenaed to appear in court regarding a Family Court matter, when the client/ user was the bank? Honestly, I do not know what to do.
luis lbuitrago@bellsouth.net
Dear Luis,
I recommend that you call the lawyer who sent you the subpoena and ask what is really needed. You can also ask when you really need to be there. You can suggest that you should be paid and ask if his client is prepared to pay you.
If you can work all this out, then proceed as per your agreement. Be sure to keep notes of your conversation as part of your USPAP required records.
If the lawyer is uncooperative, then you must go to the court house as required in the subpoena. You should go a little early and try to talk to the clerk of the court about if and when you should ask the judge about getting paid for your court appearance. If they don't offer to pay you, then you should bill your lender/client for your court time.
H2
385) Measuring GLA
Dear H2,
I have recently assisted other licensed appraisers in inspecting & measuring subject properties. One fellow imports a sketch to his report directly from an improvement sketch provided by a County website before he even inspects the property. He makes the extraordinary assumption that the tax assessor's office provides accurate information and he feels comfortable relying on this data!! I measure the dwellings myself.
Another appraiser who is on a track to obtain his SRA designation says the correct method of measuring improvements is to use a tape measure with decimal increments on it and sketch to the nearest decimal (9.3 inches). He determined this from the State Real Estate board who in turn used information from ANSI to provide guidance on the correct way to measure. This sounds good in theory but is it feasible in practice? By the way, this same SRA- to-be includes the stairwell area of a two story dwelling on both the first and second floor area sketches. Seems to me he's adding about 36 sq. ft. that he shouldn't. Please provide your thoughts on appropriate & recognized measurement technigues. Feedback from my peers is also welcome. Thank you for your time and consideration in this matter.
Joseph Bruneau joseph@appraiserpat.com
Dear Joseph,
Your obligation as an appraiser is to provide an accurate description of the property which includes accurate measurements. If it is customary in your area to use the assessors' measurements this would be acceptable if you were unable to measure the house yourself. If you can measure the house, you should do so, as this may be more accurate than the assessors' measurements. In most parts of the country appraisers use Fannie Mae's Gross Living Area system. It does not spell out whether to use inches or decimals. Keep in mind that a 50' tape will contract and expand as much as a foot depending upon the temperature so when you measure to the inch or a decimal place you are implying a degree of accuracy that really doesn't exist. Fannie Mae will accept measurements made using the ANSI system which is popular with builders. If it is customary to use it in your area instead, you should do so. If you do, you need to know how it works and follow those instructions. Usually, the two different systems will result in different square foot totals. If you are considering making an extraordinary assumption in any appraisal you should be familiar with USPAP Standard 1 (f). You need to make a judgment as to whether your situation meets these requirements. If you do, you will also need to meet the USPAP disclosure requirements when making an extraordinary assumption.
H2
I have recently assisted other licensed appraisers in inspecting & measuring subject properties. One fellow imports a sketch to his report directly from an improvement sketch provided by a County website before he even inspects the property. He makes the extraordinary assumption that the tax assessor's office provides accurate information and he feels comfortable relying on this data!! I measure the dwellings myself.
Another appraiser who is on a track to obtain his SRA designation says the correct method of measuring improvements is to use a tape measure with decimal increments on it and sketch to the nearest decimal (9.3 inches). He determined this from the State Real Estate board who in turn used information from ANSI to provide guidance on the correct way to measure. This sounds good in theory but is it feasible in practice? By the way, this same SRA- to-be includes the stairwell area of a two story dwelling on both the first and second floor area sketches. Seems to me he's adding about 36 sq. ft. that he shouldn't. Please provide your thoughts on appropriate & recognized measurement technigues. Feedback from my peers is also welcome. Thank you for your time and consideration in this matter.
Joseph Bruneau joseph@appraiserpat.com
Dear Joseph,
Your obligation as an appraiser is to provide an accurate description of the property which includes accurate measurements. If it is customary in your area to use the assessors' measurements this would be acceptable if you were unable to measure the house yourself. If you can measure the house, you should do so, as this may be more accurate than the assessors' measurements. In most parts of the country appraisers use Fannie Mae's Gross Living Area system. It does not spell out whether to use inches or decimals. Keep in mind that a 50' tape will contract and expand as much as a foot depending upon the temperature so when you measure to the inch or a decimal place you are implying a degree of accuracy that really doesn't exist. Fannie Mae will accept measurements made using the ANSI system which is popular with builders. If it is customary to use it in your area instead, you should do so. If you do, you need to know how it works and follow those instructions. Usually, the two different systems will result in different square foot totals. If you are considering making an extraordinary assumption in any appraisal you should be familiar with USPAP Standard 1 (f). You need to make a judgment as to whether your situation meets these requirements. If you do, you will also need to meet the USPAP disclosure requirements when making an extraordinary assumption.
H2
384) GPS Systems
08/13/08 Keyword: GPS
Dear Henry,
Do you know of any GPS that tracks multiple locations and organizes the most efficient routing?
Terance O'Mahoney terry@omahoneyappraisals.com
Dear Terance,
I use my Apple iPhone as a GPS. It gives turn by turn directions from any known address to another location. I understand there's new version of Apple's software which has a vastly improved GPS but I don't know how it handles multiple locations. Online, there’s the map function of Google which has the "add a destination" option. It certainly makes sense to plot your travels to minimize using gas these days.
H2
Do you know of any GPS that tracks multiple locations and organizes the most efficient routing?
Terance O'Mahoney terry@omahoneyappraisals.com
Dear Terance,
I use my Apple iPhone as a GPS. It gives turn by turn directions from any known address to another location. I understand there's new version of Apple's software which has a vastly improved GPS but I don't know how it handles multiple locations. Online, there’s the map function of Google which has the "add a destination" option. It certainly makes sense to plot your travels to minimize using gas these days.
H2
383) URAR vs ERC
Dear Henry~
Are there any major requirements or differences between a relocation appraisal and a typical mortgage loan appraisal? I was asked if I am qualified to appraise for a relocation company. If they are looking for market value, I can't understand what difference there would be in a relo versus a typical appraisal. Can you explain?
Thanks!
Jodie bridgecityappraisal@msn.com
Dear Jodie,
If they are looking for market value and the scope of work dialogue does not develop any other requirements (such as a marketing time that is different from that which is defined on the URAR) then I don't think there is any difference. However, most relocation companies use the ERC form, which is quite different from the URAR, and will produce a value estimate that is usually different than what would be produced if you made a regular appraisal on the URAR. It is not the form itself that makes the difference. The USPAP says that the report format should not affect the value. However, it is the different definition of value and different marketing time that will affect the value estimate.
H2
Are there any major requirements or differences between a relocation appraisal and a typical mortgage loan appraisal? I was asked if I am qualified to appraise for a relocation company. If they are looking for market value, I can't understand what difference there would be in a relo versus a typical appraisal. Can you explain?
Thanks!
Jodie bridgecityappraisal@msn.com
Dear Jodie,
If they are looking for market value and the scope of work dialogue does not develop any other requirements (such as a marketing time that is different from that which is defined on the URAR) then I don't think there is any difference. However, most relocation companies use the ERC form, which is quite different from the URAR, and will produce a value estimate that is usually different than what would be produced if you made a regular appraisal on the URAR. It is not the form itself that makes the difference. The USPAP says that the report format should not affect the value. However, it is the different definition of value and different marketing time that will affect the value estimate.
H2
382) REO Comps
Dear H2,
I recently had a conversation with an appraiser who insisted that a bank owned sale (REO) was not a market sale as it is not an arms' length transaction. I am not referring to when the bank takes the property back, but when it sells it, meaning it has been actively marketed on the open MLS to the general public. Is it or is not considered an acceptable comparable?
Jessica Christopher Jzchristopher@aol.com
Dear Jessica,
I know of nothing the prohibits you from using a bank owned property as a comparable sale. The question is how much weight, if any, should you give to it. That depends upon the market in which the subject property and the comparable sales are located. On one hand, if all the sales in the market area are bank owned properties, it would be appropriate to give a lot of weight to bank owned comparable sales. On the other hand, if it is just an isolated sale in a market area where most of the sales are not of bank owned properties, then you would give it little or no weigh. In many declining markets, things fall somewhere between these two extremes and it is up to the appraiser to decide how much weight to give a bank owned comparable sales.
H2
I recently had a conversation with an appraiser who insisted that a bank owned sale (REO) was not a market sale as it is not an arms' length transaction. I am not referring to when the bank takes the property back, but when it sells it, meaning it has been actively marketed on the open MLS to the general public. Is it or is not considered an acceptable comparable?
Jessica Christopher Jzchristopher@aol.com
Dear Jessica,
I know of nothing the prohibits you from using a bank owned property as a comparable sale. The question is how much weight, if any, should you give to it. That depends upon the market in which the subject property and the comparable sales are located. On one hand, if all the sales in the market area are bank owned properties, it would be appropriate to give a lot of weight to bank owned comparable sales. On the other hand, if it is just an isolated sale in a market area where most of the sales are not of bank owned properties, then you would give it little or no weigh. In many declining markets, things fall somewhere between these two extremes and it is up to the appraiser to decide how much weight to give a bank owned comparable sales.
H2
381) Fee Fixing
Dear Henry,
Here is a USPAP question for you. The usual market fee for an appraisal of an average house in our area is $350. A management company publishes a fee schedule noting the fee they will pay for an appraisal of an "average house" in our market. It is $100 lower than the normal market fee in our area. Isn't this precisely "the payment of undisclosed fees, commissions, or things of value in connection with the procurement of an assignment" and therefore unethical under USPAP?
Rick Daniel rickdan@erols.com
Dear Rick,
From your question it does not appear that the management company is actually asking the appraiser to pay them anything. It sounds like they are offering to pay the appraiser $100 less than the going rate in your market. If this"market rate" is a fee based on an arrangement among appraisers in your area, it is a form of price fixing and is illegal. Any buyer of appraisals can try to buy their appraisals for as little as they can. The appraiser has to decide whether to accept the assignment at the offered fee. Of course, they are also free to ask for a higher fee, based on their expertise and professional qualifications. I don't see anything in this scenario that is prohibited by the USPAP.
H2
Here is a USPAP question for you. The usual market fee for an appraisal of an average house in our area is $350. A management company publishes a fee schedule noting the fee they will pay for an appraisal of an "average house" in our market. It is $100 lower than the normal market fee in our area. Isn't this precisely "the payment of undisclosed fees, commissions, or things of value in connection with the procurement of an assignment" and therefore unethical under USPAP?
Rick Daniel rickdan@erols.com
Dear Rick,
From your question it does not appear that the management company is actually asking the appraiser to pay them anything. It sounds like they are offering to pay the appraiser $100 less than the going rate in your market. If this"market rate" is a fee based on an arrangement among appraisers in your area, it is a form of price fixing and is illegal. Any buyer of appraisals can try to buy their appraisals for as little as they can. The appraiser has to decide whether to accept the assignment at the offered fee. Of course, they are also free to ask for a higher fee, based on their expertise and professional qualifications. I don't see anything in this scenario that is prohibited by the USPAP.
H2
380) Life Expectancy
08/09/08 Keyword: life
expectancy
Hi H2,
Thank you for being such a huge resource that continues to educate and advocate for our industry. I am proud to be an appraiser!
My question is regarding the life expectancy of a single family residence. My belief was that it was 65 years based on the VA and FHA guidelines; however, the actual life expectancy varies based on the construction of the property, the climate and its current condition. That may be an average of 60 to 70 years. Is that correct? I would like your professional opinion. Thank you.
Carlye carwall@universalreappraisals.com
Dear Carlye,
There is no simple answer to your question about the "life expectancy of a single family residence." First of all, there are two different life expectancies: physical life and economic life.
There are many single family residences in New England and other parts of the country that are hundreds of years old. My summerhouse, a wood shingle cottage, was built in 1910 and over 90% of it is the original material. My house in New Haven was also built around 1910 as a solid cement carriage house behind a brick mansion. The interior was substantially renovated 10 years ago, but the exterior and most of the interior walls and framing are original. The mechanical systems are all new. It is now far from the end of either its physical or economic life.
That said, in many parts of the country, single family residences built after WW II are falling apart and most will soon be torn down. I have had a running correspondence with one of the major cost services in which I claim their depreciation tables are based on "whole cloth", that is -- nothing!. They claim they are market derived. I claim the best you can do, using matched pairs of sales, is to compare the value per square foot of gross living area of two similar houses built at different times (10 to 20 year apart works well as you have to find pairs that have not been substantially remodeled). By converting their difference in value you can come up with an average percentage per year they have depreciated during this time period. In my market area, this usually comes out to between 1% to 2% per year.
Unfortunately, in every "Statistics 101" course they correctly teach you that you cannot predict what will happen outside the sample parameters based on what happened inside the sample. In this example, that means that you cannot extend the 1% to 2% per year to estimate the total anticipated life expectancy, which is what the cost service does.
I believe a better estimate can be made by looking around your market area and finding houses that are being razed. Those that are being razed because they are falling apart are an indication of the life expectancy of a house, assuming that it will not be substantially remodeled as it gets older and that the purpose of the tear-down is not based on the economic value of the site.
The bottom line is that a life expectancy estimate is almost impossible to make accurately and, in my opinion, serves little useful purpose except when the life expectancy is for a short period of time.
H2
Thank you for being such a huge resource that continues to educate and advocate for our industry. I am proud to be an appraiser!
My question is regarding the life expectancy of a single family residence. My belief was that it was 65 years based on the VA and FHA guidelines; however, the actual life expectancy varies based on the construction of the property, the climate and its current condition. That may be an average of 60 to 70 years. Is that correct? I would like your professional opinion. Thank you.
Carlye carwall@universalreappraisals.com
Dear Carlye,
There is no simple answer to your question about the "life expectancy of a single family residence." First of all, there are two different life expectancies: physical life and economic life.
There are many single family residences in New England and other parts of the country that are hundreds of years old. My summerhouse, a wood shingle cottage, was built in 1910 and over 90% of it is the original material. My house in New Haven was also built around 1910 as a solid cement carriage house behind a brick mansion. The interior was substantially renovated 10 years ago, but the exterior and most of the interior walls and framing are original. The mechanical systems are all new. It is now far from the end of either its physical or economic life.
That said, in many parts of the country, single family residences built after WW II are falling apart and most will soon be torn down. I have had a running correspondence with one of the major cost services in which I claim their depreciation tables are based on "whole cloth", that is -- nothing!. They claim they are market derived. I claim the best you can do, using matched pairs of sales, is to compare the value per square foot of gross living area of two similar houses built at different times (10 to 20 year apart works well as you have to find pairs that have not been substantially remodeled). By converting their difference in value you can come up with an average percentage per year they have depreciated during this time period. In my market area, this usually comes out to between 1% to 2% per year.
Unfortunately, in every "Statistics 101" course they correctly teach you that you cannot predict what will happen outside the sample parameters based on what happened inside the sample. In this example, that means that you cannot extend the 1% to 2% per year to estimate the total anticipated life expectancy, which is what the cost service does.
I believe a better estimate can be made by looking around your market area and finding houses that are being razed. Those that are being razed because they are falling apart are an indication of the life expectancy of a house, assuming that it will not be substantially remodeled as it gets older and that the purpose of the tear-down is not based on the economic value of the site.
The bottom line is that a life expectancy estimate is almost impossible to make accurately and, in my opinion, serves little useful purpose except when the life expectancy is for a short period of time.
H2
378) Site Value
08/08/08 Keyword: site value
Dear H2,
My lender requires the cost approach and an opinion of site value. The subject and comparables are tract homes and there are no land sales. Due to the declining market, my improvements alone exceed the sales comparison approach. If there are no land sales and the replacement cost already exceeds the opinion of market value, how do I approach the site value. Is this now an external depreciation due to the declining market? Does this effect the highest and best use?
The county assessor's office shows a site value; however added to the improvements, this will place the indicated value by the Cost Approach $175,000 above my opinion of market value and sale prices in the area.
Thank you,
Wendy Kramer wendy@kramernet.com
Dear Wendy,
It is within the right of the lender to ask you -- as part of the scope of work -- to produce a cost approach. In a declining market, you have to come up with the current value of the site and the depreciated value of the improvements. If there are no site sales then you should estimate the value of the site using such techniques at the "Abstraction Method" and the "Allocation Method." My new book "Basic Appraisal Procedures" provides information about several ways to estimate site value, including the Abstraction Method and the Allocation Method. (Editor's note: The book is available from Forms and Worms at www.formsandworms.com or you may call Toll Free: 1-800 243-4545.)
And yes, a declining market is a form of external (economic) obsolescence. It applies only to the improvements, however. When you make a correct estimate of the present value of the site and add to it the depreciated value of the improvements (including economic obsolescence to reflect the declining market), the value estimated by the cost approach should be similar to the value estimated by the other two approaches to value.
H2
My lender requires the cost approach and an opinion of site value. The subject and comparables are tract homes and there are no land sales. Due to the declining market, my improvements alone exceed the sales comparison approach. If there are no land sales and the replacement cost already exceeds the opinion of market value, how do I approach the site value. Is this now an external depreciation due to the declining market? Does this effect the highest and best use?
The county assessor's office shows a site value; however added to the improvements, this will place the indicated value by the Cost Approach $175,000 above my opinion of market value and sale prices in the area.
Thank you,
Wendy Kramer wendy@kramernet.com
Dear Wendy,
It is within the right of the lender to ask you -- as part of the scope of work -- to produce a cost approach. In a declining market, you have to come up with the current value of the site and the depreciated value of the improvements. If there are no site sales then you should estimate the value of the site using such techniques at the "Abstraction Method" and the "Allocation Method." My new book "Basic Appraisal Procedures" provides information about several ways to estimate site value, including the Abstraction Method and the Allocation Method. (Editor's note: The book is available from Forms and Worms at www.formsandworms.com or you may call Toll Free: 1-800 243-4545.)
And yes, a declining market is a form of external (economic) obsolescence. It applies only to the improvements, however. When you make a correct estimate of the present value of the site and add to it the depreciated value of the improvements (including economic obsolescence to reflect the declining market), the value estimated by the cost approach should be similar to the value estimated by the other two approaches to value.
H2
377) Effective Date of Data Sources
08/07/08 Keyword: date of
sale
Dear H2,
On the 2nd page of the URAR, there is a section entitled: Effective date of data source(s). How is this supposed to be used? I was under the impression that appraisers went back in history as far as 3 years from the date of the appraisal for the subject property, and 3 years from the sale date for the comparable sales.
A number of lenders have told me that it should be the date of the current appraisal for both the subject and the comps. Could you tell which way it should be and where I can find the info to send to them in either case.
Thank you,
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
The "Effective Date of Data Sources" section is intended to report when the information in the data source actually took place. For example, information published in a May MLS publication may actually have been as of an April date. The current Fannie Mae requirement is for a three year sales history of the subject property from the effective date of the appraisal report and a one year sales history from the date that the comparable sale was last sold. These requirements are printed right on the URAR.
H2
On the 2nd page of the URAR, there is a section entitled: Effective date of data source(s). How is this supposed to be used? I was under the impression that appraisers went back in history as far as 3 years from the date of the appraisal for the subject property, and 3 years from the sale date for the comparable sales.
A number of lenders have told me that it should be the date of the current appraisal for both the subject and the comps. Could you tell which way it should be and where I can find the info to send to them in either case.
Thank you,
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
The "Effective Date of Data Sources" section is intended to report when the information in the data source actually took place. For example, information published in a May MLS publication may actually have been as of an April date. The current Fannie Mae requirement is for a three year sales history of the subject property from the effective date of the appraisal report and a one year sales history from the date that the comparable sale was last sold. These requirements are printed right on the URAR.
H2
376) Co-Ownership Form
08/06/08 Keyword: co-ownership
| narrative
appraisal
Dear H2,
I have been asked to appraise a co-ownership property (5 weeks each owner). There are plenty of sales in this well established project. What is the proper form? Condo?? Is this something I should pass on? Guidance please. And thank you for always being there.
Mary Ann McGoye obaxobs@embarqmail.com
Dear Mary,
What type of form you use depends upon the client's needs. There is no Fannie Mae or Freddie Mac timeshare or co-ownership form. The one that would be the easiest to alter to fit this situation is the condominium form. Have you considered doing a short form narrative? That would be my first choice.
H2
I have been asked to appraise a co-ownership property (5 weeks each owner). There are plenty of sales in this well established project. What is the proper form? Condo?? Is this something I should pass on? Guidance please. And thank you for always being there.
Mary Ann McGoye obaxobs@embarqmail.com
Dear Mary,
What type of form you use depends upon the client's needs. There is no Fannie Mae or Freddie Mac timeshare or co-ownership form. The one that would be the easiest to alter to fit this situation is the condominium form. Have you considered doing a short form narrative? That would be my first choice.
H2
375) USDA Appraising
08/05/08 Keyword: USDA
Dear Ask Henry Harrison,
I noticed you have answers to how to become a FHA and VA appraiser, but I did not see any comments on how to become a USDA (US Dept. of Agriculture) appraiser nor if there is such a thing? I decided to check further online, and found the answer, which I wanted to share: If you are on the FHA appraiser roster, you meet the requirements for USDA, following along with the FHA handbook. However, I also learned that a non-FHA appraiser can be used with the lender having the responsibility for requiring that an acceptable inspector both inspects the property and certifies that the dwelling meets the FHA's standards.
Thank you so much for all you input, by the way. Ask Henry Harrison is always a good read!
Rachel K. King rachelkking@bellsouth.net
Dear Rachel,
Thanks for sharing your information on USDA appraising with our readers.
Ruth Lambert, Editor
AskHenryHarrison.com
I noticed you have answers to how to become a FHA and VA appraiser, but I did not see any comments on how to become a USDA (US Dept. of Agriculture) appraiser nor if there is such a thing? I decided to check further online, and found the answer, which I wanted to share: If you are on the FHA appraiser roster, you meet the requirements for USDA, following along with the FHA handbook. However, I also learned that a non-FHA appraiser can be used with the lender having the responsibility for requiring that an acceptable inspector both inspects the property and certifies that the dwelling meets the FHA's standards.
Thank you so much for all you input, by the way. Ask Henry Harrison is always a good read!
Rachel K. King rachelkking@bellsouth.net
Dear Rachel,
Thanks for sharing your information on USDA appraising with our readers.
Ruth Lambert, Editor
AskHenryHarrison.com
374) Assessor's Value
Dear Henry,
In the cost approach when there are no land sales available even over the last two years and all comps are REO or Short Sales, you can't use the abstraction method to obtain a land value. Is it OK to use the county assessor's land value for the property as the land value for the cost approach?
GM jcvsor@yahoo.com
Dear GM,
I don't think it is a good idea to use someone else's opinion of a value in your appraisal reports. If you do, be sure to make it very clear in your report what you are doing and why you are doing it. The USPAP requires acknowledgement of any help of this kind that you receive. From what you are asking me, it is not clear why you feel it is necessary to do a cost approach.
H2
In the cost approach when there are no land sales available even over the last two years and all comps are REO or Short Sales, you can't use the abstraction method to obtain a land value. Is it OK to use the county assessor's land value for the property as the land value for the cost approach?
GM jcvsor@yahoo.com
Dear GM,
I don't think it is a good idea to use someone else's opinion of a value in your appraisal reports. If you do, be sure to make it very clear in your report what you are doing and why you are doing it. The USPAP requires acknowledgement of any help of this kind that you receive. From what you are asking me, it is not clear why you feel it is necessary to do a cost approach.
H2
373) Non-Declining Market
08/03/08 Keyword: declining
market
Dear H2,
A lender states that we should utilize other tools available, such as CoreLogic, to validate our opinion if we state that the subject's market is not declining. What is CoreLogic and are there any other tools available to validate such an opinion?
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
First American CoreLogic is a company that provides services to lenders. I believe you have to pay for the services. However, if the lender subscribes, they may be willing to give you their Login ID and Password. At the present time, single family house prices are declining almost everywhere, except in specific market areas that continue to be the exception to the national market trend. If you think the house you are appraising is in such a market area, you may be able to support your opinion with information from the local MLS that covers the market area.
H2
A lender states that we should utilize other tools available, such as CoreLogic, to validate our opinion if we state that the subject's market is not declining. What is CoreLogic and are there any other tools available to validate such an opinion?
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
First American CoreLogic is a company that provides services to lenders. I believe you have to pay for the services. However, if the lender subscribes, they may be willing to give you their Login ID and Password. At the present time, single family house prices are declining almost everywhere, except in specific market areas that continue to be the exception to the national market trend. If you think the house you are appraising is in such a market area, you may be able to support your opinion with information from the local MLS that covers the market area.
H2
372) Log Homes
08/02/08 Keyword: value
Dear Henry,
Any special considerations in appraising a log home? I presume the home is pre-built. They are common to the area and are competitive with conventional homes.
Rick rickbacich@ssctv.net
Dear Rick,
The first thing you must do is describe the subject as a log home. Then you have to render an opinion as to what effect, if any, this style has on its marketability and value. In some areas, they even may command a premium!
H2
Any special considerations in appraising a log home? I presume the home is pre-built. They are common to the area and are competitive with conventional homes.
Rick rickbacich@ssctv.net
Dear Rick,
The first thing you must do is describe the subject as a log home. Then you have to render an opinion as to what effect, if any, this style has on its marketability and value. In some areas, they even may command a premium!
H2
371) Appraisal Update
08/01/08 Keyword: USPAP
2008-2009
Dear Henry,
I received an assignment to appraise a property for a purchase roughly 1 month ago. The appraised value fell short of the sales price. I received an e-mail from the client today stating that as a result of the appraisal, the sales price has been lowered. I am now being asked to modify the original report to reflect the new sales prices. The request has come after the report was signed and delivered.
It is my understanding that a dated addendum can be added to the report but that since the report has already been signed and delivered that the client's request would constitute a new assignment under USPAP. If the client won't take an addendum being added to the report then I believe what the client is asking would constitute a new assignment under USPAP. What are your thoughts?
Ed Bedinotti efb803@aol.com
Dear Ed,
The USPAP clearly states that when the effective date of the appraisal is changed, a new appraisal is required. The same is true if the lender/client is changed. What is not clear to me is what changing the listing price has to do with the value estimate you made. If the original lender/client asks you to consider additional data they supply, you may do so under USPAP rules, and even change your value opinion, as long as the effective date and the lender/client have not changed.
H2
I received an assignment to appraise a property for a purchase roughly 1 month ago. The appraised value fell short of the sales price. I received an e-mail from the client today stating that as a result of the appraisal, the sales price has been lowered. I am now being asked to modify the original report to reflect the new sales prices. The request has come after the report was signed and delivered.
It is my understanding that a dated addendum can be added to the report but that since the report has already been signed and delivered that the client's request would constitute a new assignment under USPAP. If the client won't take an addendum being added to the report then I believe what the client is asking would constitute a new assignment under USPAP. What are your thoughts?
Ed Bedinotti efb803@aol.com
Dear Ed,
The USPAP clearly states that when the effective date of the appraisal is changed, a new appraisal is required. The same is true if the lender/client is changed. What is not clear to me is what changing the listing price has to do with the value estimate you made. If the original lender/client asks you to consider additional data they supply, you may do so under USPAP rules, and even change your value opinion, as long as the effective date and the lender/client have not changed.
H2
370) Report Format
Dear H2,
My lender/client wants an appraisal on a property he calls a 3-family. However, the tax data and owner say its 3 single-family houses on one tax account number. I want to use a Small Income Property Form 1025 with disclosures by the appraiser. Is this o.k.?
Michael mwfarash@hotmail.com
Dear Michael,
The USPAP does not specify which type of report or form you should use. This is something that should be decided between the lender/client and the appraiser as part of the scope of work dialogue. If you are uncomfortable with their request, you should try and understand their needs. If you and the client agree that using the 1025 form is appropriate, I recommend that you get a written assignment confirmation from the client, as often in these situations when the lender decides they have requested the wrong form for their needs, they ask the appraiser to rewrite it without offering to pay for the second report.
H2
My lender/client wants an appraisal on a property he calls a 3-family. However, the tax data and owner say its 3 single-family houses on one tax account number. I want to use a Small Income Property Form 1025 with disclosures by the appraiser. Is this o.k.?
Michael mwfarash@hotmail.com
Dear Michael,
The USPAP does not specify which type of report or form you should use. This is something that should be decided between the lender/client and the appraiser as part of the scope of work dialogue. If you are uncomfortable with their request, you should try and understand their needs. If you and the client agree that using the 1025 form is appropriate, I recommend that you get a written assignment confirmation from the client, as often in these situations when the lender decides they have requested the wrong form for their needs, they ask the appraiser to rewrite it without offering to pay for the second report.
H2
369) Special Financing
07/29/08 Keyword: adjustments
| special
financing
Dear Henry,
I'm trying very hard to understand how we appraisers should properly account for Subject Sales Concessions when using standard Fannie & Freddie forms.
Instructions appear in the Definition of Market Value, but I believe that few appraisers agree with them. Please comment on the excerpt below from their Definition of Market Value, and the following sentence preceeded with the (*). How should those instructions should be applied mathematically in our reports?
DEFINITION OF MARKET VALUE: ... and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.
*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are
necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are
readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing
adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional
lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical
dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market's
reaction to the financing or concessions based on the appraiser's judgment.
Dave Towne dtowne@fidalgo.net
Dear Dave,
I am not sure I agree with you that few appraisers agree with the standard way of making adjustments for special financing and special conditions. I believe (although not everyone agrees with me) that all adjustments should be made to the comparable sales and not to the subject property. The adjustment should reflect how the market reacts to the special financing and special conditions. It should not just be a mathematical calculation. If the subject property will have the same special conditions and special financing, usually no adjustment is needed.
H2
keywords: adjustments, special financing
I'm trying very hard to understand how we appraisers should properly account for Subject Sales Concessions when using standard Fannie & Freddie forms.
Instructions appear in the Definition of Market Value, but I believe that few appraisers agree with them. Please comment on the excerpt below from their Definition of Market Value, and the following sentence preceeded with the (*). How should those instructions should be applied mathematically in our reports?
DEFINITION OF MARKET VALUE: ... and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.
*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are
necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are
readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing
adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional
lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical
dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market's
reaction to the financing or concessions based on the appraiser's judgment.
Dave Towne dtowne@fidalgo.net
Dear Dave,
I am not sure I agree with you that few appraisers agree with the standard way of making adjustments for special financing and special conditions. I believe (although not everyone agrees with me) that all adjustments should be made to the comparable sales and not to the subject property. The adjustment should reflect how the market reacts to the special financing and special conditions. It should not just be a mathematical calculation. If the subject property will have the same special conditions and special financing, usually no adjustment is needed.
H2
keywords: adjustments, special financing
368) Value Request
07/28/08 Keyword: USPAP
Violation
Dear Henry,
I have come across a strange request from a client of mine. I recieved an order for a refinance of a property and the estimated value was $175,000. I completed the appraisal and my value came in at $240,000 and that was bringing it on the low end. For some strange reason, my client wants me bring the value in at $175K-$180K because they said that the underwritter said FannieMae wants it to be at about 80% LTV. The only way to bring it that low is to use either distressed properties or foreclosures sales as comps. What do I do in this situation??
Angelo Angelo215@Verizon.net
Dear Angelo,
It is clearly against the USPAP for you to ever comply with a client's request for a specific value or even a range of values.
H2
I have come across a strange request from a client of mine. I recieved an order for a refinance of a property and the estimated value was $175,000. I completed the appraisal and my value came in at $240,000 and that was bringing it on the low end. For some strange reason, my client wants me bring the value in at $175K-$180K because they said that the underwritter said FannieMae wants it to be at about 80% LTV. The only way to bring it that low is to use either distressed properties or foreclosures sales as comps. What do I do in this situation??
Angelo Angelo215@Verizon.net
Dear Angelo,
It is clearly against the USPAP for you to ever comply with a client's request for a specific value or even a range of values.
H2
367) Who Can Sue?
07/25/08 Keyword: lawsuit
Dear Henry,
I have been served with a lawsuit and while I have most of my ducks in a row, one section of the suit has me concerned as I have not encountered this before.
The plaintiffs -- a group of individuals -- have stated that I am in breach of contract with them. They are stating that as an appraiser I was in a contractual agreement with them as individuals, as a result of the agency relationship between them as individuals and the mortgage brokers (4 seperate companies) that ordered the appraisals.
My understanding is that while they are parties to the loan process, my actual client is the lender and not the end user.
Could you shed some light on this matter? Are we in a contractual relationship with the borrowers? And if so, how is this enforced? My searching of USPAP does not give me an answer.
Thanks!
Randy rpmappraisals@gmail.com
Dear Randy,
First let me say that I am not an attorney and that I highly recommend you obtain the services of an attorney. In American anyone can sue anyone.
I don't believe that there is anything you can put into an appraisal that will prevent someone who uses the appraisal from suing you. The wording in the Fannie Mae appraisals may make it harder for someone who is not the intended user to win a lawsuit, but don't count on it. In my opinion, all appraisers should carry Errors and Omissions (E & O) Insurance. Then, if you are slapped with a lawsuit, you refer it to your insurance company.
H2
I have been served with a lawsuit and while I have most of my ducks in a row, one section of the suit has me concerned as I have not encountered this before.
The plaintiffs -- a group of individuals -- have stated that I am in breach of contract with them. They are stating that as an appraiser I was in a contractual agreement with them as individuals, as a result of the agency relationship between them as individuals and the mortgage brokers (4 seperate companies) that ordered the appraisals.
My understanding is that while they are parties to the loan process, my actual client is the lender and not the end user.
Could you shed some light on this matter? Are we in a contractual relationship with the borrowers? And if so, how is this enforced? My searching of USPAP does not give me an answer.
Thanks!
Randy rpmappraisals@gmail.com
Dear Randy,
First let me say that I am not an attorney and that I highly recommend you obtain the services of an attorney. In American anyone can sue anyone.
I don't believe that there is anything you can put into an appraisal that will prevent someone who uses the appraisal from suing you. The wording in the Fannie Mae appraisals may make it harder for someone who is not the intended user to win a lawsuit, but don't count on it. In my opinion, all appraisers should carry Errors and Omissions (E & O) Insurance. Then, if you are slapped with a lawsuit, you refer it to your insurance company.
H2
366) Appraiser Qualifications
07/24/08 Keyword: appraisal
qualifications
Dear Henry,
I received a call today from someone whose parent had recently passed away and needed appraisals on two single family dwellings and one land only property for the purposes of fair market value to provide to the IRS. The caller seemed to need the assurance that I was “qualified” to work with the IRS and stated that she would need an appraiser with a special appraisal “designation” beyond the State approved Certified Appraisal License. I hold a California State Certified General License and the properties are also in California within my typical territory. I have been appraising residential properties for over 20 yrs within this area. I am familiar with the appraisal designation MAI and the Appraisal Institute but this is not typically required in our area. Please let me know if you have any additional information regarding this type of appraisal request or any special requirements/data beyond the typical information that should be noted on the appraisal. Thank you!
Bonnie K. bkapprsl@comcast.net
Dear Bonnie,
I know of nothing that prevents a client from ordering an appraisal only from an appraiser with a specific designation or special qualifications. Some clients ask appraisers to provide a summary of their qualifications, experience, references, designations, etc. before they hire them. You may certainly attempt to reassure your potential client that you have the necessary expertise, but they still may elect to hire someone with other qualifications or designations.
H2
I received a call today from someone whose parent had recently passed away and needed appraisals on two single family dwellings and one land only property for the purposes of fair market value to provide to the IRS. The caller seemed to need the assurance that I was “qualified” to work with the IRS and stated that she would need an appraiser with a special appraisal “designation” beyond the State approved Certified Appraisal License. I hold a California State Certified General License and the properties are also in California within my typical territory. I have been appraising residential properties for over 20 yrs within this area. I am familiar with the appraisal designation MAI and the Appraisal Institute but this is not typically required in our area. Please let me know if you have any additional information regarding this type of appraisal request or any special requirements/data beyond the typical information that should be noted on the appraisal. Thank you!
Bonnie K. bkapprsl@comcast.net
Dear Bonnie,
I know of nothing that prevents a client from ordering an appraisal only from an appraiser with a specific designation or special qualifications. Some clients ask appraisers to provide a summary of their qualifications, experience, references, designations, etc. before they hire them. You may certainly attempt to reassure your potential client that you have the necessary expertise, but they still may elect to hire someone with other qualifications or designations.
H2
365) Mineral Rights Ownership
07/23/08 Keyword: environmental
hazards
Dear Henry,
Can you comment on appraising property where ownership of the mineral rights has become a big issue? Here in the North Texas area there has been a wave of gas well exploration and all the contract issues that go with negotiating for the best deals.
I have been told by several lenders that I am one of the few appraisers that has commented on the difference between Fee Simple ownership and " fee in surface". I have even reveiwed some appraisals that failed to even mention the current market issues with gas exploration. This seems like a mistake to me. What do you think?
Rick Neighbors rick@rickn.com
Dear Rick,
I am not an expert on appraising property with mineral rights. As far as I know there are no special rules. If this is true, you would have to appraise the property assuming it is owned in fee simple unless the lender/client and you agreed as part of the scope of work dialogue that some other form of title was acceptable and approved by them. In this case, you would have to indicate what type of title the property is held in.
If all the comparable sales are held in the same type of title, then all you have to do is note this in the report and proceed as normally. However, if the subject property is held in fee simple and a comparable property is held in "fee in surface" you should report this in the appraisal. The real problem is whether the different types of ownership change the value of a property. If you believe there is no significant value difference, then once again, you can proceed as usual -- just reporting in the comments that in your market area the value is the same in either case. However, if there is a difference, you will need to have the expertise to determine what that value difference is. This would be a complex appraisal, so you need to be quite sure your license or certification permits you to make complex appraisals. If you are permitted to do so, according to the USPAP you either have to have the knowledge and experience to make the appraisal or you must get help from someone who has.
H2
Can you comment on appraising property where ownership of the mineral rights has become a big issue? Here in the North Texas area there has been a wave of gas well exploration and all the contract issues that go with negotiating for the best deals.
I have been told by several lenders that I am one of the few appraisers that has commented on the difference between Fee Simple ownership and " fee in surface". I have even reveiwed some appraisals that failed to even mention the current market issues with gas exploration. This seems like a mistake to me. What do you think?
Rick Neighbors rick@rickn.com
Dear Rick,
I am not an expert on appraising property with mineral rights. As far as I know there are no special rules. If this is true, you would have to appraise the property assuming it is owned in fee simple unless the lender/client and you agreed as part of the scope of work dialogue that some other form of title was acceptable and approved by them. In this case, you would have to indicate what type of title the property is held in.
If all the comparable sales are held in the same type of title, then all you have to do is note this in the report and proceed as normally. However, if the subject property is held in fee simple and a comparable property is held in "fee in surface" you should report this in the appraisal. The real problem is whether the different types of ownership change the value of a property. If you believe there is no significant value difference, then once again, you can proceed as usual -- just reporting in the comments that in your market area the value is the same in either case. However, if there is a difference, you will need to have the expertise to determine what that value difference is. This would be a complex appraisal, so you need to be quite sure your license or certification permits you to make complex appraisals. If you are permitted to do so, according to the USPAP you either have to have the knowledge and experience to make the appraisal or you must get help from someone who has.
H2
364) Marketing Advice
07/22/08 Keyword: marketing
Dear Henry --
I am a State Certified Residential Appraiser in North Carolina. I have been in the appraisal industry for almost eight years. I NEED YOUR HELP PLEASE. How do you market your business in this type of market? I have a couple of dilenmas in my business; first, I am a single person appraisal company, and last but not least I am an African American. The last situation should not play a role but it seems it does. I thank you in advance for you assistance.
Name withheld by request
Dear Friend,
Racial and ethnic background can play both ways: they can be a detriment to employment, or an asset. In many communities, African American appraisers or Italian appraisers or Jewish appraisers work closely with their ethnic counterparts in real estate and financial institutions. This can provide special networking opportunities to offset any difficulty in obtaining assignments from others in the community who may be prejudiced.
As for marketing tips in general, we recommend Ann O'Rourke's special reports. She publishes Appraisal Today, and has many excellent, proven ideas. Here's the link to her Marketing report: http://www.appraisaltoday.com/mfa.htm
H2
I am a State Certified Residential Appraiser in North Carolina. I have been in the appraisal industry for almost eight years. I NEED YOUR HELP PLEASE. How do you market your business in this type of market? I have a couple of dilenmas in my business; first, I am a single person appraisal company, and last but not least I am an African American. The last situation should not play a role but it seems it does. I thank you in advance for you assistance.
Name withheld by request
Dear Friend,
Racial and ethnic background can play both ways: they can be a detriment to employment, or an asset. In many communities, African American appraisers or Italian appraisers or Jewish appraisers work closely with their ethnic counterparts in real estate and financial institutions. This can provide special networking opportunities to offset any difficulty in obtaining assignments from others in the community who may be prejudiced.
As for marketing tips in general, we recommend Ann O'Rourke's special reports. She publishes Appraisal Today, and has many excellent, proven ideas. Here's the link to her Marketing report: http://www.appraisaltoday.com/mfa.htm
H2
363) Appeal Commission Rulings
07/21/08 Keyword: lawsuit
Hello Mr. Harrison
I have been a licensed appraiser since 1992. I passed my certification exam in December 2007. According to the fax I received in October 2007 from the State of Nevada regarding 2008 criteria implementation -- any component such as education, exam, experience completed prior to 1/1/08 -- will be acceptable until 12/31/08. Now, the state is telling me that the exam is not valid as I should have had the pre- license education hours prior to taking the exam. I am devastated. Do I have recourse ? Thank you for reading.
George Stavri stavriassocappraisal@earthlink.net
Dear George,
It is unfortunate that there was this type of misunderstanding. My suggestion is that you ask them if you can appeal this decision to the Nevada Real Estate Commission. This is the only thing I can think of that you can do.
H2
I have been a licensed appraiser since 1992. I passed my certification exam in December 2007. According to the fax I received in October 2007 from the State of Nevada regarding 2008 criteria implementation -- any component such as education, exam, experience completed prior to 1/1/08 -- will be acceptable until 12/31/08. Now, the state is telling me that the exam is not valid as I should have had the pre- license education hours prior to taking the exam. I am devastated. Do I have recourse ? Thank you for reading.
George Stavri stavriassocappraisal@earthlink.net
Dear George,
It is unfortunate that there was this type of misunderstanding. My suggestion is that you ask them if you can appeal this decision to the Nevada Real Estate Commission. This is the only thing I can think of that you can do.
H2
362) Unverified Comps
07/15/08 Keyword: unverified
| comps
Dear H2,
I am doing an appraisal on a residential purchase and the seller is offering the following assistance: 3% of purchase ($7,155.00) to a "down payment assistance program" plus a $300 administrative fee. The seller is also to pay $6,045 towards closing costs including points and prepaid expenses such as heating oil. I had another contract with very similar assistance in the contract with almost the same wording yesterday. Both of these are FHA loans. My question is what do I do with these terms of sale in the sales grid? The local MLS provider does not list seller assistance figures and getting a Realtor to answer any questions about former sales is nearly impossible, so knowing if there was any assistance on comparable sales is usually not possible. Thanks for any help on this.
John Shaffer johnshaffer@hughes.net
Dear John,
When you find a comparable sale you should always verify it. Just using the MLS data is not good appraisal practice. The traditional way to verify a comp is to contact the buyer, seller, Realtor and closing attorney. You are also required to have a signed copy of the sales contract, which often contains information about the special conditions of sale.
When you are appraising in a market where the FHA assistance program is being commonly used, you have to be especially careful about the comps you use. This program has a very high rate of foreclosure. When you find that there have been rebates or special seller assistance you need to make a downward adjustment to each comparable sale where these conditions existed.
I would not use a sale in this type of market that I could not verify, as the possibility of coming up with a value over market value is high when you use unverified sales.
H2
I am doing an appraisal on a residential purchase and the seller is offering the following assistance: 3% of purchase ($7,155.00) to a "down payment assistance program" plus a $300 administrative fee. The seller is also to pay $6,045 towards closing costs including points and prepaid expenses such as heating oil. I had another contract with very similar assistance in the contract with almost the same wording yesterday. Both of these are FHA loans. My question is what do I do with these terms of sale in the sales grid? The local MLS provider does not list seller assistance figures and getting a Realtor to answer any questions about former sales is nearly impossible, so knowing if there was any assistance on comparable sales is usually not possible. Thanks for any help on this.
John Shaffer johnshaffer@hughes.net
Dear John,
When you find a comparable sale you should always verify it. Just using the MLS data is not good appraisal practice. The traditional way to verify a comp is to contact the buyer, seller, Realtor and closing attorney. You are also required to have a signed copy of the sales contract, which often contains information about the special conditions of sale.
When you are appraising in a market where the FHA assistance program is being commonly used, you have to be especially careful about the comps you use. This program has a very high rate of foreclosure. When you find that there have been rebates or special seller assistance you need to make a downward adjustment to each comparable sale where these conditions existed.
I would not use a sale in this type of market that I could not verify, as the possibility of coming up with a value over market value is high when you use unverified sales.
H2
361) Confidentiality
Dear H2,
I recently attended an appraisal class in which the instructor asked how many of us include a "privacy policy letter" with our appraisals. Just one person raised his hand. The instructor mentioned the Gramm-Leach-Biliey Act regarding collection of nonpublic personal information during the appraisal process. Is such a letter required by Fannie Mae or USPAP and what is your feedback on this?
Thank you
John Difilippo napadifilippo@aol.com
Dear John,
You should review the confidentially part of the USPAP and #22 on the URAR certificate. So far, you are the first person to suggest to me that it is necessary to include a confidentially letter with your appraisals. This is a legal question and therefore you might consider asking an attorney about it.
H2
I recently attended an appraisal class in which the instructor asked how many of us include a "privacy policy letter" with our appraisals. Just one person raised his hand. The instructor mentioned the Gramm-Leach-Biliey Act regarding collection of nonpublic personal information during the appraisal process. Is such a letter required by Fannie Mae or USPAP and what is your feedback on this?
Thank you
John Difilippo napadifilippo@aol.com
Dear John,
You should review the confidentially part of the USPAP and #22 on the URAR certificate. So far, you are the first person to suggest to me that it is necessary to include a confidentially letter with your appraisals. This is a legal question and therefore you might consider asking an attorney about it.
H2
360) FHA Scope of Work
07/13/08 Keyword: FHA | scope of
work
Dear H2,
I recently received my FHA license and have had a couple of situations where the lender is asking me to determine the distance between the well and septic systems. Is this in my scope of work as an FHA appraiser, or is this the lender's responsibility to determine?
Mike Balazovic mbalazovic@racc2000.com
Dear Mike,
I do not keep up on current FHA requirements which are changing all the time. You need to look this up in the most current version of the FHA/HUD manual 4150.2 which is available at http://www.hud.gov/groups/appraisers.cfm.
It is well (pun intended !!) within their rights to ask you to do these measurements as part of the scope of work discussion. If it is not an FHA requirement, you have the right to refuse to do it or charge extra. This is a business decision you have to make.
H2
I recently received my FHA license and have had a couple of situations where the lender is asking me to determine the distance between the well and septic systems. Is this in my scope of work as an FHA appraiser, or is this the lender's responsibility to determine?
Mike Balazovic mbalazovic@racc2000.com
Dear Mike,
I do not keep up on current FHA requirements which are changing all the time. You need to look this up in the most current version of the FHA/HUD manual 4150.2 which is available at http://www.hud.gov/groups/appraisers.cfm.
It is well (pun intended !!) within their rights to ask you to do these measurements as part of the scope of work discussion. If it is not an FHA requirement, you have the right to refuse to do it or charge extra. This is a business decision you have to make.
H2
359) REO Comps
Dear Henry,
Great info, I love reading your questions & answers!!
With regard to foreclosure and REO properties being used as comps, how are adjustments for the lower price being calculated? I feel that they do not attract the same type of buyer as a conventional sale. However, sometimes the only comparable sales available are foreclosure & REO properties.
Nancy
Dear Nancy,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use. However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
Great info, I love reading your questions & answers!!
With regard to foreclosure and REO properties being used as comps, how are adjustments for the lower price being calculated? I feel that they do not attract the same type of buyer as a conventional sale. However, sometimes the only comparable sales available are foreclosure & REO properties.
Nancy
Dear Nancy,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use. However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
358) Two Family Detached
07/11/08 Keyword: two-family
| detached
Dear Henry,
Every now and then an appraiser runs into a situation where there are two houses located on one parcel. The definition of a single family dwelling is that of one dwelling unit. In a case where you have two houses on one parcel, it seems to me that it has to be appraised as either a two-family dwelling or a single family dwelling with an accessory unit. In the case where it is appraised as single family with an accessory unit, on the URAR form, a single line adjustment is usually made in the sales comparison grid reflecting the accessory unit. Of course the contributory value is nowhere near what it would be if the second house were located on its own parcel. Almost every residential appraiser I've spoken with has stated this but some commercial appraisers I know think that you should just add the square footage of both dwellings together. I don't see how you could do that. What are your thoughts? Do you know of any printed material that addresses this situation?
Ed Bedinotti efb803@aol.com
Dear Ed.,
I know of nothing that directly addresses your question. However, in many areas the zoning ordinances spell out what type of an accessory unit can be put on a lot that is zoned for single family residential use. Also, I know of nothing that says that a two family house requires a physical connection. The USPAP says that the value that is estimated is the highest and best use and that one of the parts of the definition of highest and best use is that it must be a legal use. It seems to me if the property is zoned to permit a two family house and this is the highest and best use, then it ought to be appraised as a two family house using the Small Income Property Appraisal Report form (Fanne Mae 1025). On the other hand, if the zoning only permits single family houses with an accessory unit, then the highest and best use could not be a two family house and the URAR would be the appropriate form to use. Another possibility is that the highest and best use would be to divide the parcel into two sites and then it could be appraised as two single family houses. The bottom line is that as the appraiser, you need to explain all this to the client as part of the scope of work dialogue, and have them decide what type of report they require.
H2
Every now and then an appraiser runs into a situation where there are two houses located on one parcel. The definition of a single family dwelling is that of one dwelling unit. In a case where you have two houses on one parcel, it seems to me that it has to be appraised as either a two-family dwelling or a single family dwelling with an accessory unit. In the case where it is appraised as single family with an accessory unit, on the URAR form, a single line adjustment is usually made in the sales comparison grid reflecting the accessory unit. Of course the contributory value is nowhere near what it would be if the second house were located on its own parcel. Almost every residential appraiser I've spoken with has stated this but some commercial appraisers I know think that you should just add the square footage of both dwellings together. I don't see how you could do that. What are your thoughts? Do you know of any printed material that addresses this situation?
Ed Bedinotti efb803@aol.com
Dear Ed.,
I know of nothing that directly addresses your question. However, in many areas the zoning ordinances spell out what type of an accessory unit can be put on a lot that is zoned for single family residential use. Also, I know of nothing that says that a two family house requires a physical connection. The USPAP says that the value that is estimated is the highest and best use and that one of the parts of the definition of highest and best use is that it must be a legal use. It seems to me if the property is zoned to permit a two family house and this is the highest and best use, then it ought to be appraised as a two family house using the Small Income Property Appraisal Report form (Fanne Mae 1025). On the other hand, if the zoning only permits single family houses with an accessory unit, then the highest and best use could not be a two family house and the URAR would be the appropriate form to use. Another possibility is that the highest and best use would be to divide the parcel into two sites and then it could be appraised as two single family houses. The bottom line is that as the appraiser, you need to explain all this to the client as part of the scope of work dialogue, and have them decide what type of report they require.
H2
357) Relocation Forms
06/26/08 Keyword: relocation
| forms
Dear Henry,
What are the differences in a relocation appraisal for a single family residential property as compared with one done for a mortgage? Is there an extra form or a different form than the URAR (Fannie Mae 1004) that should be use?
KELLEY Kelley@EliteAppraisalService.net
Dear Kelly,
Yes, there is often a difference between the appraisal a lender wants using the standard federally approved definition of market value and the one the ERC uses. The ERC uses their own forms and their own definition of value. This is why it is important (and required by the USPAP) to have a scope of work dialogue with your client for every appraisal. You need to determine what form they want you to use and what value the want you to estimate. The USPAP requires that the appraisal always state the value being estimated and include a definition of that value.
H2
What are the differences in a relocation appraisal for a single family residential property as compared with one done for a mortgage? Is there an extra form or a different form than the URAR (Fannie Mae 1004) that should be use?
KELLEY Kelley@EliteAppraisalService.net
Dear Kelly,
Yes, there is often a difference between the appraisal a lender wants using the standard federally approved definition of market value and the one the ERC uses. The ERC uses their own forms and their own definition of value. This is why it is important (and required by the USPAP) to have a scope of work dialogue with your client for every appraisal. You need to determine what form they want you to use and what value the want you to estimate. The USPAP requires that the appraisal always state the value being estimated and include a definition of that value.
H2
356) Triplex or Duplex
06/25/08 Keyword: duplex
Dear H2,
I have been asked to appraise a property which is recorded as a Triplex. This property was originally built as two buildings, a SFR and a duplex. The owner has removed the wall separating the units in the duplex and made it into a SFR without a permit. Therefore, currently there are 2 SFRs on this parcel of land -- at least in terms of use. A search for sold Triplex comparables returned one sale (10 months old) in a 1.5 mile radius; however there are plenty of duplex comparables in the area. In your opinion, should I be using duplexes as comparables or go to neighboring communities and try to find triplexes. Please advise.
Frank Farahani quickcomps@gmail.com
Dear Frank,
I think you should use both. Keep in mind that the value you estimate is based on the highest and best use of the property and that the highest and best use must be a legal use.
H2
I have been asked to appraise a property which is recorded as a Triplex. This property was originally built as two buildings, a SFR and a duplex. The owner has removed the wall separating the units in the duplex and made it into a SFR without a permit. Therefore, currently there are 2 SFRs on this parcel of land -- at least in terms of use. A search for sold Triplex comparables returned one sale (10 months old) in a 1.5 mile radius; however there are plenty of duplex comparables in the area. In your opinion, should I be using duplexes as comparables or go to neighboring communities and try to find triplexes. Please advise.
Frank Farahani quickcomps@gmail.com
Dear Frank,
I think you should use both. Keep in mind that the value you estimate is based on the highest and best use of the property and that the highest and best use must be a legal use.
H2
355) Illegal Use
06/24/08 Keyword: illegal
use
Dear H2,
I am apprasing a property in a rural area of San Martin. Preliminary review shows a single family residence. When it was purchased two years ago, the MLS listed it as a SFR with 3 cottages with rental income. A previous appraisal was done on a Small Residential Income Property form showing it as a 4-unit improvement. Now it is being sold again by the owner, and the purchase contract is for a residential income property with 3 "legal non-conforming ancillary units". I contacted the planning department and they said those 3 rental units were illegal and various violations had been sent out to the owner to remove or obtain permits for them. However, the Realtor gave me a letter dated in 02/04 from the County of Santa Clara Environmental Resources saying no permits were on file, and that the buildings were built prior to 1947 and not required to have a permit. Do I disclose these as violations, or are these legal non conforming units? I was planning to use a standarad URAR 1004 form with assessory units and appraise the property as a SFR -- not as a fourplex -- as there are very few comparables even in a 6-10 mile radius. What would you do?
George Cuilla gmonny@sbcglobal.net
Dear George,
What form you use should be agreed upon between you and the client as part of the scope of work discussion you have with them. You need to determine what the highest and best use of the property is and then the appraised value is based on its highest and best use. Keep in mind, however, that the highest and best use must be a legal use.
You must report what you find in your investigations. The USPAP states that you cannot make an appraisal if you think it will be used to mislead anyone, or for any fraudulent purposes. You need to satisfy yourself that your appraisal is for a legitimate purpose. You really have to ask yourself if you want to get involved in a job like this or if you would be better off turning down the assignment.
H2
I am apprasing a property in a rural area of San Martin. Preliminary review shows a single family residence. When it was purchased two years ago, the MLS listed it as a SFR with 3 cottages with rental income. A previous appraisal was done on a Small Residential Income Property form showing it as a 4-unit improvement. Now it is being sold again by the owner, and the purchase contract is for a residential income property with 3 "legal non-conforming ancillary units". I contacted the planning department and they said those 3 rental units were illegal and various violations had been sent out to the owner to remove or obtain permits for them. However, the Realtor gave me a letter dated in 02/04 from the County of Santa Clara Environmental Resources saying no permits were on file, and that the buildings were built prior to 1947 and not required to have a permit. Do I disclose these as violations, or are these legal non conforming units? I was planning to use a standarad URAR 1004 form with assessory units and appraise the property as a SFR -- not as a fourplex -- as there are very few comparables even in a 6-10 mile radius. What would you do?
George Cuilla gmonny@sbcglobal.net
Dear George,
What form you use should be agreed upon between you and the client as part of the scope of work discussion you have with them. You need to determine what the highest and best use of the property is and then the appraised value is based on its highest and best use. Keep in mind, however, that the highest and best use must be a legal use.
You must report what you find in your investigations. The USPAP states that you cannot make an appraisal if you think it will be used to mislead anyone, or for any fraudulent purposes. You need to satisfy yourself that your appraisal is for a legitimate purpose. You really have to ask yourself if you want to get involved in a job like this or if you would be better off turning down the assignment.
H2
354) Community Apartment
Dear Henry,
I recently did an appraisal in which the subject's County Use is listed as "Own-Your-Own-Apt". The original Title report stated the subject as a Condominium. Now 1 week later I have received a new report from the Title company stating the subject is a "Community Apartment Project". What form would I use as the description still states it is an undivided interest?
Wendy Kramer wendy@kramernet.com
Dear Wendy,
In many ways a "Community Apartment Project" is similar to a condominium or a PUD, but they are not the same. I can find nothing in the Fannie Mae regulations about them. They seem to be quite popular in California. I think it is up to the client to decide -- as part of your scope of work discussion with them -- which form you should use. My first choice would be the URAR.
H2
I recently did an appraisal in which the subject's County Use is listed as "Own-Your-Own-Apt". The original Title report stated the subject as a Condominium. Now 1 week later I have received a new report from the Title company stating the subject is a "Community Apartment Project". What form would I use as the description still states it is an undivided interest?
Wendy Kramer wendy@kramernet.com
Dear Wendy,
In many ways a "Community Apartment Project" is similar to a condominium or a PUD, but they are not the same. I can find nothing in the Fannie Mae regulations about them. They seem to be quite popular in California. I think it is up to the client to decide -- as part of your scope of work discussion with them -- which form you should use. My first choice would be the URAR.
H2
353) Community Apartment
Dear Henry,
I recently did an appraisal in which the subject's County Use is listed as "Own-Your-Own-Apt". The original Title report stated the subject as a Condominium. Now 1 week later I have received a new report from the Title company stating the subject is a "Community Apartment Project." What form would I use since the description still states it is an undivided interest?
Wendy Kramer wendy@kramernet.com
Dear Wendy,
In many ways a "Community Apartment Project" is similar to a condominium or a PUD, but they are not the same. I can find nothing in the Fannie Mae regulations about them. They seem to be quite popular in California. I think it is up to the client to decide -- as part of your scope of work discussion with them -- which form you should use. My first choice would be the URAR.
H2
I recently did an appraisal in which the subject's County Use is listed as "Own-Your-Own-Apt". The original Title report stated the subject as a Condominium. Now 1 week later I have received a new report from the Title company stating the subject is a "Community Apartment Project." What form would I use since the description still states it is an undivided interest?
Wendy Kramer wendy@kramernet.com
Dear Wendy,
In many ways a "Community Apartment Project" is similar to a condominium or a PUD, but they are not the same. I can find nothing in the Fannie Mae regulations about them. They seem to be quite popular in California. I think it is up to the client to decide -- as part of your scope of work discussion with them -- which form you should use. My first choice would be the URAR.
H2
352) AMC Test
Dear Henry,
I recently filled out an application with an AMC that included an appraisal test/quiz at the end. The Q & A was very shoddy. Here's a sample question:
"Across the board adjustments:
A) should never be made when possible.
B) can be acceptable in some cases such as REO properties when no similar condition homes exist.
C) should be evident to the client when they were needed. That is why they are in the report.
D) Both a & b
Do these multiple choice answers make any sense to you? The other 10 questions are equally faulty. I know a company can choose their own criteria for determining whether they will provide assignments to an appraiser, but this quiz was far from appropriate in my opinion. Does an AMC have any business quizzing licensed appraisers this way and for this purpose?
Name withheld by request
Dear Friend,
Using the answer "both a & b" or "all of the above" in a multiple choice question is no longer considered to be good test question construction. The State of Florida Real Estate Commission will not approve any question with such answers. Frankly, I think it is very unprofessional for an AMC to have a test like this as part of their approval process.
H2
I recently filled out an application with an AMC that included an appraisal test/quiz at the end. The Q & A was very shoddy. Here's a sample question:
"Across the board adjustments:
A) should never be made when possible.
B) can be acceptable in some cases such as REO properties when no similar condition homes exist.
C) should be evident to the client when they were needed. That is why they are in the report.
D) Both a & b
Do these multiple choice answers make any sense to you? The other 10 questions are equally faulty. I know a company can choose their own criteria for determining whether they will provide assignments to an appraiser, but this quiz was far from appropriate in my opinion. Does an AMC have any business quizzing licensed appraisers this way and for this purpose?
Name withheld by request
Dear Friend,
Using the answer "both a & b" or "all of the above" in a multiple choice question is no longer considered to be good test question construction. The State of Florida Real Estate Commission will not approve any question with such answers. Frankly, I think it is very unprofessional for an AMC to have a test like this as part of their approval process.
H2
351) Appraisal Sharing
06/20/08 Keyword: impartiality
Dear Henry,
I was recently asked by an AMC reviewer to remove a brief disclosure that I had made in an appraisal indicating that the property owner had shown me another recently completed appraisal and that I had noted the effective date and the value opinion. Perhaps this might be technically considered confidential information, even though in this context neither previous client nor the appraiser was identified, and thus information better excluded from my report. But the reviewer also informed me that as an appraiser he had generally declined any invitation by a property owner to look at a prior appraisal out of a concern in finding possible error or wrong-doing that he would then be obliged to report. But that one troubled me. I found that particular policy to be unusually limiting for a professional fact finder and opinion maker. As an appraiser, I seek to learn as much as possible about how people might react to a particular property in terms of current market value, and appraisers are people too! Again, the information was presented during my inspection -- I certainly did not solicit it in any way. I have in the past even made a quick note as to comparable properties and their locations, but again only if the complexity of the assignment suggested it might prove reasonably worthwhile in the interest of preparing a better report. I would never automatically use any of the comparable sales or listings cited in the prior report, but of course I might use one or more, or all of them, if subsequent research dictated. What are your thoughts Henry? Am I walking some kind of slippery slope here?
Name Withheld by Request
Dear Friend,
I don't think it is a good idea for an appraiser to look at the work of another appraiser done on the same property that you are appraising. It is not purely an academic problem at that point: you have an assignment, and their previous appraisal work parallels much of what you will be required to do for your client. I suggest that you refrain in future to keep both the appearance and the reality of impartiality.
H2
I was recently asked by an AMC reviewer to remove a brief disclosure that I had made in an appraisal indicating that the property owner had shown me another recently completed appraisal and that I had noted the effective date and the value opinion. Perhaps this might be technically considered confidential information, even though in this context neither previous client nor the appraiser was identified, and thus information better excluded from my report. But the reviewer also informed me that as an appraiser he had generally declined any invitation by a property owner to look at a prior appraisal out of a concern in finding possible error or wrong-doing that he would then be obliged to report. But that one troubled me. I found that particular policy to be unusually limiting for a professional fact finder and opinion maker. As an appraiser, I seek to learn as much as possible about how people might react to a particular property in terms of current market value, and appraisers are people too! Again, the information was presented during my inspection -- I certainly did not solicit it in any way. I have in the past even made a quick note as to comparable properties and their locations, but again only if the complexity of the assignment suggested it might prove reasonably worthwhile in the interest of preparing a better report. I would never automatically use any of the comparable sales or listings cited in the prior report, but of course I might use one or more, or all of them, if subsequent research dictated. What are your thoughts Henry? Am I walking some kind of slippery slope here?
Name Withheld by Request
Dear Friend,
I don't think it is a good idea for an appraiser to look at the work of another appraiser done on the same property that you are appraising. It is not purely an academic problem at that point: you have an assignment, and their previous appraisal work parallels much of what you will be required to do for your client. I suggest that you refrain in future to keep both the appearance and the reality of impartiality.
H2
350) Unpermitted Addition
06/19/08 Keyword: hypotheticals
Dear Henry,
I have a comment regarding the question about the value of square footage added to a house that was not "permitted" by the local governmental authority.
In my area (Fort Collins, CO), there are many additions and finished basements that are completed without a building permit and without inspection. I have come to the conclusion that this violates "Highest and Best Use", meaning that the basement finish or additional square footage is not "Legally Permitted." This is so far above most lenders' heads that they just won't understand what it is I am talking about.
However, in this new age of underwriting, I make the appraisal "subject to obtaining a permit" for the un-permitted basement finish or additional sq.ft. Most of the time this still causes brokers and lenders a great deal of resistance and as you know, a large number of phone conversations defending this position. It even irritates the borrower in a refinance situation as the borrower is the one who has to get the additional permit. If the borrower is the one who did not get the permit in the first place, he/she knows they have been caught, but if they purchased the property and the previous appraiser or broker did not bring this to their attention, they are more than upset.
What do you think?
Sidney W. Clark, SRA thesidster@aol.com
Dear Sidney,
Thank you for your interesting comments on my answer about Highest & Best use. I agree that the value you estimate must be based on a Legally Permitted Use. The question is, do you make the appraisal "subject to" or do you use a hypothetical condition that a permit could be obtained? Since Fannie Mae does not permit the addition of any hypothetical conditions you have no choice if the appraisal is on the URAR or other Fannie Mae form but to make the value estimate based on the legal use of the property. The question is really how much less is that value than market value would be if you were permitted to make a hypothetical condition?
This is the kind of thing that needs to be considered as part of the scope of work discussion that is required by the USPAP.
H2
I have a comment regarding the question about the value of square footage added to a house that was not "permitted" by the local governmental authority.
In my area (Fort Collins, CO), there are many additions and finished basements that are completed without a building permit and without inspection. I have come to the conclusion that this violates "Highest and Best Use", meaning that the basement finish or additional square footage is not "Legally Permitted." This is so far above most lenders' heads that they just won't understand what it is I am talking about.
However, in this new age of underwriting, I make the appraisal "subject to obtaining a permit" for the un-permitted basement finish or additional sq.ft. Most of the time this still causes brokers and lenders a great deal of resistance and as you know, a large number of phone conversations defending this position. It even irritates the borrower in a refinance situation as the borrower is the one who has to get the additional permit. If the borrower is the one who did not get the permit in the first place, he/she knows they have been caught, but if they purchased the property and the previous appraiser or broker did not bring this to their attention, they are more than upset.
What do you think?
Sidney W. Clark, SRA thesidster@aol.com
Dear Sidney,
Thank you for your interesting comments on my answer about Highest & Best use. I agree that the value you estimate must be based on a Legally Permitted Use. The question is, do you make the appraisal "subject to" or do you use a hypothetical condition that a permit could be obtained? Since Fannie Mae does not permit the addition of any hypothetical conditions you have no choice if the appraisal is on the URAR or other Fannie Mae form but to make the value estimate based on the legal use of the property. The question is really how much less is that value than market value would be if you were permitted to make a hypothetical condition?
This is the kind of thing that needs to be considered as part of the scope of work discussion that is required by the USPAP.
H2
349) Down Market
06/18/08 Keyword: external
obsolescence
Dear H2,
In the cost approach, when you have a forclosure sale or a "short sale" and the sale price is lower than the cost to rebuild (reproduction cost), is it proper to use the External Obsolescence to balance out the final value? The forclosure market -- which is an external pressure -- appears to have caused this low sale value.
Using the Cost approach you start by: 1st, establishing site value, use a building cost with a cost service, put in physical depreciation, and then use the abstraction method for External Obsolescence which is the difference caused by the low sale price. Is this a correct method?
GM jcvsor@yahoo.com
Dear GM,
Anything that happens off the site that causes a property to lose value in the cost approach is classified as External Obsolescence. Market conditions would fall into that category. If your site sales are not current, they should also be adjusted to reflect the down market.
H2
In the cost approach, when you have a forclosure sale or a "short sale" and the sale price is lower than the cost to rebuild (reproduction cost), is it proper to use the External Obsolescence to balance out the final value? The forclosure market -- which is an external pressure -- appears to have caused this low sale value.
Using the Cost approach you start by: 1st, establishing site value, use a building cost with a cost service, put in physical depreciation, and then use the abstraction method for External Obsolescence which is the difference caused by the low sale price. Is this a correct method?
GM jcvsor@yahoo.com
Dear GM,
Anything that happens off the site that causes a property to lose value in the cost approach is classified as External Obsolescence. Market conditions would fall into that category. If your site sales are not current, they should also be adjusted to reflect the down market.
H2
348) Leasehold Valuation
06/17/08 Keyword: leasehold
valuation
Dear Henry --
I am looking for information on leasehold valuation. My subject property has a 20 year lease, with 12 years remaining on the lease and an option to extend for an additional 9 years. The site has been improved with a retail building by the tenant. Any information I found discusses how to value the lease but does not discuss how to value the tenant improvements. Any help you can provide would be much appreciated.
Thanks,
Dan
Dear Dan,
My book Advanced Appraisal Methods covers this subject in depth. It is available from our distributor Forms and Worms, 1-800 243-4545 or online at www.formsandworms.com
H2
I am looking for information on leasehold valuation. My subject property has a 20 year lease, with 12 years remaining on the lease and an option to extend for an additional 9 years. The site has been improved with a retail building by the tenant. Any information I found discusses how to value the lease but does not discuss how to value the tenant improvements. Any help you can provide would be much appreciated.
Thanks,
Dan
Dear Dan,
My book Advanced Appraisal Methods covers this subject in depth. It is available from our distributor Forms and Worms, 1-800 243-4545 or online at www.formsandworms.com
H2
347) Detached vs Attached
Good Morning Henry:
Could you please clarify what the definition is for a property type classified as DETACHED versus a property type classified as ATTACHED? For an appraisal assignment of a 2 unit duplex on two levels, what would be the accurate property type on the appraisal?
Sue Erzinger serzinger@baylake.com
Dear Sue,
Attached means that the units have at least one common wall or floor/ceiling. Detached means they have no common walls or floors. Since the floor of the upper unit is the ceiling of the lower unit, they are considered ATTACHED.
H2
Could you please clarify what the definition is for a property type classified as DETACHED versus a property type classified as ATTACHED? For an appraisal assignment of a 2 unit duplex on two levels, what would be the accurate property type on the appraisal?
Sue Erzinger serzinger@baylake.com
Dear Sue,
Attached means that the units have at least one common wall or floor/ceiling. Detached means they have no common walls or floors. Since the floor of the upper unit is the ceiling of the lower unit, they are considered ATTACHED.
H2
346) Illegal Use
06/15/08 Keyword: scope of
work |
USPAP
Violation
Dear H2,
I am apprasing a property in a rural area of San Martin. Preliminary review shows a single family residence. When it was purchased two years ago, the MLS listed it as a SFR with 3 cottages with rental income. A previous appraisal was done on a Small Residential Income Property form showing it as a 4-unit improvement. Now it is being sold again by the owner, and the purchase contract is for a residential income property with 3 "legal non-conforming ancillary units". I contacted the planning department and they said those 3 rental units were illegal and various violations had been sent out to the owner to remove or obtain permits for them. However, the Realtor gave me a letter dated in 02/04 from the County of Santa Clara Environmental Resources saying no permits were on file, and that the buildings were built prior to 1947 and not required to have a permit. Do I disclose these as violations, or are these legal non conforming units? I was planning to use a standarad URAR 1004 form with assessory units and appraise the property as a SFR -- not as a fourplex -- as there are very few comparables even in a 6-10 mile radius. What would you do?
George Cuilla gmonny@sbcglobal.net
Dear George,
What form you use should be agreed upon between you and the client as part of the scope of work discussion you have with them. You need to determine what the highest and best use of the property is and then the appraised value is based on its highest and best use. Keep in mind, however, that the highest and best use must be a legal use.
You must report what you find in your investigations. The USPAP states that you cannot make an appraisal if you think it will be used to mislead anyone, or for any fraudulent purposes. You need to satisfy yourself that your appraisal is for a legitimate purpose. You really have to ask yourself if you want to get involved in a job like this or if you would be better off turning down the assignment.
H2
I am apprasing a property in a rural area of San Martin. Preliminary review shows a single family residence. When it was purchased two years ago, the MLS listed it as a SFR with 3 cottages with rental income. A previous appraisal was done on a Small Residential Income Property form showing it as a 4-unit improvement. Now it is being sold again by the owner, and the purchase contract is for a residential income property with 3 "legal non-conforming ancillary units". I contacted the planning department and they said those 3 rental units were illegal and various violations had been sent out to the owner to remove or obtain permits for them. However, the Realtor gave me a letter dated in 02/04 from the County of Santa Clara Environmental Resources saying no permits were on file, and that the buildings were built prior to 1947 and not required to have a permit. Do I disclose these as violations, or are these legal non conforming units? I was planning to use a standarad URAR 1004 form with assessory units and appraise the property as a SFR -- not as a fourplex -- as there are very few comparables even in a 6-10 mile radius. What would you do?
George Cuilla gmonny@sbcglobal.net
Dear George,
What form you use should be agreed upon between you and the client as part of the scope of work discussion you have with them. You need to determine what the highest and best use of the property is and then the appraised value is based on its highest and best use. Keep in mind, however, that the highest and best use must be a legal use.
You must report what you find in your investigations. The USPAP states that you cannot make an appraisal if you think it will be used to mislead anyone, or for any fraudulent purposes. You need to satisfy yourself that your appraisal is for a legitimate purpose. You really have to ask yourself if you want to get involved in a job like this or if you would be better off turning down the assignment.
H2
345) Handrails
06/14/08 Keyword: guidelines
Dear Henry,
Is there anything in USPAP or Fannie Mae that says safety issues have to be resoved and marked as "subject to" these repairs for a conventional loan? Handrails and safety rails lacking on decks/porches high enough to cause injury if someone falls off is a recurring issue. Thanks.
Bob Edwards bob717@bellsouh.net
Dear Bob,
While I am not aware of any specific USPAP or Fannie Mae guidelines that directly address the situation you describe, I believe that it is an appraiser's obligation to report any life endangering or injury producing safety hazard they observe.
H2
Is there anything in USPAP or Fannie Mae that says safety issues have to be resoved and marked as "subject to" these repairs for a conventional loan? Handrails and safety rails lacking on decks/porches high enough to cause injury if someone falls off is a recurring issue. Thanks.
Bob Edwards bob717@bellsouh.net
Dear Bob,
While I am not aware of any specific USPAP or Fannie Mae guidelines that directly address the situation you describe, I believe that it is an appraiser's obligation to report any life endangering or injury producing safety hazard they observe.
H2
344) Overimprovement
06/13/08 Keyword: improvements
Dear Henry,
I did an inspection on a very unique two family property yesterday. The house is a 5,000 sq ft two family. Any multis in the town are under 3,000 sq ft. It is also a certified five star energy efficient house, with a geothermal heating system. The town values it in the high 400s. It's completely renovated and in mint condition (basically new construction). Everything has been inspected and approved by the town. There are no similar comps in surrounding towns either. I also think I want to put more weight on the cost approach. And I need to write an addendum about the highest and best use, being condos. (The owner is eventually going to split it into two condo units.) But it is currently a legal two family (duplex style). I know the lenders are not going to accept an appraisal with adjustments over $100,000 based on the GLA difference, and the inferior comps. I also don't believe the property is built up too much for the market area. There are new condo units located just behind it. There are also other new construction projects in the area. There are just no similar comps, especially of two family units. Also I am familiar with the geothermal heating system, but I am not sure of the adjustment, and market reaction yet, and the systems are still new and just gaining in popularity. I was just wondering if you have any advice for me on how to approach this. I was thinking of using multiple condo units, single family comps, 4 unit comps. But I really believe that the cost approach is probably the best approach to value. But the appraisal is for a conventional refi, and I doubt the client will accept it. I am also not sure how to estimate the cost per sq ft in the cost approach, considering the unique energy efficient items. Thank you very much for any help you may have.
Jeremy Jerome info@connecticutappraisalllc.com
Dear Jeremy,
This is a tough one. You are correct in trying to determine the highest and best use and then estimating the value based on that use. I would think twice about relying primarily on the cost approach. Also, I wouldn't worry about what the lender will do. That is not your problem. The unique heating system certainly adds to the complications. If you are estimating market value, what you believe that the house will sell for is what counts most and not its cost. Good luck!
H2
I did an inspection on a very unique two family property yesterday. The house is a 5,000 sq ft two family. Any multis in the town are under 3,000 sq ft. It is also a certified five star energy efficient house, with a geothermal heating system. The town values it in the high 400s. It's completely renovated and in mint condition (basically new construction). Everything has been inspected and approved by the town. There are no similar comps in surrounding towns either. I also think I want to put more weight on the cost approach. And I need to write an addendum about the highest and best use, being condos. (The owner is eventually going to split it into two condo units.) But it is currently a legal two family (duplex style). I know the lenders are not going to accept an appraisal with adjustments over $100,000 based on the GLA difference, and the inferior comps. I also don't believe the property is built up too much for the market area. There are new condo units located just behind it. There are also other new construction projects in the area. There are just no similar comps, especially of two family units. Also I am familiar with the geothermal heating system, but I am not sure of the adjustment, and market reaction yet, and the systems are still new and just gaining in popularity. I was just wondering if you have any advice for me on how to approach this. I was thinking of using multiple condo units, single family comps, 4 unit comps. But I really believe that the cost approach is probably the best approach to value. But the appraisal is for a conventional refi, and I doubt the client will accept it. I am also not sure how to estimate the cost per sq ft in the cost approach, considering the unique energy efficient items. Thank you very much for any help you may have.
Jeremy Jerome info@connecticutappraisalllc.com
Dear Jeremy,
This is a tough one. You are correct in trying to determine the highest and best use and then estimating the value based on that use. I would think twice about relying primarily on the cost approach. Also, I wouldn't worry about what the lender will do. That is not your problem. The unique heating system certainly adds to the complications. If you are estimating market value, what you believe that the house will sell for is what counts most and not its cost. Good luck!
H2
343) Room Count
06/12/08 Keyword: GLA
Dear Henry,
Is a laundry room to be considered as a room in the room count if it has surrounding walls and a door? What about a 'breakfast room' or 'casual dining area' adjoining a kitchen area? Thank you.
Anne Carlisle carlisle.a@att.net
Dear Ann,
Neither of these rooms are counted in the room count in most areas and in most markets. However, if they are usually included in your area or market, there is nothing to prevent you from doing so. However, to avoid confusion, you should prominently explain what you are doing and the reason that you are doing so.
H2
Is a laundry room to be considered as a room in the room count if it has surrounding walls and a door? What about a 'breakfast room' or 'casual dining area' adjoining a kitchen area? Thank you.
Anne Carlisle carlisle.a@att.net
Dear Ann,
Neither of these rooms are counted in the room count in most areas and in most markets. However, if they are usually included in your area or market, there is nothing to prevent you from doing so. However, to avoid confusion, you should prominently explain what you are doing and the reason that you are doing so.
H2
342) Buyer's Lender
06/11/08 Keyword: lender
Dear Henry,
I am doing a large commercial appraisal and the owner is requesting the appraisal for the the buyer's lender. Is this proper?
Thank you,
Darwin darholland@mchsi.com
Dear Darwin,
There is nothing in the USPAP that regulates who can order an appraisal. When the loan is going to be sold to Fannie Mae or Freddie Mac they require that the lender order the appraisal. To protect yourself, you should point out to the owner that it is possible that the Buyer's lender will not accept an appraisal they do not order. You might also point out that if the client changes you cannot just change the name on the appraisal, as the USPAP requires that you make a new appraisal.
H2
I am doing a large commercial appraisal and the owner is requesting the appraisal for the the buyer's lender. Is this proper?
Thank you,
Darwin darholland@mchsi.com
Dear Darwin,
There is nothing in the USPAP that regulates who can order an appraisal. When the loan is going to be sold to Fannie Mae or Freddie Mac they require that the lender order the appraisal. To protect yourself, you should point out to the owner that it is possible that the Buyer's lender will not accept an appraisal they do not order. You might also point out that if the client changes you cannot just change the name on the appraisal, as the USPAP requires that you make a new appraisal.
H2
341) License Number
06/10/08 Keyword: license
Dear Henry,
When signing an appraisal I notice that there is a place for a "State Certification#" or "State License#" or "Other____State#". Because appraisers are licensed at all levels, what exactly is the State Certification# referring to?
John Hartman jhartman@freeway.net
Dear John,
You should put in the number of your highest level of license or certification.
H2
When signing an appraisal I notice that there is a place for a "State Certification#" or "State License#" or "Other____State#". Because appraisers are licensed at all levels, what exactly is the State Certification# referring to?
John Hartman jhartman@freeway.net
Dear John,
You should put in the number of your highest level of license or certification.
H2
340) Mold Redux
06/09/08 Keyword: environmental
hazards |
mold
Dear Henry,
I attended your seminar on Environmental Hazards at the Columbia Society of Appraiser's meeting this month, and have a question to ask you. Have you ever heard of white mold? What is it, how do you know it is present (since it is white), and how does it affect value?
maureen coyle maureenann120@hotmail.com
Dear Maureen,
Mold comes in every color of the rainbow. Even "black mold" is often not obviously black. Your obligation is to report any mold that you see. Keep in mind that it has to be "apparent." Whenever you see mold -- or any other detrimental environmental condition, for that matter -- you should recommend an inspection by a professional environmental inspector. Your appraisal should also contain a statement that the value you have estimated is based on the assumption that the mold will have no effect on the value and that if, based on the results of the inspection, it does impact the value, then your value estimate is not going to be valid. Note that if the mold needs to be removed, the effect on the value is the cost to remove it plus something extra for having to deal with the problem.
H2
I attended your seminar on Environmental Hazards at the Columbia Society of Appraiser's meeting this month, and have a question to ask you. Have you ever heard of white mold? What is it, how do you know it is present (since it is white), and how does it affect value?
maureen coyle maureenann120@hotmail.com
Dear Maureen,
Mold comes in every color of the rainbow. Even "black mold" is often not obviously black. Your obligation is to report any mold that you see. Keep in mind that it has to be "apparent." Whenever you see mold -- or any other detrimental environmental condition, for that matter -- you should recommend an inspection by a professional environmental inspector. Your appraisal should also contain a statement that the value you have estimated is based on the assumption that the mold will have no effect on the value and that if, based on the results of the inspection, it does impact the value, then your value estimate is not going to be valid. Note that if the mold needs to be removed, the effect on the value is the cost to remove it plus something extra for having to deal with the problem.
H2
339) No People
06/08/08 Keyword: scope of
work |
comp
photos
Dear Henry,
On 5/13/08 you answered a questions about including and/or deleting a person or personal photo from an appraisal, and intimated that there is no regulation requiring same. Yet most of my clients have two strict rules: "No people in subject or comp photos" and "No identifiable people in pictures on walls in interior photos." This has been extended by some to mean personal items of an ethnic or racial origin such as tribal masks, native american art-work, etc. Their contention is that the appraisal cannot have anything that would lead the reader to know the race, etc., of the borrower. It seems pretty silly to me, when often their name gives away the game, but those are the rules promulgated by many of my clients. Do you think it is illegal?
Robert Godwin rcgodwin2@appraise.gccoxmail.com
Dear Robert,
As part of the scope of work negotiation with the client, which is required by the USPAP, it is not unreasonable that the client request pictures without people in them. I think it is a little extreme to apply this to personal property too, but I doubt it is illegal.
H2
On 5/13/08 you answered a questions about including and/or deleting a person or personal photo from an appraisal, and intimated that there is no regulation requiring same. Yet most of my clients have two strict rules: "No people in subject or comp photos" and "No identifiable people in pictures on walls in interior photos." This has been extended by some to mean personal items of an ethnic or racial origin such as tribal masks, native american art-work, etc. Their contention is that the appraisal cannot have anything that would lead the reader to know the race, etc., of the borrower. It seems pretty silly to me, when often their name gives away the game, but those are the rules promulgated by many of my clients. Do you think it is illegal?
Robert Godwin rcgodwin2@appraise.gccoxmail.com
Dear Robert,
As part of the scope of work negotiation with the client, which is required by the USPAP, it is not unreasonable that the client request pictures without people in them. I think it is a little extreme to apply this to personal property too, but I doubt it is illegal.
H2
338) Making Sense
06/07/08 Keyword: intuition
Hi Henry,
The search for a way to make mortgage brokers financially liable for their loans is a great idea. But it makes me think that making appraisers financially liable would also help. Thirty-plus years ago I was taught by an MAI who told me after finishing an appraisal to sit back and simply ask myself, "Would I purchase the subject for the amount I am reporting as market value?" Maybe a few appraisers should be forced to eat what they cook. That would inject a lot of reality into appraisals from then on! What do you think about that?
Craig Farr arizonavaluation@onebox.com
Dear Craig,
That is a very old bit of advice which I believe is still valid. This is especially true when the value is based primarily on math, where it is easy to make a mistake. Also I live in fear of computer generated appraisals where sometimes the value estimate makes no sense at all. At the end of the valuation process, I feel that you should always ask yourself if your answer "makes sense."
H2
The search for a way to make mortgage brokers financially liable for their loans is a great idea. But it makes me think that making appraisers financially liable would also help. Thirty-plus years ago I was taught by an MAI who told me after finishing an appraisal to sit back and simply ask myself, "Would I purchase the subject for the amount I am reporting as market value?" Maybe a few appraisers should be forced to eat what they cook. That would inject a lot of reality into appraisals from then on! What do you think about that?
Craig Farr arizonavaluation@onebox.com
Dear Craig,
That is a very old bit of advice which I believe is still valid. This is especially true when the value is based primarily on math, where it is easy to make a mistake. Also I live in fear of computer generated appraisals where sometimes the value estimate makes no sense at all. At the end of the valuation process, I feel that you should always ask yourself if your answer "makes sense."
H2
337) Reproduction vs Replacement Cost
06/06/08 Keyword: replacement
cost estimate
Dear Mr. Harrison:
Why do so many reviewers and lenders ask for the replacement cost rather tha reproduction cost? It is my understanding that if a structure can be reproduced in the same fashion as originally constructed at reasonable cost with readily available materials, the reproduction cost should be applied. When the cost of materials is extreme and the availabilty of such materials would result in an over-improvement, is it not my correct understanding that the replacement cost is then warranted? Yet reviewers constantly ask me to change from reproduction to replacement cost.
Thomas Padden peconicappr@gmail.com
Dear Thomas,
The time for a lender/client to ask for replacement cost vs reproduction cost in the cost approach is during the required scope of work determination before the appraisal begins -- not during the review process. The best way to do the cost approach, in my opinion, is to use reproduction cost and then deduct and explain all forms of depreciation. However, many cost services use replacement cost as their starting point which also works. Most likely the reason the lender/client wants replacement cost is that they are using your appraisal for insurance purposes.
H2
Why do so many reviewers and lenders ask for the replacement cost rather tha reproduction cost? It is my understanding that if a structure can be reproduced in the same fashion as originally constructed at reasonable cost with readily available materials, the reproduction cost should be applied. When the cost of materials is extreme and the availabilty of such materials would result in an over-improvement, is it not my correct understanding that the replacement cost is then warranted? Yet reviewers constantly ask me to change from reproduction to replacement cost.
Thomas Padden peconicappr@gmail.com
Dear Thomas,
The time for a lender/client to ask for replacement cost vs reproduction cost in the cost approach is during the required scope of work determination before the appraisal begins -- not during the review process. The best way to do the cost approach, in my opinion, is to use reproduction cost and then deduct and explain all forms of depreciation. However, many cost services use replacement cost as their starting point which also works. Most likely the reason the lender/client wants replacement cost is that they are using your appraisal for insurance purposes.
H2
336) Trainee Workfiles
06/05/08 Keyword: trainee
Dear Henry,
As an appraiser trainee, do I need to keep duplicate files of completed reports that I assisted on?
NWBR
Dear Friend,
The USAP has requirements for keeping the work file for each appraisal report. Your state may also have requirements for trainees.
If it is not a big problem, the safest thing for you to do is keep a complete copy of each report your assist on.
H2
As an appraiser trainee, do I need to keep duplicate files of completed reports that I assisted on?
NWBR
Dear Friend,
The USAP has requirements for keeping the work file for each appraisal report. Your state may also have requirements for trainees.
If it is not a big problem, the safest thing for you to do is keep a complete copy of each report your assist on.
H2
335) Reporting Lender Pressure
06/04/08 Keyword: lender
pressure
Hello Henry,
Thank you for providing your guidence through this forum and your online magazine. [http://www.revmag.com]
Today, I am asking you to tell us to what agency, to whom, and at what address/email, can appraisers report lender pressure, unethical behavior, or general incompetence. In my case — as with many of us residential appraisers, I am sure — I am fed up with lenders that don't know the rules and ask me to do stuff that I know is unethical or unprofessional. When I respond as to why I won't do something and why they shouldn't be asking me to do thus and such, the answer is usually "all of our other appraisers do this with no problem".
Of course I don't believe them or fall into their trap, but until recently, I never got a written response which absolutely indicated that the lender was in serious violation, that their request was unethical, that the action in question was standard company practice. With my "NO I WON"T AND YOU SHOULDEN"T BE ASKING ME TO DO THIS" response, a client recently threatened me (in writing) that I would be put on their "banned forever" list. So I am asking in earnest. I want to know, what agency(s), who at that agency(s), and how do I contact them to report such lender infractions? I am truly angry! I feel it is only by policing ourselves and our industry that we can be the "stand up" professionals that most of us strive to be.
Susan Wolfson azaleaappraisalassociates@msn.com
Dear Susan,
One of the few good things in the proposed Fannie/Freddie/Andrew Cuomo Agreement is that it recognizes lender pressure and tries to offer a solution. Unfortunately, the agreement is so flawed that there is little chance it will go into effect unless (and until) it is substantially modified. At the present time, there is little you can do about lender pressure unless you have good evidence that there is fraud or other criminal activity involved. If there is, and you have convincing evidence to back up your position, you can go to your State Banking Commission, State's Attorney General or FBI and ask them to review the situation. Your can also write to your representatives in Congress who are now trying to write legislation to reduce lender fraud.
H2
Thank you for providing your guidence through this forum and your online magazine. [http://www.revmag.com]
Today, I am asking you to tell us to what agency, to whom, and at what address/email, can appraisers report lender pressure, unethical behavior, or general incompetence. In my case — as with many of us residential appraisers, I am sure — I am fed up with lenders that don't know the rules and ask me to do stuff that I know is unethical or unprofessional. When I respond as to why I won't do something and why they shouldn't be asking me to do thus and such, the answer is usually "all of our other appraisers do this with no problem".
Of course I don't believe them or fall into their trap, but until recently, I never got a written response which absolutely indicated that the lender was in serious violation, that their request was unethical, that the action in question was standard company practice. With my "NO I WON"T AND YOU SHOULDEN"T BE ASKING ME TO DO THIS" response, a client recently threatened me (in writing) that I would be put on their "banned forever" list. So I am asking in earnest. I want to know, what agency(s), who at that agency(s), and how do I contact them to report such lender infractions? I am truly angry! I feel it is only by policing ourselves and our industry that we can be the "stand up" professionals that most of us strive to be.
Susan Wolfson azaleaappraisalassociates@msn.com
Dear Susan,
One of the few good things in the proposed Fannie/Freddie/Andrew Cuomo Agreement is that it recognizes lender pressure and tries to offer a solution. Unfortunately, the agreement is so flawed that there is little chance it will go into effect unless (and until) it is substantially modified. At the present time, there is little you can do about lender pressure unless you have good evidence that there is fraud or other criminal activity involved. If there is, and you have convincing evidence to back up your position, you can go to your State Banking Commission, State's Attorney General or FBI and ask them to review the situation. Your can also write to your representatives in Congress who are now trying to write legislation to reduce lender fraud.
H2
334) Room Count
06/03/08 Keyword: scope of
work |
USPAP
Violation
Dear Henry:
I am appraising an REO. I have always counted the bedrooms (4), baths (2), kitchen, living room, and dining area in this case and then listed the rooms as 6-4-2. The lender wants me to count the 4 bedrooms, 2 baths, foyer, laundry, and dining area for a total of 9-4-2. Am I correct and what should I tell the lender? Please note that the dining area is a small space which is adjacent to the kitchen.
Thanks,
M. J. Mouton moutonap@bellsouth.net
Dear M.J.,
There is nothing specific in the USPAP or Fannie Mae regulations that dictate how to count rooms. If, as part of you scope of work discussion, this is what the lender wants, I think you can comply — as long as you make it clear what you are doing in the report. However, keep in mind that the USPAP prohibits you from making any appraisal you believe is fraudulent or will be used to deceive anyone.
H2
I am appraising an REO. I have always counted the bedrooms (4), baths (2), kitchen, living room, and dining area in this case and then listed the rooms as 6-4-2. The lender wants me to count the 4 bedrooms, 2 baths, foyer, laundry, and dining area for a total of 9-4-2. Am I correct and what should I tell the lender? Please note that the dining area is a small space which is adjacent to the kitchen.
Thanks,
M. J. Mouton moutonap@bellsouth.net
Dear M.J.,
There is nothing specific in the USPAP or Fannie Mae regulations that dictate how to count rooms. If, as part of you scope of work discussion, this is what the lender wants, I think you can comply — as long as you make it clear what you are doing in the report. However, keep in mind that the USPAP prohibits you from making any appraisal you believe is fraudulent or will be used to deceive anyone.
H2
333) In House Appraiser
06/02/08 Keyword: career
Dear Henry,
I am a staff appraiser for Bank of America. With the new Code of Conduct coming out, do you think that I should be looking for a new job?
Doug
Dear Doug,
I think it is too early to panic over the new Code of Conduct. There are going to be a lot of changes — if and when it ever goes into effect.
H2
I am a staff appraiser for Bank of America. With the new Code of Conduct coming out, do you think that I should be looking for a new job?
Doug
Dear Doug,
I think it is too early to panic over the new Code of Conduct. There are going to be a lot of changes — if and when it ever goes into effect.
H2
332) Enclosed Porches & GLA
06/01/08 Keyword: GLA
Dear Henry:
Can an enclosed porch be counted in the GLA if it is completely finished, but does not have a heat vent, radiator, or heat baseboard physically in the enclosed porch, but it can be heated easily by opening the door to the adjoining family room?
Robert O'brien obrienconsultants@hotmail.com
Dear Robert,
The general rule with is that a porch can be counted in the GLA only when it is enclosed, finished and heated like the rest of the house. That does not sound like what you are describing. However, an appraiser can always make an exception to the rule if it will make a more credible appraisal. If you decide to include the porch in the GLA, you must make it clear what you are doing so as not to confuse anyone who might have calculated a different GLA based on the conventional method of measuring.
H2
Can an enclosed porch be counted in the GLA if it is completely finished, but does not have a heat vent, radiator, or heat baseboard physically in the enclosed porch, but it can be heated easily by opening the door to the adjoining family room?
Robert O'brien obrienconsultants@hotmail.com
Dear Robert,
The general rule with is that a porch can be counted in the GLA only when it is enclosed, finished and heated like the rest of the house. That does not sound like what you are describing. However, an appraiser can always make an exception to the rule if it will make a more credible appraisal. If you decide to include the porch in the GLA, you must make it clear what you are doing so as not to confuse anyone who might have calculated a different GLA based on the conventional method of measuring.
H2
331) Duplex Exterior Only Appraisal
Dear Henry,
Can I do an exterior duplex appraisal? If so, which form should I use?
Sondi Eden sondieden@hotmail.com
Dear Sondi,
What form you use is decided by you and your client as part of the scope of work discussion. I assume from your question that the appraisal is not going to be used for a mortgage to be sold to Fannie Mae or Freddie Mac as I doubt they would accept an exterior-only appraisal. If you would normally use a Small Income Property Appraisal Report then I see no reason not to use it if it is acceptable to the client. You could also used a short form narrative or the new AI Residential Summary Appraisal Report form. Keep in mind that no matter what form you use, in order to make a "credible appraisal" which is required by the USPAP, you are going to need information about the interior of the property or base your appraisal on assumptions you make about the interior of the property which is very tricky. (Note: The USPAP does not require an interior inspection) Also remember that it is against the USPAP to make an appraisal that you think might be used to defraud someone.
H2
Can I do an exterior duplex appraisal? If so, which form should I use?
Sondi Eden sondieden@hotmail.com
Dear Sondi,
What form you use is decided by you and your client as part of the scope of work discussion. I assume from your question that the appraisal is not going to be used for a mortgage to be sold to Fannie Mae or Freddie Mac as I doubt they would accept an exterior-only appraisal. If you would normally use a Small Income Property Appraisal Report then I see no reason not to use it if it is acceptable to the client. You could also used a short form narrative or the new AI Residential Summary Appraisal Report form. Keep in mind that no matter what form you use, in order to make a "credible appraisal" which is required by the USPAP, you are going to need information about the interior of the property or base your appraisal on assumptions you make about the interior of the property which is very tricky. (Note: The USPAP does not require an interior inspection) Also remember that it is against the USPAP to make an appraisal that you think might be used to defraud someone.
H2
330) Exit Value
05/30/08 Keyword: definitions
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
329) Fannie/Freddie/Andrew Cuomo Agreement
05/29/08 Keyword: Fannie Mae
| Freddie
Mac
Hello Mr. Harrison,
What is your opinion regarding the Fannie/Freddie/Andrew Cuomo activity?
Anna Richardson richardson313808@bellsouth.net
Dear Anna,
The editorial in the current Spring 2008 issue of Real Estate Valuation Magazine - online at www.revmag.com - expresses in detail how I feel.
H2
What is your opinion regarding the Fannie/Freddie/Andrew Cuomo activity?
Anna Richardson richardson313808@bellsouth.net
Dear Anna,
The editorial in the current Spring 2008 issue of Real Estate Valuation Magazine - online at www.revmag.com - expresses in detail how I feel.
H2
328) Appraising for Family Members
05/28/08 Keyword: conflict of
interest
Dear Henry --
Is there anything in USPAP that states you cannot appraise a family member's property? I have looked through Standard 2 (Ethics) and FAQ about conflict of interest, but would like to get it clarified. I know I must disclose my relationship in the report and state that I do not have an interest in the property. Your help would be greatly appreciated. Thank you!
Kara Hall kara_hall@embarqmail.com
Dear Kara,
I don't think there is anything in the USPAP that specifically prohibits you from appraising a property owned by a family member. However, keep in mind there is a heavy burden on you to demonstrate that there is no present or potential future conflict of interest. I personally think it is a bad idea to do appraisals for family members.
H2
Is there anything in USPAP that states you cannot appraise a family member's property? I have looked through Standard 2 (Ethics) and FAQ about conflict of interest, but would like to get it clarified. I know I must disclose my relationship in the report and state that I do not have an interest in the property. Your help would be greatly appreciated. Thank you!
Kara Hall kara_hall@embarqmail.com
Dear Kara,
I don't think there is anything in the USPAP that specifically prohibits you from appraising a property owned by a family member. However, keep in mind there is a heavy burden on you to demonstrate that there is no present or potential future conflict of interest. I personally think it is a bad idea to do appraisals for family members.
H2
327) Architect as Appraiser
05/27/08 Keyword: career
Dear Henry:
I'm a recently retired licensed Architect in 5 states including New Jersey were I reside. I would like to explore the possibility and process of obtaining a New Jersey Real Estate Appraisal license. Where and how can I get specific requirements and course availability data? Can I expect credit for my current Architectural and Planner licenses? Your response is appreciated.
N.J. Cifaretto, AIA PP njcarchitects@optonline.net
Dear N.J.,
You will not be the first architect to become an appraiser. The specific requirements can be found on the Appraisal Foundation web site, at www.appraisalfoundation.org
However, there are also state requirements which can be obtained from the New Jersey Real Estate Appraisal Commission. You might also contact one of my New Jersey appraisal friends who provides various courses for appraisers using my books:
Mr. George Yager
Business Learning Center, Inc
P.O. Box 1219
Laurence Harbor, NJ 08879
Ph: 732-583-9110, Fax: 732-583-1956
Yours,
H2
I'm a recently retired licensed Architect in 5 states including New Jersey were I reside. I would like to explore the possibility and process of obtaining a New Jersey Real Estate Appraisal license. Where and how can I get specific requirements and course availability data? Can I expect credit for my current Architectural and Planner licenses? Your response is appreciated.
N.J. Cifaretto, AIA PP njcarchitects@optonline.net
Dear N.J.,
You will not be the first architect to become an appraiser. The specific requirements can be found on the Appraisal Foundation web site, at www.appraisalfoundation.org
However, there are also state requirements which can be obtained from the New Jersey Real Estate Appraisal Commission. You might also contact one of my New Jersey appraisal friends who provides various courses for appraisers using my books:
Mr. George Yager
Business Learning Center, Inc
P.O. Box 1219
Laurence Harbor, NJ 08879
Ph: 732-583-9110, Fax: 732-583-1956
Yours,
H2
326) Commercial Appraising
Dear Henry,
Now that I have taken my course in appraisal and am a registered appraiser, how do I begin? I really want to pursue the commercial appraising arena. I have a full time job right now but I want to start learning more in the commercial field. A lot of appraisers don't want to take on a mentee because it is alot of work. So how can I better position myself and break down the iron walls -- not to mention the "glass ceiling" since I am a woman. What things can I be doing to connect with the appraisal community and persuade someone in the commercial realm to take me on as a mentee, when I don't have any experience?
Val valerie@visionaryconcept.net
Dear Val,
The reality of the appraisal business is that the residential side goes up and down, but the commercial business is much more steady. One good way to start is by joining the Appraisal Institute in your state, going to all their chapter meeting and events, and doing whatever you can to become active and known in the chapter. Most likely you will make contacts both among appraisers and potential sources of work who will help you. You should continue to take as many advanced courses as you can. Again, you will make important contacts. Also, more good education is becoming available online, which you should consider. Finally, if you work for the MAI designation, you will find that you get higher level business that only goes to MAIs.
H2
P.S. My wife likes to point out that when she entered appraising in 1974, women represented 8% of surgeons in the US, but only 5% of appraisers! Now the numbers have shifted dramatically, and many classes are nearly half women. I think this is a good time to be pursuing your career.
keywords: career, commercial appraising, mentors
Now that I have taken my course in appraisal and am a registered appraiser, how do I begin? I really want to pursue the commercial appraising arena. I have a full time job right now but I want to start learning more in the commercial field. A lot of appraisers don't want to take on a mentee because it is alot of work. So how can I better position myself and break down the iron walls -- not to mention the "glass ceiling" since I am a woman. What things can I be doing to connect with the appraisal community and persuade someone in the commercial realm to take me on as a mentee, when I don't have any experience?
Val valerie@visionaryconcept.net
Dear Val,
The reality of the appraisal business is that the residential side goes up and down, but the commercial business is much more steady. One good way to start is by joining the Appraisal Institute in your state, going to all their chapter meeting and events, and doing whatever you can to become active and known in the chapter. Most likely you will make contacts both among appraisers and potential sources of work who will help you. You should continue to take as many advanced courses as you can. Again, you will make important contacts. Also, more good education is becoming available online, which you should consider. Finally, if you work for the MAI designation, you will find that you get higher level business that only goes to MAIs.
H2
P.S. My wife likes to point out that when she entered appraising in 1974, women represented 8% of surgeons in the US, but only 5% of appraisers! Now the numbers have shifted dramatically, and many classes are nearly half women. I think this is a good time to be pursuing your career.
keywords: career, commercial appraising, mentors
325) Illegal Uses
Good morning Henry,
I am being assigned an appraisal for a multi-family for Private Mortgage Insurance (PMI ). The lender requests an "as is " appraisal. In my initial research, the subject is listed on public records as a 2 family dwelling.
In contacting the owner to set up my appointment, I am told it is a 3 family dwelling. Checking the prior MLS listing when subject was purchased
it is noted as a 2 family style with "finished apartment on third floor." This is typical for the area, but not legal. I will check with the building department when I go to do the inspection to see if there is a permit that changed its use to a 3 family. If not, do I appraise the subject as a 2 family with an accesory apartment and note that the 3rd unit is not a legal use, or do I appraise as a 3 family unit, as it is being used, but note legality issue of third unit.
Thank you
Joe Violetta joseph_a_violetta@sbcglobal.net
Dear Joe,
This is a very tricky problem. These residences with ancillary third floor dwelling units are very common, especially in cities near universities, such as New Haven where I live. Step one is to ask the client what they want you to do. If they say to appraise it as a three family, then I would describe it as such. However, you must report in the appraisal the investigation you made just as in your question. Keep in mind that your highest and best use analysis (which is required) must be for a legal use. However, for your value estimate, you can consider the present use, but you will need to include an opinion as to how long you think that use will be permitted and how the market reacts to houses like this. The best comparable sales are other 2 family houses with an illegal third family dwelling unit as well.
H2
I am being assigned an appraisal for a multi-family for Private Mortgage Insurance (PMI ). The lender requests an "as is " appraisal. In my initial research, the subject is listed on public records as a 2 family dwelling.
In contacting the owner to set up my appointment, I am told it is a 3 family dwelling. Checking the prior MLS listing when subject was purchased
it is noted as a 2 family style with "finished apartment on third floor." This is typical for the area, but not legal. I will check with the building department when I go to do the inspection to see if there is a permit that changed its use to a 3 family. If not, do I appraise the subject as a 2 family with an accesory apartment and note that the 3rd unit is not a legal use, or do I appraise as a 3 family unit, as it is being used, but note legality issue of third unit.
Thank you
Joe Violetta joseph_a_violetta@sbcglobal.net
Dear Joe,
This is a very tricky problem. These residences with ancillary third floor dwelling units are very common, especially in cities near universities, such as New Haven where I live. Step one is to ask the client what they want you to do. If they say to appraise it as a three family, then I would describe it as such. However, you must report in the appraisal the investigation you made just as in your question. Keep in mind that your highest and best use analysis (which is required) must be for a legal use. However, for your value estimate, you can consider the present use, but you will need to include an opinion as to how long you think that use will be permitted and how the market reacts to houses like this. The best comparable sales are other 2 family houses with an illegal third family dwelling unit as well.
H2
324) Declining Markets
05/22/08 Keyword: declining
market
Dear H2,
I have recently (last several weeks) received about 6 phone calls from real estate brokers who were concerned that a lender (or several) indicated that Fannie Mae recently placed our MSA on a "declining market" status. I have searched the Fannie websites to no avail. Do you know if there is a location (URL) that indicates what areas have been classified as declining markets?
Thank you
Otis
Dear Otis,
As far as I know Fannie Mae has not made their MSA list available to the public. I know of no other single site that provides this information. If you discover one, please let me know as others are asking the same question. Since the market in most of the country is declining I think you should start with the assumption that your market area is also declining unless you have evidence that it is not.
H2
I have recently (last several weeks) received about 6 phone calls from real estate brokers who were concerned that a lender (or several) indicated that Fannie Mae recently placed our MSA on a "declining market" status. I have searched the Fannie websites to no avail. Do you know if there is a location (URL) that indicates what areas have been classified as declining markets?
Thank you
Otis
Dear Otis,
As far as I know Fannie Mae has not made their MSA list available to the public. I know of no other single site that provides this information. If you discover one, please let me know as others are asking the same question. Since the market in most of the country is declining I think you should start with the assumption that your market area is also declining unless you have evidence that it is not.
H2
323) FHA Manual & URAR Guide
Dear H2,
I'm in the process of becoming approved to complete FHA appraisals. What are the best basic manuals or guidebooks that I should have?
Jane Ritzenthaler jane@azappraisalmanagement.com
Dear Jane,
We recommend three.
1. First off, you need to download (or purchase) a copy of the main HUD Manual, 4150.2. It gives chapter and verse on what FHA wants you to consider when you make an appraisal for them. Click here: http://www.hud.gov/groups/appraisers.cfm Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2" [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
2. Secondly, we suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful. Click here: http://www.appraisaltoday.com/products.htm Ann's Special Report on FHA Appraising is the first item for sale.
3. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form ihas been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements.
Click here: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300285
H2
I'm in the process of becoming approved to complete FHA appraisals. What are the best basic manuals or guidebooks that I should have?
Jane Ritzenthaler jane@azappraisalmanagement.com
Dear Jane,
We recommend three.
1. First off, you need to download (or purchase) a copy of the main HUD Manual, 4150.2. It gives chapter and verse on what FHA wants you to consider when you make an appraisal for them. Click here: http://www.hud.gov/groups/appraisers.cfm Then, on the right under the green RESOURCES tab, click on "HUD Handbook 4150.2" [NOTE: Save this link. It is the main HUD resource page for FHA Appraisers, including training, events, news, and various updates.]
2. Secondly, we suggest purchasing Ann O'Rourke's new FHA Handbook. Ann is very knowledgeable and her information is current and very useful. Click here: http://www.appraisaltoday.com/products.htm Ann's Special Report on FHA Appraising is the first item for sale.
3. Finally, we think every appraiser doing appraisal reports on the URAR should have a copy of my book, Harrison's Illustrated Guide: How to Make a Single Family Appraisal on the Fannie Mae/Freddie Mac URAR Form. This line-by-line guide to filling out a URAR form ihas been a bestseller for over 20 years, through 4 major updates. The book listed here is current, including the 2008-2009 USPAP requirements.
Click here: http://www.formsandworms.com/cgi-bin/select.pl?ImageName=300285
H2
322) Title Search
05/20/08 Keyword: title
search
Dear H2,
I'm an appraiser in Texas. I use the tax assessor's office to check on the Owner of Public Record. For new construction, the buider's name is often not on the tax assessor records yet. As the appraiser, I note this fact and state "to say that the builder is the owner prior to being the owner of record would be misleading and not credible". However, my client replies that the builder "wouldn't sell a property he doesn't own -- and it is on the contract -- and they say it's on the title -- and that is all YOU need to know to say so on the report."
Your comments please?
Melanie Sellers mbsellers@earthlink.net
Dear Melanie,
It most areas it is not expected that the appraiser do a title search. What the appraiser customarily does to check who the owner is depends upon where you are. Normally, the Lender/Client tells the appraiser who the owner is. Also it is customary that the appraiser be supplied with a signed copy of the sales contract, which also indicates who the owner is. It appears from your question that it is also customary in your area for the appraiser to check the assessor's records. In some areas it is also customary for the appraiser to check the deed.
You need to do whatever is customary in your area. If there appears to be a problem, you should note it in the appraisal and recommend that a title search be made to determine who the real owner is.
H2
I'm an appraiser in Texas. I use the tax assessor's office to check on the Owner of Public Record. For new construction, the buider's name is often not on the tax assessor records yet. As the appraiser, I note this fact and state "to say that the builder is the owner prior to being the owner of record would be misleading and not credible". However, my client replies that the builder "wouldn't sell a property he doesn't own -- and it is on the contract -- and they say it's on the title -- and that is all YOU need to know to say so on the report."
Your comments please?
Melanie Sellers mbsellers@earthlink.net
Dear Melanie,
It most areas it is not expected that the appraiser do a title search. What the appraiser customarily does to check who the owner is depends upon where you are. Normally, the Lender/Client tells the appraiser who the owner is. Also it is customary that the appraiser be supplied with a signed copy of the sales contract, which also indicates who the owner is. It appears from your question that it is also customary in your area for the appraiser to check the assessor's records. In some areas it is also customary for the appraiser to check the deed.
You need to do whatever is customary in your area. If there appears to be a problem, you should note it in the appraisal and recommend that a title search be made to determine who the real owner is.
H2
321) Personal Interest
Dear H2,
Can a Residential Licensed Appraiser in Georgia do his own appraisal and if so up to what value? Also how can a Residential Licensed Appraiser get FHA certified?
Ken kenjbrady2004@hotmail.com
Dear Ken,
The 2008-9 USPAP Ethics Rule-Conduct states: "An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests."
I think this prohibits making appraisals for yourself.
The FHA does not certify anyone. However, they do add appraisers to the Roster based upon an application process. The new FHA application requirements are fully explained in the Spring 2008 issue of REVMAG. Click here: www.revmag.com
H2
Can a Residential Licensed Appraiser in Georgia do his own appraisal and if so up to what value? Also how can a Residential Licensed Appraiser get FHA certified?
Ken kenjbrady2004@hotmail.com
Dear Ken,
The 2008-9 USPAP Ethics Rule-Conduct states: "An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests."
I think this prohibits making appraisals for yourself.
The FHA does not certify anyone. However, they do add appraisers to the Roster based upon an application process. The new FHA application requirements are fully explained in the Spring 2008 issue of REVMAG. Click here: www.revmag.com
H2
320) Highest and Best Use
05/16/08 Keyword: highest and
best use
Hi Henry,
My family has inherited some industrial property and are now having to pay the taxes on it. My question is, is the appraisal based on the income of the property, and does the stepped up basis law apply here? The property is in a trust.
When my grandmother died the property was industrial, the area is booming and the city council has approved to annex the property into multi-purpose. i think the appraiser used the numbers from a neighboring development that has been deemed multi-use already, because the appraisal seems way too high for industrial with nothing more than bare land and just one useless building. I ask these questions because the trustee does not want to tell the beneficiaries anything and I can't figure out why. It is making me very suspicious which is why I have been to the building dept. and getting some info. I am trying to get them to give us a copy of the appraisal to see what they have based it on. What is your opinion?
Chris Cunningham chris@palmspringsdisposal.com
Dear Chris,
This is a difficult question for me to answer without seeing the appraisal. First of all, the qualifications of appraisers are not equal. It is best to find one the is recommended for this type of complex assignment. The highest appraisal designation an appraiser can obtain is the MAI. It is not a guarantee, but it is a good indication of the appraiser having met more stringent requirements.
All appraisals are based on what is called the highest and best use of the property, which is its future use. It considers the probability of this use and the time and cost to achieve it.
I am sorry but I don't know what the "stepped up basis law" is.
I am not an attorney. However, if you are a beneficiary of the trust, you should be entitled to see it and get a copy. Given the circumstances you've outlined, I think that you may need an attorney to represent you.
H2
My family has inherited some industrial property and are now having to pay the taxes on it. My question is, is the appraisal based on the income of the property, and does the stepped up basis law apply here? The property is in a trust.
When my grandmother died the property was industrial, the area is booming and the city council has approved to annex the property into multi-purpose. i think the appraiser used the numbers from a neighboring development that has been deemed multi-use already, because the appraisal seems way too high for industrial with nothing more than bare land and just one useless building. I ask these questions because the trustee does not want to tell the beneficiaries anything and I can't figure out why. It is making me very suspicious which is why I have been to the building dept. and getting some info. I am trying to get them to give us a copy of the appraisal to see what they have based it on. What is your opinion?
Chris Cunningham chris@palmspringsdisposal.com
Dear Chris,
This is a difficult question for me to answer without seeing the appraisal. First of all, the qualifications of appraisers are not equal. It is best to find one the is recommended for this type of complex assignment. The highest appraisal designation an appraiser can obtain is the MAI. It is not a guarantee, but it is a good indication of the appraiser having met more stringent requirements.
All appraisals are based on what is called the highest and best use of the property, which is its future use. It considers the probability of this use and the time and cost to achieve it.
I am sorry but I don't know what the "stepped up basis law" is.
I am not an attorney. However, if you are a beneficiary of the trust, you should be entitled to see it and get a copy. Given the circumstances you've outlined, I think that you may need an attorney to represent you.
H2
319) Neighborhood Definition
05/15/08 Keyword: definitions
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
318) Condominium Or Not
05/14/08 Keyword: condo
Dear Henry,
A lender wants me to use a 1004 form for a dwelling zoned condominium. I am refusing to do this because of the pertinent data that will not be included. Who is correct?
Julie jrvitucci@ptd.net
Dear Julie,
When the appraisal is being done for Fannie Mae or Freddie Mac you should try to guide the lender to use a form that will be acceptable to them. However, it is up to the Lender/Client, as part of the scope of work, to determine what type of report they want.
Of course, you don't have to agree to do the job if you don't like their decision.
In your specific question I do not think it is the zoning that determines if the property is a condominium. It is how the property is improved and if it is in the condominium form of ownership.
H2
A lender wants me to use a 1004 form for a dwelling zoned condominium. I am refusing to do this because of the pertinent data that will not be included. Who is correct?
Julie jrvitucci@ptd.net
Dear Julie,
When the appraisal is being done for Fannie Mae or Freddie Mac you should try to guide the lender to use a form that will be acceptable to them. However, it is up to the Lender/Client, as part of the scope of work, to determine what type of report they want.
Of course, you don't have to agree to do the job if you don't like their decision.
In your specific question I do not think it is the zoning that determines if the property is a condominium. It is how the property is improved and if it is in the condominium form of ownership.
H2
317) Personal Photos
05/13/08 Keyword: comp
photos
Hi Henry,
In a recent appraisal seminar, there was a question about difficulty regarding photographs of people when taking interior photos. Removing pictures from the wall in someone’s living room can be a sticky wicket. I suggested using a photo editor to just cut the center of the wall photos out. The instructor said it was altering the photos. Therefore, it was not allowed.
Am I missing something? I sent an interior photo with an appraisal one time. It had a photo on the wall depicting a person that I didn’t notice. The reviewer returned the appraisal report for correction. I cut the center of the photograph out (with the image) leaving the picture frame. Then I resent the report. The underwriter reviewer said that would be fine and accepted the report.
What do you think?
NWBR
Dear Friend,
I do not think that what you've learned about photographs is correct. It is true you cannot take a picture of a person and then sell it for commercial purposes. I doubt that applies to someone who happens to be in one of your appraisal photos, or (as in this case) in a picture on the wall, and who is not even identified.
As far as not taking a photo of a picture on someone's wall — frankly, that sounds pretty far out to me. Did you get any written material that contains the source of this "requirement"?
H2
In a recent appraisal seminar, there was a question about difficulty regarding photographs of people when taking interior photos. Removing pictures from the wall in someone’s living room can be a sticky wicket. I suggested using a photo editor to just cut the center of the wall photos out. The instructor said it was altering the photos. Therefore, it was not allowed.
Am I missing something? I sent an interior photo with an appraisal one time. It had a photo on the wall depicting a person that I didn’t notice. The reviewer returned the appraisal report for correction. I cut the center of the photograph out (with the image) leaving the picture frame. Then I resent the report. The underwriter reviewer said that would be fine and accepted the report.
What do you think?
NWBR
Dear Friend,
I do not think that what you've learned about photographs is correct. It is true you cannot take a picture of a person and then sell it for commercial purposes. I doubt that applies to someone who happens to be in one of your appraisal photos, or (as in this case) in a picture on the wall, and who is not even identified.
As far as not taking a photo of a picture on someone's wall — frankly, that sounds pretty far out to me. Did you get any written material that contains the source of this "requirement"?
H2
316) Fraudulent Appraisal
05/12/08 Keyword: USPAP
Violation | fraud
Dear Henry:
I ran into an interesting situation on a current appraisal order. The property (8.24 acres) has two units on it. One is the subject to be appraised. The other is a finsihed (but vacant) apartment above a barn, with seperate utilities meters. The zoning is single-family residential (2 acres minimum). The client wants me to not mention the second vacant structure. The bank he is dealing with wants it on a Form 1025 (but the zoning will not allow that). My own thought is to treat it as two single-family structures, but then how do I handle the property?
Help!
Larry KowittL@aol.com
Dear Larry,
The USPAP prohibits you from making an appraisal that you think may be used to mislead someone. That is what this sounds like to me.
H2
I ran into an interesting situation on a current appraisal order. The property (8.24 acres) has two units on it. One is the subject to be appraised. The other is a finsihed (but vacant) apartment above a barn, with seperate utilities meters. The zoning is single-family residential (2 acres minimum). The client wants me to not mention the second vacant structure. The bank he is dealing with wants it on a Form 1025 (but the zoning will not allow that). My own thought is to treat it as two single-family structures, but then how do I handle the property?
Help!
Larry KowittL@aol.com
Dear Larry,
The USPAP prohibits you from making an appraisal that you think may be used to mislead someone. That is what this sounds like to me.
H2
315) Comparables from Files
05/11/08 Keyword: comps
Dear Henry --
I am appraising several condo conversions in the same building, in an area where there are very few. The only conversions suitable as comps are in another building that I did the appraisals for. Is it in violation of USPAP to use my own work as comps?
NWBR
Dear Friend,
The only data you can't use from you own appraisals is information about the subject property that you were given in confidence by the owners or client. In real life, this is quite rare.
If in doubt, you should ask the original client for permission, or see if the data is actually confidential and not also obtainable from an MLS service, assessor's records, etc. If the information is in the public domain, it is not confidential.
H2
I am appraising several condo conversions in the same building, in an area where there are very few. The only conversions suitable as comps are in another building that I did the appraisals for. Is it in violation of USPAP to use my own work as comps?
NWBR
Dear Friend,
The only data you can't use from you own appraisals is information about the subject property that you were given in confidence by the owners or client. In real life, this is quite rare.
If in doubt, you should ask the original client for permission, or see if the data is actually confidential and not also obtainable from an MLS service, assessor's records, etc. If the information is in the public domain, it is not confidential.
H2
314) Comparable Sales
05/10/08 Keyword: comps
Dear Henry,
I am in the process of completing home appraisals for a bank for a "revocable Trust and Conservatorship. Is it appropriate to use "bank owned" sales or should I exceed the 1 mile limit in order to find concventional or FHA sales. Most of the "bank owned homes" are selling for cash at a much lower price. Bank owned homes are usually foreclosurers and are considered "stress sales".
CHARLES HARVEY CHJRASSOCIATE@AOL.COM
P.S. Again, thanks for all of the information you provide in your publications and your books!
Dear Charles,
I believe it is best to use both "bank owned sales" and regular sales when they both exist in your market area. Who gave you the "1 mile limit?" I believe it is up to the appraiser to look wherever they believe the best comparable sales are located. It is not appropriate for the client to tell the appraiser where to look or what kind of comparable sales to use. While a radius of 1 mile might be preferred if there were a lot of good comps, it is not a hard and fast rule by any means.
H2
I am in the process of completing home appraisals for a bank for a "revocable Trust and Conservatorship. Is it appropriate to use "bank owned" sales or should I exceed the 1 mile limit in order to find concventional or FHA sales. Most of the "bank owned homes" are selling for cash at a much lower price. Bank owned homes are usually foreclosurers and are considered "stress sales".
CHARLES HARVEY CHJRASSOCIATE@AOL.COM
P.S. Again, thanks for all of the information you provide in your publications and your books!
Dear Charles,
I believe it is best to use both "bank owned sales" and regular sales when they both exist in your market area. Who gave you the "1 mile limit?" I believe it is up to the appraiser to look wherever they believe the best comparable sales are located. It is not appropriate for the client to tell the appraiser where to look or what kind of comparable sales to use. While a radius of 1 mile might be preferred if there were a lot of good comps, it is not a hard and fast rule by any means.
H2
313) FHA Application Nightmare
05/09/08 Keyword: FHA
Dear Henry and Ruth,
I sent in my FHA Application paperwork via fax with the test back in late November 2007. Seventeen weeks later —yes, 17 !! — my name was still not on the list and I had not received a denial letter. I contacted every number at their webpage. Since I sent in my paperwork there was a change that meant no test and no faxes. So, I sent my new paperwork without the test, by certified mail, and the Post Office shows delivery confirmation on 4/07/2008
Now that they are changing again, do you think it will take another 17 weeks for a reply? Not trying to be crappy but I am doing NO business and am really hurting. Got any suggestions?
Thanks,
Chris
Dear Chris,
Unfortunately, when the FHA gets swamped, as they have in this situation, the best they can think of doing is starting over and not worrying about the piles of unanswered stuff that is hanging around somewhere in their offices. Maybe some day they will get to it. Frankly, I have my doubts.
My suggestion is to start over on the first day of the online application process, on May 5th, and hope that you are one of the first to be replied to. Maybe you should stay up the night before and send it in at 12:01 AM! Here's the link: http://www.hud.gov/offices/hsg/sfh/appr/apr_rost.cfm
H2
I sent in my FHA Application paperwork via fax with the test back in late November 2007. Seventeen weeks later —yes, 17 !! — my name was still not on the list and I had not received a denial letter. I contacted every number at their webpage. Since I sent in my paperwork there was a change that meant no test and no faxes. So, I sent my new paperwork without the test, by certified mail, and the Post Office shows delivery confirmation on 4/07/2008
Now that they are changing again, do you think it will take another 17 weeks for a reply? Not trying to be crappy but I am doing NO business and am really hurting. Got any suggestions?
Thanks,
Chris
Dear Chris,
Unfortunately, when the FHA gets swamped, as they have in this situation, the best they can think of doing is starting over and not worrying about the piles of unanswered stuff that is hanging around somewhere in their offices. Maybe some day they will get to it. Frankly, I have my doubts.
My suggestion is to start over on the first day of the online application process, on May 5th, and hope that you are one of the first to be replied to. Maybe you should stay up the night before and send it in at 12:01 AM! Here's the link: http://www.hud.gov/offices/hsg/sfh/appr/apr_rost.cfm
H2
312) Foreclosure Value
05/08/08 Keyword: forclosure
| value
Dear H2,
Have always enjoyed your publications over my thirty some years in the business. Maybe you can help me now: I have been trying to find a definition for foreclosure value. It appears to be a supplemental term and does not appear in USPAP. Many thanks!!!
Joan M Conrad c21rksappraisals@epix.net
Dear Joan,
I do not know of any published definition of "Foreclosure Value." I suspect this is because there are so many variables that determine what a property is worth that has been foreclosed. For example, a house sold on the courthouse steps by the sheriff in Florida would have a different value than a similar house in "strict foreclosure" in Connecticut. What you need to do is ask your client for what they mean by "foreclosure value" and then write a definition and have your client — as part of the scope of work discussion — agree that they will accept your definition.
H2
Have always enjoyed your publications over my thirty some years in the business. Maybe you can help me now: I have been trying to find a definition for foreclosure value. It appears to be a supplemental term and does not appear in USPAP. Many thanks!!!
Joan M Conrad c21rksappraisals@epix.net
Dear Joan,
I do not know of any published definition of "Foreclosure Value." I suspect this is because there are so many variables that determine what a property is worth that has been foreclosed. For example, a house sold on the courthouse steps by the sheriff in Florida would have a different value than a similar house in "strict foreclosure" in Connecticut. What you need to do is ask your client for what they mean by "foreclosure value" and then write a definition and have your client — as part of the scope of work discussion — agree that they will accept your definition.
H2
311) 2055 for Mixed Use
Dear Henry:
I just received an order to appraise a mixed use property on a 2055 - exterior only inspection report. I have never been asked to do this and frankly I'm having my doubts as whether is is legal.
Thanks
Debra ddilley13@comcast.net
Dear Debra,
There is nothing illegal about using anything you want as an appraisal report. However it does have to comply with the USPAP. There is nothing in the USPAP that requires any inspection of the property. However, the USPAP requires that you make a credible appraisal and this, in turn, requires that you have reliable information about the property.
Also you can't make an appraisal if you believe its purpose is to deceive someone. You need to have a scope of work discussion with the client and try to find out why they want you to use this form and only make an exterior inspection. If you are satisfied with their answer and you think you can do it on the 2055 and they are willing to pay you the fee you require, then I suppose you could do the assignment.
H2
[Editor's Note: Anyone doing appraisals on the 2055 form needs Henry's book on the subject to protect themselves from added liability. Buy now and save $30, click here.]
I just received an order to appraise a mixed use property on a 2055 - exterior only inspection report. I have never been asked to do this and frankly I'm having my doubts as whether is is legal.
Thanks
Debra ddilley13@comcast.net
Dear Debra,
There is nothing illegal about using anything you want as an appraisal report. However it does have to comply with the USPAP. There is nothing in the USPAP that requires any inspection of the property. However, the USPAP requires that you make a credible appraisal and this, in turn, requires that you have reliable information about the property.
Also you can't make an appraisal if you believe its purpose is to deceive someone. You need to have a scope of work discussion with the client and try to find out why they want you to use this form and only make an exterior inspection. If you are satisfied with their answer and you think you can do it on the 2055 and they are willing to pay you the fee you require, then I suppose you could do the assignment.
H2
[Editor's Note: Anyone doing appraisals on the 2055 form needs Henry's book on the subject to protect themselves from added liability. Buy now and save $30, click here.]
310) Mansions
05/06/08 Keyword: mansions
Hi Henry,
I am anticipating an assignment to appraise what I am told is the largest house in the state, with all of the expected ammenities. I look forward to the assignment, but must admit that I am scratching my head as far as how to effectively research for comparable sales.
I think I remember hearing that this is the type of work that you used to do and would appreciate any direction.
Best regards,
Bruce bjones@gaglianoappraisal.com
Dear Bruce,
Before I retired from appraising and became a full-time appraisal author, I specialized in mansions and I traveled all over the USA doing them. The first thing you must do is figure out the highest and best use of the land, which often is not as a mansion. If you decide it is still going to be used as a mansion, then you have to look for other mansion sales in similar markets. If the highest is best use is say for a country day school, then you look for school sales as comparables.
Good luck! I think you will find this an interesting assignment.
H2
I am anticipating an assignment to appraise what I am told is the largest house in the state, with all of the expected ammenities. I look forward to the assignment, but must admit that I am scratching my head as far as how to effectively research for comparable sales.
I think I remember hearing that this is the type of work that you used to do and would appreciate any direction.
Best regards,
Bruce bjones@gaglianoappraisal.com
Dear Bruce,
Before I retired from appraising and became a full-time appraisal author, I specialized in mansions and I traveled all over the USA doing them. The first thing you must do is figure out the highest and best use of the land, which often is not as a mansion. If you decide it is still going to be used as a mansion, then you have to look for other mansion sales in similar markets. If the highest is best use is say for a country day school, then you look for school sales as comparables.
Good luck! I think you will find this an interesting assignment.
H2
309) Fannie/Freddie Changes
05/05/08 Keyword: Fannie Mae
| Freddie
Mac
Hi Henry,
I've just had a moment to stop and read your recent questions and answers - which I always look forward to. I'm actually writing to express my frustration over the results that the Fannie/Freddie changes have bestowed upon us to date. Our largest client (which we have worked with for many years) just switched to ServiceLink, an appraisal management company, to avoid any appearance of lender pressure.....and what a horror it has become. We are in a resort area in southwest Florida and have enjoyed reasonable appraisal fees over the years. We were just contacted by this management company only to be informed that their #1 rated appraiser in one of our counties that we provide service to is being paid $170 per report and the highest fee paid is $225. Do you think that they are going to draw the "top of the line" appraisers at these fees?
Prior to approval, they feel the need to check your criminal background as well to explore your credit status. We are fingerprinted here in Florida, so they would know if we were criminals and our credit has nothing to do with an appraisal report. I hope that helps those appraisers that wonder if our industry will be damaged or destroyed. There's no doubt in my mind....as we are already living the nightmare.
Thanks for letting me vent. I've been in this business for almost twenty years and this is the hardest hit we've come across yet. What do you think about this whole mess?
Carol M. Krakoff krakoff@mindspring.com
Dear Carol,
I agree with much of what you say. See my editorial in the new SPRING 2008 issue of REV Magazine. It will be posted on our website shortly -- probably by the time you read this online. [Click here: Henry's Editorial: www.revmag.com/spring2008/04.html )
Many lenders are considering changing to management companies and this is certainly going to affect many appraisers. There is no simple answer to this problem.
H2
I've just had a moment to stop and read your recent questions and answers - which I always look forward to. I'm actually writing to express my frustration over the results that the Fannie/Freddie changes have bestowed upon us to date. Our largest client (which we have worked with for many years) just switched to ServiceLink, an appraisal management company, to avoid any appearance of lender pressure.....and what a horror it has become. We are in a resort area in southwest Florida and have enjoyed reasonable appraisal fees over the years. We were just contacted by this management company only to be informed that their #1 rated appraiser in one of our counties that we provide service to is being paid $170 per report and the highest fee paid is $225. Do you think that they are going to draw the "top of the line" appraisers at these fees?
Prior to approval, they feel the need to check your criminal background as well to explore your credit status. We are fingerprinted here in Florida, so they would know if we were criminals and our credit has nothing to do with an appraisal report. I hope that helps those appraisers that wonder if our industry will be damaged or destroyed. There's no doubt in my mind....as we are already living the nightmare.
Thanks for letting me vent. I've been in this business for almost twenty years and this is the hardest hit we've come across yet. What do you think about this whole mess?
Carol M. Krakoff krakoff@mindspring.com
Dear Carol,
I agree with much of what you say. See my editorial in the new SPRING 2008 issue of REV Magazine. It will be posted on our website shortly -- probably by the time you read this online. [Click here: Henry's Editorial: www.revmag.com/spring2008/04.html )
Many lenders are considering changing to management companies and this is certainly going to affect many appraisers. There is no simple answer to this problem.
H2
308) Extra Comps
05/04/08 Keyword: comps
Dear Henry,
Recently I have been asked to provide two additional comparables & two current or pending listings. Seven comps in my opinion is ridiculous! I have been providing them at an additional fee; however, should I really just ask them to get another appraisal?
-Kiersten kiergerow@hotmail.com
Dear Kiersten,
As part of the scope of work discussion, the client may ask for as many comparable sales as they are willing to pay for. If they change the number after the scope of work has been established, you have the right to adjust your fee. That said, it is up to you to decide which comparable sales give the best indication of the value of the subject property and how much weight you will give the additional comparable sales (which may be none). Finally, only you can decide when too much work is not worth the fee.
H2
Recently I have been asked to provide two additional comparables & two current or pending listings. Seven comps in my opinion is ridiculous! I have been providing them at an additional fee; however, should I really just ask them to get another appraisal?
-Kiersten kiergerow@hotmail.com
Dear Kiersten,
As part of the scope of work discussion, the client may ask for as many comparable sales as they are willing to pay for. If they change the number after the scope of work has been established, you have the right to adjust your fee. That said, it is up to you to decide which comparable sales give the best indication of the value of the subject property and how much weight you will give the additional comparable sales (which may be none). Finally, only you can decide when too much work is not worth the fee.
H2
307) Tax Appeal
05/03/08 Keyword: tax appeal
Henry,
this is, perhaps, a different question. I'm a home owner trying to battle personal property tax. I have many hours invested. My county real estate appraiser chose the cost approach vs. MRA(regression analysis) vs. Market Value. On all of the comparables for my property, however, he used the Market Value approach.
this is, perhaps, a different question. I'm a home owner trying to battle personal property tax. I have many hours invested. My county real estate appraiser chose the cost approach vs. MRA(regression analysis) vs. Market Value. On all of the comparables for my property, however, he used the Market Value approach.