Ask Henry

Ask Henry

Dear Henry,
Hers how it goes: AMC A calls or emails a bid request for a single family appraisal report from lender B. If the fee and due date are acceptable I receive the engagement letter with the agreed fee and due date. Sometimes the same day or even up to 2 weeks later I will receive a second bid request from AMC B for fee and due date from same lender B for same property. Once I have an engagement letter from AMC A and they cancel order because someone else will do the appraisal report for a lower fee or quicker turn time do I have any recourse from AMC A.

Is lender B playing by all the rules once they have already committed to AMC A? I have a small office of 6 appraisers and we are seeing a lot of this lately. Besides being unethical does lender B have the legal right do this? The lenders doing this are nation wide banks and mortgage company's

Please advise and respond to
Patrick Solitz
Appraiser in Oregon
pjsolitz@uci.net
541-385-3181

Dear Patrick,
I wish I could say that this is the first time I have heard this story. Keep in mind that I am not a lawyer (though I have three children that are). In business law 101, they teach you that once both parties have agreed to something (it must be legal) both parties are bound to the contract and neither party can cancel the contract without being liable for either damages or specific performance.

Unfortunately, any legal action will probably result in the loss of one or both of the parties.

My advice is to start by giving both the lender and the AMC the benefit of the doubt that they didn’t realize what they were doing by informing both of them as to what they have done. I would first try to do this verbally and if not successful then in writing. Hopefully, when they realize what they done they will take steps to correct the problem by reinstating your first contact.

If this continues to happen in the future and you don’t care if you lose their business I would try a small claims action in court which you can do yourself. This will bring a whole new level of people at the companies involved and this sometimes results in a correction without the loss of the customer.

If this does not work either forget it or hire an attorney keeping in mind that this will only bring you satisfaction as most likely you will never collect enough to pay the attorney fees.
H2

Ask Henry

Based on the questions being asked online there seems to be a lot of confusion about the new HUD-FHA regulations. Here are the official answers to some of the most common questions.

When do the new HUD-FHA regulations become effective?
Answer: They were supposed to be effective 6/15/2015. The effective date has been postponed until September 14, 2015.

If mortgagees are ready to implement on June 15, will they be allowed to submit cases that use the SF Handbook on or after this date?
Answer: No. Mortgagees must submit cases that use existing FHA policy until the new SF Handbook becomes effective on or after September 14, 2015.

Will FHA publish a “Highlights of Changes” document that summarizes the policy changes contained in Origination through Endorsement?
Answer: No.

Will you publish a new “Harrison’s Illustrated Guide – How to Make an FHA Single Family Appraisal”?
Answer: Yes! I am working on now and plan to have it available in early August. You can make a publication order from Forms and Worms 1-800-243-4545 or www.formsandworms.com. Pre-Order and Save 10%! Pre-order price of $44.95 for orders placed before 9/14/2015. Regular price $49.95

Ask Henry

Apple Watch Q&A
On a recent Southwest Flight from Orlando to Hartford, a neighboring passenger spotted my Apple Watch. I spent most of the rest of the trip answering questions and demonstrating the watch to several other nearby passengers.

Question: Do I need a cell phone to run an Apple Watch?

Answer: Yes! It requires an iPhone 5 or later model.

Question: How much does an Apple Watch cost?
Answer: There are three basic models: “Watch”, “Sport” (slightly smaller) and “Edition.” Mechanically they are all the same. The size, case material and band make the difference.
- Sport with 38mm aluminum case & sport band lists for $349.00
- Watch with 42mm silver aluminum Case and sport band lists for $399.00
- Edition with 38mm gold case lists for $10,000+
- Edition with 42mm gold case lists for $12,000+

Question: How long does the battery last?
Answer: This depends upon your usage. So far I have not run the battery below 25% in one day, but I do put it back on the charger each night.

Question: Is the Apple Watch waterproof.
Answer: It is supposed to be O.K. to wash your hands, shower or drop your Apple Watch in the toilet for a few moments! There are stories online of people going swimming with it on. I haven’t had the courage to do so.

Ask Henry

alamode

Carbon Monoxide Detectors

Henry,

In California, there is a state law that says all homes must have Carbon Monoxide Detectors. My questions is: As part of USPAP, do we need to certify that there is a working detector in each home? If so, do we make the appraisal “subject to” their installation if not present when inspected?

Thank you,
Mike Bucchianeri
mjbappraisal@hotmail.com

Dear Mike,

I am not familiar with this California law. Normally appraisers are not required to test each alarm. However, to be safe many appraisers do test them just to be safe. Other take the position this is something that should be left up the home inspectors. At a minimum I think what I would do is make sure each required room has a detector and if non are installed, not report that in your appraisal.

HSH
askhenryharrison@revmag.com

Ask Henry

Sale Value Differs from Appraised Value
Hi Henry,
What to do if the appraised value comes in at ~10% less than the accepted price in a foreclosure?

Thank You
AK
(email withheld by request)

Dear AK,
The question you ask really covers all sales that are different from the appraised value.

When you make an appraisal on the Fannie Mae/Fredde Mac form you are using the federal definition of Market Value. This definition makes a lot of assumptions that often do not apply to an individual sale and often explain the difference between the appraised value and the sale price.

If you have not used this definition of market value and instead have used a custom definition like "distressed value" or "short sale value" it is more complicated but the same principles apply.

In most cases the appraiser should take the information about the sale and use if for another appraisal in the same market area if you get an assignment to make an appraisal where the definition of value is "foreclosed sale" value.

When a client askes you why your value is not the same as an individual sale you might reply, “I estimated market value based on it being a sale that fits the definition of market value which is different from "foreclosure sale" value which may explain the difference”. You might also say that your appraisal is just you opinion of what the value is based on the data available and it most likely will not be the same as a specific individual sale.

Unfortunately, the concept of different definitions of value will produce different appraised values is hard to explain which means that many of your client will not be happy with your explanation.

Good luck!
HSH
askhenryharrison@revmag.com

Ask Henry

Short Notice Appraisals
Hi Henry,
On Christmas Eve evening I received a call from someone needing an appraisal. They wanted to put their house up for collateral to get a relative out of jail, and they needed an appraisal for the properties worth. The caller wanted it that evening. I was unable to provide the service as I had a house full of company, however I got to thinking about the request.

At that time of night I assume they were not interested in a full URAR report. I use the ClickForm software and can locate a Short Appraisal form and Desk Top Appraisal form. A Restricted Appraisal did not seem adequate in this situation.

Do you know what type of appraisal would have been acceptable for a bail hearing or to post bond assuming there is no MLS listing on the property? I will probably never get another call like this, but was just wandering what I could have done for the caller.

Thanks,
Jennifer

Dear Jennifer,
I have done some appraisals on short notice, but none like this.  My lawyer friends, who do bail hearing work, tell me that it can be quite profitable. We tend to forget that the type of report that is needed — according the USPAP — should be determined as part of the "Scope of Work" communication that takes place between the appraiser and the client.  This should include not only the type of report but more importantly the type of appraisal. Keep in mind that there is nothing in the USPAP that requires you to inspect the property. That said, you must always make a credible appraisal so you are going to have to include a credible description of the property and its condition.

Unfortunately, there is no standard about the type of appraisal required for a bail hearing.  A good source for this information would be the bail bondsman. I don't think I would want to be in a situation where you had been paid for your appraisal, only to find that it was not what the court would accept.

My advice to you and other appraisers who might like to develop this type of work is to develop a relationship with the bail bondsmen in your area.  If you have a lawyer friend who does this kind of work, they might be a good person to introduce you to some bail bondsmen (or women).

HSH
askhenryharrison@revmag.com

Ask Henry

Evaluations vs Appraisals
Dear Henry,
I was recently contacted by a bank I have done appraisal reports for the past 12 years – mostly 1004 reports for secondary markets, some 2055 reports for in-house lending – their e-mail asked what we would charge to do some “evaluations for renewal loans.” To me, the word “evaluation” is a play on words and the same as an appraisal.

After the last few years of being questioned on every blank on the form, griding listings, extra comps etc. – it is a shock to the system to be asked to do an evaluation for which we are supposed to make up the form. I have heard of some appraisers in a nearby town and competing appraisers in my town who are doing some evaluations with a greenhorn trainee.

Is this acceptable practice with the rules we live under?

Wendell Sears
wsears@centurytel.net

Dear Wendell,
The USPAP defines an appraisal as follows:

"APPRAISAL: (noun) the act or process of developing an opinion of value; an opinion of value. adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.

Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).....The use of other nomenclature for an appraisal, appraisal review, or appraisal consulting assignment (e.g., analysis, counseling, evaluation, study, submission, or valuation) does not exempt an appraiser from adherence to the Uniform Standards of Professional Appraisal Practice."

Therefore, it seems clear to me that whenever you provide an opinion of value you must make an appraisal that conforms with the all the USPAP requirements for making an appraisal. However, you do have a choice as to what reporting form to use. If the lender / client is going to be the only user of the report, then you may chose to use a Restricted Appraisal Report, which requires a lot less information. However, this does not excuse you from doing everything needed to make an appraisal.

I have been told that a few states allow "evaluations" that do not meet the USPAP requirements for an appraisal. Since enforcement of the USPAP is up to the individual state, and not the Appraisal Foundation, appraisers in those states may chose to make Evaluations. You should call the Appraisal Commission in your state and ask them the same question you are asking me. I’d be curious to hear their response!

HSH
askhenryharrison@revmag.com


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Ask Henry

Determining Adequacy of Insurance Limits
Dear Henry,
Do you have an explanation as to why Fannie Mae allows the cost approach to be used for determining adequacy of insurance limits? Let me explain.

“The lender wants to be sure the property owner carries adequate insurance to protect the lender.”

If this were the case, why would the lender request the cost approach? The cost approach is a new construction based estimate, not the cost to rebuild after a loss. It may be more accurate to say that lenders need documentation to satisfy Fannie Mae requirements to sell their mortgages into the secondary market. The estimate from the cost approach will satisfy Fannie Mae, but that wouldn’t be adequate insurance to protect the borrower or the lenders’ collateral. The insurance industry has different cost guides.

  • Marshall & Swift/Boeckh – RCT & BVS (not the same cost guide as the MVS books)
  • Xactware – 360-Value
  • e2Value

These are all reconstruction based replacement cost estimating tools. Borrowers that are advised to set their insurance limits based on the “replacement cost” estimate in the cost approach section of the real estate appraisal will be underinsured. They won’t have enough to fully recover from a total loss, and they’ll be in jeopardy of a coinsurance penalty on any partial losses.

So I ask again, can you explain why Fannie Mae allows the cost approach to be used for determining adequacy of insurance limits?

Regards,
J. Nixon

Dear John,
Fannie Mae & Freddie Mac do not require the Cost Approach but permit its use when the appraiser thinks it is necessary. If in your scope of work dialogue with the lender/client a cost approach is asked for I see nothing to prevent you from providing it. I do believe that the reproduction cost you provide could be useful to the lender. I don't understand why using the reproduction cost would result in the property being under insured. There are a variety of ways homeowner insurance policies are written concerning what definition of value will be used to determine the amount of a claim or the amount of insurance needed.

Many insurance policies are based on the Actual Cash Value of the improvements. This is the depreciated value of the improvements. It does not include the value of the site and site improvements. Some insurance policies are based on replacement cost of the improvements. Usually this is less than the reproduction cost. The URAR begins the cost approach with an estimate of the "Reproduction Cost."

HSH
askhenryharrison@revmag.com

Ask Henry

Actual Age of Renovation
Hi Mr. Harrison,
I inspected a home in one of the 5 Boroughs of NYC. The improvements to the property include a two family large structure that appeared to be brand new construction. I spoke to the developer who stated that in the construction process, they had left part of the old foundation. In other words, the old structure had been completely demolished, aside for part of the original foundation walls, and the new existing structure was put up in its place. This was done for tax purposes, as the NY tax dept considers this a 'renovation' not a new construction, and therefore, the taxes would not be drastically increased. The old structure was built in 1920. The new structure in 2012. My question is, if the entire new structure (above grade) and part of the foundation were built in 2012 and only a small amount of the foundation was built in 1920, What is the actual age of the structure?

Thank you for taking time to answer my question!
Nechama Arnold

Dear Nechama,
Since this is important information, the USPAP says you must provide it somewhere in your appraisal or in on addenda form. You actually have answered your own question: “The part of the foundation is 90 years old and the house is (new or less then 1 year)” is a perfectly adequate response. What stumps many appraisers is how to get this information on to the form being used. This depends on which form fill program you use. Depending upon the program, you might put into the box "90/1”, or “*”, or "see comments”.

If your form fill program does not let you indicate that an answer is incomplete, you should send a complaint to your software provider. If you use an addenda, which is often the best way to provide any special information, it is a good idea to put a statement on the first page of the form such as “Important information about this appraisal is included in the addenda.” This prevents anyone from removing the addenda from the report.

There is no number that will accurately reflect the actual age when different parts of the building were constructed at different times. However, you should reflect your estimate of the effective age in a single number.

You also might want to make a comment in your appraisal as to why this was done as it does effect the value of the property.

HSH
askhenryharrison@revmag.com

Ask Henry

Cost Approach for Mortgage Transactions
Dear Henry,
Have you run across many lenders requesting the Cost Approach for insurance values when the intended use is for mortgage transaction? They are wanting the CA for properties where the result is not a credible result (very old homes).

It even states in the certification that the intended use is for mortgage financing, not insurance.

How would you handle this?
Tammy VanScoy
Office Manager
Daugherty Appraisers, Inc.

Dear Tammy,
I find nothing in the USPAP that prevents you from doing what the client requests as part of their scope of work. Some appraisers disagree with this opinion. They seem to base their opinion on the statement on most Fannie Ma/Freddie Mac forms that says: “INTENDED USE: The intended use of this appraisal report if for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction.” From the sound of your question it seems to me that this is what the lender is trying to do. The lender wants to be sure the property owner carries adequate insurance to protect the lender.

The only thing I could find in the current USPAP are Frequently Asked questions #174 and #292. They to me, support my position.

HSH
askhenryharrison@revmag.com

Ask Henry

Vinyl vs. Brick Veneer
Hi Henry,
The subject is vinyl and a comp is brick veneer. Should an adjustment be made?

Thanks,
Susan

Dear Susan,
Most adjustments, including the one that you are asking about, depend upon how buyers in the market area of the subject property react to the difference between the subject property and the comparable sale. In some market areas there may be little difference in value between these two types of siding materials. In the market area where I live, brick veneer is more desirable than vinyl. Therefore, it would be necessary to make a downward adjustment to the comparable sale with brick veneer siding to reflect this difference.

HSH
askhenryharrison@revmag.com

Ask Henry

DO NOT USE LIST
Dear Mr. Harrison,
While inquiring why my workload has slowed down, I was just informed by Streetlinks AMC that Chase has placed me on a banned list. Streetlinks cannot tell me why or for what reason. All they are saying is to get in touch with Chase.

I have tried 7 different numbers for Chase, Chase Financial, Chase Home Lending etc. and they are all telling me there is no appraisal department and no way to help me get this resolved. I even went into a Chase branch. Chase is telling me to go back to the AMC to find out who the contact person is. Naturally, Streetlinks does not give out that info and are directing me back to Chase, who directs me back to the AMC who directs me back to Chase who directs me back to the AMC and on and on and on.

I never received any notification from Chase explaining why they are banning me. It seems unfair that I can be placed on a 'do not use' list without any explanation or any chance to rebut what they felt is wrong with the appraisal. I’m not afforded any appeal, and I was informed that they share these lists. 10 years as an appraiser and not one single complaint, and now this and no one can tell me why or how? This is my livelihood! I have a mortgage and bills like everyone else. I cannot afford to not work.

Any help, suggestions, numbers to call...ANYTHING that you can offer that can help me resolve this would be truly and deeply appreciated.

Frustrated and unfairly treated,
Your Fan

P.S. I know it was with Streetlinks because they were the only AMC I was doing any work with.

Dear Fan,
Your situation is, unfortunately, not an isolated example of this unfair type of treatment. The easiest thing to do is hire an attorney to represent you. Other things that you can do is file complaints with the Appraisal Commission, or Banking Commission in your state.

Good luck, but I am not very hopeful that you will get satisfactory results no matter what you do.

HSH
askhenryharrison@revmag.com

Ask Henry

Extensive Bank Work - USPAP Violation?
Hi Henry,
I have a question: If an appraiser works for a bank and reviews a property by another appraiser, then does an appraisal on the same property, and is an expert witness in court for the bank -- is that legal or illegal? Does that violate USPAP?

Please advise.

Thank you,
Christine

Dear Christine,
There is nothing in the USPAP that directly addresses this question. I am unaware of anything that would make this illegal. xThe USPAP does permit an appraiser to appraise the same property for more than one client. I think this would apply in your situation too. However, the USPAP does have rules about confidentially which would prohibit you from using any confidential information that appeared in the appraisal you reviewed for the bank.

Even so , I would not do it as it sounds to me like you would be looking for trouble. Trying to explain to a judge why you did this, which appears to be a conflict by giving as your reason that it is O.K. because of the USPAP is not a position I would like to be in. You should always think twice about appraising the same property for two different clients unless you feel that one will never have anything to do with the other. I don't even like being in the position of asking the first client for permission to do an appraisal for a second. You maybe bumping into the Confidentially rules by revealing to one client that someone else in interested in their property.

HSH
askhenryharrison@revmag.com

Ask Henry

GOING THE DISTANCE
Dear Henry,
I am appraising a unique property. It is located in an area that has very few duplex's. There are no resent sales in the subject's city. I know I can go to a similar neighborhood to get comps however the neighborhoods are in a different city with different tax base. This area of South Florida has many different cities within a 10 mile area. How far can I go from the subject property and still be considered a comparable neighborhood?

Thank You for you help,
E.

Dear E.,
There are no USPAP requirements that limit the distance you can go to find the best comparable sales. Actually, it is just the opposite because it is a violation of the USPAP to limit your search for the best comparable sales based on instructions from the client. However, it is O.K. for a client to ask you to explain why you needed to go some unusual distance to find the most comparable sales.

Sometimes the market area in which the best comparable sales are located is very limited because it is near a university, hospital, or public transportation, etc. An opposite example is when a typical wealthy buyer, who is working in New York City, considers buying a mansion in Long Island NY, Morristown NJ or Greenwich CT, then you may end up looking for comparable sales in three different states.

HSH
askhenryharrison@revmag.com

Ask Henry

Hello Henry,
I have been doing lender work for the past 13 years and would like to get more involved in doing non-lender work including estate work, trusts, divorce, bankruptcy, tax appeals, gifting, etc. Do you know of any good books or courses that cover any or all of this?

Thanks,
Steve H.

Dear Steve,
There are some good books and articles covering this subject. I suggest you contact the Lum Library and ask them for help.

Lum Library
550 West Van Buren St
Suite 1000 Chicago IL
606087

tel: (312) 355-4100. You can also send your question to them by email: ailibrary@appraisalinstitute.org

HSH
askhenryharrison@revmag.com

Breaking News

Appraisal Qualification Board Q & A Vol.4, No.1
Dear Henry,
I am now considering up grading from a Certified Residential Appraiser to General Certified Appraiser. I get different answers from different people on several of the requirements. For example some people tell me my upgrade work must be supervised by a General Certified Appraisers. Others tell me it is unnecessary. My state appraisal board says it depends what is required by the Appraisal Foundation. I have tried to real all their voluminous requirement but can not find a definitive answer to the question. What do you think.

Sincerely,
OJ
Madison, WS

Dear OJ
You are correct when you say there is no direct definitive answer to this question in the USPAP. There is an answer in the just released Appraisal Qualification Board Q & A Vol.4, No.1 dated June 2012.

This is a summary of what it says:

1. Some states have specific requirements that cover this situation. Therefore the first then than any appraiser who is considering getting a Residential or General Certification is to check with your state to see what their specific requirements are. The simplest way to do this is to send them a letter asking what if any requirement you state has. I always prefer a letter to a verbal request as if some time in the future what you have done is questioned you can fall back on the letter to explain what you did or did not do. The only problem with this communication method is that some states take a very, very long time to answer appraiser inquiry letters. If this apply to you state you should make a verbal inquiry and when you get someone who will talk to you ask them if they have anything in writing that they can send to you.

The entire AQB Q & A Vol.4, No.1, June 2012 is available to download by clicking here.

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

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

Ask Henry

Foyers
Dear H2,
Would you consider houses of worship near the subject property to be external obsolescence?

Adele Schnabel
adele@tuxapp.com

Dear Adele,
It is quite possible that anything not on the subject property — including a house of worship — could cause external obsolescence. Excess noise, traffic and other issues might ensue. It is up to you as the appraiser to assess whether or not these conditions exist and if they cause external obsolescence.

HSH
askhenryharrison@revmag.com

Ask Henry

UAD online course
Second Kitchen
Hi Henry!

I have a quick question for you.

I am doing an appraisal on an older 2-story home. The original kitchen is located on the first floor. Although the kitchen on the first floor is fully functional, the owners have done quite a bit of remodeling lately which includes installing another more elaborate kitchen on the second floor in the vicinity of a large family room. The location of this kitchen is really more ideal than the original kitchen, since it is located towards the rear of the home and has an unobstructed view of the water. There are two separate staircases leading to the second floor. I was considering allowing the newer, updated kitchen to represent the main kitchen and possibly give minimum credit for the older kitchen on the 1st floor. Hope I haven't confused things much but just wanted to run that by you. As far as resale goes, I think the newer, updated kitchen would be a strong selling point. I'm just trying to figure out the proper direction to take in the appraisal to avoid underwriter issues.

Ben Powell
Powell's Appraisal Services, Inc
bpowell7@tampabay.rr.com

Dear Ben,

Many houses have second kitchens. However, you have to be careful about 2nd kitchens on the upper floors as many zoning regulations would consider this to be a conversion to a two family house. You need to check with your building inspector to find out what applies in the subject community.

I cannot make a judgment about a house I have never seen. Generally, you have to decide how much extra value this second kitchen adds, keeping in mind that it might be an over-improvement and suffer from some functional obsolescence.

HSH
askhenryharrison@revmag.com

Ask Henry

USPAP vs FHA Requirements
Hi Henry,
I completed an appraisal for Lender A. Then, Lender B called and said Lender A is OK with them using my report. Now I've been notified that Lender B's underwriter wants clarification on a couple of items, such as right of way and community water.

They don’t want client name changed. Can I do this and stay compliant with USPAP? Thank you in advance for your advice.

Carlene S Mathison
Cornerstone Appraisal
crnstone@comcast.net


P.S. I did check with Lender A and was told it is okay to do this "because it’s an FHA assignment & FHA has mandated portability."

Dear Carlene,
You are correct the FHA does permit the original lender to transfer the appraisal to a second lender under certain circumstances. Here is a summary of this ruling:

"Appraisal Transfer and Change of Client Name in Appraisal Report"

In cases where a borrower has switched lenders, the first lender must, at the borrower's request, transfer the case to the second lender. FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.

In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment. To effect a client name change, the second lender and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change. A new client name should include the name of the client (lender) and HUD.

There are a bunch of other requirements the lenders must comply with.

It is still my opinion that you are not required to do anything and in fact most anything you do will be treated as a new appraisal and you must comply with the USPAP requirements for making a new appraisal for which you should be paid.

I think you have a choice. Do nothing or tell lender B if they want you to do anything it will require you to make a new appraisal and you expect to be paid for it.

HSH
askhenryharrison@revmag.com

Ask Henry

Foyers
Dear H2,
In a reassessment, is a foyer considered to be a room? Thank you for any input you may have.

William Kalif
wkutopia@yahoo.com

Dear William,
In most areas of the country, a foyer is not counted as a room. If in your market area it is customary to do so, however, you should follow the custom. In order not to confuse the reviewers, you should explain in a comment the reason you included it.

HSH
askhenryharrison@revmag.com

Pasted Graphic 2

Ask Henry

Functional Obsolescence, GLA
Henry,
Subject is a purchase marketed as 3,100 sq.ft. County has subject listed as 2,059 sq.ft. Appears subject possesses a finished upper level, apparently original and legal, which does not possess a bathroom.

I presume, at a minimum, that there is functional obsolescence? However, presuming the upper level is legally finished and otherwise of good quality, it's hard to compare to other properties with 3,000 sq.ft. that offer greater utility. Would you give partial value to upper level and not include in sq ft calculations?

Thanks
Rick Bacich
rickbacich@ssctv.net


Dear Rick,
It is not possible for me to give advice about specific properties. However, here are some thoughts that may be helpful. It is up to you to determine what the actual GLA is and use it as a basis for your appraisal. This is a separate problem from estimating what the value is. From what you say I see no reason not to include the upper area in the GLA. However you can give it less value than other parts of the house. You must make this judgment based on what is expected in your market area. You must describe what is causing a loss of value (if any) due to functional obsolescence.

HSH
askhenryharrison@revmag.com

Ask Henry

Final Utilities Inspection
Dear Henry
I'm a huge fan of your articles and Q and A for a long time.

I’ve been asked by a lender to do a "final inspection" on a HUD resale for just the utilities hookup. The original appraisal was done a few months ago by a different appraiser for a different client. The new lender (my client) is asking specifically that only the utilities be checked. Can I do that? And what form would I use (all the standard forms imply that the appraiser doing the final inspection is the one that did the original appraisal). Any suggestions on what form might protect me from being tied to the original appraisal?

Thanks!
Paul Ryan
paulgryan@cox.net

Dear Paul,
It does not make any difference what form you use (or maybe just a letter) as long as it is crystal clear that you are not making an appraisal or rendering any opinion as to what affect the connection of the utilities will have on the value of the property. If you give such an opinion, you are making an appraisal and must conform to all the USPAP requirements for making an appraisal.

Thanks for your kind comments.

HSH
askhenryharrison@revmag.com

Ask Henry

Value of Lease

Dear Henry,
     If I lease some farmland to a farming family for 99 years, how do I calculate the value of this lease? Is it just a discounted cash flow plus the reversion of the land? Or does such a long lease typically include return on and return of capital and the reversion has no value? No buildings are involved in this deal. Thanks in advance for your help.

Don
apps1@compfxnet.com

Dear Don,     For all practical purposes, a 99 year lease is a sale. It is not the original lease date that counts ~ it is how long the lease has to run.  Some states prohibit leases longer than 99 years and others say they are the same as sales. Trying to discount income for 99 years into the future, and then trying to add the present value of a reversion 99 years in the future results in a meaningless figure. Should you consider global warming (aka climate change) or that the population of the world may be 10 billion people or may be zero?  Some appraisers take the position that some small number is needed to reflect the difference between such a lease and ownership.  My problem is that I don't know whether it should be a plus or minus adjustment.  In most condemnations I am familiar with, a very long lease is treated as a sale.

HSH
askhenryharrison@revmag.com

Ask Henry

Remaining Economic Life

Hello Henry,

I have an underwriter saying that the economic life needs to be included on all reports, even though the URAR form 1004 says it is needed for HUD/VA only. Have I missed something in this regard? Thanks in advance for your time.

Yours,
Dianne Mendel
mndcns@att.net

Dear Dianne,

The USPAP states that for every appraisal, the appraiser and the lender client must have a scope of work dialogue. The designers of the URAR 1004 have incorporated some of their scope of work requirements into the URAR. What the URAR is telling you is that Fannie Mae and Freddie Mac do not require that you estimate the remaining economic life while the HUD/VA does require it. However, if the appraiser feels it is necessary in order to make a credible appraisal (which is required by the USPAP) it should be included. What the underwriter is saying to you is that for the lender/client they represent, it is required, which is their right.

HSH
askhenryharrison@revmag.com

Ask Henry

New Lender, Old Appraisal

Hi Henry,
I did an FHA Appraisal for Lender A back in July. I was paid and the file was closed. I was not able to inspect the attic at the time, as the attic entrance was sealed off. This was noted in the appraisal report. Last week (3 months after my previous inspection and report) Mortgage Company B called and said they have my appraisal, the loan did not close with Lender A and they have a new lender who will accept my appraisal. However, they need me to go back to the property and inspect the attic for a fee. I refused as I completed the original assignment for Lender A and the file is closed.

Mortgage Company B and the homeowner keep calling me to comply and do the attic inspection. I called Lender A and they said "do not inspect, this is a USPAP violation and changes the scope of work." I want to be done with this appraisal and Mortgage Company B. My questions is whether this is indeed a USPAP violation? What is the best way to handle this with Mortgage Company B and the homeowner, who both keep calling me?

Thanks for your time,
Rob
rburkley@columbus.rr.com

Dear Rob,

The USPAP is quite clear that when the client changes, it requires a new scope of work dialogue and a new appraisal. There is nothing that requires you to make a new appraisal for the new client but why not do so? However, there is also nothing to stop you from making the inspection as long as it does not become part of your original appraisal report. For a new appraisal, you are permitted to use any of the data in the old appraisal as long as it was not provided to you on a confidential basis. It should be easy to update the physical description of the property, the neighborhood data, etc., and make the attic inspection which will be part of the new scope of work requirement. I suggest offering to make a new appraisal for Mortgage Company B, taking into consideration that much of data will already be available to you. You'll make the homeowner happy, and may even develop a new client.

HSH
askhenryharrison@revmag.com

Ask Henry

New Assignment, Prior Property

Hi Henry, 

In my experience, when I've done estate appraisals, the date of death provided the lower value for the client. If the estate has not been settled, say for more than one year, and the value decreases after DOD, will IRS accept a current value? I've encountered a situation, in which the electricity went off during an ice storm, the oil-fired boiler (which has a reset switch to prevent a buildup of oil in the firebox was not reset by anyone when the power came back on because no one was living in the house. The pipes froze, burst, and did a tremendous amount of damage as a result of water gushing from the baseboard hotwater system. The estate is in its third, going on 4th year. What is the property way to provide an estate appraisal?

Jack Sotack, Waymart PA
accent@echoes.net

Dear Jack,
The effective date of the appraisal is determined at the scope of work dialogue between the appraiser and the client. There is nothing in the USPAP other than this requirement. Often when the appraisal is made for estate work the date of appraisal is the date of the death of the owner, but not always. Whatever the effective date of the appraisal is date that you use for the condition of the property on that date and the market at that time.

HSH
askhenryharrison@revmag.com

Ask Henry

New Assignment, Prior Property

Hi Henry, 

You do a fantastic job and are THE SOURCE for appraisal questions and dilemmas. I have one of those dilemmas now!
 
I have a client who is asking me to take a new assignment on an appraisal that is over a year old and that I did for another lender. Obviously, the new client wants their name on the appraisal, but they do not want a current value. May I take the new assignment? 

Thanks in advance,
Mary Buckman, SRA
Green Bay, WI  
maryb@vogelsbuckman.com

Dear Mary,

Thanks for the kind words.  

The effective date of the appraisal is determined at the scope of work dialogue between the appraiser and the client. Many appraisals are made with an effective date at some time in the past. Whatever the effective date of the appraisal is, that becomes the date that you use for the condition of the property and the market at that time. The only USPAP restriction is that you cannot use any confidential information you received from the original client without their permission.

HSH
askhenryharrison@revmag.com

Ask Henry

Cluster Homes Vs S.F.R.

Hi Mr Harrison,

I'm working on a cluster home attached on one side to another property. The two residences share a common wall, and the properties are very similar. My problem is that there are no other similar comps in the neighborhood; the last similar property was sold 3 years ago. Can I use another type of property as a comparable?

Thank you,
Al at Florida House Appraisals
coriale4@comcast.net

Dear Al,

Getting good comparable sales is a perpetual problem for appraisers. There are no rules about where you can seek comparable sales information. It is up to the discretion of the appraiser. If a client tries to restrict where you can get comparables from you should either talk them out of the restriction or refuse the assignment, because if you accept this restriction there is a good possibility you will be making an appraisal that violates the USPAP. There are exceptions to this rule which are complex and would require limiting conditions, assumptions and possibly a custom definition of value.

The USPAP requires that you make a "credible appraisal". If you do not think there are sufficient comparable sales available that make it possible for you to do this, I recommend that you turn down the assignment.

HSH
askhenryharrison@revmag.com

Ask Henry

Disposition Value

Hello Henry,

I have a client who's requesting a market value and a disposition value on every commercial report. If you were asked to do that, what steps would you take and how would you go about coming up with your disposition value? Thanks for taking the time to answer my question.

Robert Jones
Certified General Real Property Appraiser
robertjones56@bellsouth.net

Dear Robert,

As part of the "Scope of Work" dialogue that the USPAP requires you to have with a client before you make an appraisal, you have to agree regarding what definition or definitions of value are going to be used. This is not a problem when the value in question is market value as its definition was blessed by the US government as part of the FIRREA act. However, when a special value definition is needed, it is usually supplied by the client (ERC is a good example).

I think you are looking for trouble if you try to draft a custom definition of value. It might even be considered "practicing law without a license". My recommendation is that you suggest that the client have their attorney draft the definition they want you to use for disposition value.

HSH
askhenryharrison@revmag.com

Ask Henry

Tax Appeal Appraisal Fees

Dear Henry,
At one time, courses suggested appraising a property for the purpose of proving it was being assessed — and thus taxed — too high. If the result was a lowering of taxes, the agreed fee was often one year's tax saving. Can this still be done or have advocacy rules stopped this practice.

Thanks!
Donald
apps1@compfxnet.com

Dear Donald,
The Ethics Section (Management) of USPAP specifically prohibits an appraiser's fee being based on the outcome of the appraisal. Assessment appeals would be a great source of income to appraisers if they were allowed to do them with their fee based on the outcome of the appeal. Unfortunately, the USPAP is very clear that it is prohibited. Ironically, lawyers are permitted to be paid this way, and most often are.

HSH
askhenryharrison@revmag.com

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

Ask Henry

As-Is Appraisal with Cost to Cure

Dear H2,

Is it acceptable to complete a URAR form 1004 "As-is" and also give a cost to cure? I appraised a house that had water stains on the ceilings and walls due to a prior roof leak which has been repaired. I gave a cost to cure of $8,000 to replace the damaged drywall and have the walls and ceiling repaired and replastered. But I did not call for this to be a condition of the appraisal; it was merely a "heads up" to the lender that there were water stains, etc. My exact wording was as follows:

"The subject property was in good exterior physical condition; the subject's roof is 5 years old and had leaked onto some of the interior 2nd floor walls prior to replacement according to family members of the owner. As a result the interior walls show signs of old water staining, peeling paint, and cracks in plaster (see photos). This is seen as cosmetic deferred maintenance in nature; repair is not called for, but the cost to cure is estimated at $8,000."

Is this proper or is it a conflict of statements?

Thanks,
Al Benjamin
albenj401@verizon.net

Dear Al,

As long as your appraisal is clearly the value of the property in "as is" condition, there should be no problem. The problem occurs when it is implied in the wording somewhere that the value of the property when cured is the "as is" value plus the cost to cure. The cost to cure and the increased value of what is "cured" are not directly related. The market may recognize only a fraction of the cost to cure in a subsequent purchase -- or none at all.

HSH
askhenryharrison@revmag.com

Ask Henry

Adjustments for REOs and Short Sales

Hi H2:
Still a fan of your column/blog after all these years!

My question is: how do we adjust for bank sales and short sales when the only comparables available are in these two categories? In the past, we were able to find similar comps that were not REOs or short sales -- but that has now become impossible in some areas where I practice.

Larry Kowitt
Real Estate Appraiser, New Jersey
KowittL@aol.com

Dear Larry,

This depends upon what is happening in the subject property's market area for houses similar to the subject property. If the market area is flooded with short sales and bank sales, a prudent buyer is not going to buy the subject house unless it is priced competitively with those sales. Therefore, you should be using bank sales (REOs) and short sales as comparables and an adjustment may not be needed. It is more complicated when bank sales and short sales make up only a portion of the market. A prudent buyer would try to buy an REO or short sale if they were available on the effective date of the appraisal. Therefore, you would have to consider competitive listings. Ask yourself this question: "If the subject property were not available for sale on the effective date of the appraisal, what would a potential buyer of that property accept from what is available?" What they would buy as a substitute basically defines the comparables, and determines the value of the subject property.

HSH
askhenryharrison@revmag.com

Ask Henry

Customary & Reasonable Fees in Certification

Dear H2:

This is a portion of a six page contract that I have to sign and send back in order to receive additional work with NREIS, address below. They are well known to pay low fees, and to take 90 or more days to pay the appraiser. Here's what the contract states about fees:

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

National Real Estate Information Services, a Pennsylvania limited partnership, having an address at 100 Beecham Drive, Pittsburgh, PA 15205 (the “Company”). The following certification should appear in the additional comments section of page 3 of the appraisal form:

“I have agreed to the terms of payment from Company and consider the fee to be customary and reasonable for my specific market for this specific property and report type.” (Emphasis added.)

"No employee, director, officer, or agent of the lender, or any other third party acting as a joint venture partner, independent contractor, appraisal management company, or partner on behalf of the lender has influenced or attempted to influence the development, reporting, result, or review of this assignment through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery or in any other manner.”

“I have not been contacted by anyone other than the intended user (lender/client as identified on the first page of the report), borrower, or designated contact to make an appointment to enter the property.”

“I have agreed to immediately report any unauthorized contacts either personally by phone or electronically to Company."

“I understand that according to the current regulations, that it is mandatory for the client or intended user of this report to inform the proper regulatory agency if this report does not comply with USPAP Standards.”

The above certification is to be included within the actual appraisal on every report you complete for COMPANY.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

I hope that we can fight this current interpretation of “customary and reasonable” fees, as several other AMCs are using the same rationale. If we sign such a contract, we basically agree with their concept of what we should be paid! How is that "independent fee appraising"?

Bob Godwin
Appraisal Services of the Gulf Coast
Pensacola, FL
rcgodwin2@appraise.gccoxmail.com

Dear Bob,
I have some doubts in my mind as to whether this is an appropriate thing to be part of an appraisal report, especially where they want you to put it on page three. However, I am not aware of any regulation that prevents you from doing so as long as what it say is correct. I think you have to make a business decision as to how badly you want their work.

HSH
askhenryharrison@revmag.com

Ask Henry

Burned Up Property Value

Hello Henry,

We have an REO assignment for a four-plex in Bakersfield, CA. The units are located in an older area with fair/poor quality properties and predominately REOs.

The front unit is burned and boarded and needs to be rebuilt. All units are 2/1 and 880 sf; Rents range from $550 to $650; Similar sales are selling at prices ranging from 90K to 135K. We figure the cost-to-rebuild the burned out unit at approximately 70K (at a minimum). The remaining 3 units have been trashed and each will need approximately $6,000 in repairs.

We're stuck!! Should we use the income approach (principle of anticipation) and the land / cost approach? The sales comparison approach is going to put the value estimate for this property below zero.

Do you have an expert opinion how to proceed? Thanks in advance for your help!

Christine Dawson-Koehn, Certified Appraiser
Bakersfield, CA
appraisers@appraisalplus.org


Dear Christine,

I am assuming that the definition of value to be used in the appraisal is the market value of the property in "as is" condition.

The first step of any appraisal is to determine what the highest and best use of the property is. If you decide the highest and best use of the property is to rebuild it, then you would estimate its value based on the assumption that it is rebuilt (using all the techniques you would normally use for this type of property) and then subtract from that value the cost to rebuild and repair, plus what a typical buyer would subtract for their efforts, cost to carry during the rehabilitation, and risk to during the rehabilitation.

If you conclude that the highest and best use is to demolish the improvements, rather than repair them, then the value of the site would be its value after the demolition, less the cost of the demolition, based on what a typical buyer would offer for such a property, after they subtract something for their efforts and their risks.

The real solution to your problem is to do a thorough and professional Highest and Best Use analysis. This requires you to consider all the potential uses of the site, once the existing improvements have been removed, versus the costs (and risks) associated with repairing, renovating and remodeling the existing damaged structure.

HSH
askhenryharrison@revmag.com

Ask Henry

Coping with the UAD

Dear Mr. Harrison,
 
I recently purchased and received your excellent book on the UAD for the URAR.

I understand that the 2-4 form is not yet affected by the UAD, but I have not found a definitive statement anywhere regarding Condominiums or the 1073 form. One of my clients just asked me again, so I said, “Well, if anyone will know for sure, it will be Henry Harrison.”

So, I’m wondering what you know about condos being affected by the UAD. Since you didn’t write a UAD book for condos, I’m thinking they’re not affected, but I’d like to know for sure. I would appreciate hearing what you know on the subject. As an aside, it was your fine series of books that got me started 20 years ago and I was so happy to see that you are still in the business and going strong.

Best regards,
Michael Siegfried
HomeWest Appraisal
Homewest@socal.rr.com

Dear Michael,

Thank you for the kind words about my new UAD book, and my other books you've used during your appraisal career. Every author is delighted to have fans!

The UAD applies to the URAR, Individual Condo Unit Appraisal Report, Exterior-Only Inspection Individual Condominium Appraisal Report and the Exterior-Only Inspection Residential Appraisal Report.

You can verify this at www.efanniemae.com. It took me over three months to write the UAD-URAR book. The material that Fannie Mae made available to the computer programers was much more helpful than Appendix D which was designed for appraisers. I also had help from the software vendors who in turn had access to Fannie Mae when they ran into trouble.  I am thinking about doing Guides for the other forms but have not decided yet.

HSH
askhenryharrison@revmag.com

Ask Henry

Exterior-Only Appraisal of a Duplex

Good Afternoon Henry,

I am at a loss. I've been asked to do an exterior appraisal of two duplexes. My client has a second mortgage on the two properties and needs to know the value of each property. No rental information is required. Public data is rather sketchy. My problem is that my software provider has no form for such an assignment. Would it be possible to use the FNMA 2055? Or, how would you suggest I proceed? Thank you in advance for your help.

Best regards,
Bob (Bear) Klingensmith
Georgia Certified Residential Appraiser
bobklingensmith21@gmail.com

Dear Bob,

Since this appraisal is not going to Fannie Mae or Freddie Mac you can use any form you and your client agree upon. You can use the 2055 but you must be careful to correctly modify it. In this type of situation, the form is really just a cover sheet and you should plan to use an addenda to present any information you need to explain what assumptions you will be making. These will have to be extensive as you will not inspect the interior of either property nor do you have any rental or expense information. Keep in mind that it is up to you to feel comfortable that you are making a "credible appraisal' as required by the USPAP.  Many appraisers would not be confident that they could make a credible appraisal under these conditions.

HSH
askhenryharrison@revmag.com

Ask Henry

Indoor Pool

Dear Henry,

Would you include the GLA of an indoor heated pool within the GLA area if the pool is located on the lower walkout basement area?

Thank you.
Norma Nicholson
norma@nicholsonappraisalservice.com


Dear Norma,

The Fannie Mae GLA specifications are only guidelines and can be adjusted to reflect what is most common in your market area.

One GLA guideline is that only areas of the dwelling that are 100% above ground and heated and finished like the main part of the house should be included. I doubt the drafters of the original guidelines were thinking about indoor heated pools.

The important thing to remember is that whatever you do, you need to explain in detail in the appraisal so that the users of the appraisal and reviewers who has access to some other source of the property GLA measurement will not confused by the difference. This will also help explain the basis of any adjustments to the comparable sales based on the difference in GLA.

HSH
askhenryharrison@revmag.com

Ask Henry

Appraisal Changes

Dear Mr. Harrison,
                  
If contract revisions occur after the date of the appraisal and the lender has furnished a new contract, should these modifications be made to the contract portion of the appraisal to reflect a change in seller contribution, etc.? Or must the appraisal be entirely based on information obtained as of or before the effective date of the appraisal?

Best Regards,
Todd Floyd
toddfloyd@bellsouth.net

Dear Todd,

The requirement is that the lender supply you with their latest ratified version of the sales contract. This usually has no impact on your estimate of the market value in the appraisal. As part of your scope of work dialogue with the lender, you should agree on the effective date of the appraisal. There is no Fannie Mae or Freddie Mac regulation that I am aware of that prevents you from using information about things that happen after the effective date of the appraisal. However, when you incorporate this information, you should carefully explain in the appraisal what you have done so that there is no room for confusion or misinterpretation.

HSH
askhenryharrison@revmag.com

Ask Henry

2055 VS Full Appraisal

Dear Henry,

I work at a community bank and am new to appraisal review. We are getting very unclear information from our examiners as to what we need for a residential appraisal. Up until recently, they accepted a BPO (Broker Price Opinion) for a routine (yearly) value update on loans under $500,000. Now a different examiner states that BPOs are not acceptable, and requires that we get a full appraisal for everything with a mortgage balance over $250,000.
 
One examiner told us that all residential appraisals must be made according to USPAP. In trying to reduce our ridiculous costs in having to order a brand new appraisal for every residential annual value update, a few appraisers have submitted their reports on Form 2055 (basic drive-by). This form cannot meet USPAP in its brevity. Do you know if the OCC will accept a Form 2055 for a residential valuation update? And do you have any recommended websites where I can search for additional information on the uses of the various residential appraisal forms? 

Thank you in advance for your help,
Mary F Miron
mmiron@fbfna.com

Dear Mary,

There is nothing in the USPAP that specifies what type of appraisal report the appraiser must use. Therefore, this is something your institution must determine based on their needs and requirements. They must comply with all their regulators' requirements.  I sympathize with their dilemma. As far as your statement that an appraisal report on the Form 2055 "cannot meet USPAP requirements in its brevity", that's just not the case. An appraisal reported on the 2055 still must meet all USPAP requirements. The choice of the form does not dictate the comprehensiveness of the appraisal itself.

HSH
askhenryharrison@revmag.com

Ask Henry

UAD: Proper CITY Identification

Dear Mr. Harrison,

I'm having problems defining the address for many properties I appraise. Here in New Jersey we have properties (typically within Townships) that utilize both (1.) "census-designated" areas (or districts) within the township or (2.) names of neighboring towns for use in their "Mailing Address".

For example:

125 Main Street, MORGANVILLE, NJ is in Marlboro Township
125 Main Street, BELLE MEAD, NJ could be in either Hillsborough or Montgomery Township 
125 Main Street, PRINCETON, NJ could actually be in South Brunswick Township (e.g., a different town and county)
 
I have always written my reports to identify the actual "CITY", "TOWNSHIP"  or "BORO" (as per TAX RECORDS) within the CITY FIELD on the appraisal report.
I have always identified within the ADDRESS FIELD on the appraisal report the "mailing address", which would read as noted above.

Thus:
ADDRESS: 125 Main Street (Princeton)   CITY: South Brunswick Township

I always include language (in the notes section) as to where I obtained this data, an explanation about census-designated areas or districts within townships, or comments (as in the example above) that the mailing address may utilize the name of a neighboring town.
 
If an appraiser were to not identify the actual Township, I feel this could be misleading. Especially in the examples used above with both Belle Mead and Princeton: if an appraiser were to only identify "Belle Mead", what actual TOWNSHIP is it in -- Hillsborough or Montgomery?

If an appraiser were to only identify "Princeton", the reader might actually think the property is in Princeton (Mercer County) and not South Brunswick (Middlesex County). Both answers are therefore misleading and incomplete.
 
Now, AMCs inform me their lender clients want "Princeton" ONLY in the CITY Field. I cannot agree with that. So here comes the question: What is the proper way to do this, and handle my concerns and dilemma with the AMCs? Thanks in advance for your help.

Randy L. Cohen, SCRREA
DK REAL ESTATE APPRAISAL INC.
dkappraisal@yahoo.com

Dear Randy,

I'm sure it is frustrating to be told to report something that makes no sense, given the complexity of place names in your area. You will no longer have this problem starting September 1st, 2011 when URAR appraisal reports will have to comply with the new UAD requirements. These requirements will become mandatory on that date for all appraisals to be sold to Fannie Mae and Freddie Mac. They will be computer checked and when the computer rejects the appraisal, it will be returned to the lender for corrections. How the corrections will be made and by whom will vary. 

Below is an excerpt from my new UAD book, regarding the UAD requirements on how to report Property Address. It is highly codified, as you will see, and does not permit any deviations from their format. You may have to add your notes about the actual property address versus the mailing address in your addenda, to avoid the problems you outline above. The UAD guide contains a condensation of USPS Regulation 28 which is all you need for most locations. However, in locations like yours, I suggest you contact the postmaster in the area where you are working and get their opinion of the correct address requirements for the location of the subject property.

HSH
askhenryharrison@revmag.com

For more information about my new book, to be published April 30th, and to pre-order a copy now (and get a $5 pre-publication discount), use Discount Code $5PPUAD and click this link:  HARRISON's COMPLETE UAD BOOK (PRE-ORDER) 
UAD URAR page 9

Ask Henry

0211_DaVinci
Tax Appeals

Dear H2,

What type of license is needed to do County Assessor work? If we appraisers wanted to help homeowners reduce their property tax burden, by being consultants for them, do we need a license? E & O Insurance? What would be expected of us?

TJ
Timothy O'Brien
timnd75@verizon.net

Dear Timothy,

The kind of license that is needed to do assessor work depends upon the state in which you are located. You should check with your Real Estate Appraisal Commission or an attorney who can look up the law for you. The same is true for what license is needed to do tax consulting work and if E & O insurance will be required. What would be expected of you is that you have the education and experience to do a "credible" job.

HSH
askhenryharrison@revmag.com

Ask Henry

Effective Age

Dear Mr. Harrison,

I recently did an exterior-only VA Liquidation Appraisal on a dwelling built in 1924. Normally we do a full appraisal on these properties, but the owner would not let me in. The dwelling had some obvious deferred maintenance, but it’s a brick dwelling and I anticipate that it will be around for many years yet. My estimated value was about $100,000. If the dwelling were nicely refurbished, it might command a value of about $150,000 in its neighborhood.

The VA review appraiser told me that since I did not gain entrance to the dwelling, I was required to use the actual age of 87 years as the effective age. (I used 12, which in looking back, I do think was too low.) Most appraisers I talk to seem to follow the old Marshall-Swift mindset of 60 years as the typical total economic life of a property. Would you give me your thoughts?

Gary Moyer
ga.moyer@rcn.com

Dear Gary,

The effective age of a house depends mostly upon its design and condition. I have always believed that "benchmarks" are of little use in appraising, and this is a good example. I doubt the VA review appraiser has anything to back up his or her wrong opinion! If you render an opinion about a property you have not completely inspected you have to make some assumptions about what you did not see. The USPAP requires that you make a "credible" appraisal. In view of the circumstances, I suggest that you put this job behind you and move on.

HSH
askhenryharrison@revmag.com

Ask Henry

UAD Requirements

Dear H2,

The UAD is scheduled to go into effect September 1st, 2011. What will happen to the UAD requirements if Fannie and Freddie are no longer around in September?

Brent Hodges
sbhodges@bellsouth.net

Dear Brent,

It's anyone's guess how long Fannie and Freddie will "be around". However, I'm a betting man and will accept reasonable wagers that both of these so-called Government Sponsored Enterprises (GSEs) will be around on September 1, 2011. I might even consider a bet on September 1, 2012.

HSH
askhenryharrison@revmag.com

Ask Henry

LIA-health
UAD Updates and Corrections

Dear Henry,

I am going to take advantage of your COMBO offer and order your new Complete UAD Guide and the Illustrated Guide to the URAR form. However...I noticed that the UAD is already being revised. How will you handle that? Will you be emailing updates, blogging about them or what? I realize it is our responsibility to stay up on this; however you might have a great sales tool if you promised to cover all updates on your website or send something by email to us. I have a fear of missing something if it is only up to me to track this monster coming in September! I don't underestimate what a big change this will mean for us appraisers.

Thanks,
Alisa McKeel Willson
CA State Certified Appraiser
appraiseralisa@gmail.com

Dear Alisa,

You are quite right in assuming that there will be corrections and updates to the UAD instructions. I am putting the final touches on my Complete UAD Guide now. I've already found many inconsistencies between Fannie Mae's Addenda D and Addenda A, which I think they will have to resolve. Other problems will no doubt be uncovered as the UAD is analyzed, considered, added to software packages, and implemented.

Since UAD updates and corrections appear to be a certainty, you'll be glad to know that we do plan to publish all updates to my Complete UAD Guide as they are released, on our Real Estate Valuation Magazine & BLOG. All subscribers will receive email notifications of these changes when they've been posted. (Subscriptions to REV Magazine Online are free. The update link is at the top of the righthand column.)

I'm frankly surprised by how many of our readers seem to be oblivious regarding this major Fannie Mae-Freddie Mac initiative. They apparently do not realize yet just how complex the UAD requirements are, which go into effect for all Fannie Mae & Freddie Mac URAR appraisals with effective dates from September 1, 2011 on.

HSH
askhenryharrison@revmag.com

Ask Henry

E & O Insurance

Dear H2,
Last week I received an email from Corelogic indicating that I should include their company name on my E & O insurance as the certificate holder if I need to receive orders. Although I have been with them for over 4 years, the past 2 years I have received only 2 orders from them. Is this legal on their part? Am I really obligated to put every AMC we do business with on our insurance? I told them that I will not have their name on my policy and they should get their own insurance. I do have my own insurance with $1 million dollars coverage. Any advice will be great. Thanks in advance.

Sargon Simon
Tri-Valley Appraisal Services
trivalleyappraisal@att.net

Dear Sargon,

It is quite common for companies to ask their vendors to be added to their policies as "additional insured" or to provide a certificate of insurance. I have never heard of this practice being illegal. This is not the same as getting their own insurance, which if obtainable, would be very costly. I suggest that you contact your insurance agent/company and ask what the cost would be to comply with their request and what steps you would have to take to obtain what they want. With this information, you would be in a better position to decide whether or not to comply with their request. My overall advice is that whenever you can do something to accommodate a client, you should try do it if you can, as it builds good will.

HSH
askhenryharrison@revmag.com

Ask Henry

USPAP Compliance: Confidentiality

Hi Henry,

I was sent an email by an attorney's office, stating that he is the attorney for one of my clients. He attached an affidavit and requested that I sign and notarize it. Basically, the affidavit is asking that I swear to the value of a report that I had done in the past. Additionally, he asked for a copy of my curriculum vitae.

I replied in an email that he is not my client and as a licensed real estate appraiser, I'm bound by the Uniform Standards of Professional Appraisal Practice; therefore, I can't discuss any aspects of the report with him. He then left a voice message stating he "didn't understand" my email and to please call him. This person is a real estate attorney and also handles corporate law. I'm sure he understood my email. I replied to him in an additional email that he is not my client and I can't discuss any aspects of the report with him. The scope of work on this report was market value and in the limiting conditions it states: "the appraiser is not responsible for matters of a legal nature."

By the way, my client has not contacted me regarding this issue. Do you have any advice on how I should proceed if my client contacts me about signing the affidavit? I appreciate your time and any advice you may have for me. Thanks!

Nola Beehler
snickersdu@yahoo.com

Dear Nola,

The USPAP restricts you from having any dialogue about your appraisal report with anyone except the lender/client who is identified in the report (with a few specific exceptions). In my opinion this includes even acknowledging that such a report exists. I believe the only acceptable answer when asked about an appraisal is to tell whoever asks you that they should contact the lender/client named in the report for further information. If the lender/client wants you to amend the report to include an additional user, it is a change of the scope of work, which requires a new appraisal report. You can comply with such a request -- and charge for your additional time.

In general, whenever you add any information about an appraisal report either in writing or verbally, it becomes part of the report. I would limit any affidavit I signed -- only at the request of the lender/client -- to a statement that you made the report and that the report speaks for itself. When pressed further, I recommend that you refuse to do anything without the advice of an attorney representing your interests, and ask the requesting party agree to pay for the cost of the attorney. Whenever a lender/client asks for additional services you have to decide if charging an additional fee is good business practice. Excessive accommodation may lead to regular requests for "extras", but in the current climate, keeping a good client may require this.

HSH
askhenryharrison@revmag.com

Ask Henry

Exterior Only Inspection Question

Dear Henry,

First, thanks for the resources on your web site!

I have been asked to do an exterior-only inspection of a home on a 65 acre site in a rural location for loss mitigation. I have the assessor cards on the property, so I have some basic information, but their last inspection was several years ago. The property is behind locked gates and not at all visible from any point. I have asked to have this assignment upgraded to a full report, but the lender also does not have access and wants to proceed with a driveby only. Can I effectively do this using extraordinary assumptions with so many unknowns?

Tom Trojnar
ttrojnar@earthlink.net

Dear Tom,

This is a judgment you have to make.The USPAP requires that you make a credible appraisal. I would tell the client (preferably in writing) what extraordinary assumptions will need to be made to do this assignment, and get their pre-approval (again preferably in writing). Keep in mind that this appraisal may lead to a variety of problems and the lender may blame them on you. You need to ask yourself if it s important enough to your business relationship with the client to expose yourself to possible future trouble that may occur. Finally, the type of report does not have any effect on what you have to do to make a credible appraisal.
Good luck!

HSH
akshenryharrison@revmag.com

Ask Henry

FNMA Form 1075 (Drive-by Condo Report)

Dear Henry:

On page one of the FNMA 1075 form is a section titled "Project Site". At the conclusion of this section, the following question is asked of the appraiser: "Are there any adverse site conditions or external factors (easements, encroachments, environmental conditions, land uses, etc.)?". Question: If the subject of the appraisal is located on the perimeter of the condo complex and fronts onto a traffic street, while a majority of the remaining units are located within the interior of the complex and are not impacted by any traffic noise, is the answer to this question "yes" or "no"? In the past, I've always looked upon this section of the report as focusing more on factors that would "impact the complex as a whole", for example, an easement for high power lines that run through a complex (EMFs), or a complex that was built upon a site that has an abnormally high water table and resultant wet basements.

Dennis J. McCarthy
djmccarthy@cox.net
CA State Certified Res. Appraiser

Dear Dennis,

In my opinion, when in doubt about anything that might be adverse to a property, you have to report it. In this case, there are some problems that affect part of the site where your subject unit is located. You should report this, and then go on to explain how the problem specifically affects the subject unit you are appraising, in terms of desirability and competition in the market.

As far as "Yes" and "No" answers go you must be very careful about checking the "No" box. It is much safer to check the "Yes" and indicate with a asterisk that in the comments section or the addenda there are comments that explain why you checked the "Yes" box. Here you can explain what effect (if any) what you are reporting has on the value of the subject property.

HSH
akshenryharrison@revmag.com

Ask Henry

Model Home Center Leaseback

Good Morning, Henry,

I am doing an appraisal on a property that is a model home center. The buyer is leasing back the property to the seller for a period of at least 12 months. This is stipulated in the contract, and I am wondering if the leaseback is considered a Sales Concession and inserted on page 1 of the appraisal report under Seller Concessions since the buyer is in effect contracting with the seller. The seller is paying 2% of the buyer's closing costs which obviously is a sales concessions, but I'm unsure if this is the area of the report where I should insert the information regarding the leaseback as well. The purchase price is $550,000 and the monthly leaseback is $5,350.

Thanks in advance for your input,
Ben Powell
bpowell7@tampabay.rr.com

Dear Ben,

In answer your question, paying 2% of the buyer's closing costs is not a very big sales concession if the seller is going to get to use the property for another year. However, if the rent the seller is paying to the buyer is above market rent, then that would make it a sales concession as well. You need to consider both the payment of part of the closing costs and the terms of the leaseback in order to decide if it is a sales concession. Then you have the tricky job of putting a dollar value on both types of sales concessions.

If you think the leaseback rental is above market rent, then it is a seller concession. It is a judgment you must make based on comparable rentals in your market area. What about the price? Was it adjusted downward so the developer could have the use of the house for the year? If so, that would also be a type of sales concession. My advice is to carefully note each of these concessions separately, including all terms that apply, along with your opinion about their impact on your value estimate for the subject property. Where you put the information is less important than being sure you are including it all. You may do best if you add a custom addendum regarding the concessions.

HSH
akshenryharrison@revmag.com

Ask Henry

Valuing Vineyards

Greetings Henry,

Over the years I have appraised a few rural properties that have possessed small vineyards. In every case, the owner has claimed the vineyard was not for commercial use, it was for hobby use only -- or, that there was only a very small "incidental income" attributable to the vineyard. Is there any hard criteria that can be applied in determining if the highest and best use is commercial wine production, based on the # of vines, etc. In discussions with other appraisers, it has always seemed to be a grey area with lots of appraiser discretion.

Regards,
Rick Bacich
rickbacich@mail.ssctv.net

Dear Rick,

My daughter Kate did her college thesis at Vassar based on a survey of organic farms in the Hudson Valley in upstate New York, which is a wealthy semi-rural area. Her conclusion was that after you assigned some cost to the labor by the owners, the farms were not making any money at all! A well-known real estate author moved south with her husband to run a vineyard they had purchased. When I saw her at an educators' convention, she lamented that she made more money selling the grapes from a farm stand than she could by producing wine. Last I heard, they'd sold the vineyard and given up. There's lots more anecdotal evidence that indicates what the owners are telling you is true.

You might try the Lum Appraisal Library, 550 W. Van Buren Street, Suite 1000, Chicago, IL 60607; (312) 335-4100 to see what has been published on the subject. The librarians there are knowledgeable and helpful.

HSH
askhenryharrison@revmag.com

Ask Henry

Better Business Bureau Complaint

Dear Henry,

For the first time in my 26 years of appraising, a complaint regarding the quality of my work has been submitted to the Better Business Bureau. I am compelled to answer the complaint, which involves 2 different clients. My only concern is that my response will be on the webpage for everyone in the world to read. Will I be violating USPAP Standards on confidentiality to my clients? Please give me your thoughts.

LJW
Information withheld by request

Dear LJ:

There is nothing I know of that compels you to answer this complaint. However, if you decide to answer it, I recommend saying that the appraisal is your professional opinion, and that the confidentiality provisions of the USPAP prohibit your discussing the appraisal with anyone other than your client.

HSH
askhenryharrison@revmag.com

Ask Henry

Atypical Comparables

Dear H2,

I am appraising a condo where the mortgage is held by a small bank in the developer's portfolio. The original appraisal was for $1,623,424 a few years ago. The bank requires that these appraisals be redone every few years. This is a 3,905 sq. ft. very upscale penthouse with a private elevator. It is on the fourth floor of a four-story building with a woodland view, but is just a five minute walk to one of the largest shopping malls amd upscale business centers in the greater Atlanta area. Location is excellent. The value of the condos in the subject building have declined as out-of-town buyers have walked away from what they thought were rental investment properties. The original prices were from about $750,000 to $1,700,000. After a series of foreclosures, the units have been selling for $200K - 300K and a few lower. I have a comp less than a mile from a competing building that is $2,024,300. It is almost identical to the subject unit, but has no elevator. Other than that, there's nothing anywhere close by. Also, taking into consideration the state of the subject condo, I just don't know where to start to do this appraisal. The workmanship is excellent and this five year old unit which is owned by the developer is like new, as he has hardly ever been there. I have not ever been faced in 28 years with such a challenge. Could you give me some guidelines?

June Ortiz
june.ortiz@comcast.net

Dear June,

What you are describing is happening in many market areas throughout the country. What makes your question difficult is you offer no explanation of why the one comparable sale seems to be so different from the rest of the market in which your property is located. Your appraisal has to be based on all of the known comparable sales in your market area from which you select the ones that you believe are most comparable. What the subject sold for historically must be reported, but has no bearing on its current value. You have to make a judgment as to how much weight to give this one sale that seems to differ from the rest of the comparables in the subject condo complex. At a minimum, you must verify that sale and try to find out from your verification source(s) why the buyer was willing to pay so much money.

HSH
askhenryharrison@revmag.com

Ask Henry

Illustrated Guides by Henry Harrison

Dear H2,

I am looking for a copy of your book entitled Harrison’s Illustrated Guide How to Pass the AQB Residential Appraisal Certification Exam. I have been unable to find it in any book stores. Any help would be great!

Thank you,
Eddy L. Arnold
eddylarnold@wi.rr.com

Dear Eddy,

The current edition of this book -- and any of my other my other guides and books -- is available from Forms and Worms, online at: www.formsandworms.com or you can call them toll-free at: 1-800 243-4545.

HSH
askhenryharrison@revmag.com


Exam_prep_books

Ask Henry

Average in an Opinion of Value

Dear H2,

On a current appraisal, after all adjustments are made in the sales comparison grid of the URAR, the end adjusted values are as follows: Comp1: $125,000 - Comp 2: $127,000 - Comp 3: $124,000. I am unable to accord weight to any one of the comparables and would like to give weight to all of them, using an average that is in the middle of the indicated value range ($124,000-$127,000). I would like to add all three indicated values, and divide by three (= $125,333 average) and then reconcile the values to be $125,000.

However, I’ve been told many times not to derive an opinion of value using a mathematical method such as this one. Yet I have seen a few appraisals of my peers that do use this method, where appropriate. Of course, I want to be in compliance with Fannie/Freddie and USPAP. What's your opinion?

Brooke

Dear Brooke,

If you are using a URAR form, the format calls for you to describe each comparable sale and then adjust it for any significant differences between it and the subject property. However, there is nothing in the USPAP that requires you to analyze comparables this way. In more complex appraisals (usually reported in a narrative appraisal report format), I have seen large sets of comparable data adjusted using averages. What you plan to do is fine, but the final value estimate of the subject should be based upon a reconciliation that, in your judgment considers everything about the subject, market and comparables that you think is significant.

The reason an "average" is not usually used by appraisers in the reconciliation process is that it is a statistical term that implies that you took a random sample of all the available comparable sales, and that the sample was large enough (usually a minimum random sample is at least 18 items). You would then also need to state if the average you obtained is the mean, median or mode.

HSH
askhenryharrison@revmag.com

Ask Henry

FHA Roster Listing

Dear Mr. Harrison:

This is my first question for you. I'm a Certified Residential appraiser in MA and N.H. Can I just go to the govt. website to become FHA approved? Is it that simple? Could you advise me please? I enjoy your Revmag emails I receive.

Thank you in advance for your help.

John D. Devereaux
jaydev@charter.net

Dear John,

The FHA website: http://www.hud.gov/offices/hsg/sfh/appr/eligibility.cfm tells you in detail what you need to do to get on the FHA Roster of Approved Appraisers.

If that doesn't work, go to Google and enter the phrase "FHA Appraiser Roster". There is an application but is cannot be completed online. Your completed application must be submitted online, which means that you have to download the application and save it as a PDF, sign it and then scan it and send it back via email to the FHA.

Here are the highlights of the current FHA requirements:

1. You must be a residential certified appraiser or general certified appraiser.
2. You must NOT be listed on GSA's Excluded Parties List System (EPLS),
HUD's Limited Denial of Participation (LDP) list, or HUD's Credit Alert System (CAIVRS).
3. You must scan your state issued certification and send it with your complete online application.
4. Make sure that the ASC National Registry contains the correct information about your certification.

The $64-thousand dollar question is what happens next! Hopefully some of our readers will share their experience -- especially how long it took them to get on the FHA roster once they had applied.

Good luck!
HSH
askhenryharrison@revmag.com


GreenCourses_360x90

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.

Thanks!
Mark Faldetta
markfaldetta@gmail.com

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.

HSH
askhenryharrison@revmag.com

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
arnoldappraisals@gmail.com

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.

HSH
askhenryharrison@revmag.com

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
tstiffler@comcast.net

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.

HSH
askhenryharrison@revmag.com

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: http://www.score.org/volunteer.html

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

HSH
askhenryharrison@revmag.com

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 http://www.access.gpo.gov/nara/cfr/cfr-table-search.html#page1) 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.

HSH
askhenryharrison@revmag.com


valued_websites

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.

LIA-health
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
ron.coffman@streetlinks.com

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!

HSH
askhenryharrison@revmag.com

REVMad

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
ggervas@yahoo.com

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.

HSH
askhenryharrison@revmag.com

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
normandygroup@optonline.net
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.

HSH
askhenryharrison@revmag.com

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
robertjones56@bellsouth.net
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.

HSH
askhenryharrison@revmag.com

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!

Donald
apps1@compfxnet.com
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.
HSH
askhenryharrison@revmag.com

GreenCourses_360x90

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
dlprymak@dlprymak.com
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.

HSH
askhenryharrison@revmag.com

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.

Respectfully,
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.

HSH
askhenryharrison@revmag.com

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
bbrown09@bellsouth.net

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.

HSH
askhenryharrison@revmag.com

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
jobinlt@yahoo.com

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.

HSH
askhenryharrison@revmag.com

Ask Henry

Number of Comp Photo Reshoots

Dear Henry,

A larger appraisal management company is now requesting that the comp photos be recent to the season in which the appraisal is being completed. If a home is being appraised in the summer, they do not want comparable photos with snow or fall colored leaves on them.

How many times can an appraiser afford to retake old comp photos with gas at $3.15 a gallon, never mind the time consuming effort of going there in the first place. Some of my comps are in rural areas where each one could be 20-30 miles away from the other.

Is this a legal and legitimate request?

Jean Black
jeanblack@echoes.net

Dear Jean,

Often AMCs do not realize that their requests substantially increase the appraiser's costs. The USPAP requires that you have a scope of work dialogue with the lender/client. Unless something they requests conflicts with the requirements of the USPAP they are not in my opinion illegal or illegitimate. You really have four choices as to what to do. 1. Try to talk them out of the requirement. 2. Tell them that it requires extra work for which you expect extra pay. 3. Do what they request. 4. Refuse to do the assignment.

HSH
askhenryharrison@revmag.com

Ask Henry

R.E. Salesman VS. Assessor

Dear H2,

I have been a Realtor for 25 years. I am not a broker. I have recently taken a job with the County as a property tax assessor in training.

The assessor job offers benefits, steady employment etc. I thought I could give up Real Estate sales, but it is not that easy after 25 years. I could see where there would be situations where I would have to morally (if not legally) recuse myself, but for the life of me, I cannot see why I cannot help people to purchase a home after hours or on weekends -- just like a Realtor/Broker can appraise property, do CMAs, and then help someone to buy that same property. Disclosure would have to be made of course. I just started as an Appraiser Trainee, and will be going to CPE classes to get my license. I will have to make a decision soon as to my staying with the Assessor Position. The extra income from Real Estate sales is important to my family.

Is there any conflict of interest, if I wanted to do property assessing full time, and still sell real estate part time?

Mike
mmacpherson@comcast.net

Dear Mike,

This problem has come up many times before. Many municipalities will not permit someone like you to "wear two hats". However, some do. It is all a matter of "appearances" -- and with assessors it is especially a problem. Many people do not like their tax assessments and think their neighbors got treated better because they had some kind of connection to the assessor. If you decided to do this work, you must get written permission from the municipality for which you will be assessing.. Even then it is not 100% safe. Your reputation may suffer.

HSH
askhenryharrison@revmag.com

Ask Henry

Extraordinary Assumptions, Retrospective Appraisals

Hello Henry,

I am developing a retrospective field review with an opinion of value for investigative purposes. The effective date is 4-1/2 years prior and the subject and all (three) comparables were investor rehabs/resales in an economically distressed neighborhood, with price increases of 50 - 60% within 3-9 months.

LIA-RE
The main issue with the report under review is data verification and the credibility of the comparables' cash equivalent sales prices. Primarily, no 3rd party verification sources were cited and it does not seem that financing concessions were properly verified or adjusted for if they did exist. Seller-assisted financing was common in the market at that time. Most weight was given to Sale #1 which did not have an MLS listing. Sale #2 had a potentially unsupported 8%+/- upward condition adjustment for 'avg' vs 'good' condition; this sale had a "blank" listing #, but also had a 60% price increase within nine months, indicating that it may have rehabilitated in a manner similar to the subject. My research has revealed two sales that support the original value that have no MLS listings; and other "blank" MLS listings that appear to have been investor rehab/resales. I cannot verify these sales or the conditions of the sales in the normal course of business after an elapse of 4-1/2 years. Is it acceptable to use these sales in developing my OMV with the extraordinary assumption that they had no sales concessions that affected their prices? Or by using these unverifiable sales would I be committing the same poor practices found on the original report i.e., the pot calling the kettle black??

Thank you for your time,

Michael A. Ciaccio
Certified Residential Appraiser RD6539
macappraisals@gmail.com

Dear Michael,

I can only give you some general advice, as it is my policy not to comment on specific appraisals.

  1. It is up to the appraiser to select the most comparable sales. There are no USPAP restrictions on how this is done.
  2. It is up to the appraiser to make whatever adjustments are needed, keeping in mind that using unsupported adjustments can lead to trouble as the USPAP requires that the appraisal be credible.
  3. The USPAP has specific instructions about using "Extraordinary Assumptions" (2010-11 USPAP U-3 & U 18). From what you say, they may be appropriate in this instance. Be sure to follow the disclosure requirements.
  4. You must decide if your report is credible. If there is a reasonable doubt in your mind about its credibility, you should not make the appraisal, as it would violate USPAP to do so.

HSH
askhenryharrison@revmag.com

Ask Henry

Estimated Economic Life

Hello Henry,

It appears that some lenders are requiring an estimated economic life on all appraisal reports (even for 1073 form reports on Condos). I understand that banks are using this to determine if the life of the loan exceeds the economic life of the subject. The problem is that economic life is dependent on the owner's maintenance. If, say, a new owner doesn't have the funds and/or knowledge to repair a roof leak or get rid of termites, the economic life could easily go from 50 years to five years. Conversely, a well maintained building can last hundreds of years. How is the appraiser supposed to determine the owner's level of future maintenance? I could not find any reference to estimated economic life in USPAP.

Ken Janke
kenjanke09@gmail.com

Dear Ken,

I think you should make it clear in your definition of estimated economic life that it includes the assumption that the property will receive normal care and maintenance.

HSH
askhenryharrison@revmag.com

Ask Henry

Construction Permits

Hello Henry,

First of all thanks for all the information you publish. I have read several of your books and they were all very informative.

Now for the question: Are appraisers responsible for assuring that construction permits were issued for any construction on the subject property? As far as I know, we are responsible for determining whether the property is a legal use, grandfathered, or illegal. However, I really don’t think that researching construction permits is the responsibility of the appraiser. This is the request I've received regarding the property, directly from the Lender.

"There is a discrepancy between the GLA stated by the appraiser and the GLA stated in public records. The appraiser is asked to explain. If additions were made, were final permits obtained? Appraisal reflects 2037 sq ft while public records reflect only 1898 sq ft. Public records also reflect a year built of 1926 but appraisal reflects 2008. Was the subject recently totally rebuilt? If so, was it completed with the proper permits?"

What should I do?

Thanks,
Leading Edge Apppraisal
info@leanj.com

Dear Friend at Leading Edge:

When you are appraising a new home, you should consult your lender/client as to how much investigation they want you to do. You may wish to charge extra if you have to visit a record center to obtain building permits and occupancy permits. For older houses, you normally would not do this unless it is customary in your market area or you suspect there is a problem.

The Fannie Mae/Freddie Mac forms ask for your opinion about the zoning. You need to do whatever is necessary to offer a correct opinion.
In most areas, it is expected that the appraiser will accurately measure the house. Relying on others is looking for trouble. If you accurately measured the house, you would respond by stating that is what you did, and what you found the GLA to be.

It is worrying that an appraiser would mistake a 1926 house for a 2008 house, no matter how much remodeling was done!

HSH
askhenryharrison@revmag.com
P.S. Thanks for the kind words. We always appreciate reader feedback.

Ask Henry

Lakeshore Frontage Adjustments

Henry,

I'd like to get your insight into how you would adjust for lakefront footage. Obviously more is better and more valuable -- but at an incrementally diminishing rate per linear foot, right? For example, take two identical properties, except that one has double the lakeshore of the other, 200' versus 100'. Clients seem to think the second 100' should be adjusted at the same rate as first 100' and have been asking for report revisions! Often they want the footage to bracket the subject, and can't understand why the parcel with more frontage is adjusted at a lesser rate per foot than the parcel with less. What should I say?

slindberg@rangenet.com

Dear S:

There is no benchmark or rule that I am aware of that works. You have to find some matched pairs of sales in your market area upon which you are going to base this adjustment. I don't think you can jump to the conclusion that sales with substantially larger lakeshore frontage require a smaller square foot adjustment without some evidence.

HSH
askhenryharrison@revmag.com

Ask Henry

Comparable Sales - Nearby Location

Dear Henry,

In the following definition of Comparable Sale, what would you consider to be a reasonable "nearby" distance?

Comparable Sale: A comparable sale is a property, that is similar to the subject property in most respects, is located in a similar (nearby) location, and has sold recently at arms length. The selection of comparable sales is in most residential appraisals, the single most important determining factor in establishing value. It is the appraisers responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.

Benson J. Bercovitz
bercovitz@aol.com

Dear Benson,

There are no benchmarks or USPAP rules that determines what is a reasonable distance to look for comparable sales. Often it is just a few blocks from a university, hospital or some other work place where many people in the market are motivated to live, to be nearby these facilities. On the other hand, when corporate executives are relocated to New York City, they often check out housing in New York, New Jersey and Southern Connecticut, so houses that appeal to this market can be hundreds of miles apart. The final determination of the best comparable sales is solely up to the appraiser.

HSH
askhenryharrison@revmag.com


valued_websites

Ask Henry

Appraisal Management Companies

Dear Henry,

I am a certified residential appraiser, and I, along with a couple other appraisal firms, would like to start up an appraisal management company. Being appraisers, and never having gone down this road before, we are not sure where to begin. Where do we find the information that is necessary to create an appraisal management company in order to meet all of the necessary requirements, and to be legitimate? Do you have any resources pertaining to this?

Thank you for any help you may be able to offer.

Regards,
Keith VandenAkker
keithva@charter.net

Dear Keith,

Each state has its own requirements for AMCs. You should start by asking someone on the staff of your state's appraisal commission how to proceed. I think you should also hire a lawyer to advise you.

HSH
askhenryharrison@revmag.com

Ask Henry

Intended Users

Dear Henry,

On an FHA purchase appraisal, after the inspection, in the normal course of conversation with the home owner I was asked if there were any problems with their home. I stated that there were three problems that needed to be addressed, without going into the details of the problems. I told the homeowner that these issues needed to be addressed before the home could transfer title. By the time I got back to the office, the mortgage broker was on the phone telling me these issues did not exist. He called the appraisal management company and tried to cancel the appraisal. The appraisal management company then called me and told me that the appraisal was being reassigned because I disclosed information to an unintended user, and that I was in violation of USPAP rules. Did I really violate USPAP rules by answering a simple question honestly?

Kristina Fittipaldi
Spoiledbrat10117@aol.com

Dear Kristina,

The USPAP requires that every appraisal report contain a statement as to who the intended User(s) are. If you stated that the intended user was the Lender/Client, then the only people you can discuss the appraisal with is the Lender/Client. If you stated that an intended user was the property owner or someone else, you could discuss the report with them. Generally, it is a good policy not to discuss your appraisal with property owners, as all it can do is get you into trouble. When asked a direct question about the appraisal or your inspection, I recommend that you politely say you are not permitted to discuss the appraisal with anyone other than the intended user and that the owner is free to contact them for information.

HSH
askhenryharrison@revmag.com

Ask Henry

Switching Clients from USDA to FHA

Dear Henry,

Can an appraisal done as a USDA appraisal be switched to an FHA appraisal, or would the property have to be re-inspected?

Kind regards,
Jeff Bridwell
jeff.bridwell@inhouse-solutions.com

Dear Jeff,

Whenever the client changes, a new appraisal is required by the USPAP. This means that there must be a new scope of work dialogue with the new client. There are no USPAP requirements about inspections; therefore, if the effective date and inspection date are the same, I think you will just need to rewrite the appraisal being sure you have covered everything required in the new scope of work.

HSH
askhenryharrison@revmag.com

Ask Henry

Change of Address vs. Transferring an Appraisal

Dear H2,

Recently, I received a request from a mortgage company to change an address on an appraisal that had been ordered by an AMC for a major bank. A few days later, I received another message, with a copy of a memo from the Lender, saying that they were sending the appraisal over to the mortgage company but "assumed no liability for the content." The Lender had received the appraisal over one year ago. I spoke with a representative at the AMC and confirmed that since the issue had changed from a request for an address correction to a transfer of the appraisal to a new lender, the new lender would need to order a new appraisal. When I informed the contact person at the mortgage company that she would need to order a new appraisal, she said "no other appraiser has ever told them that since the HVCC took effect." It was my understanding from a CE class a few years ago that it is misleading to change the name of the Lender and that a new appraisal must be done. Please advise!

Kathy Vogt
vogtb001@hawaii.rr.com

Dear Kathy,

The USPAP has a lot of rules about changing the name of the lender/client on a report. The essence is that the lender and the appraiser together develop a scope of work for the appraisal. Therefore if all you do is change the name of the lender, you have not complied with the Scope of Work development process with the new lender. Changing a delivery address for the same Lender would probably be okay. Transferring an appraisal to a new lender would clearly violate the USPAP requirements.

HSH
askhenryharrison@revmag.com