SAVE THE DATE: Friday, April 8, 2011 • 9:00am – 12:00pm

Grand Hyatt San Antonio 600 East Market Street San Antonio, TX 78205

Meeting Agenda: 

The Appraisal Standards Board (ASB) will meet in San Antonio in April to make its final consideration of revisions for the 2012-13 edition of USPAP. 

Based on the feedback from the Fourth Exposure Draft, the Board will expose its Fifth (and final) Exposure Draft for proposed changes for the 2012-13 edition of USPAP in mid-February, 2011. 

Written comments in response to the Fifth Exposure Draft will be accepted through April 1st, 2011. Oral comments will also be accepted at the April 8th public meeting. The Board plans to adopt revisions for the 2012-13 edition of USPAP at the April 8, 2011 public meeting. 

Please note that this meeting will be followed by a meeting of the State Regulator Advisory Group at 1:00 p.m., and these two meetings are at the Grand Hyatt Hotel; the AARO (Assoc. of Appraiser Regulatory Officials) Conference is being held at the Hotel Contessa at 306 West Market Street in San Antonio.

Your online registration will assure proper seating at the meeting.

Standards Administrator: Carrie Cadle
202-624-3058 |
Events/Meeting Registration

Ask Henry

Handrails & Certificate of Occupancy

Dear Henry,

I am appraising a home that is yet to be completely finished. The subject is a new construction property, and the owners are looking for permanent financing. One staircase is missing a handrail; however, a door at the top has been blocked-off in order to prevent anyone from using the stairs. (I know in the past handrails were required on anything over three steps, but is that still the case?) Also, the balcony railing has yet to be installed, but a temporary railing has been securely attached to the balcony; is this acceptable per Fannie Mae guidelines? Barricading the door and the temporary balcony rail do meet our local codes.

Mark Faldetta

Dear Mark,

In general, Fannie Mae requires that the house be complete prior to finalizing longterm financing. You should describe any items that you observe that are not complete. You should emphasize any unfinished items that present a safety hazard. If required by your scope of work agreement with the lender/client, you should provide an estimate of what it will cost to complete the house. If you are in an area where a Certificate of Occupancy is issued by the local building authority, you should report on whether one has been issued, and if it contains any conditions regarding what must still be completed.


Ask Henry

What You See is What You Appraise

Dear Mr. Harrison,

I'm a residential appraiser in New York, primarily covering the five boroughs of New York City. I come across many homes that have upgraded kitchens and bathrooms, finished basements, finished attics and/or small extensions. Many of these upgrades are not filed with the City, and I've been getting requests from lenders asking if these are 'legal' upgrades or additions. I have spoken to the NYC Building Dept. and their response is almost always the same: they would need to send an inspector to the property to determine the legality of the upgrades (ast no work permits have been filed). I have two questions:

1) Say there are no work permits allowing for the upgrades that are already in place, can I still add value for the areas that were upgraded? Can I include the extra square footage, the finished attic space, etc., in the area above grade? And can I apply adjustments for kitchen remodeling or other upgrades if there were no work permits for the upgrades?

2) Is it my duty as an appraiser to notify the lender that there were no permits filed for the work?

Thank you for all the insight and help you provide! I await your response.

Nechama D. Arnold
Arnold Appraisal Group, Inc

Dear Nechama,

Millions of home improvements are made every year without building permits. Most appraisers don't get into the legality of an improvement they observe, unless they have some reason to suspect that it was made without a permit. In that case, they would be required to report their suspicions and comment what effect -- if any -- this has on the value of the property. I would be very careful about interviewing an owner. The safest thing you can ask would be, "Is there anything you would like to tell me that you think would be helpful to me in making this appraisal?" The problem is that they will start to ask you questions about the appraisal, and unless the lender/client has authorized you to discuss the appraisal with the homeowner, it is a violation of the USPAP to do so.

All things being equal, what you see is what you appraise. However, if you suspect the property is an illegal use, you must report it and state the basis of your suspicions. It is appropriate for you to ask a building inspector for a record of the permits that have been taken out on any property that you are appraising — but not ask if there is a permit for any specific upgrade. If this triggers an inspection, you and your lender/client run the risk of getting sued. You should quote the building inspector if you think what he told you was significant.

I think an appraisal report should speak for itself. I would think twice before volunteering to a lender/client any information that was not in the appraisal report. When a lender asks you specific questions about your appraisal, you probably should answer them preferrably in writing, and only if the information is not confidential. This is the problem with interviewing homeowners. If they give you some negative information about the property, and then say it is confidential, you are in a professional Catch 22. You are obliged to report negative information about the subject, but you are also required to respect confidentiality.


Ask Henry

Time Adjustments

Dear Henry,

I am seeing appraisers applying time adjustments in a wide variety of ways. It would be good if everyone were on the same page!

The Fannie Mae guideline on time adjustments says that if the sale is over 3 months old, you should apply a time adjustment. Does this mean that if the sale is under 3 months old, no time adjustment is required, even though the market is declining? Should the time adjustment be from the date of contract to the subject appraisal date, or to 3 months prior to the subject appraisal date? I have been unable to find an answer to this question anywhere. I am making time adjustments on all comparables up to the effective date of the subject appraisal, but don't know if I am being overly conservative. Thank you in advance for your help.

Toni Stiffler

Dear Toni,

The Fannie Mae guidelines (which Fannie Mae points out are just guidelines, and not mandatory requirements) suggest that a time adjustment is desirable for comparable sales that are over 3 months old. When you don't comply with a Fannie Mae guideline, I recommend that you put a comment in your appraisal report explaining why you made this decision. This will be helpful to readers (and reviewers) of your report. This 3-month guideline does not imply that a time adjustment is unnecessary when the period is less than three months, if the appraiser thinks one is necessary.



I Wish You Good Luck with the Blog
Thanks for all the good help you've provided over all the years. I wish you and all the REV folks good luck with the BLOG.

Mark O’Brien


Keep Up the Good Work

Good job guys love the magazine and its content. Keep up the good work. I need all the help that I can get. I have used your services before.

Rick Dalton's Appraisal Service


It's Been A Great Ride

Dear Henry:

I can remember one of the earliest seminars I took from you -- I think it was on Hilton Head Island about 30 years ago with the AACA -- and you have always been an inspiration to me and my staff. Through your seminars, guidebooks, forms and especially those bass worms (!), you have added a dimension to the appraisal industry that isn't even closely matched by others. Maybe your name won't be on any appraisal theory or a bricks-and-mortar library but you will always be the first and foremost authority on how to survive in the appraisal business.

It's been a great ride –– and as I can see from your photos, it ain't over yet!!

Bill Buchalter
Certified Appraisal Service

P.S. Seems like Florida is a great place to be; I am writing to you from there myself. If you ever want to do some fishing or chew the fat, I am right down the road from you in Stuart.

Ask Henry

A Late Start

Dear Mr Harrison:

Thanks for sharing the wealth of your knowledge and experience with all of us; we look forward to your publication!

My question: I am completing over forty years of successful activity as a Realtor. Now, at 87 years, the body is getting weary and many daily showings are tiring -- but the brain loves the business. I think I'd like to be a certified appraiser in the State of Ohio -- but at my age I'm not sure I could satisfy the apprenticeship requirement in a timely manner.

Your advice would be appreciated!
Name and email withheld by request

Dear Friend,

I am 80 myself, and will be happy if I make it to 87 and still can continue working! Frankly, I think it is a little late for you to be starting out as an appraisal trainee. However, with your background, have you ever thought of becoming a real estate consultant? You might start by offering your services to give some home buying advice, perhaps in a free seminar at your local library or civic center? There are also good opportunities for "seniors" like us in the Service Corp of Retired Executives (SCORE), where your expertise in real estate might be very welcome. SCORE is a national non-profit organization that counsels business owners and aspiring entrepreneurs. There are nearly 400 SCORE chapters throughout the United States offering counseling services to small businesses in all areas -- at no charge to the client. Find out more about volunteering for S.C.O.R.E. here:

Good luck -- and let me know what you decide to do.


Ask Henry

IRS Definition of Value

Dear Mr. Harrison,

I have received and read REV since its inception. Thanks very much for the opportunity to use this great resource!

I am writing regarding the recent “Ask Henry” entry entitled: Fair Market Value, Market Value, IRS Value. I wonder if the U.S. Code of Federal Regulations (available online at could be of use in resolving this question. For instance, in appraising real property for estate settlement, I use the definition of “fair market value” found at Section 20.2031–1(b), Part 20, Chapter I, Title 26. (This is under, “Estate Tax, ; estates of decedents dying after August 16, 1954” and “Definition of gross estate; valuation of property”.) The definition found there is, “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” Since USPAP requires that we also cite the source of our definition, I am able to give the appropriate citation as set out above. Would you concur with this methodology?

Thanks again for a great magazine/blog.
Best regards,
James P. Johnston
Wauneta, NE

Dear James,

I looked at the site and I think it is potentially a great resource for an attorney. However, I found it not useful as far as helping an appraiser determine what value to use. I entered each search term: "Market Value", "Fair Market Value" and "IRS Value". In each case, I got 200 references, which is the maximum it will give for one search. This means that I would have to read and understand 600 documents -- and it does not preclude the possibility that there might more. I need to stick to my original advice: for mortgage purposes, the FIREA definition must be used, and it is a useful definition for many other types of mortgages too. I would recommend that appraisers do not try to offer any other definition of value. This should be up to the lender/client, hopefully with the help of their attorney, and should be fully communicated to the appraiser as part of the required scope of work dialogue. The problem is that once the definition of value is changed, it requires selection of comparables that were sold under conditions that meet this atypical definition -- which is a good trick if you can do it.



Feature Article

Highlights of Trip to China -- Oct. 21st - Nov. 5th, 2010

Henry S Harrison & Ruth Lambert

Recently, we returned from a 17 day trip to China. We have tried to capture in this article some of the highlights of our experience and what we learned about China. The article is divided into two parts. Part 1 summarizes what we saw and learned. Part 2 is a chronological day-by-day description of the trip, with many pictures.


China is a big country with a land area about the same as the US, with a gigantic population of over 1.3 billion people. Like the US, most of the action is in its coastal cities. Unlike the United States, China has only one coastline, on the East China Sea.


Sound Off!

A Tired Appraiser

A happy and prosperous New Year to all at Real Estate Valuation and Ask Henry Harrison!

Lot of talk out there about regression analysis becoming part of a report. I for one would be happy, but foresee a few problems. I gave up on regression as most of the people reading the reports did not understand what it is or what it means. Secondly, data input is as critical as with a real market comparison. My experience is that any savvy computer person can make the market comparison say anything they want. Sad, but there are no rules for the data input, and it often has to be expanded to competing neighborhoods.

There is no substitute for honesty and good judgment. Experience in these trying times is more important than ever.

I'm tired. Tired of taking a rap for working for an AMC. (I do a fair number of reviews, and most would not make it to first base for the people I work for!) Tired of competitors coming fifty miles, with no local MLS data, or geographic competence writing meaningless reports to support a value that cannot be reconciled.

Joe Johnson
Certified Residential Appraiser - Florida

Ask Henry

Leased Fee Appraisals

Dear H2,

I am appraising a four unit property that has all four units rented. Page 1 asks me the property rights. Do I check leasehold, fee simple, or other. There are some education courses stating that if one of the units is rented, then it is leased fee and the appraiser should check the box “other” on page 1 and call it leased fee.

Leasehold estate is defined as the right to use and occupy real estate for a stated term and under certain conditions that have been conveyed by a lease. Leased fee is defined as an ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; usually consists of the right to receive rent and the right to repossession at the termination of lease. In theory, this would be true, as the subject is rented at time of appraisal report.

My question is what is the appraiser supposed to mark at this time? If it is a leasehold, or leased fee, does the appraiser then mark the comparables as leased fee if the appraiser can verify leases? What if the appraiser cannot verify the leases for the comparables — are they then marked "fee simple"?

What is page 1 asking? Aren't they asking for the rights that transfer if the property sells? Would it not be common for the complete rights to be transferred with the Leased Fee interest referring back to the Leaseholder at the time of transfer; therefore, wouldn't the transfer be fee simple as the whole bundle of rights are transferred to a new owner?

What is the correct way in the eyes of Fannie Mae to complete page 1 if the subjects 4 units are under lease? I need some definitive clarification on this as I am seeing many different takes on this. I have always considered such properties "fee simple" because the duration of the leases are short term. I am not addressing land leases. Owner of land is also owner of the improvements, who is leasing four units to renters on a yearly lease. Please help!

Thank you,
Ron Coffman

Dear Ron,

It sounds like you are doing a mortgage appraisal that is going to be sold to Fannie Mae or Freddie Mac. They are only interested in property that is owned in fee simple, so that is what you should indicate on the form. If there is a long lease on the property, at some rent other than market rent, you would have to deal with the possibility that there is a leasehold interest on the part of the tenant. That is very unusual in a four family dwelling.

However, when you appraise any property that is leased, you have to be careful that there is nothing unusual in the lease. I recommend — as part of your dialogue with the lender/client — that you tell them you must have copies of all the leases. If they are not obtainable, you are going to have to say this in the appraisal report, and then make some about the key features of the leases. This is not going to make anyone happy. If you decide go this route, you should get permission in writing to do this from the lender/client before you proceed, only to find out later that the appraisal is not acceptable to them. If you are, in fact, doing a leasehold interest appraisal, you need to have a clear understanding with the lender/client as to what you are doing and for whom!



Ask Henry

Vacancy Rate Calculation

Hello Henry!

Great Mag & Blog. Thanks for your hard work.

Let me ask you, do you calculate vacancy based on a time period or unit basis for muti-family/commercial properties. I have a 20 unit mixed use building, with 3 retail spaces and 17 apartments. One of my retail spaces and 2 apartments are vacant going on 3 months now. So is my vacancy rate 6.6% or 24.9%?

G James Gervas

Dear James:

Thanks for your kind words.

Normally vacancy rates are reported on an annual basis. It is not based on your current rate but rather on an historical fact. It is like the income and expense statement where you are forecasting a typical year, rather than reporting a "blip". Most likely it will not be either of the figures you are suggesting, but rather, a composite of the past years average vacancies. For example, if your monthly vacancy rate is approximately 24.9% of the total space, for 3 months, but nil for the rest of the year, the vacancy rate would be 6.2% for the past year. (24.9% x 3 months = 74.7 + 0 divided by 12 months = .0622). However, you should be considering more than a single previous year.


Ask Henry

FIRREA Enforcement

Dear Henry,

As a federal statute, who or what government entity is charged with enforcement of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA)? If an appraiser is aware of activity specifically prohibited by the statute, to whom should such activity be reported? It would seem nonsensical to have a federal law that was unenforceable by either the US Attorney General or the FTC or the EEOC. If you are unaware of a specific entity to approach, could you suggest a course of action in order to discover the appropriate party? Thanks for the favor of a reply and thanks for publishing my editorial response in your initial blog issue.

Peter von Nessi, CSA-G
Bronx, NY 10465

Dear Peter,

The way I remember it is that FIRREA established the government agency call the Appraisal Subcommittee. About the same time, the national appraisal organizations finally got motivated and established The Appraisal Foundation, which was given the mandate to write Appraisal Qualifications and Appraisal Standards for the profession. The Appraisal Foundation received financial aide from the Appraisal Subcommittee to accomplish these tasks. The actual task of licensing and certification of appraisers and the power to investigate complaints about appraisers was left up to the individual Appraisal Commissions that each state was required to establish. The duty of supervising these Commissions was left up to the Appraisal Subcommittee. It is their responsibility to see to it that the individual state Appraisal Commission carry out their duties. Therefore, if anyone had a complaint about an appraiser, it was supposed to be reported to their state's Appraisal Commission. If the problem were with a lending institution, it could be reported to the State Banking Commission or if a federal criminal offense were being committed, to the FBI.

Today, there is a big difference in the way these complaints are handled. In some states, little or nothing ever happens regarding follow up on complaints. In contrast, other states go overboard trying to enforce the regulations. Most states fall somewhere between these two positions. The best way to find the most effective avenue for getting your complaint dealt with seriously is to contact your state's real estate appraisal commission and ask for their advice.


Ask Henry

Disposition Value

Hello Henry,

Thanks in advance for taking the time to answer my question.

I have a client who's requesting a market value and a disposition value on every commercial report. If you were asked to do this, what steps would you take and how would you go about coming up with your disposition value? Thanks again.

Robert Jones
Certified General Real Property Appraiser

Dear Robert,

The USPAP requires that every appraisal include a statement as to what value is being estimated and a definition of that value. When you use the URAR, the form takes care of this with a statement that the value being estimated is market value, and provides the federally-approved definition of market value. In your scope of work dialogue with the client, you will need to agree on a definition of disposition value. Such a value would consider the typical marketing period, which would likely be different from the typical marketing time used for market value. It also might include how the property would be marketed — perhaps utilizing an auction or some other atypical method. One you have the definition, you will have to find comparable sales that meet those conditions.This often severely limits the availability of comparable data. You could contact the Lum Library of the Appraisal Institute in Chicago at (312) 335-4100 for any published definitions of disposition value.


Ask Henry

Fair Market Value, Market Value, IRS Value

Dear Mr. Harrison,

I have been asked by an attorney whether there is any difference between "Fair Market Value" (a term he sees in IRS rules and regulations) and "Market Value" as used in appraisals. I have told him that the term "Fair Market Value" has been superceeded by the term "Market Value," but he is still concerned that there could be some value difference attributed to the use of one term rather than the other. Can you help me clear this up for him please? Thank you!

Dear Donald,

The definition of "Fair Market Value" is contained in the FIRREA Act and is required for all mortgages where the U.S. government is involved. It is the value most often estimated by appraisers. Keep in mind that the USPAP requires that every appraisal state the type of value being estimated and provide a definition of that value. Different IRS publications and regulations seem to include different definitions of the terms Market Value and Fair Market Value. I suspect that if you based your appraisal on one of those definitions, the value you estimated might differ from an appraisal based on one of the IRS definitions. The attorney is going to have to research which of the IRS definitions applies to the matter they are involved in, and if an appraisal is needed in the case, be sure to supply the appraiser with that definition of value.


Ask Henry

Retrospective Field Review - No Intended Use

Dear H2,

I have an assignment for a retrospective field review, dated March 2006. I have asked the AMC to provide the intended use of the review appraisal. Their response is that they did not get this information from the Lender. My initial thoughts about responding to this situation are to: (a) clearly state this condition in the report; and, (b) provide an assumption of the intended use for the review and condition a possible revision if the assumed intended use is not correct. Is this the right way to proceed?

David L. Prymak
Dayton, TN

Dear David,

Statement 9 in the USPAP goes into detail as to why the appraiser must know the intended use of the appraisal. I am not aware of any exceptions to this rule.


Ask Henry

Comparable Sale Photos

Hello Henry,

I have been an appreciative customer and fan of your publications for decades. However, in your current online REV Magazine where an appraiser is complaining about having to take lots of comp photos, I submit the following sample of a letter received from one of our clients in this regard:

"There is commentary in the Addendum stating: "Some MLS photographs are used for comparable sales, as it had not been determined at the time of the property appraisal inspection which comparables would be most appropriate to use in the sales comparison approach." In the Appraiser's Certification, under Scope of Work (#3) [typically page 4 of the URAR form], it states: The appraiser must inspect each of the comparable sales from at least the street. Please address whether or not the appraiser inspected the comparables used in the appraisal report.”

Our clients insist that if the appraiser inspected the comps (as the Appraiser’s Certification indicates), then why couldn't they takea picture to show they were there? They can provide MLS photos in addition, if they better represent the property. Hopefully you can get the word out as to why this is simply good practice, as not doing so can delay the mortgage process.

A Concerned Fellow Appraiser
Name and email withheld by request

Dear Friend:

Keep in mind that the USPAP does not even require the the property be inspected. The URAR Fannie Mae #1004 - Freddie Mac #70 was created by Fannie and Freddie to codify some of their "Scope of Work" requirements which they require from Lenders selling mortgages to them.

I agree that in this age of digital cameras (and camera enabled cel phones) it would be prudent for the appraiser to photograph every potential comparable sale they inspect, and then select those photographs later for the comparable sales they use in the report. If the MLS photograph provides better information about the comparable sale, it should also be included in the report. The USPAP requires that there be a dialogue between the lender/client or their representative as what they require for each appraisal. This would be the appropriate place for the photo requirement to be communicated to the appraiser.

Back in the 1980s, we had a large appraisal company which at its peak had about 50 appraisers. This was before digital cameras were common. We had special 35mm cameras that recorded the date, time and address of each photograph. We required that our appraisers photograph every potential comparable sale when they inspected them from the street. We also keep all of these photos in the permanent work files. It was costly at the time, but in our judgment a worthwhile requirement. Now, with digital cameras and cheap CDs, mini-zip drives, and other storage capacity, I recommend that all appraisers follow this procedure.


Ask Henry

Work File Requirements

Dear Henry,

How long should you keep a file "active"? One of my AMC clients was always asking me to go back and "review a file". They'd give me new comps and other "new data". The last time this happened, the file was completed over 2-1/2 months previously. I told them the file was "beyond a reasonable period of time" for an update, or another "review". I explained that from then on, I would need to charge them a fee of $50 each time I had to go back into "closed" files. They got upset with me!

I think a reasonable period of time to question an appraiser is during the time that the file is in underwriting, and up to a week after the report has been delivered to our client's customer. After that point in time, when someone asks me to look at more comps, I feel that they should be charged an additional fee (from $25 to $50). It usually takes about 30 minutes to 1 hour to review additional info and (usually stupid) comps.

My point is that you do not go to a doctor for free, so why should an appraiser do additional work for free, after a reasonable period of time has elapsed? Isn't my time also worth $$$? I think it is sad that some appraisers are willing to work for nothing! By the way, this customer does not send me any business anymore.

Brian Brown

Dear Brian,

I am not sure what the difference is between an open and closed work file. The USPAP requires that you retain a "complete work file" for at least five years after an appraisal is made, plus an additional two years after the end of any litigation that involved the appraisal. Many appraisers find it easier to just save the whole file and keep it accessible during this period. This is especially true now that the cost of computer storage is so low, and most appraisals are stored digitally.

I understand that you are upset, and feel that the client abused you one too many times. Frankly, I think this is a business judgment. When a good client asks for reasonable things, it usually is not a good idea to charge them, or protest. When the request is from a one-time client, you might consider adding an extra fee. Personally, in my own appraisal practice, I rarely charged an additional fee, as my theory was that treating all clients well and keeping in touch with them — even if it was just answering what I considered to be an annoying question — was good for business.

By the way: I happened to call my doctor recently, to ask for specific information from my patient file. The information was faxed to me, and I was not charged.


Ask Henry

Partial Property Appraisals

Dear H2,

I recently lost a major client because I tried to tell them they were wrong. A valuation company, representing a bank, asked that all subjects with five acres or more ONLY be appraised with five acres, and anything over that should not be included in the appraisal. Also, if there were outbuildings, I was instructed not to include them in the grid, but only comment about their existence in the addendum.

I said I would only do this on a non-financial appraisal form. They refused, claiming as their reason that "not all appraisers have access to non-financial forms". After further research and agreement by various industry trainers and the Appraisal Foundation whom I consulted on the problem, the valuation company still said I was in the wrong, and fired me from their assignments. I lost thousands of dollars worth of work. Who is correct? And what can I do?

Launa Tierney

Dear Launa,

There is nothing in the USPAP that requires that you appraise all parts of a contiguous property. In all circumstances, however, your appraisal would have to make it clear that your appraisal was of only part of the contiguous property. As far as what the valuation company is asking you to do, the answer is that the USPAP says that you cannot make an appraisal that intended to deceive anyone (for more details look in the USPAP index "Misleading Communication.") It appears from your question that the valuation company wanted appraisals that would mislead Fannie or Freddie, who would not buy these mortgages if the knew about the extra acreage. I think you should go over their heads (or threaten to go over their heads) and send letters to the chief appraiser of the lenders whom they represent, telling them you have lost their business because the valuation company wanted you to violate the USPAP.