Appraisal Scoop

Appraisal Institute Helps Appraisers Perform Evaluations for Lenders

CHICAGO (Nov. 14, 2012) – The nation’s largest professional association of real estate appraisers published guidance today to help appraisers learn what evaluations are, when they are used and who can prepare them.

The Appraisal Institute’s “Guide Note 13: Performing Evaluations of Real Property Collateral for Lenders” addresses how appraisers should prepare an evaluation for a lender and comply with the Uniform Standards of Professional Appraisal Practice.

The Guide Note states, “Federally insured lending institutions in the United States are subject to regulations regarding real estate appraisals. For lending transactions involving real estate, a lender must obtain an appraisal from a state licensed or certified appraiser. There are 12 exemptions from this requirement. For three of these exemptions, in lieu of an appraisal by a licensed or certified appraiser the lender may obtain an evaluation.”

Evaluations, per the Interagency Appraisal and Evaluation Guidelines, are market value opinions that may be provided by individuals who are not state licensed or certified appraisers. However, state licensed and certified appraisers may provide them, according to the Appraisal Institute’s Guide Note. The interagency guidelines also state that an evaluation must be based on a valuation method that is appropriate for a transaction rather than the method that renders the highest value, lowest cost or fastest turnaround time.

The Appraisal Institute’s Guide Note states that USPAP allows an appraiser to adjust the scope of work for a valuation assignment as long as the resultant value opinion is credible, given the intended use. When preparing an evaluation, the appraiser may consider narrowing the scope of work as appropriate. According to the interagency guidelines, a lender may obtain an evaluation in lieu of an appraisal when the loan transaction:

• has a transaction value equal to or less than $250,000;
• is a business loan with a transaction value equal to or less than the business loan threshold of $1 million, and is not dependent on the sale of, or rental income derived from, real estate and the primary source of repayment, or
• involves an existing extension of credit at the lending institution, provided that:

- there has been no obvious and material change in market conditions or physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or

- there is no advancement of new monies other than funds necessary to cover reasonable closing costs.

Click here to download the Appraisal Institute’s six-page “Guide Note 13: Performing Evaluations of Real Property Collateral for Lenders.”

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The Appraisal Institute is a global membership association of professional real estate appraisers, with nearly 23,000 members in nearly 60 countries throughout the world. Its mission is to advance
professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in
accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. Learn more at www.appraisalinstitute.org.

The 1004D - Appraisal Update and/or Completion Report - Uses and Misuses

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

The 1004D form issued by Fannie Mae has two distinct sections. The first section is utilized to produce a summary appraisal report associated with a subject property for which a prior appraisal report was completed and to do so as of a new effective date. The form labels this section as a "Summary Appraisal Update Report" however it must be noted that when completing this section one has undertaken a new assignment and must be aware of the USPAP considerations of doing so. The second section is utilized to confirm whether or not requirements or conditions stated in the original appraisal report have been met. The focus of this writing is on the latter section.

The appraiser completing the lower section of the 1004D form certifies that they have performed a visual inspection of the subject property to determine that the conditions or requirements stated in the original report have been satisfied. This certification language makes the lower section appropriate for use when repairs were called for in a prior appraisal report that utilized the third check box option within the reconciliation section (CB3). Checking this box provides for the appraisal to be based on a hypothetical condition that specific repairs or alterations have been completed. In addition, the 1004D form is appropriate for use when the second check box option within the reconciliation section (CB2) has been utilized in the original report. Checking this box provides for the appraisal to be based on a hypothetical condition that the improvements have been completed according to plans and specifications that were in place as of the effective date.

Requests for completion of the lower section of the 1004D often expand beyond these appropriate purposes and it has become the "go to" form for lenders to request certification by the appraiser that an abundant array of issues are not problematic or have been solved. It is fairly evident to anyone who receives requests for this assignment type with any reasonable frequency that appraisers are being asked to complete assignments mandating the use of the 1004D in instances where this particular form is not appropriate.

The first example of this is the request for the 1004D when the lender requires an issue tobe corrected that was not conditioned for in the appraisal report via the use of CB3. The1004D language specifically states that the issues being confirmed as completed werethose where the requirements or conditions were called for in the original report. While this can be viewed as a minor distinction, it does mandate that the appraiser add in verbiage that the repairs are being required by the client. This will result in the presence of contradicting statements and the potential for one to be accused of producing a misleading document as the preprinted form language indicates that the repairs were a requirement of the original report. One possible action by the appraiser when such a request is made would be to supply an addendum confirming that the repairs required by the lender did in fact take place. Unfortunately this action is typically either not accepted by lenders or will result in the appraiser not being paid for the work involved for confirmation of the repairs in question. Ideally lenders and other clients would not put the appraiser in the position of having to complete an assignment or assignment element in an inappropriate and/or questionable fashion in order to be compensated for it.

The second example is one that can result in unnecessary and undesirable liability for the appraiser that complies. This deals directly with whether the original appraisal report called for repairs using CB3 in the reconciliation section or called for an inspection using the fourth checkbox option (CB4) in the reconciliation section. As was noted previously, an appropriate use of the 1004D form is to confirm that repairs or alterations that were called for by the appraiser via the use of CB3 in the original report have taken place. In these cases the appraiser can reasonably be expected to have the ability to confirm and certify the completion of these items using the 1004D.

Unfortunately, the 1004D is often being utilized by clients to engage the appraiser in cases where an inspection was called for via the use of CB4. This can be highly problematic for the appraiser.

• First, the form language of the 1004D does not call for the appraiser to certify that an inspection took place, was done properly, or had correct conclusions. The form language calls for verification that the improvements have been completed as required by the original report with certification that confirmation took place via a visual inspection of the subject property by the signing appraiser.
• Second, when an appraiser does certify that whatever item of concern is now satisfactory the appraiser has taken on a level of responsibility for the professional inspection that took place.

The signing appraiser has in effect become a potential responsible party in the event of a problem. The most common purpose of CB4 is for the appraiser to call for an inspection by an appropriate professional in cases where the appraiser is not qualified to make a particular determination. In these cases the inspection report is the proper vehicle to assist in the lending decision and complete the file, not a 1004D signed by an appraiser who has indicated via the use of CB4 in the original report that they do not have the expertise to make the determination in question. The only possible purpose of the 1004D in this instance is to add the appraiser to the list of liable parties should the inspection prove to be faulty. Appraisers would be well served to let other professionals such as roof inspectors, home inspectors, engineers, and pest controllers maintain full responsibility for their services and not sign certifications that make them responsible for the services, opinions, and conclusions of another professional.

As has been noted, when CB3 has been checked and the original appraisal has been based on a hypothetical condition that certain repairs have been made, it is reasonable for the client to expect that the appraiser is able to determine if the repairs have been completed and provide certification via the 1004D. Appraisers need to carefully review what they are requiring via the use of CB3 and determine if they will be competent to make the determination that the repairs or alterations have been completed. If the issue is sufficiently complex as to possibly require substantial construction or significant alteration then the appraiser needs to be clear if the issuance of a building permit would be necessary to certify completion via the 1004D. If the situation of concern will involve the use of plans and specifications that have been prepared as of the effective date, then consideration should be given as to whether the second check box in the reconciliation section (CB2) would be the more appropriate avenue by which to proceed. This option is typically utilized for new construction or major renovations and is only engaged if proper plans are already in place that can be reviewed by the appraiser.

The time to ensure a proper engagement and completion of a 1004D begins during completion of the 1004 or related form. When it becomes apparent that the appraisal will need to be conditioned via CB2, CB3, or CB4 it is important to outline within the report what exactly the specific issues are and to classify them on an individual basis as to whether they have resulted in the report being conditioned subject to an inspection by another professional, subject to repairs, or subject to completion according to plans and specifications. It is also important to outline to the client precisely what the appraiser will be able to certify to in the event a 1004D is requested. Language within the original report clarifying that the appraiser will not be able to certify the conclusions of an inspection report called for via CB4 and completed by another professional (ie: roof inspection or termite inspection) is certainly proper. In cases where CB3 is utilized the appraiser needs to consider their own comfort level with certifying completion of the specific repairs that are being called for. While certifying that paint had been applied, a kitchen sink installed, or a window repaired would all be within reasonable expectations, would one be competent to certify that a roof had been repaired adequately to prevent the reoccurrence of water damage to the ceiling? If there is a question as to comfort level or competence in determining that the repairs being called for have been completed properly, one should evaluate if the more appropriate step would be to proceed via CB4. In the case of a roof issue, perhaps calling for repairs of the ceiling via CB3 if the damage is seen as extensive enough while also calling for an inspection of the roof by a qualified professional via CB4 to determine conclusively if repairs to the roof are needed and to what extent.

The 1004D form provides a desired format for a necessary function often required by lenders. When utilizing the lower section of this form appraisers would be well advised to proceed in a manner that conforms with the form language and to avoid the potential liability of certifying the inspection results of another professional. In addition, when conditioning a report for specific repairs via CB3 the appraiser should be confident that they will be able to competently determine if the repairs requested have been completed properly. If not, consideration should be given to proceeding via CB4 and requiring an inspection by the appropriate professional to determine if the need for repairs does in fact exist and if so to what extent.

Copyright KB Shure 2012

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

Taking Stock of the 2055 "Exterior Only" Appraisal Form

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

The 2055 form issued by Fannie Mae is a common vehicle for the reporting of an appraisal. The form includes a pre-printed scope of work indicated as the minimum needed to properly complete the assignment. This scope of work sets the minimum required inspection of the subject as a viewing of the exterior from the street. This minimum inspection requirement has provided some appraisers that complete reports utilizing the 2055 with a false sense of security as to their liability and overall responsibilities, particularly since the edits to this form that occurred in 2005.

Readers will note that the 2055 is designed to report appraisals of one unit properties or one unit properties with accessory units while the 1075 form is designed to report appraisals of a unit in a condominium project or a condominium unit in a planned unit development. While the focus is on the 2055 form the following discussion pertains to both forms, each of which are labeled as "Exterior Only Inspection" reports and have the intended use of evaluating a property for a mortgage finance transaction.

The scope of work section of the form includes the following paragraph:

The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to, condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and reliable public and/or private sources to perform this appraisal. The appraiser should use the same type of data sources that he or she uses for comparable sales such as, but not limited to, multiple listing services, tax and assessment records, prior inspections, appraisal files, information provided by the property owner, etc.

Based on this paragraph the appraiser is expected to obtain proper levels of information that allow for a credible comparison of the subject to the comparable sales and per certification #10 due so without relying on unverified information provided by parties with a financial interest in the subject such as the property owner.

The data available to the appraiser for establishing the physical characteristics of comparable sales typically includes information as to the condition and quality of the interiors of these properties. The appraiser that is unable to verify the interior condition of the subject property while remaining true to certification #10 is therefore often in the position of having far better documentation for the interior condition of the comparables than for that of the subject. If interior condition and/or quality are factors with an effect on value for the particular assignment of interest, the information available regarding the interior of the comparable sales mandates an exercise of comparison for this parameter between the subject and these properties in order to provide a credible result.

Per USPAP, a properly incorporated extraordinary assumption with regard to the condition and quality of the interior of the subject property would be a compliant manner in which to proceed when one has highly relevant information regarding the interior of the comparable sales. However, the language within the 2055 form does not provide for making an extraordinary assumption while the "as is" box (CB1) is checked within the reconciliation section. This presents some level of difficulty for the appraiser attempting to properly make use of an extraordinary assumption regarding the interior condition and/or quality of the subject property when using this form.

While appraisers utilizing the 2055 form are certainly satisfying the specified minimum level of work by only completing an exterior inspection from the street, this does not remove them from any subsequent due diligence regarding the interior of the subject property.

Many appraisers have concluded that they have the ability to incorporate an extraordinary assumption into the report regarding the interior condition and submit the report with CB1 checked.  Per the form language, that cannot be altered in cases where the report is to be utilized in transactions heading to Fannie Mae or Freddie Mac, additional assumptions cannot be made beyond those already accounted for within the form's format. An extraordinary assumption can only be incorporated via the proper mechanism located within the reconciliation section.

The proper route for doing so on the 2055 and certain other Fannie Mae forms such as the 1004 and 1025 involves checking the fourth box in the reconciliation section (CB4) and requiring a subsequent inspection for confirmation. By checking CB1 and incorporating an extraordinary assumption into the narrative of the report one could be accused of producing a misleading report. This is due to the fact that the presence of an extraordinary assumption within the narrative is in direct contradiction to what is present in the reconciliation section when CB1 is checked rather than CB4. Contradictions such as this are not to be considered beneficial elements within an appraisal report and could be used as a means to discredit the appraiser that allows them to be present in their work product. This issue is discussed further in a prior article: You Can Write an Appraisal on a Napkin..... But you probably just didn't

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You Can Write an Appraisal on a Napkin..... But you probably just didn't

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

We've all heard the phrase - "You can write an appraisal on a napkin if you want to". And yes, USPAP does give a wide berth in terms of reporting format but it is important to recognize that other than expanding upon the scope of work in order to accommodate the appraisal process, this does not provide appraisers with the authority to deviate from an agreed upon and expected scope of work or violate the sometimes extended list of certifications that are present on many of the pre-printed appraisal forms.

The most common reporting formats for appraisals are found within the lending arena and those typically used are the forms issued by Fannie Mae. These forms have a designated intended use, a specific minimum scope of work, a set of assumptions and limiting conditions, and certifications. If the appraisal process or specific client mandated assignment conditions cannot be properly completed when following and staying true to those items then it is much better to request a different reporting format, perhaps a napkin would be one alternative, or decline to proceed with the assignment. Proceeding within the framework of the forms despite it being contrary to producing a credible report or misusing the form in a manner that could be construed as misleading could have negative consequences for the appraiser and the appraiser's client.

Appraisers need to remember that Fannie Mae and other agencies delegate the responsibility of appraisal credibility and compliance to lenders. They rely on this delegation and receive documents signed by state licensed professionals that outline a minimum scope of work and have a set of certifications. Based on this it is clear that the agencies conceivably do not have to review every aspect of the appraisal reports they receive but can limit their review to key parts that indicate the appropriateness of the collateral for the loan being applied for. The basis for making this determination could depend on any number of factors including but not limited to the opinion of market value, conformity of the subject to the neighborhood, and zoning compliance to name a few examples.

One notable and critical area of the report that would always be necessary for any user to review would be the reconciliation section of the forms where it is clearly indicated via checkbox if the appraisal is made "as is" or if it relies either on an extraordinary assumption or hypothetical condition in order to reach its conclusions. A report that indicated "as is" within this section but did in fact rely on an extraordinary assumption or hypothetical condition, even when these are written out somewhere in the body of the report, could be viewed as misleading. Appraisers that indicate otherwise within the reconciliation section but still rely on extraordinary assumptions or hypothetical conditions outlined elsewhere in the report are in danger of being accused of trying to "slip one by" the agencies and the agencies would be well within their right to claim damages in the event of a loss.

The zoning compliance box is also a very important factor that should be taken seriously by anyone that completes one of these forms. In many jurisdictions with complex zoning codes it is arguably beyond the skill level and scope of work of the appraiser to absolutely ensure that all aspects of the property are in compliance with zoning however a certain level of due diligence would absolutely be expected. Properties that have significant and readily observable discrepancies from available public records should give cause for pause to an appraiser assigned the responsibility of checking that box. An appraiser that checked "legal" with regard to a property that in fact had substantial and readily observable elements that were built without permits or had an illegally converted garage, in violation of many zoning ordinances, could be held to task if the agencies were relying on the report to determine the zoning compliance status of the property. Adding in a cost to cure or an extraordinary assumption can easily be viewed as a misleading tactic in these cases where both the "legal" and "as is" boxes are checked.

Appraisers hold the ultimate responsibility towards determining the appropriate scope of work needed for producing a credible result. Despite this, appraisers are not free to pick and choose which portions of the lending forms they will abide by when this is the format that has been agreed upon. If these forms are modified by agreement with the client then it is best to avoid any chance of confusion and remove all reference to the publisher of the form and the form number. Should an altered form used to complete a report end up being utilized by the agencies (whether by accident or by design), the mere presence of the form number on the report gives ample cause for the final user to claim certain expectations with regard to the minimum scope of work and other items typically associated with the completion of, for example, a 1004.

Making use of the lending forms is a common and often necessary practice. It is important for appraisers that utilize these forms to be aware of the minimum scope of work they have agreed to follow and the certifications that they are signing. In addition it is important to be aware of the mechanisms within the forms designed to ensure that the agencies are making appropriate funding decisions and to make sure that these mechanisms are not bypassed, contradicted, or ignored. Inappropriate actions in this regard could result in large consequences being directed where the agencies have been sure to delegate appraisal related responsibility - on the lenders. In these cases there is little doubt as to whom the lenders would turn towards to direct their concern over the issue at hand and little doubt that it would not matter if the directive to complete the assignment in the manner in question came from the lender itself or its hired agent (AMC). While those parties would certainly have concerns and potential liability, in these cases as in all cases the appraiser would own the ultimate responsibility to the intended users and those parties able to rely on the report (per Certification #23) as to how the report was completed.

Copyright KB Shure 2011

Guest Author:  Ken Shure, Certified Residential Appraiser in the Los Angeles, California area.  Contact: [email protected]

Scope of Work "Creep" and Stagnate Fees . . . Not a Good Mix!

GUEST AUTHOR: Micheal W. Armentrout, VP AM Appraisals, Inc. Mike has been involved in full time real estate valuation since early 1992 and has experience in numerous Central Ohio markets. He served as a staff appraiser at several local firms before forming AM Appraisals, Inc. with business partner J.M. Massey. e-mail: [email protected] web address: www.amappraisals.com

How many licensed and certified appraisers remember logging hours for their exam application? The most frequent question always seemed to be just how many hours could be included for a typical appraisal assignment. Obviously, a multi-unit income producing property was going to require more than a typical single family unit so most just penciled in hours per job based on a formula according to property type.

Estimating time to complete an appraisal after it is done is one thing and quite another if the purpose is to conduct a profitable business. Accepting an assignment and quoting a fee for a client must include an understanding between both parties of what is expected in the final product or service. For many years, lending work has been largely based on Fannie Mae form reporting and the expected Scope of Work has been fairly uniform until recent months.

With a financial crisis, government bailouts, real estate market collapse, and monumental new policies and regulations, the system has produced higher expectations for appraisal reporting. While many will agree that this is good, it has also increased the work load for each assignment but fees continue to stagnate and even decline. Those involved in project management know this concept by the term “Scope Creep.” When fees fall out of balance with the amount of work required to produce a product, it often leads to a breakdown. This is commonly caused by a gradual drift to more expansive expectations without a renegotiation of terms. Ultimately, it is the responsibility of the contracted party to insure balance between the scope of work and fees.

Recent trends have seen dramatic shifts in scope of work expectations driven by Fannie Mae and implemented primarily by AMC quality assurance systems. It began with the Market Conditions form and then two active or pending listings as a minimum standard. Now appraisers are commonly being asked for detailed analysis on items like support for adjustments, client-defined search parameters, and are even being asked to explain why specific sales were not utilized.

None of these requests are in any way unreasonable or are beyond an appraiser’s requirement to fully support his or her work. They are however, beyond the scope of work that was historically expected for the majority of residential lending appraisals. Every individual appraisal does not require unabridged research and exhaustive analysis of every market nuance. Expertise and competency within a market presumes that the appraiser is aware of general trends that can adversely or positively affect a specific property. In reconciling a conclusion, there must be adequate support based on quantitative analysis but the degree to which appraisers disclose the amount of data can vary widely. The appraiser is ultimately liable for all conclusions as well as errors and omissions. They must, at a minimum, perform the research that is necessary to produce a credible, reliable and supportable report.

For instance, making a line-item adjustment for an amenity may yield relatively small or large numbers depending on the market demand for that feature. When an appraiser works in a specific market, they understand what impact a garage will have based on periodic data review by way of methods such as matched pairs. When familiar with a market, appraisers are unlikely to run a matched pair for every adjustment they may possibly make to that individual report. Requesting supporting data for this after the report has been submitted, would not be unreasonable but in most cases, would require the scope of work to be expanded. With ever-increasing minimum reporting requirements, most appraisal offices will have difficulty in charging an additional fee therefore it is most plausible to increase fees on the front end. =

With all the current talk of customary and reasonable fees, has the Dodd-Frank Act addressed scope of work concerns? If an appraisal request now has numerous pages of report requirements and additional commentary is likely, then that is fine. Appraisers must then demand proportionate compensation for the added work.

The resulting pressure that comes through scope creep without increased fees is likely to increase problems such as an aging appraiser population, a significant drop in license renewals and reduction of new license applications across the country. People are simply not choosing to enter the appraisal profession any longer which should be of concern to those making policy within the system. At what point, does the current business model in lending become problematic?

A lack of proportionate pay can also cause appraisers to look for new efficiencies to make up for a loss of time, resources and money. This often ends up being translated as cutting corners as most appraisers have long ago implemented processes to save time and money. What else can be expected when work load goes up and compensation goes down? The system will clearly not keep sustaining this balance that has been occurring in the industry.

Independent appraisal operations and mid-sized firms must properly price their services and demand fees commensurate to the projected scope of work. If not, lending-based clients will continue to draw from the well until it is empty.

Wells Fargo's $55.00 RVS Desktop Appraisal Releases 2/13/2010 - Restricted Use Report for Lending?

 The original document has been removed at the request of RVS for the reason below, but can be found on FNC Inc.'s site - Click Here

"The information contained in this electronic message is confidential, proprietary, and intended only for the use of the owner of the e-mail address listed as the recipient of this message. If you are not the intended recipient, or the employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any disclosure, dissemination, distribution, copying of this communication, or unauthorized use is strictly prohibited and subject to prosecution to the fullest extent of the law. If you are not the intended recipient, please delete this electronic message and DO NOT ACT UPON, FORWARD, COPY OR OTHERWISE DISSEMINATE IT OR ITS CONTENTS."

Here are a couple of appraiser comments from the LinkedIn USPAP Group:

Stephen G. De Castro: President, S.G. De Castro Appraisal & Consulting, Inc.

Wells Fargo is calling this a Restricted Use appraisal report. As per USPAP, a restricted use appraisal report can only be used when the client is the only intended user. This pretty much eliminates utilizing restricted use appraisal reports for mortgage lending purposes since there are more users then just the client.

There are also the regulators, the investors if the mortgage is sold, the borrowers have been told by FANNIE MAE that they are intended users. The work file must contain sufficient information to produce a Summary appraisal report.

The underlying concept of the restricted use appraisal report is that the client is intimately knowledgeable of the subject property and the problem to be solved. Hence does not require excess information that someone not familiar with the property and problem would require to understand the appraisal report and conclusions without the possibility of being misled. It does not shorten the amount of work required under Standard 1. It only saves on some paper, toner and typing and is meant for very specific situations. So there is your USPAP validation to tell them to stick it.

Donald J. Martin, SCRP, RAA, GAA, CDEI Owner, Martin Appraisals.com

Also, do not forget, when you do a "Restricted Use," USPAP requires you to have everything in your workfile to produce a "Summary Appraisal Report" without collecting anything else for the workfile.

Since you have to do everything in the workfile that you would do for a Summary, you have done the majority of the work for a Summary anyway, why would any that has done that many hours of work, do a job for $51.00, it makes no sense.

Forms are never USPAP compliant, it is the Appraiser that makes them USPAP compliant. I really hope are State regulators and Federal regulators take notice here and put a stop to the nonsense that Wells Fargo is doing, it really is a sad thing they have no respect for USPAP or the law and more importantly no respect for the public.

We welcome your comments here or on the LinkedIn USPAP Group!

First Impressions: Fannie Mae's New Market Conditions Addendum

If you attended my class at the "a la mode Regional Appraiser Conventions", I mentioned that Fannie Mae was working on a "one-page Market Conditions addendum" (similar to Wachovia and RELS forms). Fannie Mae has released the 1004MC form as part of Announcement 08-30, which also includes clarifications and amendments to the existing Fannie Mae Selling Guide. Download MCA_Appraisal_Report.pdf

Key Highlights of Announcement 08-30:

•  New Market Condition Addendum form 1004MC

• Supervisory appraisers must now inspect the subject property

• Reporting prior sales and listing history

• Appraising a property on sites over 5 acres

• Effective age adjustments

• Cost approach for insurance purposes

The 1004MC: "Houston, we have a problem"

My initial thoughts, I think we have some bridges to cross here, one of the reasons I started the series on URARS – Uniform Residential Appraisal Reporting Standards. While I believe this is a step in the right direction, the form and instructions appear to be in conflict with other Fannie Mae Appraisal Guidelines, The Appraisal of Real Estate and "generally accepted appraisal practice". 

As an example, the 1004MC requires the appraiser to report housing trends based upon "sales and listings of properties that compete with the subject property, determined by applying the criteria that would be used by a prospective buyer of the subject property".The conclusions for those trends (based on properties that are competitive with the subject) are to be "reported in the "one-unit housing trends" area of the URAR.

Click here to continue reading . . .

URARS Sidebar - Focus on the "Common Ground"

The Right Start was about the "possibilities", collective action to move the profession ahead as opposed to going backwards or standing still. That led to The URARS, ways to convey the message, enlist the support of appraisers and get the process started. While I anticipated debate, I also expected a spirit of cooperation. After all, the URARS was about "improving our lot in life" so to speak something all would benefit from.

 After witnessing (and participating in) a conversation on the WinTotal User's Group regarding "effective age", I had to take a step back and rethink our course of action. While the discussion was (for the most part) constructive, a simple question prompted 80+ responses. To be honest, I don't think there was a clear consensus in the end, although I do believe most involved (and those lurking) have a far better comprehension of the issues surrounding effective age and the use of the term in the URAR.

Having watched Brian Davis, Lee Hill and others "get busy" with the topic, my observations led to a few fundamental conclusions. Appraisers are in the "opinion business", so like other things, we all have one (or more), often we are quick to give it (asked for or not) and when we do, we defend it vigorously (right or wrong). 

What starts as a simple question or observation can quickly become "sport" and in doing so, all bets are off and we lose perspective. This is a key point for the URARS and the state of the appraisal profession. At times, we are so quick to take a position that we lose objectivity and become indifferent to the views of others.

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The URARS Part 5: Making the List: Key Reference Sources of Appraisal Procedures Definitions and Techniques

Have you read a few good books lately? Perhaps all of us should read a little more. When I was teaching the Housing Market Analysis class at the "a la mode regional conventions", I would ask the audience, "how many of you have read The Appraisal of Real Estate"? To my surprise (and shock) at several locations, only a few hands were in the air.

For the many years I have been in this profession, most I know have always considered "The Appraisal of Real Estate" as the "bible of appraising" and perhaps the most definitive and authoritative source on appraising currently in print. That's not to say that there aren't other good appraisal books out there, only to make a point. Many of those in the profession have yet to read and study the most widely referenced book on appraising.

If that is the case (and I have no reason at this point to believe otherwise) would appraisers have a better understanding of the principles, techniques, applications, etc. (outlined within The Appraisal of Real Estate) if they did? If The Appraisal of Real Estate was "required reading" for appraisers, users of appraisal services, underwriters, loan offices, agents and others, would some of the issues fade away?

For the URARS addendum, should we have a section that lists key references by title and edition? If so (and given the number of books and publications available), how much is enough? Should we limit the list to several that are comprehensive or should a few specialty references be added? Listed below are a few of my choices. What other publications (they must be in print and widely available) would you suggest or is this list adequate?

Click here to continue reading . . . .

URARS Part 4: Three Basic Rules - Patience Persistence and Compromise

Getting back to the original story, Dorothy, the Tin Man, Scarecrow and Lion arrived at OZ with great expectations. After all, the Wizard was known for his powers, however they quickly discovered that he wasn’t about to grant their wishes without some showing of worthiness on their part. He gave them a test to measure their patience; their persistence and in the end, their willingness to compromise.

The same holds true for us. To be successful, we will need patience with others (and trust on both sides), we will need to be persistent (continue to get appraisers involved) and we will need to recognize that in the end, compromise will be necessary to develop a version of the URARS that will be acceptable to a widespread group of professionals. 

The Basic Setup

The original intent of the URARS was to compliment the URAR – Uniform Residential Appraisal Report by specifically addressing reporting requirements related to residential mortgage transactions as opposed to a more comprehensive addendum that would cover a wide range of issues related to residential appraising in general.

To get us started and as a general direction to take, the focus here will be on Fannie Mae, Freddie Mac, HUD and VA appraisal guidelines along with USPAP, to develop both the URARS addendum and to create the URARS.org website.

• The URARS addendum can serve as a general outline of what the appraiser did and did not do (clarifying the scope of work), cite general definitions and reference material used in development of the report and direct the reader to the URARS.org website for more specific and definitive references (along with examples, publications, etc.), to provide the users of appraisal reports with "the actions of our peers" and "generally accepted appraisal practices" that are "verifiable and measurable"

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