Transcript Write it Right - The Columbia Institute offers Education
Write it Right
A Summary of Residential Comments Instructor: Diana T. Jacob Email: [email protected]
254.582.3940 home 210.363.5950 cell
1-3
Contract Analysis
1.
Why is the contract pending relevant to the appraisal assignment?
2.
Why is the history of the past three years relevant to the appraisal assignment?
1-3
Contract Analysis
Explain the results of the analysis or why it wasn’t performed!
USPAP SR 2-2(b) (viii) When reporting an opinion of market value, a summary of the results of analyzing the subject sales, options, and listings in accordance with Standards Rule 1-5 is required.
If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required
Page 1-4
1.2 Discussion Question(s)
Note the sample comments and identify which comment best examples answering the question “explain the results of the analysis”. Circle which answer appears to be sufficient and compliant.
Pg 1-4
Solution to Question 2
d. URAR: I [X] did
“Terms of the 9 page contract received and analyzed included seller concessions to be paid toward closing costs of the loan no greater than 3% of the sale price, personal property to remain includes curtains, fireplace equipment, refrigerator, seller to pay Home Warranty Insurance in the amount of $450, contingent upon loan approval of the buyer on a conventional loan 75/25 LTV, 30 yr. fixed rate of 6% A.P.R., monthly amortized.
None these terms represent a significant variance from the negotiated terms of comparable sales based on reported MLS data and verified information from related and/or interested parties associated with each comparable analyzed.
Pg 1-5
What is the Contract Price?
a) The appraiser has misread the contract and is being asked for a revision. The sale price stated in the appraisal was actually the mortgage amount. In the revision of the report, is there a comment that may need to also be added, amending the comments from the original appraisal?
Page 1-5
What is the Contract Price?
Question:
When an appraiser concludes a value that is close to the mortgage amount and then is asked to revise their error in the reported sale price is there a comment that may need amending?
_________
Page 1-5
Solution to Discussion Q.
__Yes__
The original report will show a different price that was in error; the appraiser should date the revision and offer an explanation:
Page 1-5
Solution to Discussion Q.
Example: “The original sale price shown as $225,000 in report dated 01/20/2012 (effective date 01/18/2012) was in error as the appraiser misread the contract and is now amending the price as the contract states @$275,000. No amendment or revision was made to the value as the contract price has no impact on the value concluded.
Page 1-5
Discussion Q.
Is it possible the value conclusion will change when the revision request to correct the error in reporting the sale price is made?
_________
Pg 1-5
Solution to Discussion Q.
Is it possible the value conclusion will change when the revision request to correct the error in reporting the sale price is made?
___No___ Continued Solution:
The appraisal is not influenced by the contract price
; the contract price is a price paid to obtain a property which may or may not be closely associated with the value concluded.
Pages 1-5 and 6
Reporting Financial Assistance Finding the IPCs
Sometimes the seller assistance isn’t found in the front pages
Pages 1-5 and 6
Reporting Financial Assistance Finding the IPCs
In many cases the concessions are reflected near the rear of the contract
There’s a “catch-all” for item 12
Pg 1-7 Sample Comments: “The contract has a voidable clause that allows the contract to become null and void if the expenses agreed to be paid by the buyer exceed the amount expressly stated. The buyer cannot pay charges and fees expressly prohibited by (FHA, VA, Texas Veterans Land Board or other governmental loan program regulations). “
Pg 1-10
FAQ Guidance from the ASB on the request
135. DOES CHANGING THE SALE PRICE RESULT IN A NEW ASSIGNMENT?
Question: I recently completed an appraisal for mortgage financing purposes in a purchase transaction and delivered the report to my client. My opinion of value did not support the pending sale price. As a result, the purchase transaction was not consummated. However, one week later the buyer and seller entered into a new purchase agreement where the sale price coincided with my appraised value. My client asked if I can provide a revised report that includes the analysis of the newly agreed-upon sale price. To provide a revised appraisal report, must I consider the client’s request as a new assignment?
Pg.’s 1-10/11
FAQ Guidance from the ASB on the request
135. DOES CHANGING THE SALE PRICE RESULT IN A NEW ASSIGNMENT?
Response: If the client does not require a more current effective date, USPAP would not mandate treating the request as a new assignment. However, if the client does require a more current effective date, the request must be treated as a new assignment. In this example, regardless of whether the effective date is changed, the date of the report would have to change to accurately reflect the appraiser’s consideration of the newly obtained agreement of sale. Because the new purchase agreement was obtained after the date of the first report, the revised report would need to have a date of report that is the same as or later than the date the new purchase agreement was obtained by the appraiser……
Pg.’s 1-11
FAQ Guidance from the ASB on the request
To help make the decision as to whether or not the renegotiated sale it is a new assignment one needs to consider
“is the pending sale or renegotiated sale price a value?”.
According to USPAP definition a
value is never a fact
. A sale price offer, acceptance or offer and acceptance states a price which once stated is a fact. In some cases state appraisal boards have “dinged” appraisers for failing to treat the renegotiated sale price as a new assignment. State rules and regulations would need to be followed as state laws, rules and regulations can exceed USPAP.
Page 1-2
Cover Yourself
Comments on Contract Analysis: “The contract (found in the appraiser’s workfile/attached as an exhibit) was believed to be the final ratified contract including all addendums and final accepted counter offers
. This contract included __9__ pages.
In the event a new contract was written after the effective date of this appraisal or subsequent to the receipt of the contract analyzed by the appraiser, the appraiser makes it known that it was not part of this assignment analysis.
Page 1-12
Cover Yourself
The inclusion of personal property in the contract, i.e. washer, refrigerator, was deemed by the appraiser to be a concession of the sale. This personal property was not considered in the final value conclusion of the real property interest. Further the appraiser makes it known that he or she did not inspect the personal property nor does the appraiser warrant its functional utility. The items of personal property do not in the appraiser’s opinion impact the sale price upward or downward but are seen as a typical concession between buyers and sellers in virtually all transactions. The lack of these items would not in the appraiser’s opinion prevent the sale from passing or affect the price that was negotiated between the parties.”
Pg. 2-3
How is an Appraisal Problem Defined?
Without understanding what the problem is, the attempt to solve is meaningless.
• • • • • • Assignment Elements Define the Problem
client and any other intended users; intended use of the appraiser’s opinions and conclusions; type and definition of value; effective date of the appraiser’s opinions and conclusions; subject of the assignment
and its relevant characteristics;
and assignment conditions.
Who decides?
Pg. 2-4
How is an Appraisal Problem Defined?
Who decides?
Communication with the client is required to establish most of the information necessary for
problem identification.. However, the identification of the relevant characteristics is a judgment may by the appraiser that requires competency in that type of assignment.
Pg. 2-4
How is an Appraisal Problem Defined? UAD and the Client
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Prepared For: NBC Appraisal Management 1890 Hwy 57 Ankle High, Wyoming 98456 Prepared For: Bank of Logan 83469 Main Street Ankle High, Wyoming 98456
Pg. 2-5
Case Study: This is a Cover Page – Which is Correct?
Prepared For: Bank of Logan 83469 Main Street Ankle High, Wyoming 98456
Page 2-6
Identifying the Property
It is here the appraiser may have difficulties when the title or survey in possession of the client differs.
Pg. 2-7
FAQ as of 10/2011 for UAD
Pg. 2-7
Sample Comment
MUNICIPAL ADDRESS – Regardless of any existing title or survey the appraiser is required under the UAD to report the address according to the United States Postal Service ( www.usps.gov
). The compliance entry requires street names to be abbreviated for conformance with the U.S. Postal Service, i.e. Street=St, Avenue = Ave., Lane = Ln, Drive = Dr, Hill = Hi. Any request to change must be tendered with the consequence of receiving an appraisal that is in non-compliance with the UAD. A non-compliant UAD report may result in the report being unacceptable for delivery to the Secondary Market.
Page 2-8
When it’s a PUD
If subject is attached and the developer is in control of the homeowners association, the PUD section of the URAR must be completed.
If subject is NOT attached, or if the developer is NOT in control of the homeowners association, additional information about the PUD is still required by Chase, but may appear in either the PUD section of the URAR or an addendum.
Regardless of where the information is reported, the appraiser must report the PUD’s legal name, the HOA assessment fees, and the property rights for each comparable sale; and must compare them to the subject PUD.
Page 2-8
When it’s a PUD
The appraiser must also identify the Common Elements/Amenities available to the unit owners, comment on their condition, and analyze how they compare to the Common Elements/Amenities of competing PUDs.
If you use single family residences as comparables located outside the PUD development, you must provide analysis to support the inclusion of the non-PUD comparables and the impact deed restrictions will have on the subject’s marketability and value
Page 2-12
PUD
You can read the clear exhortation whether yes or no the data sources must be provided.
In a refinance it’s quite simple if the subject was not listed for sale but the MLS system, if used as a research to identify whether it had been offered, does have to be reported. For example if the subject is a refinance and is in San Antonio the appraiser would report it as follows:
Page 3-3
Communications of the Neighborhood
Warren Buffet was quoted as saying “The most important thing in terms of your circle of competence is not how large the area of it is, but how well you've defined the perimeter.” The same can be said of defining your neighborhood-it’s not the size that is relevant but how well you’ve defined the perimeter.
Page 3-3
Understanding the blocks
These three blocks communicate information about the land area within the boundaries of the defined “neighborhood boundaries”.
These three blocks communicate information about the land area within the boundaries of the defined “neighborhood boundaries
”.
Page 3-6
Reporting Neighborhood Description
The results of a neighborhood analysis enable appraisers not only to identify the factors that influence the value of properties in the market area, but also to define the area from which to select the market data needed to perform a sales comparison analysis.
Item #7 of certification states…. locationally, physically, and functionally the most similar to the subject property .Compare that statement of ethical obligation to bulleted items of FHA minimum requirement
Page 3-8
Neighborhood
Lender Appraiser Guidance states….”
Appraisers must: perform a neighborhood analysis to identify the area that is subject to the same influences as the property being appraised based on the actions of typical buyers in the market area ……(center bullet)
Page 3-10
Neighborhood
Comments that report unfavorable conditions
must address the reasons
for the vacancies or boarded up properties in factual terms through the provisions of data that relates to such things as: Demand/supply Foreclosure rates Tax sales, etc.
And-
discuss
how this factor affects the market value and marketability of the subject and surrounding properties in the neighborhood
Page 3-11
Writing Comments for Neighborhood Conclusion
There are three formats that the appraiser can easily provide their conclusions of their economic analysis 1.
2.
3.
Narrative paragraphs with blank lines or Summarized illustrative sentences with bullet points or Report in a table format
Page 3-11
Illustration of Narrative Summary Format
The location of the bounded neighborhood is <_____ miles and under ______ minutes driving time from the major employment centers via nearby Interstate/Highways. Unemployment rate for the town is ____% which is higher/lower/in balance with the overall state unemployment rate of _____. Local amenities < _____ miles within _____ minutes driving time are Parks/Recreational Sports Fields/Golf/Lakes/Museums/Movie Theatres/Public Tennis Courts/Water Parks/Football/Bowling/_________(choose or add applicable amenity attraction).
Page 3-10
Illustration of Summary Format - tab short answers
Neighborhood Time and Distance Proximities: Major Employment Centers < 15 mi < 30 min Interstate < 5 mi < 15 min Local Basic Shopping < 2 mi < 10 min Retail Mall >15 mi < 60 min Parks, Ball-fields > 10 mi < 30 min
Page 3-11
Illustration of Summary Format Using the Table Method
Item
Major Employment Grocer-Dry Cleaning
Distance
< 15 miles < 10 miles
Time
15-30 min 8-15 min.
15-25 min
Page 3-13
Rural Neighborhood Mkt.’s
Rural Defined (Census Bureau and FHA) A place having fewer than 2,500 inhabitants; A county or parish with an urban population of 20,000 inhabitants or less; Territory, persons and housing units in the rural portion of “extended cities”; Open country that is not a part of or associated with an urban area; Any place with a population not in excess of 20,000 inhabitants and not located in a Metropolitan Statistical Area.
Page 3-15
Rural Markets-Typically Seen
Shopping Amenities in the Rural Market
One primary discount center (one-stop shopping) Farm Supply Centers Grocery Store(s) Family owned drug stores Family medical clinics Dental (one to two general dentists) Plant nurseries (seeds, plants, fertilizer, small garden tools) Gas Station Dollar Store One or Two Fast Food restaurants Family owned restaurant (family style or cultural foods of the region) Family owned dry cleaner Discount furniture and appliance sales and service Higher ratio of religious facilities to population Public schools (private schools aren’t typical in these markets) Protective Services (county sheriff, volunteer fire department, rural ambulance
Page 3-17
Case Study 3.4
Write a review comment on the quality of reporting this neighborhood-what if anything is missing if it were to comply with the secondary market?
Page 3-16
Case Study 3.4 Solution
Write a review comment on the quality of reporting this neighborhood-what if anything is missing if it were to comply with the secondary market?
Answer:
The description summary of “easy driving distance” fails to note by miles or time the distance. No specific information about residential design styles, lot sizes, no mention of employment stability, only 50% is single-family, no mention of the probability of the remaining Vacant Land of 26%, no mention of availability of emergency services, etc.
Page 3-18
Rating systems in Vacant Land
One of the greater misunderstandings is the vacant land report with Rating Chart It’s a comparison chart-the lack of an amenity doesn’t automatically negative its marketability or demand
4-3
Writing Comments
Using form reports without a comment ensures a summary communication that does not comply with the minimum content of a Summary Appraisal Report. Narrative comments are the link between the field response and the reasoning why the field response was concluded as reported.
4-3
Seller Concessions
One of the greater abuses of appraisers is their communication of seller concession by the misuse of canned comments.
Unsupported comments impose a “COMMISSION” of data that creates confusion and misleads the intended users.
Do you see your comment in one of the three bullets?
4-3 & 4
Impact of canned comment 0%-6% on concessions
It seems like a simple statement that “cures the ill” but the impact is significant-consider a mortgage amount of $150K 100% LTV Ratio the $’s range from $0-$9,000 95% LTV Ratio the $’s range from $0-$8,550 90% LTV Ratio the $’s range from $0-$8,100
4-5
What does it mean to verify?
The APB doesn’t define verify but they example the process. “verification of concessions and the impact of the concessions on the consideration of a comparable can be done through personal phone calls, text messaging, email or questionnaires and should be documented in the workfile.”
Pg. 4-5
Considerations of Concession Analysis
Would the buyer have paid the same amount for the property without the sales or financing concession?
What are the details of the reported concession?
What impact did the seller/purchaser believe the concession had on the contract price?”
Pg. 4-5
Connecting 1004MC to Neighborhood
Once the neighborhood boundary is defined the next step is to conduct the research, analysis and communicate the results on the 1004MC Notice the word “MUST” in the first sentence…”must use the information on this form as the basis for his/her conclusions, and must provide support for those conclusions, regarding housing trends and overall market conditions as reported in the Neighborhood section of the appraisal report form.”
Pg. 4-5 & 6
Connecting 1004MC to the Neighborhood
It’s clear that this is the first analysis to be made and is to be considered the foundation for the conclusions reported in the One Unit Housing Trend.
Pg. 4-6
4.3.1 Case Study Question
1.
Based on the information reported in Exhibits 4.2 and 4.3 is there consistency between the analysis of the 1004MC and the One-Unit Housing Trends? ____ Yes _____ No
Pg. 4-6
4.3.1 Case Study Question Solution
Solution to Chapter 4 Page 4-6
1.
Based on the information reported in Exhibits 4.2 and 4.3 is there consistency between the analysis of the 1004MC and the One-Unit Housing Trends? ____ Yes __X__ No
Pg. 4-6
4.3.1 Case Study Question
2. What comments would be appropriate given the observation of the One-Unit Housing Trend and the 1004MC? _______________________________________________________
Pg. 4-6
4.3.1 Case Study Question Solution
Solution to Chapter 4 Page 4-6
• • The answers provided are the basic responses. “There is clearly a large reduction in the number of sales which shows a seller reaction that has pulled back their offerings. “ It’s possible the columns represent too few transactions to offer quantified analysis for the conclusions of the Neighborhood. The report needs to detail why there is a different conclusion from that of the 1004MC.
Pg. 4-7
Reporting Inconsistencies between URAR and 1004MC
Examples of Statements:
The subject is in a rural, sparsely developed market. Although the boundaries show an extended area the number of comparable transactions were too minimal to place weight or heavy reliance on the conclusions. The 1004MC has its conclusions based on statistical analysis. When data sets are small (liken to this market of the subject) any change can significantly shift the conclusion and therefore makes this data analysis weak in its credibility. The conclusions on the Neighborhood section of the URAR in the One-Unit Trends, is based on the appraisers experience in this market place with an analysis of behavior that extends beyond a 12 month period (i.e. 3-5 years); the evidence of this observation and research used to render this decision is in the workfile.
Pg. 4-7
Reporting Inconsistencies between URAR and 1004MC
Examples of Statements:
The 1004MC reflects a seasonal perspective. The subject residential properties in this market in this location are sensitive the seasonal changes. The abrupt change between the columns does not provide reasonable conclusions due to the seasonal anomalies. The appraiser considered two years perspective when concluding the One-Unit Housing Trends in the neighborhood. It is the appraiser’s belief that two-year perspective is far closer in the measure of housing inventory than the inept conclusions of seasonal data within a 12-month period.
Reporting Foreclosures
Pg. 4-8 The view of this exhibit show 62 listings for sale, 5 foreclosures for sale, 54 foreclosures.
The appraiser made a good response to the 1004MC form
4-9
Writing it Right
Communicating the market conditions needs to be specific with direct comments that explain the impact of any concession and the distance between prices paid. Value versus price paid is linked proportionately to the amount of inflationary additions to the price as terms are negotiated.
4-9
Writing it Right
Notice the specificity of the comments “Sale to List Price Ratios range between 95%-97%. The LTVs range reported by cooperative agents concludes a range from 98%-100%. The most dominant sales are FHA with approximately 79% of the market share. There is minimal new construction within this 20 year+ neighborhood. No new subdivisions exist within the boundary of the site. The age of the market and on-going demand promotes good appeal of existing housing. Once listed at a market price a period between 0-3 months exposure is most often the maximum time a property is offered competitively before absorption. “
Site Analysis
The residential appraisal forms have a small section devoted to the
site reporting
but it
is critical to the total value
Pg. 5-3 – Many appraisers believe that if a survey is not provided at the time of the appraisal their job ends there with a simple comment such as noted above “Dimensions not provided”. Nothing could be further from the truth. More than one appraiser has been disciplined from varied governmental agencies for failing to report the dimensions.
Pg. 5-4
Site Analysis Conclusion
The plat referenced was the tax parcel plat and gives no dimensions. It is a good visual exhibit for support of the shape. But without dimensions and only the area communicated the next question that is raised is whether or not the appraiser was able to
conduct a Highest and
Best Use analysis if he or she did not know the functional utility of the site’s dimension.
Pg. 5-4
Site Analysis Sample Comment
“
The dimensions shown are not taken from a survey or published public record
the time of the site visit. appraisal
business.
. .
The dimensions are an estimate based on the appraiser’s observation at The information provided and used to form the opinion of the site analyses, highest and best use analyses and the land value is based on researched data from the FEMA website, Tax Assessor Office, Planning and Zoning as well as the physical observation on the effective date of the
No survey was provided or found to be publically available during the normal course of If a survey provides a significant difference or an encroachment the information assumed and reported as well as the analyses and value conclusion can be significantly impacted
.”
Pg. 5-5
Using Tax Assessor Value
One of the more common misunderstanding of residential appraisers is the use of the Tax Assessor Offices land assessed value. Numerous problems and liabilities are associated with the use of this information.
The land was not the appraiser’s work it was the tax assessor’s work The land assessed value is not performed by a sales approach or allocation or income; its conclusion of land value is by the benchmark method of a mass assignment most often using a regression analysis for which the appraiser has not reviewed.
Pg. 5-5
Using Tax Assessor Value
Numerous problems and liabilities are associated with the use of this information.
The assessed value may or may not be based on 100% of the market value. If the assessment is based on a percentage of the land value the conclusion can in error if considered representing the whole of the market value derived by the assessor.
In many areas the concern of being over-taxed pressures the assessor office to produce a value that is on the lowest end of the range of vales concluded.
The assessment may be at the end of the reassessment period and thus not reflective of any current land value.
Pg. 5-5
Wrongful Assessments
A wrong land value creates a domino effect in other key components of an appraisal. Three key problems of an unsupported, undeveloped land value by using a tax assessor’s opinion are: 1. If the assessor has an error in the land value the property owner and the lender who holds a mortgage on the property will not have a clear understanding of the improvement value.
Pg. 5-6
Wrongful Assessments
Key problems of an unsupported, undeveloped land value by using a tax assessor’s opinion are:
2. Problems with risk assessment and need for proper insurance coverage on the loan.
Underwriters and investors will always be concerned with their asset. A vigilant watch and study are made of the trends and how they are either stable or in transition.
When the appraiser has reported a value they did not develop and then considered that a reasonable communication of the asset they set into motion critical processes that will be in error when the wrong information begins the basis for that procedure. There is a need to understand the land value and its separate contribution to the value of the whole.
Wrongful Assessments
Key problems of an unsupported, undeveloped land value by using a tax assessor’s opinion are: Pg. 5-6
3. Incorrect assessment of the sales approach
such as the failure to recognize proportionate contributions for the purpose of establishing a point at which other extractions of relevant characteristics can be identified.
Pg. 5-7
Problems with Tax Land Value
Solution to Chapter 5 Page 5-7
Of the three perspectives shown which do you believe would give the clarity of an opinion that you could defend? Note: This illustrates both the allocation method of land valuation through known ratios and the extraction method for GLA. #3
Pg. 5-7
Zoning
Zoning is a key to conforming land use. The lack of zoning raises red flags to the many knowledgeable real estate participants such as underwriters as the lack of zoning can prompt a mixed-use, higher risk loan. This is not an automatic which is evident by large metropolitan cities such as Houston. A comment is needed to ensure that lack of governmental control is not a negative impact on the marketability or value and is typical of the comparable transactions.
One of the more common errors found in state investigations is incorrect zoning
Pg. 5-9
What’s wrong ?
Question: What’s wrong with example encased in the General Description?
Answer: The Design Style shows a non-compliant UAD 1-Story
Pg. 5-10
5.4.1 Case Study Question
Did the appraiser complete correctly the Amenity section under UAD? _____YES _____ NO
Pg. 5-10
5.4.1 Solution Case Study Question
Did the appraiser complete correctly the Amenity section under UAD? _X__YES _____ NO
Pg. 5-11
Swimming Pools
A swimming pool is considered a lifestyle project. Many appraisers struggle with identifying swimming pools; understanding types, understanding value, and many don’t understand how to communicate the amenity in the Cost Approach. Swimming pools are comprised of many systems and components, all with varying life expectancies. The key to the life of all pools is the maintenance, which requires education for the owner.
In-Ground Pool Types
Gunite Vinyl Fiberglass
Pg. 5-12
Quick View of Pools, Equipment and Life
When reviewing contracts for lifestyle project improvement the appraiser needs to familiarize themselves with the varied products to ensure the homeowner isn’t over-paying and that the market can be researched to be sure the contribution is measured properly.
Pg. 5-13
Recommended Comments
“Swimming Pools offer the least Return on Investment (ROI) due to their higher cost for homeowner insurance, above typical monthly maintenance cost and rapid depreciation of the pool fixtures and equipment. This site improvement referred to as a “lifestyle improvement” in some markets has an adverse reaction if the demand is low and the buyer is faced with purchasing knowing the homeowner costs will be higher or to find additional funds to cover costs to fill in the pool excavation and remove pool equipment. The contribution of the pool shown in the Sales Approach was based on:
extracted reaction due to paired sales
or,
percent of ROI based on reconciled
national surveys (choose one or the other)
. The aerial view of the neighborhood shows the market’s expectation and acceptance of this amenity. Approximately ___% of the home sites in this residential market house in ground pools.”
Pg. 5-14
Improvement Analysis-General Description-Design Style
One of the greater infractions of the UAD Texas Bungalow communication is the Design Style where often the appraiser will enter a repeat of the number of stories. To use the “catch phrase” of Bobby Crisp; “Fannie wouldn’t ask the same question twice in the same box.” Mediterranean Bungalow
Pg. 5-15 & 16
General Description Effective Age
Appraisers struggle in their support of effective age; this is especially so in soft or declining markets. The challenge is exacerbated by the lack of knowledge in math formulas. Notice the comparison of a comparable sale analyzed for its present worth.
Pg 5-16 For Example: “The appraiser’s study of the market afforded credible development of a market extraction that was used to conclude the subject’s effective age of ______.”
Pg. 5-16
Insufficient data to quantify effective age
“No in depth analysis of comparison was made between present worth and cost new in order to derive concluded depreciation rates. The broad age range and spans of maintenance did not offer the quantity and quality of data sufficient to develop a credible opinion of the effective age through the market extracted method. For this reason the appraiser considered the actual age and the maintenance over the years of existence as well as the more recent updates to the subject’s _________, _________ and ________. From the actual age it was reasonable to expect a buyer to recognize the maintenance and renovation and deduct from the actual age years passing in exchange for years of renewal. It was that basis the appraiser concluded the effective age shown.”
Pg. 5-17
The Wrong and the Right Way
One of the more challenging fields is the pool. There have been a number of different descriptors used in this field.
In-Ground Gunite Yes No Poured Above-Ground Of these methods only Gunite actually describes the type of pool that can be associated with a value When completing this field the type of pool needs to be entered.
Fiberglass Gunite Vinyl Lined When a pool exists it is also appropriate to give a narrative comment on the age and the type of filter system.
Swimming Pools
Don’t forget if you use the Cost Approach to develop the value the pool goes in the Site Improvement Line. DON’T put it in with the house as the depreciation rates differ.
Pg 5-18
Pg. 5-18 thru 19
How do you determine and comment on condition?
When judging condition keep in mind how you would comment if asked as to how you made that conclusion. For example “The conclusion of condition is based on the limitations of the UAD communication which will not consider transitional conditions that may be a blend of two, i.e. ave.-good. Rather, UAD, requires the appraiser to emphatically and absolutely choose between C1-C6, i.e. C2 or C3. The appraiser chose the “best-fit” when reporting the analysis of the subject and comparable sales.”
Pg. 5-20
Don’t forget UAD revisions-
“The condition rating for the subject property must describe the physical condition of the property as-of the effective date of the appraisal and the physical condition of each comparable property as-of the date of sale for the comparable properties on an absolute basis, not on a relative basis or how the properties relate to other properties in the neighborhood. “
Pg. 6-3
The Sales Approach and USPAP
Excerpt of 2-2(b)(v)…. (v) state the type and
definition of value and cite the source of the definition;
Comment: Stating the definition of value also requires any comments needed to clearly indicate to the intended users how the definition is being applied.” Go to Sample Comment in middle of page-can you understand how the definition of market value is being applied in this approach?
Pg. 6-4
Line Items of Sales Approach
Data Sources – Too many appraisers rely on their software to catch UAD errors. The current UAD manual should be the basis for the entry. There is a specific format that is being asked under the UAD specification.
The entry needs to include first the identified MLS system and then the Days on the Market. For example, if it were Houston and the MLS number was 56892 and the days on the market were 110 it would be reported as HAR#5682;DOM110
Pg. 6-5
Exercise-Circle the correct expression of Data Sources
1 2 3
Solution to Data Source Exercise
Pg. 6-5
3
Below Market Financing
NOTE: Many appraisers fail to read and communicate the directive when “below-market” financing exists. Below market financing can have an impact on the market values which equates to a significant factor of communication. A little known
fact that is right under the nose of appraisers is the statement made
in the UAD manual. “The appraiser must indicate if sales transactions with below-market financing are used for comparable sales.” Pg. 6-5
Pg. 6-7
Comments for Sales Concessions
It should be noted that the need to make negative adjustments and the amount of the adjustments to the comparables for sales and financing concessions are not based on how typical the concession might be for a segment of the market (large sales concessions can be relatively typical in a particular segment of the market and still result in sales prices that reflect more than the value of the real estate).
Pg. 6-7
How do you say it?
Writing the comment
Example: “The appraiser has reported the adjustments paid by the seller towards financing. The adjustment is in the amount
that reflects what the appraiser believes has
impacted the price. No adjustment is made for the sales concessions of minor personal property (identify if appliances or other concessions were part of the sale) which also were part of the exchange as of the date of the contract and passed on the settled closed date. “
Pg. 6-7
Date of Sale/Time
Keep in mind:
Comparable Sale closed outside the effective date month but no adjustment required
ZERO goes in field
Comparable Sale closed inside the same effective date month no adjustment is required
Field is left BLANK
Comparable Sale closed outside the effective date month in a changing market
Adjustment required
Pg. 6-9
Exercise – What’s Wrong?
Pg. 6-9
Solution to Exercise - Site
Answer: ____________The appraiser has a comma in their site section.
Pg. 6-12
Quality of Construction -When it’s not an exact fit.
Example: “The UAD communication mandated as of 09/1/2011 requires ratings be given on quality of construction for the benefit of standardization. The challenge is there are no allowances for quality combinations and must be concluded on one sole rating.
characterization.
made. This was necessary on extracted.”
The appraiser has determined the rating based on the dominance of
When there were obvious market recognized differences that were isolated to quality of construction, as seen in Sale #3, which did not qualify for a whole rating point upward or downward the dollars associated with that slight difference was
Sale #3 that had one room which was above a Q3 in that it was recently upgraded with superior custom finishes easily recognized in its quick sale at its market price. The quick absorption equated to a .5% of the Price less land Value downward adjustment for its superior quality
. That adjustment was based on the Days On the Market being just under 2 months and the verification of reaction based on the listing realtor. When compared to typical Days on the Market that percentage difference was
Pg. 6-13
Condition-
It’s important to ensure that when condition is being spoken of your comments reflect the absolute of each transaction.
Sample Comments: “Based on the actual age the subject would normally begin to show signs of wear and tear. The subject has been well maintained and has no signs of its physical six years. Based on the observation coupled with the age the appraiser has concluded the condition rating of C2.”
Pg. 6-13
Condition-
The question is when does age difference become necessary to adjust and how does the appraiser support the evidence of a market that reacts for the actual age differences. Factors to consider: Actual Age isn’t Effective Age-there is no evidence of how maintenance impacted the market reaction to any differences Condition, although absolute in its determination, cannot be isolated as a measure across the board to encompass age. For example a 25 year old house well maintained in average condition will not be the same as a 10 year old house well maintained in average condition.
Using mechanical dollar adjustments of $1,000 per year of actual age has no basis if not supported by analytical studies
Pg. 6-17
Adjusting the GLA
This has to be one of the most unknown and creatively invented magic acts ever created by the appraiser. Sometimes, even when paired sales are used widely differing conclusions arise. Consider weighting Comparisons Comparisons #1 $11.61 x 50% = Comparison #2 $50.00 x 50% = Conclusion of Sq. Ft. Adjustment for GLA= “The appraiser considered within the sales found suitable for comparative analysis and found two conclusions that were weighted and reconciled at $30.81 per square foot for GLA.” $ 5.81
+25.00
$30.81
Pg. 6-23
Reconciling the Sales Approach
Net Dollars Weighted Analysis – Gross Dollars Weighted Analysis – Number of Adjustments Weighted Analysis – Percentage Contribution – This is a weighting of each net adjusted sale. Given the other considerations of net dollars, gross dollars and number of adjustment the percentages are assigned and applied to the adjusted sales price for a contribution of all sales to the final value.
Pg. 7-3
Outdated Language
SR 1-1 (a) specially directs the appraiser to keep current with changes and to maintain their skills.
Example of Outdated Statements
This is a complete appraisal performed under the USPAP-
Question – Is there such a thing as an “incomplete” appraisal?
Pg. 7-3
Outdated Language
Example of Outdated Statements
“The Departure Provision was not invoked in this complete appraisal”
Question – Who knows when USPAP last used the word Provision in their RULES that apply to all disciplines?
Question – Who knows when USPAP retired the Departure Rule from the USPAP document?
Pg. 7-3
Outdated Language
Example of Outdated Statements
“The Departure Provision was not invoked in this complete appraisal”
Question – Who knows when USPAP last used the word Provision in their RULES that apply to all disciplines?
Answer: 1998
Question – Who knows when USPAP retired the Departure Rule from the USPAP document?
Answer: July 1, 2006
Pg. 7-3
Outdated Language
Example of Outdated Statements
“
The appraiser’s estimate of Market Value was based on all appropriate approaches to value with no departure .
”
Question – Who knows when USPAP last allowed the word “estimate” to be used in conjunction with the phrase/term market value?
Pg. 7-3
Outdated Language
Example of Outdated Statements
“
The appraiser’s estimate of Market Value was based on all appropriate approaches to value with no departure .
”
Question – Who knows when USPAP last allowed the word “estimate” to be used in conjunction with the phrase/term market value?
Answer: 1999
Pg. 7-3
1999 key changes to USPAP
Pg. 7-4
Outdated or Inaccurate Language
“A full appraisal was completed in compliance with USPAP.”
Question-Can someone tell me what a half/full or partially empty appraisal is?
“The Cost Approach wasn’t developed because Fannie Mae doesn’t require it.”
Question-Is Fannie Mae the appraiser? Does this GSE control the appraiser’s SOW?
Pg. 7-4
Outdated or Inaccurate Language
“The cited source of the Market Value definition is the USPAP.”
Comment-People, that’s just an outright falsehood. The USPAP cites the FIRREA definition in their Advisory Opinions and they detail the criteria of a Market Value but they do not define the value.
Pg. 7-5
Case Study-Inappropriate Statements
Case Study-A residential vacant land appraisal in a rural residential market with residential rural parcels ranging from 1-3 acres has been ordered. The subject is a 1.25 acre vacant rural undeveloped lot ordered and completed for a local credit union. The emergency services are provided by the county sheriff, volunteer fire department and volunteer emergency medical services (EMS).
Note the statements below found in the Summary Appraisal Report and answer True or False whether the statements are appropriate communications in the development of a market value conclusion for a residential vacant lot;
and, whether these statements add clarity to the understanding of the asset and its economic value as a Fee Simple interest and the appraisal process that brought about the market value conclusion. Also
make a brief statement as to why you chose your answer
.
Pg. 7-5
Is this statement appropriate?
1. True/False
“Subject property is not agricultural rural there is no agricultural rural use there is no income from agricultural rural use.” Why:
2. True/False
“The property is serviced by police and paid or volunteer fire protection.” Why:
3. True/False
“The appraisal is made in “as is” condition with no repairs or inspections required.” Why:
Pg. 7-5
Is this statement appropriate? Solution
1. True/False
Why: The lot description clearly details the size which is not suitable for agricultural income. The lender/client who originated the loan application took the application based on the residential status of the lot. The appraisal was ordered as a vacant residential land appraisal. Had the subject been of a size suitable for income production the comment would have been appropriate
2. True/False
Why:__If the property is rural the probability of police offering protective services as opposed to the county sheriff is highly unlikely. The statement that the fire protection is either paid or volunteer leaves a question unanswered. The rural nature and volunteer status may pose additional cost for insurance
Pg. 7-5
Is this statement appropriate? Solution
Case Study-A residential vacant land appraisal in a rural residential market with residential rural parcels ranging from 1-3 acres has been ordered. services (EMS)
The subject is a 1.25 acre vacant rural undeveloped lot ordered and completed for a local credit union.
The emergency services are provided by the county sheriff, volunteer fire department and volunteer emergency medical
3. True/False
“The appraisal is made in “as is” condition with no repairs or inspections required.” Why: ___On a vacant residential lot there would be no repairs to consider unless there were improvements. If the lot is rural and the utilities are private there is a strong possibility the local codes will ask for assurance of septic and private well capabilities.___
Pg. 7-6
Case Study-Inappropriate Statements
4.
True/False
“Adjustments in the market approach are made for differences in sales data, market conditions, lot sizes, square footage of improvements, and other amenities as noted. The final estimate takes into account the reconciliation of the various value estimates in addition to the appraisers judgment of the market data presented.” Why:
Pg. 7-6
Is this statement appropriate?
4. True/False “Adjustments in the market approach are made for differences in sales data, market conditions, lot sizes, square footage of improvements, and other amenities as noted. The final estimate takes into account the reconciliation of the various value estimates in addition to the appraisers judgment of the market data presented.” Why: This appears to be a canned comment that is intended to be used on improved residential sites. What type of various estimates would be necessary on a vacant lot unless it was to estimate the cost of putting in a private well and septic?__
Pg. 7-6
Solution-Case Study #5 & #6
5. True/False Why: __How would an interior inspection be conducted on a vacant lot? _If the appraiser believed this statement relevant it should have been followed up by more specific details such as soil tests or Why would comparable improved sales be compared to the subject’s vacant lot?_________
6. True/False Why: ___What type of builder’s inspection or property inspection on a vacant lot be necessary or considered associative with the appraiser’s role of valuing a vacant lot?___
Pg. 7-7
Relevant Points of SR Communication
Notice the opening sentence begins with the word “EACH” this is specifically expecting that common canned comments should only be used if they are relevant to that specific assignment.
Forms must be supplemented so that intended users are not mislead.
The report must comply with applicable requirements in this specific standard rule. For the sake of this course that means each standard rule of 2-2 (b) should be reviewed to ensure compliance.
Just because a request is made for additional or revised information doesn’t mean it must be complied with. The entity making the request must be an identified intended user.
Pg. 7-8
Top 5 Missing Items in Reports
2-2(b)(i) State the identify of the client and any intended users, by name or type; Common Error of Appraisers’ –
their appraisal. Many appraisers are hired through Appraisal Management Companies (AMC) and will often misunderstand the definition of a client when reporting
The USPAP revised the definition of client in the 2012-2013 edition which now defines the client as “
CLIENT: the party or parties who engage, by employment or contract, an appraiser in a specific assignment. Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent.”
The last inclusion…”or through an agent”, speaks to the advent of common practice, i.e. the engagement of the appraiser through AMCs.
Pg. 7-10
Top 5 Missing Items in Reports
2-2(b)(iv) State the real property interest appraised; Comment: The statement of the real property rights being appraised must be substantiated as needed, by copies or summaries of title descriptions or other documents that set forth any known encumbrances.
Common Error of Appraisers’ – Fee Simple is an interest that is either:
Absolute
– All of the rights and privileges of ownership
Defeasible
– Limitation on the rights and privileges of ownership
Determinable
– Specific use limitations based on the terms of the donation.
Only the Absolute is an interest without encumbrance.
Pg. 7-9
Top 5 Missing Items in Reports
2-2(b)(v) state the type and definition of value and
cite the source of the definition;
Comment:
Stating the definition of value also requires any comments needed to clearly indicate to the intended users how the definition is being applied.
When an opinion of market value is not in terms of cash or based on financing terms equivalent to cash, summarize the terms of such financing and explain their contributions to or negative influence on value.
When an opinion of reasonable exposure time has been developed in compliance with Standards Rule 1 2(c), the opinion must be stated in the report.
Pg. 7-10
Top 5 Missing Items in Reports
2-2(b)(v) state the type and definition of value and cite
the source of the definition;
.
Common Error of Appraisers’ – exercise the communication of the market value source citation but they
Most appraisers fail in communicating throughout the report how the market value definition applied
market value definition was applied.
either to the specific part of the appraisal process. This isn’t a deficiency in having a canned comment that covers the standard rule. This point exhorts the need of the report to comment in each step of the appraisal process how the
Another common error is in reporting the exposure time
. The
exposure time is a conclusion about a retrospective behavior
assuming a competitive price in an open market.
It does not have to be a single point but can be a range.
Pg. 7-11
Top 5 Missing Items in Reports
2-2(b)(viii)
…summarize the information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the sales comparison approach, cost approach, or income approach must be explained; …..
The appraiser must provide sufficient information to enable the client and intended users to understand the rationale for the opinions and conclusions, including reconciliation of the data and approaches, in accordance with Standards Rule 1-6.
Pg. 7-11
Top 5 Missing Items in Reports
2-2(b)(viii)
…… The appraiser must provide sufficient information to enable the client and intended users to understand the rationale for the opinions and conclusions……...
Common Error of Appraisers’ – This standard rule opens the door for specificity. Notice the last sentence of the comment section. “The amount of detail required will vary with the significance of the information to the appraisal.” Consider the lack of zoning in the appraisal. Would the lack of zoning impact the analysis and value?
Zoning is a legal encumbrance Zoning directs the use of the land Zoning must be considered in the Highest and Best Use Zoning as a comparative factor could be linked to a location reaction Zoning if enforced could identify non-conforming improvements
Pg. 7-14
Top 5 Missing Items in Reports
2-2(b)(ix) …… state the use of the real estate existing as of the date
of value and the use of the real estate reflected in the appraisal; and, when an opinion of highest and best use was developed by the appraiser, summarize the support and rationale for that opinion;
Common Error of Appraisers’ – More and more appraisers nationwide are beginning to “get it” when it comes to Highest and Best Use. This is a critical land-use analysis which is
a process of iteration
conclusion of .
Pronounced IT-ter-a-teev
process of questions about the land: , the iteration process is a repetitive process requiring the same questions to be asked. The Highest and Best Use analysis has a goal, i.e. the maximum productivity that requires the act of repeating a As Vacant and available for development or As If Vacant and available for development and when applicable As Improved
Pg. 7-17
Unreasonable Requests
Request for Legal Permit of Addition and/or Renovation years before the assignment
In many circumstances when there is an addition the client will ask the appraiser to go beyond their scope of work to seek whether or not there was a permit issued for the addition and/or significant renovation. Some appraisers consider the tax records as their documentation for whether or not a legal permit was issued, some actually try to research the building and planning permit office to identify whether or not permits were issued. Some try and explain why they don’t believe this is a reasonable request.
Pg. 8-3
Ethics and Competency
The appraiser must be competent in their development of an appraisal and ethical in their reporting. In reporting the Ethics Rule relates to the appraiser’s willingness to communicate the whole truth regardless of the impact that truth will have on the transaction that is pending.
The signed certification statement is a signed statement of ethical obligations
forms many of those certifications are
problematic and litigious and need
clarification.
. Because most appraisers use pre-printed
Pg. 8-4
Suggested Additional Text for Certification
Certification Statement Subsection
“The intended user is informed that these statements represent the ethical obligations of the appraiser. These statements are pre-printed; clarifications are necessary so the intended users are not mislead as to the limitations of these statements. Under the appraiser’s obligatory development and communication expectations of competency the intended user has a right to understand the information sufficiently to such an extent that decisions, which prompted the appraisal order, can be made. For this reason certain clarifications are presented.”
Pg. 8-4 thru 8-10
Certification Problem Areas
Item # 2 Item # 5 Item # 7 Item #10 Item #14 Item #19 Item #21 Item #23 Item #___ The inspection Sale Contracts-Limitations Comparable Sale Selection Verification “all info” 1004MC & Environmental Names of Assistants Disclosure & Distribution Reliance Privileges Other Items Needed