What makes an appraisal complex?

[Edward OConor]

Are there any clear-cut rules that make a residential complex?

 

[Lee Lansford]

Are there any clear-cut rules that make a residential complex?

The only answer (non-value based):

VERY limited market data from which to develop an opinion of value.

WITH an abundance of data, every assignment is easy.

 

[Calvin the Airedale]

Are there any clear-cut rules that make a residential complex?

"I know of only one definition for "complex". It comes from CFR regulations, Title 12, Section 34.42 and defines complex as:

"(e) Complex 1-to-4 family residential property appraisal means one in which the property to be appraised, the form of ownership, or market conditions are atypical."

Here is the link to eCFR regs: http://ecfr.gpoaccess.gov/.

As you can see, there are three bases for calling an assignment complex: atypical collateral; atypical form of ownership; or atypical market conditions. Further, it's the appraiser's call.

I currently define every residential assignment I perform as a "complex" valuation in accordance with this definition. (Market conditions in Cleveland are anything but normal.) I quote the definition and the source as noted above in each report.

 

[Edward OConor]

Mike,

Thanks, I found what you are referring to.

With regard to the market, how do you (not personally) define atypical? With some markets being in decline for 2 years is the market still atypical? At what point does a market become atypical?

Would a SOW that requires listings due to the many changes in the market place make the appraisal complex?

 

[Lawrence R.]

In layman's terms.

If the typical appraiser would need to affiliate with a more experienced appraiser in order to learn the techniques, access the data, or judge the market involved...it is probably a complex assignment.

As for the legal definition, IDK.

I think that deep down, each appraiser knows when an assignment crosses the border into complex territory.

If you don't know before you take the assignment, you will certainly know afterwards, LOL.

 

[Terrel L. Shields]

As you can see, there are three bases for calling an assignment complex: atypical collateral; atypical form of ownership; or atypical market conditions. Further, it's the appraiser's call.

I disagree somewhat. It's the lender's call....

A regulated institution may presume that appraisals of 1--to--4 family residential properties are not complex, unless the institution has readily available information that a given appraisal will be complex. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex.

However, if a Licensed appraiser identifies it as complex, the Regulated institution can ask the licensed appraiser to get additional help or engage the services of a cert. appraiser

If during the course of the appraisal a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical, then either:
(i) The regulated institution may ask the licensed appraiser to complete the appraisal and have a certified appraiser approve and co-sign the appraisal; or
(ii) The institution may engage a certified appraiser to complete the appraisal.

 

[Calvin the Airedale]

Mike,

Thanks, I found what you are referring to.

With regard to the market, how do you (not personally) define atypical? With some markets being in decline for 2 years is the market still atypical? At what point does a market become atypical?

Would a SOW that requires listings due to the many changes in the market place make the appraisal complex?

See Appendex A to Subpart D of Part 34, titled, "Interagency Guidelines for Real Estate Lending" which lays out the ways, methods, and considerations with which the lender's collateral descisions must conform.

As for "market condition" it states:

"• Market conditions.

The institution should monitor conditions in the real estate markets in its lending area so that it can react quickly to changes in market conditions that are relevant to its lending decisions. Market supply and demand factors that should be considered include:

• Demographic indicators, including population and employment trends.

• Zoning requirements.

• Current and projected vacancy, construction, and absorption rates.

• Current and projected lease terms, rental rates, and sales prices,
including concessions.

• Current and projected operating expenses for different types of projects.

• Economic indicators, including trends and diversification of the lending area.

• Valuation trends, including discount and direct capitalization rates."

These are signs that the regulators have told the banks to pay attention to. They also read like a bullit list of what to check for when assessing the health of a market.

Insofar as these features in any given market fail to conform with the recent trends and/or the anticipation of the participants in the market, the market can be termed "atypical".

Perhaps, however, I can offer a better analogy: the normal state of the human animal is "good health". We all recognize ill health when it hits us. It's atypical! Ill health debilitates us, makes us unproductive, and makes us feel aweful. I suggest that sick markets, i.e. bear markets, have the same effect on the social economic activity that works to maintain healthy stasis or which even works to promote economic growth.

As for your last question: it is your analysis of the market (in part) which will determine the SOW and what must be considered and employed to provide a supported estimate of value, not the other way round.

 

[Calvin the Airedale]

I disagree somewhat. It's the lender's call....
However, if a Licensed appraiser identifies it as complex, the Regulated institution can ask the licensed appraiser to get additional help or engage the services of a cert. appraiser

Thank you Mr. Sheilds. Your source is CFR Title 12, Part 34.43, D. 3.

I still believe that it is the appraiser's call, however, insofar as the designation of "complex" (vis a vis having found market conditions to be atypical) is the consequence of the analysis of the market, required not just by USPAP but by the CFR regs themselves. Perhaps it's never been an issue in my practice because I have maintained a general certification since the inception of licensing. Thank you, again for the correction!

 

[AnonApprsr]

A Certified appraiser can do any complex residential property up to 8 units (as far as MF) goes. And the appraiser has to be competent obviously.

 

[Edward OConor]

A Certified appraiser can do any complex residential property up to 8 units (as far as MF) goes. And the appraiser has to be competent obviously.

It will depend on each state. In New York, the max # of units for residential is 4, then New York Department of State considers the the property commercial and requires a General. In addition, any property commercial use of a property (eg. 2 fam over a store) kicks the property into commercial requiring a General.