As-is Requirement

[CVal]

Hello all,

When an opinion of value is made based on a hypothetical condition, is the appraiser also required to provide the as-is market value within the same report? The appraisal is for acquisition and renovation of an industrial building. If you can provide a quote or a link that would be helpful.

What if the appraiser accomplishes this with two separate appraisal reports?

If the loan is for renovation, would it be important the appraiser use a prospective market value, rather than a hypothetical condition, per FIRREA or USPAP?

Last I looked, an as-is value did not seem to be explicitly required by FIRREA within the same report as a hypothetical or prospective value...here is one quote I found...

"The estimate of market value should consider the real property's actual physical condition, use, and zoning as of the effective date of the appraiser's opinion of value. For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property's current market value in its "as is" condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization.24 Prospective market value opinions should be based upon current and reasonably expected market conditions. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis.25 An institution should understand the real property's "as is" market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable."

Thanks for sharing any thoughts on this issue.

 

[andrew81]

this is related to commercial appraising and i am a residential appraiser

from my experience, when the scope of work includes conditioning the report upon hypothetical conditions, such as new construction, remodeling, FHA mpr repairs, or whatever, i have one client that asks for the as-is value.

none of my AMC, secondary market, VA, FHA, usda, or rd direct clients request to include the as-is value.

the one client that does is a 70 year old bank president that personally only does a few inhouse loans a year. when he orders an appraisal it is very informal, maybe two sentences in an email and when it is for repairs or whatever he always asks for both values.

 

[Terrel L. Shields]

IAG. Regulated banks require it.

The estimate of market value should consider the real property’s actual physical condition, use, and zoning as of the effective date of the appraiser’s opinion of value. For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property’s current market value in its “as is” condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization.25

25 Under NCUA regulations, “market value” of a construction and development project is the value at the time a commercial real estate loan is made, which includes “the appraised value of land owned by the borrower on which the project is to be built, less any liens, plus the cost to build the project.” 68 FR 56537, 56540 (October 1, 2003) (referring to Office of General Counsel Opinion 01-0422 (June 7, 2001)); 12 CFR 723.3(b).​

 

[andrew81]

would generally request means required?

 

[Gobears81]

Just include it I interpret the FIRREA language in your first post that an as-is value is an expected part of the valuation, as Terrel's quote indicates also. Appraiser peers do include it for this type of intended use.

 

[Basically Rectangular]

I also am only referring to residential but I have been doing an increasing amount of as-is/after-repair assignments. The requirements are defined in the engagement letter and they are different depending on the client.

However if your question is regarding do you need to develop an as-is if the order is only asking for an after-repair, then I don't really know the answer, since all of the after-repair assignments I have done also ask for as-is.
However I may be wrong but if your scope of work is only to develop the after-repair then my guess would be that you don't need the as-is. Lenders usually want both so they can see the spread and determine if it is worth it to proceed, but if they are not requiring it then I suppose you don't need it?

 

[Deleted member 128537]

In doing a house “subject to” repair I have never been asked to do an “as is” value as well. Don’t think you need to unless asked for. Not any different than doing a construction loan. Say the property is “under construction” and is constantly changing on a daily basis. The “as is” value hard to determine, and the bank really only wants a value generally when it’s done.

The only time I have seen where an “as is” value might be useful is if it is based on home equity. When I built my first house I bought a shell and did much of the work myself. The bank got an “as is” value at the beginning. Then I borrowed money on the basis of that and started finishing it. Then after I got to a certain point the bank came out and looked at how much equity I had in the property. They then made that the basis of lending me more money to finish the house. But I don’t believe they ever did a “subject to” appraisal, because my final appraisal was simply a refinance of the completed home.

 

[Mike Kennedy]

from the OP's quotation in post #1 above:

"For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property's current market value in its "as is" condition, and, as applicable, its prospective market value upon completion"

I suggest a Scope of Work discussion with your Client is necessary, in writing.

 

[BRCJR]

would generally request means required?

Yes. I got that straight from the feds.
Should means must. Got that straight from the feds, too.

 

[andrew81]

throughout the Interagency Appraisal and Evaluation Guidelines it uses terms such as 'must require' 'must consider' 'must comply', you get the idea.

why would it be worded as a suggestion when the document is not shy in letting it be known when it is required by using must many times throughout?

i believe you have been told this. i am not by any means calling you a liar. just saying it doesnt read that way nor has it been my experience