Form Question

[J Grant]

If the borrower applies for a residential house loan, not a land loan, the lender is stuck ordering this as a house appraisal ( 1004 form) A borrower may not qualify for a land loan, (more $ down, different terms ), and/or the borrower may believe all the house needs is some repairs. In which case it will be up to the appraisal to discern the house is so depreciated relative to land value the HBU is site as vacant or shell of house to rebuild on. THAT can be why the lender needs it on a 1004 form. The appraisal is not misleading, it is appraising to HBU ( tear down improvements), though result is the property might be denied for a loan.

It is not the appraisers agenda to get a loan approved. A property may fail to be approved for a loan for any number of reasons, reasons which an appraisal can reveal . We appraise the property, the client makes the yes/no lending decision about the property.

 

[timd354]

So I could also report a multi unit property on a 1004 form with enough narrative in a non-misleading manner or a manufactured home. Heck I could even report a commercial property. However, the use of the proper form for the proper assignment type and the proper property type is a necessary reporting requirement

Yes, you probably could with enough narrative and modifications although I would not recommend it because some dope on a state board who is hung up on form over substance and on the way he would personally do things may decide that you committed a USPAP nonexistant violation.

Please cite the section USPAP that states "the use of the proper form for the proper assignment type and the proper property type is a necessary reporting requirement"....sorry but there is no such requirement to be found anywhere in USPAP.

Since you seem to be hung up on Fannie's guidlines, apparently you do not realize that Fannie's guidelines specifically allow the URAR to be utilized to report the results of a condo appraisal and the appraisal of a 2 unit property under certain circumstances, so it is pretty difficult to see how using the URAR for these purposes could be considered to be misleading to the intended user even though the form was not designed for condos or two unit properties.

In any case, regarding the OP's issue, the subject property is currently an existing older single family home for which the HBU is possibly to tear down the existing older home and replace it with a larger, new single family home based on what the OP describes. Thus, I fail to see how using an appraisal form that is designed specifically to report the results of the appraisal of a 1-unit residential property (assuming the proper narrative and disclosures are included) would in any way violate USPAP.

 

[gregb]

Mark R. Rattermann, MAI, SRA touches on the issue here in The Appraisal Journal, Winter 2008-

https://professional.sauder.ubc.ca/...rmann - Highest and Best Use Problems ....pdf

 

[J Grant]

"Second, residential appraisers should do a preliminary analysis of any property they are asked to appraise before they accept the assignment. Alternatively, they need to add a caveat to their contracts for services specifying that the contract is void if the property’s highest and best use is not 1–4 unit residential"

?? While his article about how to develop HBU is good, I have a problem with this statement, It's like saying the contract for service is null and void if we don't hit a SC price ..

Plus an appraiser can not always do a preliminary analysis that holds true for after inspection.

An appraiser can reach a HBU analysis that indicates not present use as improved and ask client how they want to proceed or if they want to cancel the assignment ( though I'd want to be paid for my time esp if I inspected). Though that could be problematic...if appraiser does not finish the appraisal, delivers a HBU to client on a verbal statement , could it be said their HBU analysis was not communicated or developed adequately?..

And linking contract for services (leading to compensation) contingent on a predetermined result ( cancel contract for services if HBU is not 1-4 unit res), might be interpreted as influencing an appraiser to do a misleading HBU as res 1-4 family to get paid for the assignment/higher fee for completion of assignment rather than cancelling/stopping.

 

[hastalavista]

?? While his article about how to develop HBU is good, I have a problem with this statement, It's like saying the contract for service is null and void if we don't hit a SC price ..

It is not remotely similar.

Plus an appraiser can not always do a preliminary analysis that holds true for after inspection.

I must be misunderstanding you. How can analysis not be done (H&BU) either before or after the inspection?

An appraiser can reach a HBU analysis that indicates not present use as improved and ask client how they want to proceed or if they want to cancel the assignment ( though I'd want to be paid for my time esp if I inspected). Though that could be problematic...if appraiser does not finish the appraisal, delivers a HBU to client on a verbal statement , could it be said their HBU analysis was not communicated or developed adequately?..

You are confusing communication with development. The entire article is about properly developing the H&BU. Therefore, once the appraiser makes her/his determination and the subject property is not what the assignment asked for, give that conclusion to the lender and see what how they want to proceed. This is good advice for all appraisers, regardless of one's H&BU mastery.

And linking contract for services (leading to compensation) contingent on a predetermined result ( cancel contract for services if HBU is not 1-4 unit res), might be interpreted as influencing an appraiser to do a misleading HBU as res 1-4 family to get paid for the assignment/higher fee for completion of assignment rather than cancelling/stopping.

No. It has everything to do with licensing competency (required for GSE and FRT work). If I'm a residential-licensed appraiser, and my subject is does not fall into the 1-4 residential bucket, and the assignment is for an FRT or GSE (or HUD, etc.), then I cannot move forward (unless I team up with someone who is competent and then the lender has to switch the loan program to whatever fits with the subject's H&BU).

This advice is sound as well. It says,

"Hey, Madam Lender: you are engaging me to value a 1-4 property and I am competent to do so. But if the property is not a 1-4 then my licensing competency prohibits me from proceeding. Therefore, the agreement that you and I entered into which assumed I was competent is no longer valid. You cannot hold me accountable to do something I'm prohibited from doing by law and/or regulation. I hope this doesn't hurt your feelings."​

That's all it says. And it is very sound advice.

 

[J Grant]

Denis, you make some good points, but remember, that this paragraph was the only one I had an issue with ( rest of article very useful/educational) I had an issue with it as it implies canceling services/payment, but maybe you don't see it that way.

You are extrapolating the paragraph to mean the HBU if commercial or agricultural subdivision a res license is not competent at that point to continue the assignment...which may be true, however, the appraiser spent time developing their opinin of HBU to that point, do they not deserve to be paid for it?

In any case, the OP example is site as vacant (not commercial ) ... one assumes site as vacant for residential building... within the realm of a residential appraiser to complete the assignment.

 

[hastalavista]

You are extrapolating the paragraph to mean the HBU if commercial or agricultural subdivision a res license is not competent at that point to continue the assignment...which may be true, however, the appraiser spent time developing their opinin of HBU to that point, do they not deserve to be paid for it?

In general, yes, but I'll also say it depends.
I don't take an assignment before I research it. If in my research (prior to accepting) I determine there may be a H&BU issue, I'll notify the client and let them know; and tell them it could impact the fee. I get it that now, with my General Certification, a H&BU other than residential won't necessarily stop me from doing the assignment if it is re-packaged. But I did this prior to my upgraded.
So, if I'm researching a potential assignment and find the H&BU issue at that stage, I don't expect to get paid. I haven't accepted the assignment.

Now, if I accepted the assignment and began working on it, that would be a different story. If I figured this out before I went on the inspection, it would be a business decision to ask for payment or not (I'd stop and call to alert the client of the H&BU issues). For my clients, I probably wouldn't charge. Some of my clients would pay me anyway.
If I discovered it after the inspection, then I would expect to be paid for my work up to whatever point.

The above is my business model. I know that many appraisers are concerned that if they alert the client to an issue like this, the client will simply cancel the order and they won't get paid. I don't have a good answer for that except for "get better clients" which is easier to say than to do.
But for a fact, the biggest problems (other than out and out fraud) I see; as a reviewer and as a litigation consultant... especially in residential work... is an incorrect H&BU analysis. I'm not talking about inadequately summarizing it in the report. I'm talking about fundamentally blowing it and as a consequence, appraising the property incorrectly at a value that is no where near reliable or credible. I'm talking losing-your-license blowing-it.

 

[J Grant]

Agree...it was the author's blanket presumption about contract for services with a client etc...he did not need to go there.

 

[CANative]

"Second, residential appraisers should do a preliminary analysis of any property they are asked to appraise before they accept the assignment. Alternatively, they need to add a caveat to their contracts for services specifying that the contract is void if the property’s highest and best use is not 1–4 unit residential"

All due respect to Mr. Ratterman's initials but... phooey.

Crap comes over my email several times or more a day. You have to go to this platform or that platform or Joe's Portal or Mary's Portal. Contract/Schcontract. It doesn't work that way. If we get into one and it starts going sideways then we just call them up or update their "whatever" (thanks Donald) and tell them.

 

[Davy]

Lender requests appraisal "land only". Essentially the site is being purchased for new construction, ie tear down. No contributory value towards improvements, they will be scraped. General land form, or 1004? Land form makes sense, but not fannie mae approved.

All Comps will essentially be former tear downs themselves. No true "vacant land".

Sounds a lot like what WF appraisals that were completed on a ton of REO properties. They had to get appraisals done both ways on such properties to help determine how best to dispose of the property and what, potentially, to sell it for, etc. Those kinds of appraisals are basically internal and do not see the light of day beyond the inner digestive tract of the REO department (at least for WF if that is what this in fact is).