Transcript Welcome to {Organization}

Chapter 5
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Reporting
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Chapter Objectives
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• Upon completion of this chapter, the
participant will be able to:
– Select the appropriate reporting avenue appropriate in
an assignment of a two- to four-unit or multi-family
property
– Recognize Fannie Mae guidelines and integral
obligations applying to the use of the Fannie
Mae/Freddie Mac Reporting Form 1025/72 for small
residential income properties
– Prepare the Fannie Mae/Freddie Mac Reporting Form
1025/72 and develop effective commentary
– Compile required data and correctly complete analysis
necessary for completion of the Fannie Mae/Freddie
Mac Operating Income Statement Form 216/998
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Key Terms
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• Gross Building Area (GBA)
• Gross Living Area (GLA)
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Narrative Appraisal Reports
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• When permitted, they may be favored by many
appraisers because:
– The free format allows for the report to be
structured and flow in the manner that can best
be understood
– The free format is most beneficial to clients and
intended users
– Properties with more than four units generally
are reported using a narrative reporting format
• Fannie Mae Form 1025/Freddie Mac Form 72
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Completing the Fannie Mae Form
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1025/Freddie Mac Form 72
• Most common reporting form used for
reporting the appraisal of a 2- to 4-family
property for use by a lender client
• 7-page report and provides an orderly and
systematic flow of information and
commentary
• Developed for use by Fannie Mae and
Freddie Mac
– Has been adopted for use by other lending
entities such as the FHA and VA and other
lenders
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General Use Provisions
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Scope of Work
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Intended Use
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• This statement satisfies the USPAP requirement
to state report’s intended use(s)
• The existence of this statement, integral with
the form, makes using this form for other nonfinancing uses (e.g., marketing, estates,
litigation) unacceptable
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Intended User
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• Satisfying USPAP requirements to state the
intended user, the intended user in this case is
predetermined to be the lender/client.
• Again, this specification eliminates the use of this
form for other non-financing uses and users
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Definition of Market Value
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• Illustrates the most commonly used and
described method
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Statement of Assumptions
and Limiting Conditions
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• Assists the appraiser in establishing the
limitations of responsibility on the part of the
appraiser
• Some elements also further emphasize the
scope of work performed in the assignment,
such as providing:
– A sketch of the improvements
– Research of flood information
– Other notes regarding any unfavorable
conditions found, or not found, within the
subject property
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Appraiser’s Certification
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• Examples of statements include:
– Specific methodology used in the assignment and,
unless otherwise indicated, the cost approach was not
developed
– Analysis and reporting of offerings and any current
sales agreement of the subject property
– Research, verification, analysis, and reporting of prior
sales of the comparable data
– Process of selecting and analyzing comparable sales
data
– Techniques for adjusting comparable sales
– Competency in the assignment
• The certification cannot be modified
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Subject
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Contract
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• Applicable only when subject is in connection with
financing for a purchase transaction
• Fannie Mae specifically indicates the lender is
responsible for providing the appraiser with a copy of
the sales contract and any additional pertinent
information (which the lender is aware of) not included in
the sales contract
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Neighborhood
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Site
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Improvements
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Comparable Rental Data
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Subject Rent Schedule
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Prior Sale History
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Sales Comparison Approach 5
• See image on page 77
• This section may seem somewhat similar to
that found in the URAR reporting form for
single-family properties
– However, there are some distinctive
differences that should be quite apparent
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Income Approach
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• Identical to that on the URAR reporting form for
single-family properties, using the GRM method
• Fannie Mae does not accept appraisals that rely
singularly on the income approach as an indicator
of market value
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Cost Approach
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Reconciliation
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Planned Unit Development
(PUD) Information
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Fannie Mae defines a PUD as a project or subdivision
consisting of common property and improvements owned
and maintained by a homeowner’s association for the
benefit and use of the individual PUD units*
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* Fannie Mae 2010 Selling Guide – B4-2.3-01, PUD: Lender Full Review Requirements (04/01/2009), page 585
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Completing Operating Income
Statement Form 216/998
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• Required exhibit to accompany the
1025/72 Small Residential Income
Property Appraisal Report for a 2- to 4unit income property
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General Instructions
and Rent Summary
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• Completion of the form is a joint effort of the
loan applicant, appraiser, and lender’s
underwriter
• Rental is based on an unfurnished unit
• Rent schedule states:
–
–
–
–
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Which units are currently rented
Expiration date of any lease agreement
Contract and market rent
Party responsible for payment of specified
utility expenses
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Annual Income and Expense
Projection for Next 12 Months
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• Very similar to the Reconstructed
Operating Income Statement presented in
Chapter 3
• Some expenses are not included in this
projection (e.g., real estate taxes and
hazard insurance)
– These are later included in the owner’s
monthly housing expense
• Income and expenses for owner-occupied
units are not included
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Replacement Reserve Schedule 5
• Replacement reserves must be
calculated regardless of whether actual
reserves are provided for on the owner’s
operating statements or are customary in
the local market
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Operating Income Reconciliation 5
• First analysis addresses the monthly
operating income of the property, based
on the annual income and expense
projection from Page 1 of the form
• Second analysis concludes on a net
monthly cash flow for the property by
subtracting monthly housing expense from
monthly operating income
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Other Report Addenda
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• In most cases, especially for appraisals
reported on the Fannie Mae Form 1025/72,
the following exhibits are required:
– Exterior building sketch indicating dimensions
– Calculations demonstrating how the estimate for
GBA and GLA are derived
– Street map showing location of subject and all
comparables used
– Clear, descriptive, original photos showing front,
back, and a street scene of the subject and the
front of each comparable sale*
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*Fannie Mae 2010 Selling Guide – B4-1.2-06, Appraisal Forms and Report Exhibits (10/30/2009), page 486
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Chapter 5 Quiz
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1. If a neighborhood is fully developed,
which box should be checked in the
Neighborhood Characteristics section
for the category of Growth?
a.
b.
c.
d.
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Not Applicable
Rapid
Slow
Stable
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Chapter 5 Quiz
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2. When a subject property is something
other than “legal” for zoning
compliance, when reporting, the
appraiser should
a.
b.
c.
d.
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modify the scope of work.
provide additional commentary.
state that the improvement should be razed.
withdraw from the assignment.
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Chapter 5 Quiz
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3. A mother-in-law unit created by
converting the detached garage of a
primary dwelling
a. could not be reported on the 1025/72
reporting form.
b. is an example of an accessory unit.
c. is never permitted by Fannie Mae.
d. is not considered a separate living unit.
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Chapter 5 Quiz
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4. Which is a TRUE statement if physical
deficiencies that could affect the
property’s soundness are noted in the
subject structure by an appraiser?
a. The appraiser must cease the appraisal.
b. The property cannot be appraised subject to
satisfactory inspections.
c. The report must be based on an “as is”
scenario.
d. They must be described in the report.
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Chapter 5 Quiz
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5. Which is NOT a component of the
Subject Rent Schedule integral with
form 1025/72?
a.
b.
c.
d.
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actual (contract) rent
fixed expenses
other monthly income
utilities included in estimated rents
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Chapter 5 Quiz
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6. The Prior Sale History section of Form
1025/72 requires an appraiser to
research and comment on whether the
subject property
a. has been listed for sale in past 36 months.
b. has ever sold in the past.
c. is currently, or in the past 12 months prior to
the effective date, been listed for sale.
d. is listed for sale currently; however, there is
no requirement for prior listings.
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Chapter 5 Quiz
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7. Regarding the selection of comparable
sales, which is NOT a guideline of
Fannie Mae?
a. Comparable sales older than six months cannot be
used.
b. Current listings may be used as supporting data.
c. A minimum of three comparable sales must be
reported.
d. The prior sale of the subject property can be used as
a fourth comparable.
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Chapter 5 Quiz
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8. Per Fannie Mae requirements, the cost
approach
a. does not need to be reported, except for
manufactured housing.
b. is a primary indicator of market value.
c. must be developed and reported for all
two- to four-family properties.
d. should be developed if the improvements
are less than five years old.
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Chapter 5 Quiz
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9. According to Fannie Mae, the final
reconciliation must never
a. be based on an averaging technique.
b. elaborate on the relevance of data used in
each approach.
c. give most weight to the sales comparison
approach.
d. reconcile the reasonableness of available
data.
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Chapter 5 Quiz
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10. Regarding two- to four-family properties
in which one of the units is owneroccupied, which statement is TRUE?
a. Income and expenses for owner-occupied
units are not included.
b. Operating expenses for the unit are included
but income is not.
c. The Operating Income Statement is not
included in such case with the 1025/72
report.
d. Potential income from the unit is estimated
and used in determining effective gross
income.
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Chapter 5 Quiz
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11. In a three-unit apartment building which has
no owner-occupied units, if dishwashers in
all units are expected to be replaced in four
years, what is the total annual replacement
reserve for the property? Dishwashers cost
$400 per unit and should last 15 years from
date of purchase.
a. $25
b. $100
c. $300
d. $400
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Chapter 5 Quiz
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12. If the subject property has an annual
effective gross income of $26,040 and
annual expenses of $10,416, what is the
monthly cash flow reported on the
Operating Income Statement 216/998 if
monthly housing expense is $937?
a.
b.
c.
d.
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$234
$365
$401
$552
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