BPO and Appraisal

[coolhandluke]

Where did you get info that Fanie Mae mortgage guidelines don't apply when a client orders on a 1004 form, when the subject is an REO? It is not so much about the MORTAGE guidelines, it is about Fannie guidelines, and FIRREA, and unless you state otherwise in the report, those are the guidelines the client is expecting.

If an appraiser appraises for tax, estate, divorce, etc, they should use a general purpose form and not a 1004 form, and though Fannie standards would not apply, USPAP and proper development of value principles would still apply.

JG- I got it from Fannie Mae's REO dept when I asked them if I needed to adhere to FNMA mortgage origination guidelines when doing an REO property for the purpose of asset valuation, I was told no those guidelines were for FNMA conforming LOANS. AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs. There is NO LOAN associated with the REO assignment. The 1004 form is selected by the client as the default media that appraisers are most familiar with.

So on page 1 of the form on the line with check boxes for 'Type of Assignment' I check the 'Other' box and make a statement in my addenda that the intended use of the report is for asset valuation, not for the purposes of a mortgage. If you asked the client they may allow you to use a general purpose form. I am just as happy using the 1004.

FNMA appraisal guidelines are for FNMA conforming LOANS (mortgages).
FIRREA refers to appraisal guidelines written by the FDIC for the purposes of Federally related mortgage transactions or LOANS.
As you correctly note USPAP and proper development of value principles would and do still apply.
It is not a USPAP violation to use the 1004 form for 'Other' purposes.

P.S. I am still using the market value definition in the 1004 when using it for an REO assignment.

 

[J Grant]

Even if FAnnie mortgage guidelines don't apply, does not the 1004 form state that purpose of the appraisal is to establish an opinion of market value?? So even if you write type of assignment, "asset valuation", aren't you still bound to provide an opinon of market value per purpose of apprasial stated on the form? (whether or not you adhere to Fannie standards in developing that value)

 

[residentialguy]

I am just as happy using the 1004. It is not a USPAP violation to use the 1004 form for 'Other' purposes.

Ok...read Cert 1. (one of the things that you signed your name to)
It says: I have, at a minimum, developed and reported this appraisal with the SOW requirements stated in this report.

Now read the pre-printed SOW, specifically the 2nd paragraph which says: "Modifications, additions, or deletions to the intended use, intended user, definition of MV, or assumptions and limiting conditions are NOT permitted."

Now read the unchangeable intended USE which says: The intended use of this appraisal report is for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction

Now, tell me again how it is ok to use the new 1004 for other purposes?








First you write this:
AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs.

Then you write this:
P.S. I am still using the market value definition in the 1004 when using it for an REO assignment.

Hello...Those are 2 completely different definitions of value. Different SOWs completely! No wonder there's a problem.

 

[coolhandluke]

I am just as happy using the 1004. It is not a USPAP violation to use the 1004 form for 'Other' purposes.

Ok...read Cert 1. (one of the things that you signed your name to)
It says: I have, at a minimum, developed and reported this appraisal with the SOW requirements stated in this report.

Now read the pre-printed SOW, specifically the 2nd paragraph which says: "Modifications, additions, or deletions to the intended use, intended user, definition of MV, or assumptions and limiting conditions are NOT permitted."

Now read the unchangeable intended USE which says: The intended use of this appraisal report is for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction

Now, tell me again how it is ok to use the new 1004 for other purposes?


First you write this:
AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs.

Then you write this:
P.S. I am still using the market value definition in the 1004 when using it for an REO assignment.

Hello...Those are 2 completely different definitions of value. Different SOWs completely! No wonder there's a problem.

RG-JG If the client requests that you use the 1004 for an REO valuation which would fall into the 'Other' Types of Assignment (after all why else would the Other box be there as an option) and you agree to do so, how or why would USPAP preempt you from doing it?

When you "violate" or "modify" one of the certifications or pre-printed text entries on the form what happens? Are you in violation of USPAP? Of course not.
What happens is the appraisal report completed on that form is non compliant with FNMA requirements as they pertain to a MORTGAGE transaction.

Again, there is NO mortgage transaction related to the REO assignment so the fact that you are not in keeping with the original intention of the form is irrelevant.

As I added onto the end of my previous post, when I value an REO property for a client for the purposes of asset valuation (non-mortgage) I am still solving for market value. I am NOT solving for a quick sale or liquidation value.
The client is using my report and a BPO from the listing broker to determine at what price to market the home in the MLS. Most of my REO clients state they want the home valued reflecting the "typical" marketing time, or 90-120 days which is the average in most of my areas of coverage.

The fact that many REO properties sell for less than an owner occupied home is usually attributable to the less than average condition that the home is in. In many cases the home has been vacant for several months or even over a year. In other cases the tenants or previous owners vandalized the home as they were leaving or thieves have broken into the home and stolen mechanicals or plumbing. All these conditions factor into my opinion of the market value of the home.
If you are suggesting that an REO home cannot be valued in accordance with the definition of 'market value' found in the 1004 then we disagree on that point.

Of course if I am valuing an REO home that is being purchased I use the 1004, identify the buyer and seller/owner, review the sales contract and comply with FNMA guidelines if and when possible, and if I can't explain the reasons why I could not.

Do either of you do any REO work? If so on what form do you report the appraisal, and do you provide an alternate definition of the value when you do an REO appraisal?

 

[residentialguy]

RG-JG If the client requests that you use the 1004 for an REO valuation which would fall into the 'Other' Types of Assignment (after all why else would the Other box be there as an option) and you agree to do so, how or why would USPAP preempt you from doing it?

If they had a box for RACE, would it be ok?

When you "violate" or "modify" one of the certifications or pre-printed text entries on the form what happens? Are you in violation of USPAP? Of course not.

Breaking what you certified to be true isn't a violation of USPAP? You sure?

Again, there is NO mortgage transaction related to the REO assignment so the fact that you are not in keeping with the original intention of the form is irrelevant.

by ordering it on the new 1004, does that put the lender in a precarious position or the appraiser by complying?

As I added onto the end of my previous post, when I value an REO property for a client for the purposes of asset valuation (non-mortgage) I am still solving for market value. I am NOT solving for a quick sale or liquidation value.

I know. But that is not the problem the client asked you to solve. Look at the directions you pasted. They wanted to establish a listing price for the subject as a REO sale. MV on the 1004 is not the same as finding a best listing price...esp a listing price for a REO.

The client is using my report and a BPO from the listing broker to determine at what price to market the home in the MLS. Most of my REO clients state they want the home valued reflecting the "typical" marketing time, or 90-120 days which is the average in most of my areas of coverage.

The most probable price of a sale where the buyer and seller typical motivation and no undue stimulus to sell is not the same as finding the price point to list a vacant REO sale. World of difference.

If you are suggesting that an REO home cannot be valued in accordance with the definition of 'market value' found in the 1004 then we disagree on that point.

Sure you can value it in accordance with the definition of 'market value' found in the 1004 if they are looking for the value of a presumed sale defined in market value. You better study MV definition. A bank that owns 1000s of vacant homes that they never wanted in the first place and has to clear them off their books is hardly a seller with typical motivation and no undue stimulus. And your statement that there is no market variance because the seller is a bank....well, I'd place money on buyers in NJ realizing that they have the upper hand and won't pay as much for a bank owned home that has to get rid of a "as-is" vacant home with no one there to care for it or tell it's history. I would be willing to bet that the REO homes are selling for less than the equal condition traditional sellers' homes. That's why investors are buying REOs. Sometimes they are turn key properties and sell them with nothing more than a coat of paint. Here's a chart from Realty Trac on how buyers expect to pay less for similar REOs, not ones that need a bunch of work.


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[DMZwerg]

First you write this:
AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs.

Then you write this:
P.S. I am still using the market value definition in the 1004 when using it for an REO assignment.

Hello...Those are 2 completely different definitions of value. Different SOWs completely! No wonder there's a problem.

RG-JG If the client requests that you use the 1004 for an REO valuation which would fall into the 'Other' Types of Assignment (after all why else would the Other box be there as an option)

Construction?
Valuing a property for a security exchange of the mortgage on the secondary market?

I think a construction loan would definitely be the most obvious since the property could already be purchased vacant land so it would not be a purchase, but as the house is not built it is not a reconstruction.

Yeah, I think I will go with "purchase".

Again, there is NO mortgage transaction related to the REO assignment so the fact that you are not in keeping with the original intention of the form is irrelevant.

Depends on exactly what stage of the process really. If prior to the bank taking the the loan back in a foreclosure the deed of title would be passing in exchange for elimination of part or the entire debt, which is a transaction.

Hey, now I am up to two! do I get a lollipop or something? :laugh:

As I added onto the end of my previous post, when I value an REO property for a client for the purposes of asset valuation (non-mortgage) I am still solving for market value. I am NOT solving for a quick sale or liquidation value.
The client is using my report and a BPO from the listing broker to determine at what price to market the home in the MLS. Most of my REO clients state they want the home valued reflecting the "typical" marketing time, or 90-120 days which is the average in most of my areas of coverage.
<snip>
Do either of you do any REO work? If so on what form do you report the appraisal, and do you provide an alternate definition of the value when you do an REO appraisal?

If I was asked to use the 1004 and was asked for "the alternate definition" I would use the 1004 PLUS the REO Addendum. Value indicated on the 1004 would be market value per the 1004 definition, with the REO allowing for different results with different definition(s).

If just market value was mentioned (and no mention of listing as an REO or such type of value) then I would ASK before just turning in a 1004 (which would oonly contain 1 definition ... the one based on the certs).

1004 is one form
REO addendum is another.

 

[J Grant]

Coolhand, how do you "know" that the client is using your REO report to establish a listing price? Do you ask them? Or is that your assumption? And if that is your client direction, purpose of the appraisal is to establish a list price, then it should not be on the 1004 form, but on a general purpose form.

One can mark "other" in assignment type, such as establish market value or asset evaluation, however, that does not change the purpose of the appraisal on the 1004 ( derive an opinion of market value)

. The use and purpose of apprasial are two different things. The preprinted scope has that one sentence referring to use in a mortgage related transaction, however, many homes appraised do not actually get a mortgage attached as a result of an appraisal, such as a home appriaised for a refi that is denied a loan. An REO is the result of a non performing loan, and since the bank holds the note, perhaps that is why they order on the 1004 form.

The use relates to what the client intends to do with it, the assignment type is the assignment type, but the purpose is what kind of value the appraiser is appraising it for, and even if one writes asset valuation in asignment type, the purpose statement on top of 1004 and continued on the addendum states that the purpose is to derive an opinion of market value, so that does not change just because you mark the box "other" for assignment type.

Yes, I have done many REO appraisals, on the 1004, where the opinion is MV (though often the comps or some of the comps are REO or short sales, typically because those are predominante or germaine to subject, but I have done REO reports where no REO comps were used ). There is always an REO addendum attached, where the client asks for a reduced marketing time value opinion, (usually lower), as well as an as repaired value opinion.

The question I am most curious about is, does your client specifically state that they want you to establish a list price on the 1004 form, or are you assuming that is what they want your appraisal for?

 

[residentialguy]

Coolhand, how do you "know" that the client is using your REO report to establish a listing price? Do you ask them? Or is that your assumption?

The question I am most curious about is, does your client specifically state that they want you to establish a list price on the 1004 form, or are you assuming that is what they want your appraisal for?

JP, Here's what the client gave luke as the intended use.

JG- I got it from Fannie Mae's REO dept when I asked them if I needed to adhere to FNMA mortgage origination guidelines when doing an REO property for the purpose of asset valuation, I was told no those guidelines were for FNMA conforming LOANS. AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs. There is NO LOAN associated with the REO assignment. The 1004 form is selected by the client as the default media that appraisers are most familiar with.

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And if that is your client direction, purpose of the appraisal is to establish a list price, then it should not be on the 1004 form, but on a general purpose form.

One can mark "other" in assignment type, such as establish market value or asset evaluation, however, that does not change the purpose of the appraisal on the 1004 ( derive an opinion of market value)

Agreed.

Establishing a list price is not giving an opinion of value. You don't have to wear your appraisal hat to come up with the best list price. And not only did they want a list price, they want to know the best list price as a REO.

 

[J Grant]

Originally Posted by coolhandluke
JG- I got it from Fannie Mae's REO dept when I asked them if I needed to adhere to FNMA mortgage origination guidelines when doing an REO property for the purpose of asset valuation, I was told no those guidelines were for FNMA conforming LOANS. AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs. There is NO LOAN associated with the REO assignment. The 1004 form is selected by the client as the default media that appraisers are most familiar with.

FAnnie was not Luke's client, was it? Was his client a bank? Not all REO's had fannie backed loans, either, but I also want to know, was this a preprinted statement Fannie gave him, or a conversation he had with someone there?

If FAnnie backed the original loan and Fannie has an REO dept, they are still not the client ( ABC Bank), so I don't see where Fannies statement about what an REO ordered appraisal is used for supercedes client instructions, or the purpose of appraisal stated on the 1004 form.

 

[J Grant]

AN REO appraisal is done for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs.

Even when this is true, the verbiage is assisting the client establish a list price and marketing strategy...unless the client asks for a specific list price for the opinion of value, they could be using the appraiser's opinion of market value in establishing what percent discount they might accept on an offer, or what percent above or below market value they think a list price should be. They compare the market value opinion on the appraisal with BPO and/or realtor input when making these decisions.

Thus, establishing an opinion of market value does assist the client in making listing price decisions and marketing decisions.