Hypothetical Site Size -- Appraising only 5 acres from larger tract.

[Mary Tiernan]

It is my belief that the new 1004 forms cannot be utilized when a client asks for a hypothetical site size appraisal (value only 5 of 20 acres). I utilize the old 1004 form, make all the correct statements, assumptions, etc.

But, lately I have had a few clients tell me to go ahead and use the new 1004 form, just state that this report deviates from Fannie Mae Supplemental Standards. Now, I think that utilizing the new form alludes that the report itself will not deviate from Fannie Mae Supplemental Standards, and to utilize the new 1004 form for such an assignment would result in a misleading report - I, therefore, decline and give my reasons.

I'm sure most of you (those that will perform hypothetical site size reports) agree with me, but I wonder has this question been given a definitive answer by the Appraisal Foundation or Fannie (beyond the statement that the use of hypothetical site size is an unacceptable appraisal practice), or anyone?

I have searched the forum, and kept pretty up to date with all the news and tidbits and information on this forum over the past few years, but, did I miss something that I might actually be able to share (meaning -shove down their throats) when they suggest this? LOL

Thanks for the help.

This thread has been turned into a sticky. For the best answer to this question see post 34. Moderator.

 

[Otis Key]

It is my belief that the new 1004 forms cannot be utilized when a client asks for a hypothetical site size appraisal (value only 5 of 20 acres). I utilize the old 1004 form, make all the correct statements, assumptions, etc.

Good belief. Might suggest reading up on the Fannie advisories about the revised forms. YOU CANNOT CHANGE THEM AND THAT MEAN IMPOSING ANY HC'S THAT ARE IN DIRECT CONFLICT WITH WHAT THEY'VE ALREADY ADDRESSED (Yes, they have addressed this!) not to mention that there is the Appraisers' Guide to Using the Fannie Mae forms that has been out for years.

But, lately I have had a few clients (Let me guess --- "client" = "MB") tell me to go ahead and use the new 1004 form, just state that this report deviates from Fannie Mae Supplemental Standards. Now, I think that utilizing the new form alludes that the report itself will not deviate from Fannie Mae Supplemental Standards, and to utilize the new 1004 form for such an assignment would result in a misleading report - I, therefore, decline and give my reasons.

I'm sure most of you (those that will perform hypothetical site size reports) agree with me, but I wonder has this question been given a definitive answer by the Appraisal Foundation or Fannie (read my comments above and/or search the Fannie/Freddie/USPAP section) (beyond the statement that the use of hypothetical site size is an unacceptable appraisal practice) (Their form, their game, their RULES), or anyone?

I have searched the forum, (Search some more - it's been driven into the ground with similar questions about HC) and kept pretty up to date with all the news and tidbits and information on this forum over the past few years, but, did I miss something that I might actually be able to share (meaning -shove down their throats) when they suggest this? LOL

Thanks for the help.

 

[Mr Rex]

I have said since the new forms came out, that if the lender wants to use the new form and not comply with Fannies rules, we should check CB4, with the required inspection being examination by the ultimate lender for compliance with their standards. Of course, I have little support, but I look forward to the acceptance of the scarlet letter as indication that the subject doesn't met the old girls dreams. Of course, I dream as well.

 

[hastalavista]

Mary-

You have several issues here that have been discussed individually. I'll give you my read on a few of them:

It is my belief that the new 1004 forms cannot be utilized when a client asks for a hypothetical site size appraisal (value only 5 of 20 acres). I utilize the old 1004 form, make all the correct statements, assumptions, etc.

Since this question deals with specific forms, I'll try to give you what I would call a "form" answer and then a general "appraisal" answer:

I agree with your first sentence. IMO, it is not so much the "form" but the pre-printed certification that makes it impossible to legitimately use this "form" and sign the certification while employing an HC such as the 5-not-20 acre type.

The previous "forms" did not have the same type of certification, so there was no prohibition against introducing an HC per se.
However- if the intended use of the report is for a mortgage finance lending decision by a FRT or follower of any of the GSE guidelines, then using the HC as you describe for that intended use would not be appropriate. The intended users (as I described/defined them) all need an "as is" value.

My position is that, in general, using any of the pre-printed forms (1004, etc.) for a non-mortgage finance transaction or related appraisal (such as PMI removal or trust valuation for a bank) is not a good idea. These forms have language in them that references mortgage finance appraisals; although you can modify the older forms, my opinion is to not use any of these forms for non-lender work.

(I am of the opinion that the 5 vs. 20 acre value question may be legitimate by a lender; the problem is that this cannot be represented as the "as is" value on page two of the 1004. And, to clarify, for a lender, they will have to value the property on their books based on the "as is" value. I think they can make a LTV decision based on the HC value, but that's a whole different ball game; and, I've never been able to validate my opinion in the real lending world- yet!)

But, lately I have had a few clients tell me to go ahead and use the new 1004 form, just state that this report deviates from Fannie Mae Supplemental Standards.

It could be done if you do not use the pre-printed certification, and just use pages one and two. I would not recommend this for reasons I stated above.

Now, I think that utilizing the new form alludes that the report itself will not deviate from Fannie Mae Supplemental Standards, and to utilize the new 1004 form for such an assignment would result in a misleading report - I, therefore, decline and give my reasons.

I'm with you.

I'm sure most of you (those that will perform hypothetical site size reports) agree with me, but I wonder has this question been given a definitive answer by the Appraisal Foundation or Fannie (beyond the statement that the use of hypothetical site size is an unacceptable appraisal practice), or anyone?

I'm not sure this question needs to be addressed as such.
The form has specific language that is relatively clear; if one signs the certification one is certifying that they are in compliance with what is enumerated on pages 4-6 of the 1004 form.

Throw the form away; if you know that the intended use of the report is for a mortgage finance transaction by a lender (as I defined above), then you also know they require an "as is" value to make the loan.
Now, introduce the form and what changes? Nothing, except that the form (now) specifically states no additional HCs can be used other than the choices provided; and there can be no modification to this. That's pretty clear, no?

Just my 2-cents.:new_smile-l:

 

[Fred]

It is my belief that the new 1004 forms cannot be utilized when a client asks for a hypothetical site size appraisal (value only 5 of 20 acres).

The form has nothing to do with it. The hypothetical is inappropriate.

did I miss something that I might actually be able to share (meaning -shove down their throats)

I have seen the debate about ten times. There are none so blind.

If so inclined you can try this excerpt from the federal interagency guidelines.
For federally related transactions, an appraisal is to include the current market value of the property in its actual physical condition and subject to the zoning in effect as of the date of the appraisal.

 

[Lee Lansford]

Mary, it would help everyone in responding if you would identify the Intended User and the Client (neither specifically by name, but by type).

 

[CANative]

I have one of these to do. I'm debating on which form to use. It would be very easy to use the 1004c new form because then I can clone an almost identical property I appraise a few weeks ago.

Subject as is right now is 14 acres. They want it appraised as 10 acres. The reason for the appraisal is because the property owner is doing a boundary line adjustment that will make their property only 10 acres (the other 4 acres is going to the adjacent property owner) The mortgage holder needs to know what the vaue will be with only 10 acres before they OK the boundary line adjustment and release the 4 acres.

So here's an example of when a HC 5 out of 20 is legitimate.

 

[Mary Tiernan]

There are none so blind???

What did I do to deserve that????

I did search the Fannie/Freddie forum, and I review the forum daily, hence my statement that I have kept up to date with forum information/tidbits, etc. I have read all the debates on this forum regarding the new/old 1004. Thanks for the advice, though.

What I was looking for was a definitive statement or ruling. Perhaps my post did not make that clear enough.

The interagency guideline may help some - thank you for posting it.

The only time I utilize the hypothetical is when client specifically asks for old 1004 as the loan is kept in house, with specific statements on the order and kept in the work file. I do have a couple lenders who do not sell to Fannie and who make that perfectly clear in their order form.

My question specifically relates to lenders who may sell to Fannie, with the intended use to estimate market value for a lending transaction. My question is a result of 1) a credit union 2) a large bank 3) a local mortgage company who, once the report was completed on actual site size, per order instructions, come back and say, by the way can you do this on only 5. I then state that I can perform another appraisal, however, will have to utilize a hypothetical and convert to old form, and it will cost this much more. Of course, with $$$ signs in the equation, I am then told to utilize the new form. Funny, now that the smoke has cleared from implementation of new forms come the outrageous requests, eh?

I am aware that it is the preprinted Limiting Conditions that put a stop to such activity, just wanted to know if there were any definitive statements from anyone that I could share with these lenders. Based on the responses provided, I will assume there are no definitive statements, and will continue to refer my clients to limiting conditions.

Mr. Boyd, I do believe that in your specific instance a check box on the new form could be utilized regarding the hyopthetical that the required repairs are completed, the repairs being the new parcel ids and legal descriptions.

 

[Mike Kennedy]

Question: A local lender has asked me to appraise only a 5-acre portion of a 62- acre parcel, stating that Fannie Mae will lend on no more than 5 acres. Am I permitted to comply with this request?

Response: Standards Rule 1-2(e)(v) states that the subject of an assignment may be a physical segment of a property. However, appraisers must also comply with any Spplemental Sandards that might apply (see SUPPLEMENTAL STANDARDS RULE).

If the assignment requires compliance with supplemental standards published by Fannie Mae, the Apraiser must be aware of the current policy.

As stated on page 35 of the Fannie Mae Handbook for Appraisers:
Some appraisers report that they have been asked to appraise only a portion of a larger site: for example, the borrower owns a 30-acre site and you are asked to appraise only five acres and the property improvements. Fannie Mae considers this an unacceptable appraisal practice…

Failure to recognize this supplemental standard would be a violation of the ETHICS RULE or COMPETENCY RULE.

From: “USPAP – Frequently Asked Questions 2005”
By: The Appraisal Foundation, Washington, D.C.

 

[Fred]

There are none so blind???

What did I do to deserve that????

It wasn't directed at you. It was a general statement about a profession whose standards are geared toward prmoting and preserving public trust, but whose body of knowleldge doesn't include some very simple and obvious realizations - like that mortgage appraisals have to be "as is" (not hypothetical) to be credible and trustworthy. That is, the subject property in collateral valuation is the collateral. Five acres is not the collateral.

It also means that no matter how you explain this is bent to a bent LO or MB, they won't care. Shove all the regulatory documents in the world under their noses and they won't see them or your name on the list the next time they are looking to cut corners and push one through a system it doesn't belong in.

As they say, all mortgage fraud includes a bent appraisal. How do appraisals get that way? Simple. Easily observable facts about the subject property are ignored or misidenfitied. It doesn't matter what the nature of the misidentification is - igoring a barn, ignoring an oil slick, ignoring 15 acres, or appraising 5 acres as if it were 20. They are covered under the USPAP rubric of "relevant characteristics."

It all raises an interesting question about how much of "Skippy-ism" is intentional? Are the loan brokers simply finding people who do what they "were taught" or those who know better? They just keep pushing until the path of least resistance reveals itself.

I am of the opinion that the 5 vs. 20 acre value question may be legitimate by a lender

And yet you can't support that opinion by citing any lender who says that. I am not disagreeing with you. It's just that in 20 years, I have only seen lender guidelines that exclude the practice and none that would permit it.

As for the "form," I suspect Fannie doesn't buy paper from anyone who isn't already covered by federal regulatory requirement for as-is value.