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?

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."


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.


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).


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.

Dianne Mendel

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.



AI's New GREEN Addendum

On September 30th, the Appraisal Institute released a new form intended to help appraisers analyze values of energy-efficient home features.

The Appraisal Institute issued the form as an optional addendum to the URAR (Fannie Mae 1004-Freddie Mac 70). It is intended to help the industry standardize the way residential energy-efficient features are analyzed and reported. The Appraisal Institute's addendum allows appraisers to identify and describe a home's green features. The form also will make it easier for appraisers to determine whether recent home sales should be used as comparable sales.

The Appraisal Institute plans encourage lenders, home builders, real estate agents and homeowners to take advantage of this new tool.

GREEN ADDENDUM FORM to download a PDF copy of the new form.

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

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 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.


Interview with Henry S. Harrison

Interview with Henry S. Harrison
by his wife
Ruth Lambert, Editor, Real Estate Valuation Magazine Online

Henry - can you explain to our readers what you are working on now?
Henry (H2): For the past few weeks, we have been very involved with the birth of our 5th grandchild, Sterling Harrison Muchnick, born February 23rd. Now I am back at work on my latest book "Harrison's Complete UAD Guide for the URAR."

What is the UAD? How will it affect appraisers?
According to Fannie Mae and Freddie Mac (aka the GSEs), they "have developed the Uniform Mortgage Data Program (UMDP) to enhance the accuracy and quality of loan data delivered to each GSE. The Uniform Appraisal Dataset (UAD) is a key component which defines all fields required for an appraisal submission on one of four standard appraisal forms, and standardizes definitions and responses for a key subset of fields." What this means is that soon Fannie and Freddie will no longer accept appraisals on paper — only electronic transmissions from the lenders. In addition, they will require that all these appraisals be formatted exactly as delineated in the UAD, or their computers will reject them.

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?


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.


Ask Henry

Disposition Value

Hello Henry,

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

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

Robert Jones
Certified General Real Property Appraiser

Dear Robert,

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


Ask Henry

Comparable Sale Photos

Hello Henry,

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

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

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

A Concerned Fellow Appraiser
Name and email withheld by request

Dear Friend:

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

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

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