REO company requesting a 1004 to be used on a 4-plex

[Anthony Cannata]

As per my last USPAP instructor and Mr Rex, the 1004 can not be used for anything but "one-unit property or a one-unit property with an accessory unit; including a unit in a planned unit development (PUD)"

I believe that they could order it on an old URAR, as the same restrictions don't apply. I think. (Don't have the software on this computer) Either way, good luck to them if they ever intend on selling it on the secondary market.

I'd say use the appropriate form and state why the income approach wasn't used.

 

[realbiz]

Either way, good luck to them if they ever intend on selling it on the secondary market.

This is the main issue, a lender for asset purposes is not selling the loan. This is a loan they have gotten back. The least expensive way for them to get an appraisal is to order 2-4 units on a SFR form. I see these request from one of my clients all the time on their request form. I have not gotten a 2-4 unit request, so I have not had to discuss this with them. Now, if people are confusing this as a open market sale of a REO property, then no you should never use a 1004.

 

[CANative]

As per my last USPAP instructor and Mr Rex, the 1004 can not be used for anything but "one-unit property or a one-unit property with an accessory unit; including a unit in a planned unit development (PUD)"

I believe that they could order it on an old URAR, as the same restrictions don't apply. I think. (Don't have the software on this computer) Either way, good luck to them if they ever intend on selling it on the secondary market.

I'd say use the appropriate form and state why the income approach wasn't used.

Who is telling you that you cannot do something? If the form or an electronic image of a form is talking to you then there may be a problem. If it's Fannie Mae talking to you through the medium of a form or electronic image of a form then they can only tell you what you can or can't do if you expect them to use it.

And what is the appropriate form if the income approach isn't used?

 

[c w d]

I am not a sophisticated lender of money who relies on appraisal reports to give me the information I need to assess the risk. If I was and I didn't read the report and made a loan and lost some money then I guess it would be my fault, unless I was a litiginous weasel who blames others for my lack of diligence.

In the early days of appraisers forum the mantra was that the form does not drive the appraisal. It seems now that some are formbound.

No one on this thread can really give a definitive answer as to whether or not the income approach is necessary because the necessary part has too many things which are assignment specific.

Read cert 4 on a 1025 form. It states that the opinion of value is based on the sales comparison AND income approachs to value. So how can any push this form and then take this tactic:



Just "X" out the certification verbiage that doesn't apply?

Greg, many people do believe that if something is wrong it is someone else's fault. And those able to afford such lawsuits tend to utilize them as a means to recoup a loss or portion thereof or just make someone else's life hell. All I and several others are saying is use a form that does not state prominently SINGLE FAMILY in several locations for a multi-family dwelling. Hell, do a narrative. I don't think any of us really care which form you decide to do it on. But, we are offering what we feel would be in everyone's best interesting including the client and appraiser's. Does that make us form hounds? No. We're covering our asses as not to be misleading. Something as obvious as a form named SINGLE FAMILY for a multifamily appraisal could easily be used as a means to demonstrate just that, a misleading appraisal. Personally, I would rather do it on a blank napkin before I do it on an old 1004. Regardless of how qualified you are and your intentions and your verbose explanations a 1004 being used for a multifamily smacks of laziness and poor judgment either on the appraiser's part, the client's part or both. I guarantee that if such an appraisal is ever litigated the first question that will be asked is why the appraiser did a multifamily appraisal on a form clearly meant for a single family dwelling. After the appraiser explains that it was the client's request the next question is going to be to ask isn't it the appraiser's responsibility to determine how best to conduct and report the appraisal as the appraiser is the hired expert. The fact of the form alone will blow any credibility one has as an expert in the field. The rest of the answer the appraiser gives will be suspect in everyone's eyes.

Whether or not the income approach is necessary would depend on the structure and the SOW. If the structure is not habitable then whether or not the income approach is applicable depends on whether or not one is giving an "as is" or "subject to" opinion of value. If it is habitable then I would say an income approach is necessary and is dependent on the quality of the living conditions. Did I miss something? Is there a compelling reason not to do the income approach? Ultimately, it's up to the appraiser doing the appraisal to determine if it is applicable. If it isn't applicable for a property whose primary purpose for existence is to generate income then credible, supportable reasons need to be made for why the income approach isn't being utilized. While the SOW is pertinent to how one conducts and reports an assignment per USPAP we cannot let the conditions of an assignment impede our ability to develop credible assignment results. If it's habitable but no income approach was utilized I'd have to conclude that the opinion of value may not be credible without further examination.

 

[CANative]

I was entertaining myself with a little pot stirring. But I was also trying to point out some inconsistencies in the arguments.

If the report is not credible it is the fault of the appraiser and not the form. If you can't report the appraisal of a 4 unit property that can't produce income in its as is condition on the 1004 simply because the form says Single Family Residence then by the same standard you can't report the appraisal on the Fannie Mae 1025 because it states that the opinion of value is based on both the sales and income approaches.

Other arguments that reporting an appraisal on "the wrong form" is a USPAP violation are simply not supported by facts. USPAP does not dictate form or format. These arguments rely on interpretations of various sections of the Ethics Rule and are typically tied to the term "misleading." Again, this is a matter of intended use, scope of work agreements and the communications skill of the appraiser.

The argument should not be: You can't do this because the form says so therefore it is illegal.

The argument should be: You shouldn't do this because it increases your risk of liability beyond the benefit of the fee.

 

[Pamela Crowley (Florida)]

Actually, USPAP didn't take it away from us,

FANNIE FORMS IS WHAT BAS*ARDIZED APPRAISAL REPORTING.

WHEN are appraisers going to take back their own business?

Lender's wants and needs MUST become secondary to making sure the appraisal is completed appropriately and the report NOT tampered with! It's already more than obvious they are NOT handling the appraisal issues with any reasonable and responsible due diligence and/or caring for protection of the public and the good of society. What they want should NOT interfer with what is right.

It seriously looks like a whole new organization of professional appraisers is needed and those that have been running TAF, ASB, AQB, the AMCs and other appraisal related businesses and organizations should not be involved in running the new organization.

I am so sick to death of the GSEs and too many of the lenders ruining the appraisal process and the appraisers independence and integrity.

 

[PropertyEconomics]

I was entertaining myself with a little pot stirring. But I was also trying to point out some inconsistencies in the arguments.

If the report is not credible it is the fault of the appraiser and not the form. If you can't report the appraisal of a 4 unit property that can't produce income in its as is condition on the 1004 simply because the form says Single Family Residence then by the same standard you can't report the appraisal on the Fannie Mae 1025 because it states that the opinion of value is based on both the sales and income approaches.

Other arguments that reporting an appraisal on "the wrong form" is a USPAP violation are simply not supported by facts. USPAP does not dictate form or format. These arguments rely on interpretations of various sections of the Ethics Rule and are typically tied to the term "misleading." Again, this is a matter of intended use, scope of work agreements and the communications skill of the appraiser.

The argument should not be: You can't do this because the form says so therefore it is illegal.

The argument should be: You shouldn't do this because it increases your risk of liability beyond the benefit of the fee.

But you can do an income approach if you then back out all of the costs of renovation, profit, etc inorder to make the property an income producer.
The 1025 form remains the correct form for 2 - 4 family property.

And for what its worth, and to your point Greg, I think every job we do has liability that stretches well beyond the fee.

 

[Rich Heyn]

One of the reasons that USPAP requires the appraiser to identify the client and additional intended users is to establish to whom the appraiser is responsible. The appraiser is not required by USPAP to avoid misleading unintended users, only intended users. In other words, when USPAP refers to "a manner that is not misleading" it is within the context of misleading intended users, not third parties. Granted some state boards may not agree with that, which becomes pretty scary and may be an excellent reason for refusing an assignment such as the one discussed in this thread.

Intended use is the primary driver of Scope of Work, or what the appraiser does or does not do.

Intended user is the primary driver of what/how much the appraiser reports and how it is presented. Assuming the client is an astute financial entity and the client is requesting the appraisal of a multi-unit be reported on a 1004 and the appraiser makes appropriate disclosures, then what is misleading about it?

Again, bad business practice, ugly and perhaps unprofessional, but I don't see a USPAP violation.

 

[Riick]

Does no one remember that FHA always used the 1004, no matter if it were a SFD / Duplex / Triplex / 4-plex. ???

It's not the form it's the content.

And I can confirm that many companies have rightfully decided that the 1004 is just fine for a 2/3/4 unit REO property in poor condition.
Typically: "Property is not in leasable condition"
- so what are current rents? Zero.
- what are projected rents? Well, that depends on what renovations you, as the appraiser, project.
You call that "information" ???
.
As far as the boilerplate in the Fannie-inspired (2005) 1004 form, you have to be watchful, or use an earlier form, and still be watchful, or use one of the forms the Formfilling industry has "developed".
.
Disclose Disclose Disclose Disclose Disclose Disclose Disclose Disclose

 

[Rich Heyn]

While the SOW is pertinent to how one conducts and reports an assignment per USPAP we cannot let the conditions of an assignment impede our ability to develop credible assignment results.

CWD,
While I agree with most of your post, especially your take on the liability issues, I must respectfully take issue with what I've quoted above. The reporting format has no impact on an appraisers to develop credible assignment results, only on the reporting of the results.

Scope of work is defined as the type and extent of research and analysis in an assignment, not the amount of research and analysis reported. Scope of work dictates how much you do in arriving at your assignment results, not how much you report. What and how much you report and how you present it are primarily driven by intended user. In this case you have a client asking for a reporting format that most of us would consider inappropriate, difficult to make USPAP compliant, laden with liability and simply not something that most of us would want to do. But not liking it does not make it USPAP non-compliant.