Extraction Method

[George Hatch]

That would be an off-label use for that analysis. If I'm doing an insurable value opinion, I develop that separately from the Cost Approach to MV. The two costs are never the same in my analyses.

 

[alebrewer]

You very much are expressing a personal opinion - on the fact-free basis - that these appraisals are based solely on the results of the Sales Comparison. As I say, I hope you are conveying that expectation to the appraisers who are doing business with your institution.

Have you ever heard the term "we don't appraise properties - we appraise property rights"?. What is your response to a leased fee interest based on a legal encumbrance to those property rights and including non-market rental terms? Something an appraiser usually will be unable to isolate in a Sales Comparison? They can develop the sales comparison but under certain circumstances they might not give it most weight.

There's a significant distinction to be made between an appraisal that will prompt Fannie to reject that deal for not fitting into their program vs an appraiser being in error in submitting that appraisal.

we don't appraise properties - we appraise property rights - appraisal 101. In the specific example you proffer, that most likely would be a property that would not fit into an agency profile - i.e. they probably wouldn't want that loan. Per Section B2-3-03, the appraiser has to establish market acceptance of leasehold estates, which can only be done through the sales comparison approach...

 

[alebrewer]

That would be an off-label use for that analysis. If I'm doing an insurable value opinion, I develop that separately from the Cost Approach to MV. The two costs are never the same in my analyses.

Couldn't agree more.

 

[alebrewer]

You very much are expressing a personal opinion - on the fact-free basis - that these appraisals are based solely on the results of the Sales Comparison. As I say, I hope you are conveying that expectation to the appraisers who are doing business with your institution.

Have you ever heard the term "we don't appraise properties - we appraise property rights"?. What is your response to a leased fee interest based on a legal encumbrance to those property rights and including non-market rental terms? Something an appraiser usually will be unable to isolate in a Sales Comparison? They can develop the sales comparison but under certain circumstances they might not give it most weight.

Or, since you're a GSE specialist, consider your 1025s; particularly when performed in jurisdictions with rent control. The possibility of existing rents at non-market terms which cannot be significantly raised can and will sometimes be of effect on an appraiser's value conclusion - sometimes very different results than a Sales Comparison would otherwise indicate.

Affordable housing where the sale prices are dictated in advance and where the market value of the property rights appraised are completely different than the results of the sales comparison - thus belying the "solely" that you have loaded into Fannie's "relied on the sales comparison" clause.

There's a significant distinction to be made between an appraisal that will prompt Fannie to reject that deal for not fitting into their program vs an appraiser being in error in submitting that appraisal.

Also, like I said earlier, cert 4 on the 1025 DOES state that the appraiser developed his/her opinion of market value on both the sales comparison AND income approaches to value. BTW - for a multi-family assignment where the SOW is to report on the 1025, the appraiser is REQUIRED to develop the income approach to value. Again - if that is something that an appraiser feels would produce misleading results, he or she would need to recuse themselves from the assignment.

Also - I wouldn't consider myself a GSE specialist. It's just the world I live in.

 

[bnmappraisal]

Also, remember that reconciliation is performed within each approach, as well as reconciliation of any approaches developed. If you'll note on the 1004, the 'Reconciliation' section only addresses whether you made the report 'as is' or 'subject to'...

 

[bnmappraisal]

@alebrewer I have several clients (direct lender and even some private/non lending - and yes, most AMCs) that require the Cost Approach as part of their assignment conditions

In some of those cases, the CA is helpful in the overall reconciliation of value (generally Market Value)

To my quote of yours above in post #175 - The reconciliation section is NOT only about "AS IS" or "SUBJECT TO" ... it asks why you opine your opinion of market value

Some have a nice long dissertation and some keep it simple. But overall, it is asking "WHY" your OMV is what it is, which goes a bit above "AS IS" or "SUBJECT TO"

 

[George Hatch]

Also, like I said earlier, cert 4 on the 1025 DOES state that the appraiser developed his/her opinion of market value on both the sales comparison AND income approaches to value. BTW - for a multi-family assignment where the SOW is to report on the 1025, the appraiser is REQUIRED to develop the income approach to value. Again - if that is something that an appraiser feels would produce misleading results, he or she would need to recuse themselves from the assignment.

Also - I wouldn't consider myself a GSE specialist. It's just the world I live in.

Most SFR appraisers do live in that world and there's nothing wrong with that. With that said, Fannie's perceptions of appraising are largely an outlier when compared to how appraising is performed everywhere else outside of FannieWorld.

The hat trick for appraisers is to figure out how to conform to Fannie's occasionally blindered view of appraising without short sheeting the bed in terms of the fundamentals of appraising.,

How much of the appraisal reports you review consist of boilerplate the appraisers are using to paper over or "clarify" the problems those forms are creating for them?

 

[alebrewer]

@alebrewer I have several clients (direct lender and even some private/non lending - and yes, most AMCs) that require the Cost Approach as part of their assignment conditions

In some of those cases, the CA is helpful in the overall reconciliation of value (generally Market Value)

To my quote of yours above in post #175 - The reconciliation section is NOT only about "AS IS" or "SUBJECT TO" ... it asks why you opine your opinion of market value

Some have a nice long dissertation and some keep it simple. But overall, it is asking "WHY" your OMV is what it is, which goes a bit above "AS IS" or "SUBJECT TO"

Maybe we're looking at different reconciliation sections? The one at the bottom of P2 of the 1004 has (effectively) three sections - whether the appraisal is made 'as is' or 'subject to', a blank (no freeform) for the opinion of market value, and a blank for the effective date of appraisal... what part of the form contains the section you're referring to?

 

[alebrewer]

Most SFR appraisers do live in that world and there's nothing wrong with that. With that said, Fannie's perceptions of appraising are largely an outlier when compared to how appraising is performed everywhere else outside of FannieWorld.

The hat trick for appraisers is to figure out how to conform to Fannie's occasional blindered view of appraising without short sheeting the bed in terms of the fundamentals of appraising.,

And I agree with that as well, sir. Of course there's nothing wrong with doing agency work. Between that and FHA, that probably accounts for about 80% of the overall residential volume? That's a guess, so please (CANative) don't say that I'm not a self respecting appraiser if you have data that says otherwise.

 

[alebrewer]

@alebrewer I have several clients (direct lender and even some private/non lending - and yes, most AMCs) that require the Cost Approach as part of their assignment conditions

In some of those cases, the CA is helpful in the overall reconciliation of value (generally Market Value)

To my quote of yours above in post #175 - The reconciliation section is NOT only about "AS IS" or "SUBJECT TO" ... it asks why you opine your opinion of market value

Some have a nice long dissertation and some keep it simple. But overall, it is asking "WHY" your OMV is what it is, which goes a bit above "AS IS" or "SUBJECT TO"

wait - you're exactly right BNM. I do see what you're referring to now. And I agree that the form is self contradicting. Sorry - I don't perform a lot of appraisals now, so I'm not in the habit of looking at that section to awfully closely.

Look, I've just stated what the certification page DOES say. If folks want to interpret that as meaning that the cost approach can be part of their reconciliation, that's awesome. I'm not commenting to try to change anyone's opinion. I could care less what your opinions are. I'm just stating my perspective which, in this case, (reconciliation section aside) I absolutely believe to be correct. And that is that the appraiser is certifying that they developed their opinion of market value based on the sales comparison approach period.