AUTHOR: Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. He can be reached at [email protected]
Compromise by its very nature means negotiation and that means not everyone gets what he or she may want. The URAR was designed as a "compromise" to meet the different needs of various market participants, however explicitly for mortgage lending purposes.
The new URAR was supposed to reduce the need for addenda, however it has in practice (thus far) increased the need for comments to clarify the appraiser's perspective with regards to the Scope of Work and related reporting requirements.
The end result, a lot of space needed by appraisers (for comments, analysis, etc.) was deleted and in the process, some flexibility was removed in favor of brevity and design.
I suspect another compromise was one to meet the needs of reviewers and lawyers looking at the appraiser's handiwork, especially loopholes slipped in the Assumptions and Limiting Conditions. For the most part, a lot of loose ends were tied up as the ability to modify the Assumptions, Limiting Conditions, Certifications and Scope of Work statements on pages 4-6 of the URAR was removed.
While you cannot modify the Statement of Assumptions and Limiting Conditions or the Certification, you can clarify what you did or did not do. This is a key issue. Pages 4-6 of the URAR contain a significant amount of "gray area" that is subject to broad interpretation. Failure to explain exactly what you did or didn't address (with respect to the Scope of Work, Certifications, etc.) leaves the interpretation as to what should have been done, to a reviewer, commission or court.
Adding a "Clarification Addenda"
To better define your actions with respect to the Scope of Work, visual inspections, repairs, deficiencies, approaches to value, verifications, adverse conditions, etc., I would recommend that you include a "Clarification of the Assumptions, Limiting Conditions, Certifications and Scope of Work.
The clarification addendum is not a new or expanded Scope of Work, nor is it intended to modify any of the Certifications, Limiting Conditions or Assumptions. Its single purpose is to identify key terms cited on pages 4 to 6 or elsewhere in the URAR and to explain your actions or understanding of the requirements specified.
Developing the Clarification Addendum
A legal size, two-page addendum can easily be incorporated into any appraisal software package and modified to disclose what was addressed and how it was considered in the course of the assignment. Listed below are some suggested topics and areas to cover. This is not "all inclusive", but rather some of the key areas that I think you should consider.
The capitalized headings refer to sections in the URAR and the questions that follow them are issues to consider. You should follow along with a copy of the URAR and read the sections cited below and think about your answers to the questions.
HOUSING MARKET TRENDS & CONDITIONS: What trends sources were considered (short real estate cycle, declining markets, FMNA 07-11, Case-Shiller, NAR, etc.?
SCOPE OF WORK: What was inspected, what tests were or were not performed, observed condition notes, not a home inspection, etc. The neighborhood inspection was limited to what factors?
Sample Visual Inspection clarification matrix (click to enlarge):
REPAIRS/DETERIORATION: Define "deficiency and livability"?
COST APPROACH: When is it used and when is it applicable. Is it insurable value?
INCOME APPROACH: When is it used and when is it applicable?
EXTENT OF DATA RESEARCH - SALES & LISTINGS: List the typical data sources used.
EXTENT OF INFORMATION VERIFICATION: MLS, public records, 3rd parties?
PUBLIC/PRIVATE DATA SOURCES: What sources do you have access to?
ADVERSE FACTORS: What is adverse and where is it defined?
DISCLOSURE/DISTRIBUTION: Intended uses, cite the recommended language from FNMA.
THE VALUE OPINION: What factors were considered, excluded, personal property, etc.?
The clarification addendum is not intended to be an "insurance policy" or a "guarantee" to limit your responsibility (or liability) with respect to the requirements of USPAP, FNMA Guidelines or the steps that a professional would take to produce a "creditable value opinion".
Also, the addendum isn't limited to use with the URAR. You can make it part of the engagement letter or part of an assignment acceptance letter. Often, we receive assignments and don't formally acknowledge them. Including this type of addendum with your acceptance of the assignment, notices the client in advance, an act that is very defensible.
To get you started building your own addendum, Brian Davis and I developed a sample clarification template in MS Word format. You can download a copy here and modify it to suit your particular needs or point of view. Download ClarifAssump_scoop.doc
The key isn't to accept what Brian and I authored, but rather to consider the issues addressed, add a few of your own and or modify the ones we listed to the point where you have a clear and defensible position.
For a MS Word version of this post, click here . . . Download 10_Scope.doc
Next Up in "Outside the Boxes" - Over-looked and Under-reported: An overview of common issues "inside the boxes" of the URAR.
AUTHOR: Patrick Egger is a Certified General Appraiser located in Las Vegas, NV. He teaches continuing education classes on the housing market, appraisal issues for real estate agents and appraisers. He can be reached at [email protected] Look for the new Outside The Boxes category for a collection of Patrick's articles on Appraisal Scoop!
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