Scope of work

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

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

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

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

News

USPAP 2011-12: APPRAISAL DEVELOPMENT – SCOPE OF WORK ISSUES
Use of Distress Sales in Real Property Market Value Appraisals

Question:
A client has asked me to disregard any foreclosure, real estate owned (REO), or short sales when performing market value appraisal assignments. Is this an acceptable assignment condition?

Response:
No. USPAP does not specifically address which sales should or should not be considered in an appraisal assignment. However, in real property appraisal assignments, Standards Rule 1-4(a) requires:
When a sales comparison approach is necessary for credible results, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion. (emphasis added)

So, the appraiser must determine what data is relevant. There are many appraisal assignments where, in order to achieve credible results, it is necessary to use “distress” (e.g., REO or Short Sales) properties as comparable sales. However, foreclosure sales, defined by
Black’s Law Dictionary as “the sale of mortgaged property, authorized by a court decree or a power-of-sale clause, to satisfy the debt” are seldom based on market expectations. When there is a glut of distress sales in the marketplace, and those properties are truly comparable to the subject, it would be misleading not to use them as part (or in some cases all) of the basis for a value conclusion. A client-imposed requirement to disregard data that may be relevant and necessary for credible assignment results would be an unacceptable assignment condition. (emphasis added)

To download the entire PDF, click here: USPAP Q & A

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

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

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