BPO and Appraisal

[residentialguy]

FAnnie was not Luke's client, was it?

Why would he discuss the appraisal with someone other than the client? :Eyecrazy:

 

[residentialguy]

If they want a 1004 "for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs", then they (the client) is taking MV and adjusting the variances on their side. (ie, market reaction to REO status, list/sale price variance, DOM, etc). Which is fine...but I would make sure they are on the same page.

 

[J Grant]

I dunno, ask him! Perhaps he was looking for general guidance when talking to the Fannie Pak folks?

 

[J Grant]

If they want a 1004 "for the purpose of assisting the client establish a list price, marketing strategy and scope of needed repairs", then they (the client) is taking MV and adjusting the variances on their side. (ie, market reaction to REO status, list/sale price variance, DOM, etc). Which is fine...but I would make sure they are on the same page.

This is what I believe to be true when a client asks for a 1004 form with market value as purpose. These clients are not so stupid that they can't figure out to order a general purpose form with purpose of appraisal to establish a list price if that is what they want from an appraiser.

I don't ask my clients what they are doing with my value opinions. Once I turn my report in, they can use it as they see fit. However, my general knowledge about REO ordering is that lenders use the OMV for two main purposes, one, when they receive an offer, thus they know how far off MV they may be willing to accept an offer at (if they get a lower offer, they might accept it or say it is too low and wait for a better one, for example). The second main reason is, if they are going to put the property on the market, and want to see the OMV, and compare it to a BPO and realtors recomendation of list price, and make decisions from there. The additional value opinions the appraiser provides on the REO addendum gives them additional information as well.

Lenders may use the reports for other purposes, such as deciding not to put a group of properties on the market just yet, or if some investor wants to buy the non performing loans, they can show the investor what MV is on each property.

 

[DMZwerg]

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.

What just happened?

Did J Grant just agree with ResGuy and me on something, namely that just checking a box on the 1004 does not change its intended use?

The doomsayers must be right ... the world must be coming to an end! :laugh:

 

[J Grant]

What just happened?

Did J Grant just agree with ResGuy and me on something, namely that just checking a box on the 1004 does not change its intended use?

The doomsayers must be right ... the world must be coming to an end! :laugh:

It happens rarely, like a solar eclipse...

 

[coolhandluke]

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?

JG-When I get an order from the FNMA REO dept, they (Fannie Mae) are in physical possession of the home. I know this because when I do my tax record/sales history research there has typically been a recent transfer of title for a nominal sum and the owner of record is listed as "Federal National Mortgage Association."
I have spoken to FNMA employees who have told me exactly what my report is being used for and why.
They possess a foreclosed home that they need to sell. They have a pool of local RE brokers, one of whom will market the property for them via the local MLS.
The broker submits a BPO, much as they would for an individual homeowner who is going to list their home with the broker. I don't get to see the BPO.
An appraisal is ordered from a FNMA REO approved appraiser.
They take both reports, cross reference them and decide what the list price should be and also determine if there are any repair items that must or should be made in order to market the home.
They ask me for my opinion of the market value of the home both as is and as repaired considering a 'typical' marketing time, in my area, 90-120 days.
No mortgage is being originated, the old mortgage no longer exists, no 1004MC form is required, no cost approach is required. The REO addendum form is required.
They aren't asking me for my opinion of a listing price, they want an opinion of market value for a vacant and many times damaged home in less than average (fair or poor) condition within a defined marketing time.
They ask that I use the 1004 and mark the 'other' box as the purpose is not for a Refinance or Purchase.

The FNMA 1004 form was devised for use in a mortgage transaction as you and others have noted, but they are asking me to report on that form for the purpose I have described. They have also told me that FNMA origination guidelines need not be strictly adhered to, for example, if the home is gutted and in need of major repairs/rehabilitation my condition adjustment could exceed the 10% line adj guideline, thats ok with them, as long as my adjustments are reasonable, supported and explained.

The concept that I think some may have a hard time agreeing with is that just because we are using an appraisal form for a purpose other than what it was designed for, does NOT mean we are automatically in violation of USPAP. We may be in violation of certain certifications and the stated purpose of THE FORM, but THE FORM in and of itself does not dictate or prove USPAP compliance in an REO assignment or any other type of assignment.

The 1004 form was not designed to the standard of being USPAP compliant, that is why many of us add to the pre-printed SOW found in the certifications page.

As long as the appraiser is not misleading the client, the use of a form for a purpose other than that for which it was designed CAN be USPAP compliant, BUT it will NOT be acceptable for the purpose of mortage origination nor in compliance with Fannie Mae or FIRREA appraisal guidelines.

JG to your last point about comparable selection, When I do an REO appraisal I will use the best comps available, whether arms length sales or REO sales as long as they were exposed to market via MLS. The FNMA REO dept does ask that Short Sales be avoided if at all possible, and they want 3 active listings gridded and adjusted on the 1004 form, which is also a likely misuse of the intent of the form as the comp page for #4, #5 & #6 is titled 'Comparable Sales'.

The thrust of my argument is that the 1004 form can be and is used everyday by thousands of appraisers for purposes other than loan origination and still be USPAP compliant. As many have mentioned here before, I can find no USPAP requirements as to which form can or can't be used or under what circumstances. The standard that must be met is that the appraiser not mislead the intended user.
I don't think I am guilty of that because I am merely complying with pre-agreed upon, client specific requirements.

I think this is an interesting discussion and thank you for you comments, I was away for the weekend or I would have responded sooner.

 

[J Grant]

Coolhand, I agree with many points in your post and I use similar criteria for comp selection...the issue is not so much using a 1004 form when the client is not going to use it to obtain a mortgage, as that is just one sentence regarding use of the apprasial, and it is not our concern if the client chooses to use it for other or additional uses...we can't control how they use our reports.

The 1004 form does say purpose of apprasial is to derive an opinion of MV, and USPAP does state that it is misleading to develop another kind of value (one we assume the client wants, such as a listing price value, or an "REO value", whatever that means...or liquidation value etc, when the form clearly states MV.

I think perhaps that is where confusion lies when an appraisal is ordered on a 1004 form for a lender owned property. The addendum will then ask for additional values, but any additional as repaired or reduced marketing time or quick sale value on the REO addendum still does not change the purpose of the 1004 form as MV, even when the property is REO owned.

 

[coolhandluke]

Coolhand, I agree with many points in your post and I use similar criteria for comp selection...the issue is not so much using a 1004 form when the client is not going to use it to obtain a mortgage, as that is just one sentence regarding use of the apprasial, and it is not our concern if the client chooses to use it for other or additional uses...we can't control how they use our reports.

The 1004 form does say purpose of apprasial is to derive an opinion of MV, and USPAP does state that it is misleading to develop another kind of value (one we assume the client wants, such as a listing price value, or an "REO value", whatever that means...or liquidation value etc, when the form clearly states MV.

I think perhaps that is where confusion lies when an appraisal is ordered on a 1004 form for a lender owned property. The addendum will then ask for additional values, but any additional as repaired or reduced marketing time or quick sale value on the REO addendum still does not change the purpose of the 1004 form as MV, even when the property is REO owned.

JG-I am confident that FNMA REO is not using my report for any reason other than assisting them in determining a list price for a foreclosed property they need to sell.

The purpose is, as you note to provide the client with an accurate and supported opinion of market value. I am doing that.

What I am NOT doing is keeping with the Intended Use of the report FORM which is clearly defined on the certifications page as "to evaluate the property that is the subject of this appraisal for a mortgage finance transaction."

There is no mortgage finance transaction, the client has communicated that to me directly. On page 1 in the 'Borrower' field I write "None", it can be no clearer than that; if there is no borrower there can be no mortgage finance transaction.

I alter the Intended Use in my addendum, something the FORM says is not allowed, yet my client, Fannie Mae, who is responsible for creating the FORM in the first place, is requesting me to do so. Am I in violation of USPAP by doing an appraisal for a non-mortgage related use on the 1004? Or am I in violation of THE FORM?

This is also why I am not so concerned with the quote / unquote Fannie Mae guidelines, no loan origination means that the FNMA mortgage origination guidelines need not apply to this specific REO assignment.

 

[J Grant]

I write NA instead of none for borrower...the invisible borrower it seems!

You are not deviating from intended use, the client is, imo! I appraise to Fannie guidelines out of habit, I suppose, I never thought about discarding them just because the client most likely will not use the appraisal for a loan...but per your response from FANNIE, not adhering to their guidelines would seem an option, based on the quote you gave from the Fannie Pak people.