Change in GLA from Plans & Specs

[Richard Carlsen]

For clarities sake, the prior conditions were not satisfied because the attic was finished instead of unfinished, or the shed was added. The prior conditions were satisfied but however, then even more was done up and above the required conditions that caused the improvement to not be the improvement that you based your prior HC on.

I have to say that the above statement is pushing the parsing to near the max. On the perpatration of such minuscule thought, lawyers make millions and archbishops become cardinals. For shame.

Just do a 1004D, tell the client about the wonderful extras in the subject along with a bunch of wonderful pictures, send it in, collect your fee and get on with your life.

 

[RSW]

Webbed, that is what Mike and I have been saying all along in this thread. There were a few that just did not agree that this should be done on the 1004 and not on the 1004D. It is possible to do it on the 1004D but would require a lot of addendums to bring it up to USPAP compliance. You are correct is stating it would be easier to use the 1004 form.

 

[Richard Carlsen]

I think everyone is getting all hyped up about telling the client exactly what has been done, what changes have been made, how they sit in the market, telling the client what the census tract number, parcel ID, if there have been any transfers and on and on with all of the myriad requirements of the 1004.

There is one thing that everybody seems to be forgetting: THE ASSIGNMENT.

And in the assignment (which we all agree constitutes a new appraisal assignment) all the client wants to know are two things: 1) Is the property finished (i.e. work completed)? 2) Is the value at least that contained in the original report? Answering these two questions will constitute the essence of the report for this appraisal. And for the purpose of completing the assignment, the 1004D works beautifully as the reporting vehicle. Do you suppose it might have been designed just for this reason? It answers the questions that the client needs to know. Reread the Intended Use of the Completion section and then the Update section of the 1004D report. They go like this:

INTENDED USE: The intended use of this certification of completion is for the lender/client to confirm that the requirements or conditions stated in the appraisal report referenced above have been met.
INTENDED USE: The intended use of this appraisal update is for the lender/client to evaluate the property that is the subject of this report to determine if the property has declined in value since the date of the original appraisal for a mortgage finance transaction.

You will note that the intended use of the report exactly matches the assignment conditions of the order from the client.
1.) Is it done per plans and specs? Answer - YES (With additional finish and an additional structure)
2.) Has the value declined since the original appraisal? Answer - NO. (In fact, due to the additional completion and additions, it now has a higher estimated MV than originally reported but as to how much more, the client has not told us in the assignment that they neither want nor need to know the current estimated MV. All they want to know is if it is "at least as much as the original appraisal.")

Why on earth would anybody want to use a 1004 to report the result of the appraisal when the assignment can be fulfilled with a 1 page report. (Unless of course they have a boat payment coming due and are trying to hit the client up for several hundred dollars more for the 1004 over the 1004C in which case, the argument for the 1004 begins to make a lot of sense.)

 

[Mike Kennedy]

"1) Is the property finished (i.e. work completed)?" NO.

The 3100sf property appraised and described per plans & specs in the original appraisal does not exist. The appraisal value in the prior appraisal report is moot. An opinion as to whether THAT value has declined is unsupported by the current facts. Unless revised, the contract of sale (if there was one) for the 3100sf dwelling is also moot. The HC "3100sf dwelling as described" which supported the OV in the OAR no longer exists. New contract, New dwelling, New market analysis, new Comparables for a 3900sf dwelling AS-BUILT, New 1004. 1004d is not appropriate as the subject in the OAP does not exist.

 

[PropertyEconomics]

"1) Is the property finished (i.e. work completed)?" NO. Misleading ... YES it is complete. You cant show me one thing mentioned in those original plans and specs that wasnt completed. Additions mean ON TOP OF ... the base is the same. We may be quite picky on words here but the fact is you cant show me what hasnt been completed that the original report said would be completed. Certainly if 3,900 square feet is complete then 3,100 square feet is complete. It is the same house with additional finish.

The 3100sf property appraised and described per plans & specs in the original appraisal does not exist. The appraisal value in the prior appraisal report is moot. An opinion as to whether THAT value has declined is unsupported by the current facts. Unless revised, the contract of sale (if there was one) for the 3100sf dwelling is also moot. The HC "3100sf dwelling as described" which supported the OV in the OAR no longer exists. New contract, New dwelling, New market analysis, new Comparables for a 3900sf dwelling AS-BUILT, New 1004. 1004d is not appropriate as the subject in the OAP does not exist.

The onus of meeting USPAP requirements lies wholly with the appraiser and USPAP recognizes this. If the OP wishes, and the client agrees, the report can be completed on a cocktail napkin in crayon.
How the reporting is done lies per agreement with the client and the appraiser. It may in fact be more simple to do a new report, "as is" for the subject, but it is not the only means of reporting the appraised value of the subject as it exists at the time of inspection which can be USPAP compliant.
How we would each handle this is a business decision, however, as long as USPAP is followed and met, we would all be technically correct in our approaches.

 

[Webbed Feet]

<..... snip.......>How we would each handle this is a business decision, however, as long as USPAP is followed and met, we would all be technically correct in our approaches.

All except the guy in post 113. Because he is not dealing with the facts and reality that the 1004d is supposed to be a Summary real estate appraisal. If he bothers to check the Standard One requirements for developing a real estate opinion, and the Standard Two requirements for reporting to a Summary level, he will find the 1004d misses the mark on both counts. The prior property appraised was hypothetical at the time of that appraisal, and in fact remained hypothetical because something else was built instead. We can't just pull it out of our asses from "common sense" that the market value is not lower than that found for a hypothetical property. We have to prove it using industry standard acceptable methods.

Webbed.

P.S. By the way, I know Standard One is work file information and a "Form" is reporting under Standard Two. That doesn't alter the fact that the majority of residential appraisers use the forms themselves for worksheets in order to organize their Standard One compliance into a logical set of coherent thoughts. So what I mean is the 1004d misses the mark not only as any sort of a decent worksheet for most appraisers, it very much misses the mark for reporting requirements if attempts are made to use only the 1004d.

While I do agree that for the "assignment" there would be a lot of unneeded information that has entry fields on the 1004/URAR, on the other hand very few appraisers have customized their own forms in order to overcome the inadequacies of the 1004d. Those appraisers would be better served just providing a new 1004/URAR as then they would not be so apt as to forget something they needed in order to achieve USPAP compliance.

 

[Richard Carlsen]

The prior property appraised was hypothetical at the time of that appraisal, and in fact remained hypothetical because something else was built instead.

It is my understanding that the property appraised was built and then some previously planned unfinished area was finished as well as one additional building was added to the site for a workshop. So the improvements described in the plans and specs in fact exist as well as do the additional finish and out building. These improvements certainly cannot be said to constitute a hypothetical condition because it can be, in the contemplated form be seen, touched and measured and thus compared to the plans and specs. The additional finish is described in the report to inform the reader. A simple statement such as the following will suffice;

"The subject has had additional interior finish completed that was not in the original plans and specs, adding 2 bedrooms on the upper floor that was originally attic space. In addition, a large (24 x 40 ?) building has been built that is designed to function as a workshop. These improvements are done in a way and have a utility that is market acceptable. While the GLA of the primary structure has been increase by this finish, the overall exterior design, dimensions and quality of construction stated in the plans and specifications have remained the same." ​

We can't just pull it out of our asses from "common sense" that the market value is not lower than that found for a hypothetical property. We have to prove it using industry standard acceptable methods.

Nobody said you extract a value from where the sun does not shine. This report, like every other report, reports on the results of an appraisal completed by the appraiser. In order for the appraiser to say that value has not declined, it is necessary to complete a sufficient analysis of any new data available and make a judgment as to the value being at least what it was in the original report. The methodology (industry standards) are contained in the original report and the update is made by reference, all in compliance with USPAP and with the assignment conditions of the secondary market.

If using this report bothers you, don't. There are those of us who see this as a fairly simple straight forward inspection for completion and determination of a minimum value based on an update.

BTW, if one were to use a 1004 for this assignment, how would one report on that form the assignment question, "Has the value of the appraised property in the original report declined?". Would one answer with a simple YES or NO in the line for value opinion in the Reconciliation? Or would one give a value and then just leave it up to the client to compare the two and make his own determination? Or would one make a very lengthy comment in the addendum, telling the client that he does not know what he is doing requesting a FNMA 1004D for a FNMA loan on a new construction? Bet that would go over well. And if the client did not want a 1004 or was not willing to pay for a 1004, should one still do the assignment or would one decline it?

Make it complicated if you must. I for one do no think it is necessary to attempt to complicate this assignment.

 

[Mike Kennedy]

BTW, if one were to use a 1004 for this assignment, how would one report on that form the assignment question, "Has the value of the appraised property in the original report declined?".

Dear Client: The 3100sf Dwelling described in the original report was not built i.e the 1004D report form is inappropriate, irrelevant to the "as-is" subject, and potentially misleading. Assignment requires Upgrade to a 1004_05. Recommend revising the Order and find out what the market indicates the 3900sf house they DID build is currently worth. Be glad to complete it by end of business tomorrow.

 

[Jo Ann Meyer Stratton]

Regardless of terminology what is the client looking for?

Do they only want to know if the home has been completed with at least materials and features that are equal to or exceed the original plans and specs? If so complete the bottom of the 1004D, with not applicable written all over the top of the form. Have statements that yes they did build a 1200 or larger home with the amenities described in the original report. Not only that they built additional livable area that is similar or superior to the original plans. Send them an invoice.

Do they want to know today if the market value of the home is at least what you said it was six months ago. Then fill out the top of the 1004D with a statement not only is the market value at least that amount, it could change due the additional work done. Send them an invoice.

Because of the changes, do they want to know what the market value of the home is today due to all the changes that have been made. Measure the property, find current sales, listings and pendings--report your findings on a 1004. Send them an invoice.

Talk to your client and then you as the appraiser determine the appropriate course of action that would be in compliance with USPAP and standard appraisal methods and techniques.

 

[Webbed Feet]

<..... snip....>
Do they want to know today if the market value of the home is at least what you said it was six months ago. Then fill out the top of the 1004D with a statement not only is the market value at least that amount, it could change due the additional work done. Send them an invoice.

M.s Meyer-Stratton,

And I will maintain that if the above that I underlined is all the real estate appraiser involved does then when, and if, that appraiser faces a board complaint over it.... that appraiser will be sanctioned for the USPAP violations involved.

Webbed.