1004 D Update on New Construction Unit

[YankeeFan]

I just got a request for a 1004 D Update on a New construction unit appraisal I performed 6 or 7 months ago. Lender ordered the 1004D Certification of Completion last week, which I provided and indicated the unit was not completed yet per plans and specifications, there is a about $25,000 in exterior items to complete yet. Now this week they want an update on the 1004D...but none of the exterior items have been completed since last week...so the only question to answer on the 1004D is has there been a decline in value since the original appraisal...well....the property has not been completed yet since the original appraisal was done...so how should one answer this question? IS the 1004D update based on an "AS IS" value with the exterior only inspection...or is it in relation to the "original" report which was based on a hypothetical condition that the improvements have been completed, in which case they still have not been? Your thoughts please.

 

[Mr Rex]

Basically what they are asking for is a new appraisal of the subject as proposed in the original report.

 

[YankeeFan]

Basically what they are asking for is a new appraisal of the subject as proposed in the original report.

OK, given that...do you think the 1004D provides the required scope of work and report format to complete the type of assignment their requesting? I understand that I have to do a new appraisal with a new effective date and follow USPAP given that its still going to be a hypothetical condition assignment since the improvements are not yet completed, but will only answer the question as the form requests, but I've just never had the request to complete this type of order on an incomplete property before on a 1004D and it just is odd to me to do it in this fashion. I do have a call into the client to verify this is what their looking for, and I can perform the assignment and just keep everything in my workfile for support and answer the question the form requires, its just I've never had a request like this on a property in this stage of non completion.

 

[Mr Rex]

Not that uncommon, From Fannie:

Age of Appraisal and Appraisal Update Requirements
Properties must be appraised within the 12 months that precede the date of the note and
mortgage.
When an appraisal report will be more than four months old on the date of the note and
mortgage, regardless of whether the property was appraised as proposed or existing construction,
the appraiser must inspect the exterior of the property and review current market data to
determine whether the property has declined in value since the date of the original appraisal.
This inspection and results of the analysis must be reported on the Appraisal Update and/or
Completion Report (Form 1004D).
• If the appraiser indicates on the Form 1004D that the property value has declined, then the
lender must obtain a new appraisal for the property.
• If the appraiser indicates on the Form 1004D that the property value has not declined, then the
lender may proceed with the loan in process without requiring any additional fieldwork.
Note: The appraisal update must occur within the four months that precede the date of the
note and mortgage.
The original appraiser should complete the appraisal update; however, lenders may use substitute
appraisers. When updates are completed by substitute appraisers, the substitute appraiser must
review the original appraisal and express an opinion about whether the original appraiser’s
opinion of market value was reasonable on the date of the original appraisal report. The lender
must note in the file why the original appraiser was not used.

 

[YankeeFan]

So Fannie Calls this appraisal Update service an "inspection" and results of analysis but not an appraisal. And a new "appraisal" is not needed unless I determine a decline in "value", for which I would of needed to perform an "appraisal" to determine? How in the world of USPAP can I determine a decline in value as it relates to a prior assignment opinion of value without completing an appraisal and forming a new opinion of value as of the effective date of the "inspection"?

 

[Mr Rex]

It is an appraisal, since you are concurring (or disagreeing) with the original report/value. The SOW can be limited to researching current data to determine if values have or have not fallen, resulting in the subject's value declining or not. BTW, since it is an appraisal, you need to incorporate the original appraisal into the 1004D at least by reference ( I attach the original report) to meet the reporting requirements of STd 2.

 

[hastalavista]

Rex is correct, but IMO the update (to be fully USPAP complaint) requires much more than just the form an the attached prior appraisal.

1. It is a different market; "different" may mean no change, but it should be reanalyzed. IMO, a 1004MC would be sufficiently adequate.
2. Whatever sales you consider should be summarized (technically, the approach you use... which would be the sales comparison approach... should be summarized along with the data so the reader can understand and evaluate your conclusions). If this is a simple assignment, a simple narration of the sales is sufficient (IMO). If this is a complex assignment, something more than a narration might be warranted.
3. You need to include a new certification; don't forget to make your prior service statement.

The above is necessary for any "update" using the 1004D form if one wants to meet the USPAP minimums.

Your situation adds an extra "twist"; you originally valued the subject based on the HC that it was complete per plans/specs as of the date in the past. You've gone out and verified that the work isn't done, so it still isn't complete.
You can appraiser the subject using the update process, but you'll need to confirm with the client if they want it "as is" or "subject to completion".
If they want it "as is", I'd charge the same amount of money as I would for a brand new appraisal since I'm now going to have to analyze the market impact of the unfinished work.

Remember: the 1004D form is simply a convenience for the client; it alerts residential lenders and the GSEs that the appraisal (an update is an "appraisal") is based on a prior appraisal and the original report has significant appraisal reporting requirements (without the original report, the new appraisal cannot be properly understood).
An appraisal is an appraisal. The 1004D by itself, and even with the older report directly incorporated, does not meet the minimum requirements of SR2. The appraiser must make sure that the new appraisal meets those requirements. This means supplementing the old report and that one-page form with the necessary analysis and certification so that all together, it meets the requirements and provides credible results.

Good luck

(my "updates" are typically 6+ pages, and that doesn't include the old report or the new signed certification; and yes, I charge more than the $100 to $150 many clients expect to pay).

 

[Terrel L. Shields]

Send them the 1004D - yes the market has declined because the stupid building isn't worth what it was until it is finished. Then see if they order a new appraisal or not. Otherwise, tell them to wait or give them the old "I'm gone for the holidays and won't be back until February..."

 

[YankeeFan]

Thanks Denis, that makes perfect sense to me...oh..and did I get a chuckle out of Terrel's response, still laughing about it!!

 

[VolcanoLvr]

The 1004D is the worst piece of Bovine Essence devised by the GSE's except for the extremely poor MC form....but that's a discussion for another day.

First of all, terminology is extremely important when using the BE form, because there are two parts to it. Depending on which 'part' the client wants, you do things differently..........and it's entirely possible to do both parts in one assignment.

Is a 1004D UPDATE an appraisal? Well, the strict USPAP constructionists will say 'yes' and thus they will add all kinds of extra pages to the 1004D when answering the form question "yes."

However, the GSE's really don't need or want all that extra paperwork, and really don't give a d#$n about appraiser USPAP compliance because according to their guidelines, they will order a brand new appraisal if that response is "yes."

Unfortunately, the appraiser must jump through a bunch of normal market analysis hoops when doing an UPDATE, in order to arrive at a conclusion to answer the form question.

So, I'm in the camp which says 'do the analysis, keep a workfile and answer the question, plus state on the form what you did to arrive at the conclusion.' But don't include a bunch of new grids, or written commentary, or photos of comps, etc. Save all that junk for the 'new' appraisal assignment that should come in a few days.