Cert #4 and the Cost Approach

[Andrei Fin]

Cert #4 of Fannie's URAR states that:

"I developed my opinion of the market value of the real property that is the subject of this report based on the sales comparison approach to value."

So what are we to make of an appraiser who gave some weight to the cost approach in the final reconciliation of an appraisal performed on the URAR form for use by Fannie Mae? Per USPAP, should they have declined the assignment due to unacceptable conditions or ???

 

[George Hatch]

The appraiser's job is to render services to intended users in a manner that is meaningful and not misleading. From what you understand of the various user expectations for these assignments - including Fannie's expectations - would you say the wording in the above assertion is accurate or inaccurate WRT meeting those expectations and appraisal policies?

 

[Andrei Fin]

The appraiser's job is to render services to intended users in a manner that is meaningful and not misleading. From what you understand of the various user expectations for these assignments - including Fannie's expectations - would you say the wording in the above assertion is accurate or inaccurate WRT meeting those expectations and appraisal policies?

Right, so AO 19 says:

Unacceptable Conditions
Certain types of conditions are unacceptable in any assignment because performing an assignment under such conditions violates USPAP. Specifically, an assignment condition is unacceptable when it:
• precludes an appraiser’s impartiality, because such a condition destroys the objectivity and independence required for the development and communication of credible results;
• limits the scope of work to such a degree that the assignment results are not credible, given the intended use of the assignment; or
• limits the content of a report in a way that results in the report being misleading.

 

[George Hatch]

You didn't respond to the question I asked. Do you think the assertion as worded *on this SR2-2a report form* is accurate or inaccurate WRT the SR1 SOW decisions that appraisers commonly make - based in part on the user expectations - for these assignments?

Another way of putting this is whether you think the apparent disconnect is occurring on the SR1 side or the SR2 side of the assignment, and if so which party is making that mistake? The appraiser who is meeting the user expectations for the assignment or the form author whose understanding of appraising is so limited that they hardwired an unqualified assertion into that wording, thus saying something that disconnects from Fannie's own program?

 

[Randolph Kinney]

Right, so AO 19 says:

Unacceptable Conditions
Certain types of conditions are unacceptable in any assignment because performing an assignment under such conditions violates USPAP. Specifically, an assignment condition is unacceptable when it:
• precludes an appraiser’s impartiality, because such a condition destroys the objectivity and independence required for the development and communication of credible results;
• limits the scope of work to such a degree that the assignment results are not credible, given the intended use of the assignment; or
• limits the content of a report in a way that results in the report being misleading.

Cert #4. I developed my opinion of the market value of the real property that is the subject of this report based on the sales comparison approach to value. I have adequate comparable market data to develop a reliable sales comparison approach for this appraisal assignment. I further certify that I considered the cost and income approaches to value but did not develop them, unless otherwise indicated in this report.

You have to reconcile why you did what you did.

 

[George Hatch]

BTW, the SOWR relates specifically to the SR1 decisions the appraiser makes. In no case will the wording in an SR2 report drive those decisions. The report is supposed to serve as a communication of the process after the fact, not as an appraisal policy for the appraiser to follow in developing that process.

 

[Andrei Fin]

Do you think the assertion as worded *on this SR2-2a report form* is accurate or inaccurate WRT the SR1 SOW decisions that appraisers commonly make - based in part on the user expectations - for these assignments?

The client has no obligation regarding the "SOW decisions that appraisers commonly make". If the client only wants to fund loans based on the sales approach, that is their prerogative. If I want to start a bank that only funds loans based on the cost approach, that is also my prerogative. If no appraisers will accept my assignments, too bad for my bank.

 

[George Hatch]

You understand that user expectations are an important consideration in an appraiser's SOW decision, right? The users aren't the responsible party for the appraiser's SOW decision, but we most definitely are required to identify and meet those expectations.

This is not some trivial housekeeping issue, either. I didn't fabricate the comment I made earlier about "render services to intended users in a manner that is meaningful and not misleading". That comes straight out of the PREAMBLE and it's one of the primary drivers in everything we do.

As far as what a client can ask for, they can always ask for "more", but there are limits to how much "less" they can ask for. That's where your earlier reference to not allowing their preferences to unduly undermine our minimums comes in. Regardless of how little a client might want the appraiser's SOW decision still has to meet both elements of that 2-part test, neither of which refer to what the one client wants.

 

[George Hatch]

So back to the question: Do you think the wording in that assertion is accurate or inaccurate WRT the user expectations for those assignments?

 

[djd09]

the cost approach is meaningless on fannie forms per cert 4 and rightly so.