Ask Henry

UAD vs. USPAP?
Dear H2,

Why are some appraisers claiming that the UAD fails to meet USPAP?

Robert O'Brien
obrienconsultants@gmail.com

Dear Robert,

So far no one has sent me a valid reason why complying with the UAD would require an appraiser to make an appraisal that does not meet the requirements of the USPAP. I do not know who has been making these claims, but I don't think they are valid.

HSH
askhenryharrison@revmag.com

Article

How to Appraise in a Declining Market
An Analysis by Henry S. Harrison, MAI, SRPA, ASA of
APB Valuation Advisory #3: Residential Appraising in a Declining Market


The Appraisal Practices Board (APB) of the Appraisal Foundation has just released “APB Valuation Advisory #3 – Residential Appraising in a Declining Market” dated May 7, 2012. This 33 page document is available at the Appraisal Foundation Website: www.appraisalfoundation.org (When you land on their Homepage, single click on the left side column “Appraisal Practices Board (APB)” ; and then single click on “APB Valuation Advisory” and then on “APB Valuation Advisory #3.”)

The most frequent question I’ve received in my “Ask Henry” mailbox over the past few years is “How does an appraiser make an appraisal of a property in a declining market?” The majority of these questions come from residential appraisers and express their confusion as to how to include (or not include) consideration of distressed sales, short sales, foreclosure sales, etc. — and if such comps are to be used, how they should be adjusted. I will address these problems in more detail as I summarize and comment on the eight subjects that make up the Valuation Advisory #3.

I. How Should an Appraiser Define a Declining Market?
Since there is no universally accepted definition of a declining market, it is incumbent upon the appraiser, when they report that the subject property is in a declining market, to include in the appraisal a definition of the term “Declining Market.” Support must be presented that demonstrates that the subject market area fits the provided definition.

For example, you might say: “A declining market is one where the median house prices go down for two consecutive 3-month periods.” To use this definition, you would then have to supply the necessary data about median sale prices in the subject market, showing that they have gone down during the past two 3-month periods. Keep in mind that an appraisal is based on historic information and is not a forecast of future conditions. It is not good appraisal practice to forecast the market direction or trend for the subject market into the future.

Read More...

Ask Henry

Scope of Work - Special Requirements
Dear H2,

I have a client that is asking for an enormous amount of data research for review assignments and they are very specific about the order in which these items are to be placed in the report. I am concerned about data mining from my reports but wanted to get your thoughts.

Some of the items that they are requesting are a 0-6 month CMA of all applicable sales in a marketing area and a 6-12 month CMA of all applicable sales in a marketing area. I am okay about providing some of these items but then they also want both the MLS sheets and County records of all of the sales from the CMA. In some neighborhoods, we may be talking upwards of 50 or more sales in both CMAs -- which then may add upwards of 200 additional pages to the report. They want each one on an individual page and labeled very specifically as to what they are, so the additional amount of work that is being asked for each Review Assignment is extensive.

Any thoughts on how I can appropriately address these additional requests?

Thank you.
Cathy Putegnat
Homestead Appraisals
info@homesteadappraisalsinc.com

Dear Cathy,

The USPAP requires that appraisals be reported in one of three different types of appraisal reports. Most residential appraisals are Summary Appraisal Reports but it sounds like from your question that your client may be asking for a Self Contained Appraisal Report in their scope of work requirements. The first step in the required scope of work dialogue between the appraiser and the client is to agree upon which type of report is required. The USPAP specifies the minimum that is required for each report type, but the client and the appraiser can agree on any additional material the lender/client requests.

I once did a 25 mile pipeline right-of-way "taking" appraisal where we were asked to provide information about every sale in the past 10 years that took place within a mile of the proposed right-of-way. It was a great assignment because our fee was in the six figures and the client agreed to pay half of it 'up front' so that we could pay for the additional appraisers used to do the extensive research. By the way, this client also had a standard format for reporting each sale. The only problem I can see here is whether you are going to be adequately paid for all of the extra work involved, assuming you are willing to do what they request.

HSH
askhenryharrison@revmag.com