According to the Dec. 8 LSI Vantage Point newsletter by George Vann, SRA: "Many reviewers are noting an increase in the number of appraisers who omit the required analysis of the subject's purchase contract, sales history and listing history, resulting in appraisals that violate USPAP and Fannie Mae guidelines. The lending industry, in general, is also experiencing an increase in mortgage fraud and the fraudulent transactions often are facilitated by a faulty appraisal."
One area of concern in many of those appraisals has been lack of information and analysis in these key areas since omission of this data can sometimes hide bogus "flip" sales and inflated contract prices. Heightened awareness of the issue has caused secondary market investors to look more closely at these areas of an appraisal and to reject those that are weak in reporting and analysis. It is crucial that all appraisals prepared for LSI clients contain a full disclosure and analysis in these areas, per Fannie Mae and USPAP.
When appraising a property that is under contract, it is unacceptable to merely restate the contract price and date.
"Analysis" of the contract involves :
- reading the contract for unusual terms,
- concessions,
- allowances for repairs,
- included personal property,
- payment of special assessments,
- above-typical commission fees,
- and so on, and then analyzing their effect on market value.
If the contract refers to an addendum that was not sent to you with the contract, request the addendum. It may contain provisions that are important to recognize.
If the contract was not available for review, you must explain what efforts were made to obtain it. Only stating that it was "Not Available" is unacceptable.
For all appraisals, whether purchases or not:
- Report and analyze all prior transactions of the subject for the three-year period prior to the effective date of the appraisal and all prior sales of the comps for one year prior. Only reporting the date and price is unacceptable.
- Include in the analysis comments about the relationship of the prior sale price to current value, such as general increases, declines or stability in area values, significant renovation to the property, etc.
- Remember that these time periods of one year and three years are minimums; report and analyze any older prior sales if you believe them to be relevant. Multiple prior sales within a short period of time can indicate flipping activity and must be analyzed. If this type of activity is noted in a comparable sale, do not use it without confirming that the current sale is truly at arm's length.
- Do not use comparable sales in which the buyer or seller is also the buyer or seller of the subject property.
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