Appraisal Update And Completion Inspection

[redfish]

I completed the original appraisal.

Conventional purchase of an FNMA owned REO property.

The appraisal was conditioned on an inspection.

Client requests an "appraisal update" and provides inspection results in the form of a letter from an expert indicating "all clear". Client adds an additional request to verify that the plumbing system is functional but the plumbing system was functional at the time of the original appraisal and I noted no deficiencies at the time.

I call the listing agent to gain access. I inform agent that I need to verify that the plumbing system is functional, he gets squirrelly and says "I thought that was good to go".

I respond "yeah but the lender wants verification that it is functional"

I can hear the gears turning when finally he gives some BS about the lock box not being there anymore and he'll have to call me back.

A bit later the office person calls and relays the lock box code, claims that the water is on at the street "but it may be turned off at the meter".

Great, all I wanted to do on Friday was roll out, test a functional plumbing system, get the required photos, check the market that I knew hadn't declined, get home and start the weekend, but my Friday soup is turning to sheet-stew.

Weighing my options, I hope for the best and head out to the home.

I am able to get into the basement only because someone locked the door from the laundry/utility room entrance off the garage barring access to the main floor. I'm not really sure how this affects the scope but I know that the door was locked for a reason. Luckily there was a half bathroom off the laundry so I could test the plumbing there at least and there was a bathroom in the basement so I could also test it there.

Half bathroom-no water.

Basement bathroom-Gone along with most of the rest of the basement finish.

All the plumbing fixtures had been removed from the basement bathroom. Easy enough, report that the plumbing system is not functional but there is more, most of the basement finish has also been removed.

The rub-

The scope of work for an appraisal update with FNMA is an exterior inspection but the client requested a test of the plumbing system which required an interior inspection and now the subject property is no longer the subject property previously appraised. The basement finish had a contributory value now it doesn't.

The market has transitioned into a full-on spring demand cycle, so prices have increased since the effective date of the appraisal at a rate enough to offset the negative impact on value that the condition of the basement finish would has on the marketability so the update portion isn't really an issue.

 

[hastalavista]

You know everything I'm going to say, but I'm going to say it for the benefit of others who may not do a lot of updates.

The exterior inspection is the minimum requirement; it can always be exceeded.
The statement in the 1004D's SOW is "concur with the original appraisal"; most of us (myself included) default that to mean concurring with the value. That's not all it means. It also means concurring with the description and conclusions about the physical, legal, and economic characteristics relevant to the assignment. The subject has changed since the original report; in a manner that most would say is significant.
Doesn't sound like as-is value (as far as the lender goes) is the issue. But as-is condition is an issue.

We all know (or should all know) that the 1004D is a form used to communicate an appraisal. The SOW allows us to assume some things when we conclude our opinion of value. The form itself is inadequate and it has to be supplemented.
An appraisal for mortgage finance purposes communicates two important things to a lender:
A. What is the physical, legal, and economic characteristics? The lender needs to know if the property qualifies for its lending programs. Value is irrelevant if the property fails to meet the minimum property qualifications.
B. What is the opinion of market value? This is used to determine the loan amount based on whatever LTV the lender is using.
The value is only useful in the lending decision process if the property's physical, legal, and economic characteristics meet the client's minimum requirements.

Update assignments allow us to incorporate the work of a prior appraisal into a current appraisal. We don't have to duplicate some of the steps; we do have to verify and concur with the original report's conclusion and description of the items we are going to incorporate to the ability we can based on our SOW (which at a minimum is a drive-by inspection). If we drive by the subject and see a section being demo'd for an addition, we couldn't concur with the findings of the original report; we'd likely advise the lender to change the assignment to a 1004.
For most of us, we are comfortable with "concurring" with the original report's data since we are usually updating our own work. And, that's a very good reason not to update another appraiser's work without including a very well-written SOW and limiting conditions/general assumptions statement (a new one needs to be included in the 1004D update anyway; and there is no prohibition against expanding and modifying what is on that update form).

What you saw because you entered the home is the equivalent of driving by and seeing work being done on the exterior. The original report's description of the physical components is no longer accurate; you can no longer concur with that part of the appraisal. I think you could update that part of the original report as well; certainly in theory. But in practice, I'd advise the client that it needs to change the SOW to a 1004 because the changes are significant enough that they are better communicated in a 1004 rather than an update.

Again, nothing new here for you.
Maybe something for another to consider if they run into a similar situation as you.

 

[J Grant]

you learned new information about subject that was not avialable to you in your prior assignment as a ext appraisal.

Imo discuss it with client what steps to take, though Denis gave good advice how to handle it.

 

[alex gilbert]

Denis, great reply. One thing you said bears repeating with regard to any Update reported on the 1004D "The form itself is inadequate and it has to be supplemented."

 

[Person of Noninterest]

Just an aside, does anyone think it is our responsibility to turn the water on at the meter? I'm getting this a lot lately.

 

[TRESinc]

Just an aside, does anyone think it is our responsibility to turn the water on at the meter? I'm getting this a lot lately.

never turn on any utility. ever. utilities are turned off for a reason, and unless you were the one who turned it off you have no idea what that reason was. it could be a leaking sink. it could be a burst pipe. it could be anything. flipping the switch puts you on the hook for any damage that may occur, and quite frankly we have enough on our plate as it is.

 

[J Grant]

NO never ever turn a water on at the meter. Let an agent or owner take responsibility for that.

 

[Peter LeQuire]

Ditto #6. The wisdom of this was reinforced, for me, last year. Met the Realtor at a vacant house. FHA appraisal. The water was off. The Realtor took the initiative to turn the water on. When I went into the house, water was pouring from a toilet with a defective fill valve and ruptured pipe running down the hall. Not my fault, not my problem.

 

[Person of Noninterest]

never turn on any utility. ever.

NO never ever turn a water on at the meter.

Ditto #6.

I am inclined to agree, thanks.

 

[Tru Red]

I never tun on any utility (water/electricity/gas). If the water is on, whether it's a owner occupied/vacant/otherwise I always include a photo of the water running, typically at the kitchen sink.