Appraisal Complaint Filed on Condo GLA - Your Input, Please.

[Joyce Potts]

No, it's not on me or any of my trainees, but that sure got your attention didn't it?

I was contacted by an appraiser friend who asked me to help him write the Answer to a complaint that was recently filed with the State of Florida and before I finish my rebuttal, I'd appreciate your input. Remember, the way things are going, it's only a matter of time before any or all of us are put on the hot seat for something similar or far worse.

Facts:

Our appraiser appraised a single condo unit in a conversion project in 8/2006. All 200+/- units are the same, identical floorplan. He measured the unit at 958 sf. Because of the conversion status, Orange County had NOT yet posted the individual GLA for the units in the tax rolls/public records.

The developer's promotional materials cited all the unit(s) GLA at 1100 sf. (See attachment).

There were multiple closed sales within the project at the time of the inspection that ranged from the mid to the high $170's. Our appraiser used two VERY RECENT sales of identical units--#1) $174,900 and #2) $179,900. A sale of a similar 1,105 sf GLA unit from outside the development that was several years older was also used that sold for $166,000 and after 4.9% net and 8.4% gross adjustments supported the mid $170,000 range. Our appraiser's final appraised value was at or slightly above the contract price.

Here's the crux--

Keep in mind there are no tax/public records to utilize and since the appraiser new all units were the same floorplan/GLA he elected to use the developer's GLA for his subject AND his comparable sales thus NEGATING any reason to adjust up or down for any differences in GLA. After all, they're all the same unit regardless of what you call them. Make sense?

Also attached to this complaint is a copy of another appraisal done by another another/non-affiliated appraiser of a different unit/same floorplan citing 958 sf with a value opinion of $190,000. We don't have a clue as to why that was included or what that's about.

The complaint alleges that our appraiser's appraisal violated:

475.624 (15) - Failure to Use Reasonable Diligence
475.624 (14) - Violated USPAP

Interesting Side Comments:

Ironically, the complaint was not filed by the owner/purchaser of the subject unit, but by another owner of a neighboring unit in the same project. Per Florida Statutes, that's ok because anyone can file a complaint. Remember--Damages are not a pre-requisite or a basis for an administrative complaint--not to be confused with a civil action.

It appears there is a class action suit pending by several purchasers/investors against the developer, not only for the GLA but because many of the common areas like the pool and clubhouse that appeared completed and already in place, were subsequently condemned by the county for sub-standard workmanship, despite issuance of a County CO (certificate of occupancy). A factor that was never disclosed to the appraiser and clearly not evident upon a cursory/visual inspection of those amenities by the appraiser.

The borrower/purchaser/investor closed on our subject unit in 9/206 for $174,900.

The appraisal met or exceeded all underwriting guidelines.

The borrower/purchaser/investor never sought to verify the GLA of the units and only became aware of the difference after closing.

On or about 12/2006 - 1/2006 the borrower on the subject unit contacted our appraiser alleging the problem with the GLA and demanded he pay him apx $30,000 for his 'mistake' or he would sue and/or file an administrative complaint with the State. This borrower alleged that he could not rent or re-sell the unit at a profit and, therefore, suffered a monetary loss to the tune of at least 7%-11% plus costs of his initial investment.

Upon further research it was revealed that the mortgage company who was our appraiser's client didn't provide a copy of the appraisal to the borrower until well after closing. Therefore, the borrower didn't have knowledge or seek out verification of the actual GLA prior to closing. It only became a 'hot' issue after he couldn't rent or re-sell (flip) the unit for a profit.

The appraiser told the borrower (with the full permission of the lender/client) that the difference in the GLA in the appraisal really had nothing to do with the unit not meeting his investment expectations, but was indicative of market conditions resulting from many investors like himself who immediately put the unit(s) back on the market creating oversupplied market conditions.

Ok, I know this is a lot to digest, but it really is a simple question of using actual measurements vs. developer promotional materials when there are no county records to rely on to avoid adjustments, up or down for an identical unit. I would allege while there may be a technical discrepancy in the GLA, because the units were all the same size, it really made no difference in the final analysis.

What say my peers and colleagues?

 

[Jan Roseberry]

State law, insurance policies

In Ohio, the declaration of the project usually spells out square footage and/or air space (different than auditor's records) and is incorporated into the deed. Don't know if there is similar legal vehicle in Florida.

Also, might be helpful to know on what square footage the typical homeowners policy was written. These are not conclusive but might assist in showing that square footage is not the problem.

 

[George Hatch]

There's a limiting condition that talks about sketches:

2. The appraiser has provided a sketch in this appraisal report to show the approximate dimensions of the improvements. The sketch is included only to assist the reader in visualizing the property and understanding the appraiser's determination of its size.

 

[BOB PADRICK]

several thoughts

one-the owner was not the client. lender client only-did he have the AI verbiage at the very least included, I hope?

2-interior/exterior measurements. Assuming this was a woodframe unit, would adding an additional foot to both width and depth bring it any closer?

3-It is what it is. If the GLA is right, there should be no issue anyway. Further, the appraiser was not able to communicate directly with the client any of the appraisal product until the client released him or her to do so, due to having a fiduciary relationship with the lender/client, not the borrower/purchaser in the transaction. this part:

"The appraiser told the borrower (with the full permission of the lender/client) that the difference in the GLA in the appraisal really had nothing to do with the unit not meeting his investment expectations, but was indicative of market conditions resulting from many investors like himself who immediately put the unit(s) back on the market creating oversupplied market conditions."

is more than I would have done, or at least worded it differently. Again, the GLA is what it is...either it is 958 or it isn't. It is not the appraiser's responsibility to be the GLA marketing police in this case-but it should have been the developer's responsibility to correctly identify the GLA in their marketing materials.

4-The only ding I could see would be from this part:

"It appears there is a class action suit pending by several purchasers/investors against the developer, not only for the GLA but because many of the common areas like the pool and clubhouse that appeared completed and already in place, were subsequently condemned by the county for sub-standard workmanship, despite issuance of a County CO (certificate of occupancy). A factor that was never disclosed to the appraiser and clearly not evident upon a cursory/visual inspection of those amenities by the appraiser."

If the damage/workmanship was poor enough to be noticeable, then the appraiser might have an issue. However, the county did issue co's, so apparently any deficiencies were not inherently obvious based on a cursory inspection. Hopefully, standard verbiage regarding the SOW, not being an inspector, etc...will protect the appraiser in this case.

Hope some of this is close to what you want, and helps....good luck.

 

[Lee Lansford]

Why, oh, why, if the appraiser measured the unit and calculated the GLA, did the appraiser THEN communicate the erroneous GLA?

Why indeed?

Yeah, I think that what the appraiser elected to do is a problem.

Misleading? Yes.

 

[Frederick R. Ruffell]

So as I understand it the appraiser did produce a sketch based on interior dimensions as required? Then he/she used the developers GLA in the market analysis?
If these are both true my next question is did the appraiser explain this discrepency, and how the comparables were identical in terms of GLA, in the report?
If so then I see no foul, as that is how I do it all the time. Weather or not this is how the State Lic. Board will see it I have no idea.

 

[Fred]

Ok, I know this is a lot to digest, but it really is a simple question of using actual measurements vs. developer promotional materials

"Actual" measurements?

So, for GLA, the appraiser should have put "typical" for subject and "similar" for the comps.

I am with George and I try to put even stronger disclaimers.

 

[Chris Harrison]

Joyce,

I have to play devils advocate and say I agree with the complaint given the facts you have presented.

The most reliable source for the square footage is the appraisers actual measurements and to remain consistent in the report he/she should have stated the source that all the units were the same. Then using those measurements for all the units in the project. The comparable that was outside the project should have had the GLA verified and stated source.

As far as the condemned amenities, when were they condemned? Before or after the appraisal effective date.

Also was this appraisal done for an investment or owner occupied loan. Perhaps the complainant should be discredited before this even makes it to the board.

It's to late for disclaimers but I always include something similar to:

"The measurements and dwelling sketch supplied in the appraisal report are for MY purposes of comparison to the comparable sales analyzed in the Sales Comparison Analysis. The dwelling sketch is not an architectural rendering of the subject dwelling and is not to be considered as such as I am not a licensed architect. Wasatch Front Regional MLS listings sometimes include porches, patios, decks and hallways in their published square foot areas for condominium properties. Many builders include garages, below grade/basement areas in their living area calculations. This is for THEIR purposes of comparison. Thus, the Gross Living Area stated in this report may or may not agree with the Gross Living Area published by the tax assessor, the MLS or the builder for the subject or for the comparable sales. Those stated square foot areas have no bearing on the comparison/bracketing/delimiting of the value range analysis utilized in the Sales Comparison Analysis of this appraisal report."

Just my .02

 

[Alison Swain]

The developer's promotional materials cited all the unit(s) GLA at 1100 sf. (See attachment).

Where's the attachment?

I'd like to see if I recognize the development.

 

[hastalavista]

What say my peers and colleagues?

Joyce-

Didn't read all the other responses, so someone else might have beaten me to the punch.

I see two issues here: Development and reporting.

The appraiser measured and reported the subject at 950+/-sf. So far, so good.

Next, the appraiser, assuming that all units were the same, considered all units within the development to be 950+/-sf, correct? So far, so good.

Last, since the units were marketed as 1,100sf units, and the appraiser used outside the complex units of similar reported GLA, the logic goes that there would be no adjustment to those outside-the-project units since, as far as the market goes, they are identical (or, reasonably similar) in GLA? Is that right?

If this was the development process of the valuation, I don't see a significant issue.

Now, my big question is this: Was this process adequately reported in the written communication? I mean, step-by-step similar to my layout above? If not, then I think the appraiser may have a reporting issue.

USPAP requires that the report adequately communicate its analysis and methods (my words) so that the rationale of the value opinion can be understood in the context of the intended user.

If the process outlined above was outlined in the report, I think the appraiser is fine. Although someone could always say, "That's not an appropriate methodology", I (and, I think others) would disagree. That's the luck of the draw with who is making the enforcement judgement.
But, if the appraisal report did not adequately outline its rationale in doing what it did, then I think that is a reporting problem. It did not give the intended user enough "meat" to judge the value in the context of how it was reported. While the analysis methodology might make sense, its inadequate reporting could be a "gotcha".

One way to test that is this: IMO, if in the response to the complaint, much time/energy is spent explaining what the appraisal report didn't explain, but in hindsight should have explained, then it is probably fair to say the report failed to meet the minimum reporting requirements given the assignment and intended use.

Good luck!

(I wrote this quick, so please excuse any grammatical errors!)