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  #1  
Old 10-01-2007, 09:48 AM
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Default USPAP: Supplemental standards

If an appraisal is being performed for a "Federally Insured Depository Institution", for a "Federally Related Transaction", must I assume that there are supplemental standards in effect, even though no such requirement was made in the engagement letter, and no mention of adherence was made in the scope of the report?

I did a typical appraisal for a bank for a construction loan. The house was half built. I valued it "subject to completion", with hypothetical condition presented in cb2 on the URAR. The client now wants an "AS IS" value, of the half built house. I did not provide it in the report. USPAP Statement 10, D.2 states that it is required, IF supplemental standards rule is invoked.

-Have I violated USPAP?
-Should the engagement process have specifically required adherence to supplemental standards, (or is it necessary if it is an FRT).
-How would I as the appraiser known if they are a "FIDI" and it was a "FRT"?
-Does the lack of any mention in my scope of supplemental standards absolve me of liability?

Why do so many USPAP instructors always breeze over Stmt. 10?

Thanks in advance...
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Old 10-01-2007, 10:43 AM
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I'm no USPAP guru but I don't think S/S's are "invoked" but rather apply to certain assignments.

The appraiser is responsible for being aware of and complying with any S/S's. There is some controversy about S/S's in an assignment where the appraisal is developed to GSE supplementals. It appears to me that some appraiser's believe that when a client agrees to accept an appraisal reported on a GSE apraisal report form then the FRT supplemental's don't apply because the regulated agencies consider GSE supplementals to be the industry standard.

OREA states that an FRT is an FRT and Statement 10 applies.
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  #3  
Old 10-01-2007, 10:44 AM
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Quote:
Originally Posted by incognito View Post
If an appraisal is being performed for a "Federally Insured Depository Institution", for a "Federally Related Transaction", must I assume that there are supplemental standards in effect, even though no such requirement was made in the engagement letter, and no mention of adherence was made in the scope of the report?

I did a typical appraisal for a bank for a construction loan. The house was half built. I valued it "subject to completion", with hypothetical condition presented in cb2 on the URAR. The client now wants an "AS IS" value, of the half built house. I did not provide it in the report. USPAP Statement 10, D.2 states that it is required, IF supplemental standards rule is invoked.

-Have I violated USPAP?
-Should the engagement process have specifically required adherence to supplemental standards, (or is it necessary if it is an FRT).
-How would I as the appraiser known if they are a "FIDI" and it was a "FRT"?
-Does the lack of any mention in my scope of supplemental standards absolve me of liability?

Why do so many USPAP instructors always breeze over Stmt. 10?

Thanks in advance...
I think I would ask the lender to provide you with the supplemental standards they may have at this point. To ask whether the engagement process should include them is an afterthought at this point, however, to answer your question Yes it should. And while they should have offered them to you .. you should have asked if there were any.
If your appraisal was for a bank or thrift that is federally insured it was an FRT. I believe that goes without saying.
I dont think you are absolved of anything because you performed a poor scope of work. I do believe, however, you can correct the report, state that the correction is made due to the lack of disclosure of supplemental standards on behalf of the client, and you would be ok with your state board should this question ever come back to you.
Correcting a mistake is never a bad thing in my mind. Placing blame on where the mistake originated really serves no purpose. There is a mistake, it needs to be corrected, do so and move on.
Just my 5 cents worth.
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  #4  
Old 10-01-2007, 10:56 AM
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Quote:
If an appraisal is being performed for a "Federally Insured Depository Institution", for a "Federally Related Transaction", must I assume that there are supplemental standards in effect, even though no such requirement was made in the engagement letter, and no mention of adherence was made in the scope of the report?
Yes.

Along with the next edition of Uspap, the ASB will publish an AO explaining this. You can see it now on the AF website as part of the Second Exposure Draft of changes to the 06 Uspap. http://www.appraisalfoundation.org/s...2&DOC=FILE.PDF

It may be of interest that this AO is being issued as part of a set of changes led by the retirement of the Supplemental Standards Rule. Part of the rationale for retiring the rule is that "competency" includes knowing what requirements that are beyond Uspap apply to the assignment.

Quote:
-Have I violated USPAP?
Probably not significantly. If you did a Uspap compliant, as-is appraisal, you are at least in the ballpark.
  #5  
Old 10-01-2007, 10:57 AM
leelansford leelansford is offline
 
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Assuming here that you communicated a Summary Appraisal Report, SEE the current USPAP, Standards Rule 2-2 (b), (x) (lines 862-864): "clearly and conspicuously:
state all extraordinary and HYPOTHETICAL CONDITIONS; and state that their use might have affect the assignment results..."

Further, see AO-17, lines 120-123: "However, so as not to be misleading the appraisal report should clearly indicate the fact that the value of the property that actually exists as of the date of the report would be different from the value concluded for the property with the proposed improvements completed as described in the hypothetical condition(s) used in the appraisal."

Beyond this, it does become a bit "iffy" to offer an opinion of market value for a house that is in the early stages of construction.
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  #6  
Old 10-01-2007, 10:59 AM
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Quote:
Originally Posted by Steven Santora View Post
If you did a Uspap compliant, as-is appraisal, you are at least in the ballpark.
I thought the issue in this thread was that he DID NOT provide an "as is" value?
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  #7  
Old 10-01-2007, 11:11 AM
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Quote:
Originally Posted by Greg Boyd View Post
I thought the issue in this thread was that he DID NOT provide an "as is" value?
I was trying not to wake to bipolar bear by being accusatory. What I said was right. As far as it goes.
  #8  
Old 10-01-2007, 11:15 AM
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Quote:
I think I would ask the lender to provide you with the supplemental standards they may have at this point.
FWIW, the supplementals are published by the federal regulatory agencies and appear in the CFR's as well as other documents available on the internet.
  #9  
Old 10-01-2007, 11:46 AM
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Thanks for the input. To raise it to the next level, Statement 10 D.2, lines 3355 through 3361 imply that the AS IS value must be given, ""WHEN POSSIBLE".

In a market where there are no sales of partially built houses, and no data from which to extract a discount rate from cost, I feel as if it really is not possible to give an AS IS value of this partially built house.

Would you hang your hat on that USPAP verbiage, lines 3355-3361, and simply state that it is not possible to make a credible estimate of AS IS value, given the lack of data?
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Old 10-01-2007, 12:03 PM
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Quote:
Originally Posted by incognito View Post
Thanks for the input. To raise it to the next level, Statement 10 D.2, lines 3355 through 3361 imply that the AS IS value must be given, ""WHEN POSSIBLE".

In a market where there are no sales of partially built houses, and no data from which to extract a discount rate from cost, I feel as if it really is not possible to give an AS IS value of this partially built house.

Would you hang your hat on that USPAP verbiage, lines 3355-3361, and simply state that it is not possible to make a credible estimate of AS IS value, given the lack of data?
The incomplete home is something that is more typically seen outside of GSE-related lending. I've appraised several. While they are not easy assignments, they can be appraised. How they are appraised depend on the available data in the market.

Many times the purchasers of such properties are investors, and investors will buy such properties at the right price. I would view the valuation from the investor perspective rather than the perspective of the typical residential owner/occupant.
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