Common USPAP Violations

[Fred]

Terry,

How can the board determine whether the client understands the scope. How do they get into their shoes?

The client may understand it perfectly and have explained it perfectly to the appraiser. That has little to do with whether the appraiser summarized it in the report. [That's why I call my reports, restricted use, whenever possible].

to state that their use might have affected the assignment results (SR 2-1 c and SR 2-2 b x))

And what if they don't? Who's judgment call is it? The appraisers? or the Board after the facts

Maybe, it’s just the board’s opinion. Is anything else required?

Although, I have to say, the requirement makes no sense to me. I objected to it, when it was exposed. You could probably gig me for not writing that the EA might have affected assignment results, because I would have made it clear that the EA definitely affected assignment results.

 

[Mike Kennedy]

My favourite: "Selecting comparable sales based upon their ability to support a preconceived notion of value, rather than based upon their similarity to the subject".

A skippy special. The target value is $150,000 so Skippy throws three recent sales around $150,000 on the grid, makes minimal GLA adjustments and NO other adjustments for things like lot size, Age, A/C or Garages, then vollla the appraised value = $150,000. Never mind that the houses are nothing like the subject or that Skippy lied and said they were all less than a mile from the subject.

Well being a "team player" and providing "good customer service" with the aid of a written estimate of value, a loan amount, an LTV ratio, and/OR being required to Review a Sale Binder or Contract CLEARLY drawing the Target wasn't the poor (a)ppraisers' fault - THEY MADE HIM hit the bullseye......

Gee.......give the (a)ppraiser a break. p.s. odds are he/she is STILL Licensed. :new_smile-l:

 

[stefan olafson]

1. Client and any other intended users: The client is zzz Mortgage, Inc. Anyplace, Anywhere USA 44444. The intended users are (loan processor), (loan officer) and underwriters.

2. Intended use of the appraiser’s opinions and conclusions: The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form and the Definition of Market Value. No additional intended users are identified by the appraiser.

3. Type and definition of value: Market Value as defined on page 9 of this appraisal report. The source for the definition of value was published by federal regulatory agencies pursuant to Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 between July 5, 1990 and August 24, 1990, by the Federal Reserve System (FRS), National Credit Union Administration (NCUA), Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the Office of Comptroller of the Currency (OCC). This definition is also referenced in regulations jointly published by the OCC, OTS, RFS, and FDIC on June 7th 1994, and in the interagency Appraisal and Evaluation Guidelines, dated October 27, 1994.

4. Effective date of the appraiser’s opinions and conclusions: The effective date is the date of inspection, x/x/2008, the date of the report is x/x/2008.

5. Subject of the assignment and its relevant characteristics: The subject of this assignment is a rural residential property approximately xx years old that has been extensively remodeled in the past seven years. The property is a typical ranch style home similar to most homes of a similar age. The property is a three bedroom, one bath home with a full basement that is partially finished. The homeowner is in the process of transitioning the one car attached garage to a master bedroom, but is not yet complete. The property is rural in nature, being located in the SW1/4SW1/4 of Section xx, Anywhere Township, Anywhere County, Anystate.

6. Assignment Conditions: The property was inspected on the interior and exterior on x/x/2008. The improvements at the time of inspection sit in a farmstead included in a forty acre parcel under the same ownership. The farmyard contains the improvements included in this appraisal as well as a set of farm buildings which is outside the legal description describing the improvements being appraised. Public records were researched for the subject property as well as the comparable sales chosen. The entirety of Anywhwere County was included in the neighborhood because of the lack of market activity and the low population level. The age of the improvements is estimated based on observed condition, there was no indication in public records to the actual age. All three comparable sales chosen were inspected from the street as well as researched at the county assessors office. The appraisal report includes my analysis, opinions, and conclusions, the square footage of the subject improvements was taken from actual physical measurements, the square footage of the comparable sales unless otherwise noted, was taken from county assessors records. Personal property was not included within the estimate of value.

7. All typical approaches to value were considered in the completion of this assignment. The sales comparison approach and cost approach were completed. The cost approach was included as a support for the sales comparison approach. The sales comparison approach using actual closed sales which are adjusted based on market influences is the most appropriate method to use to value this type of property. The improvements are neither new or unique, the cost approach is difficult to complete properly when the improvements are older, depreciation is difficult to estimate properly and divide between physical, functional and external conditions.

8. There are no extraordinary assumptions or hypothetical conditions in this appraisal report. If used, they might have affected the assignment results . Assumptions and conditions are located elsewhere.

9. The highest and best use is defined as: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are; legally permissible, physically possible, financially feasible, and maximally profitable. The highest and best use of the subject property as if vacant and available for development is as a single family dwelling site. The highest and best use as improved, the current use, is as a single family dwelling.


10. Exposure time may be defined as follows: the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based on an analysis of past events assuming a competitive and open market. (SMT 6) Exposure Time: Estimated exposure time is between 180 and 240 days


THIS GOES IN ALL MY REPORTS!

 

[Mztk1]

My favourite: "Selecting comparable sales based upon their ability to support a preconceived notion of value, rather than based upon their similarity to the subject".

A skippy special. The target value is $150,000 so Skippy throws three recent sales around $150,000 on the grid, makes minimal GLA adjustments and NO other adjustments for things like lot size, Age, A/C or Garages, then vollla the appraised value = $150,000. Never mind that the houses are nothing like the subject or that Skippy lied and said they were all less than a mile from the subject.

I think it is even more subtle than that. I've noticed there are "gut" appraisers and "analytic" appraisers. The gut appraiser will go to a house and know what it is worth and then find comps to support that value. They'll ignore the lenders and owners opinion like the other guy. But that gut-guy is using a pre-conceived notion of value. And a lot of appraisers who believe they are really good do it this way over and over again.

The more sound way is to take away that gut bias, have no clue, jump to no conclusions, and find the most similar sales in the market, put them on a grid and see where they land. That is an analytic approach. It takes you and your gut out of the process as much as possible.

Personally, I think most appraisers are gut appraisers because most people are emotional decision makers and look for the reasons behind their decisions only after the fact.

 

[Fred]

Stefan,
That boilerplate raises some questions for me. Here are a few.

No additional intended users are identified by the appraiser.

I'd be wondering if any other intended users or uses were identified by the client.

THIS GOES IN ALL MY REPORTS!

All of your appraisal are for FRT's, all have the same inspection?

The age of the improvements is estimated based on observed condition

You might want to call that effective age.

The cost approach was included as a support for the sales comparison approach

How do you know every cost approach is reliable in advance, and will come out close to the sales comparison figure?

 

[stefan olafson]

STEVEN,

Those ten points go in each appraisal. They are changed and modified in each report. I identify who the intended users are, if it's an AMC ordering the report, I typically state the AMC and the named lender the report is going to.

No, a good share of my reports are not FRT, but I include a scope of work statement in each report telling the reader what I did to complete the assignment. It gives the reader at least some idea that I didn't just slap it together!

Okay, it's effective age, I stand corrected.

In the recent appraisal I completed where this was a part of the addenda, the cost approach supported the value as derived from the sales comparison approach.

I posted this so those that just 'fill in the form' get the idea they should include extra information to better comply with our friend, USPAP.

That's all, each report is completed and this addendum is changed to support the information in the appraisal.

 

[Non Sequitur]

Many of the problems listed stem from the appraiser’s use of the Fannie Mae forms. The Fannie Mae form was designed by them to meet their own needs. Fannie Mae has been somewhat sensitive to the reporting requirements of USPAP, but it is the appraiser’s responsibility to conduct the assignment in compliance with USPAP, not Fannie Mae’s. Appraisers often think that simply checking the boxes they have been asked to check or answering only the questions asked on the form (and using only the space provided to do so), complies. It does not.

Some may not agree with all of what's in the release but this is great. If I were licensed in New Hampshire this would be on my wall. Hats off to the New Hampshire board for spelling it out.

 

[Lost Cause]

A Fundamental Problem

Many of the problems listed stem from the appraiser’s use of the Fannie Mae forms. The Fannie Mae form was designed by them to meet their own needs. Fannie Mae has been somewhat sensitive to the reporting requirements of USPAP, but it is the appraiser’s responsibility to conduct the assignment in compliance with USPAP, not Fannie Mae’s. Appraisers often think that simply checking the boxes they have been asked to check or answering only the questions asked on the form (and using only the space provided to do so), complies. It does not.

Some may not agree with all of what's in the release but this is great. If I were licensed in New Hampshire this would be on my wall. Hats off to the New Hampshire board for spelling it out.

Agreed
****************

 

[Riick]

REO question

The definition of Market Value that the 1004 uses is "for a mortgage finance transaction" etc., etc.

However, in the case of an REO, or pre-REO, the intended use is NOT for mortgage finance purposes, but to (in my words):
"...aid in a financial decision about the resale of a property which has been, or may shortly be, repossessed."

Since it's a USPAP violation to "use Fannie Mae forms for non-lending assignments" - it would seem the 1004, or 2055, etc., are inappropriate for REO work.
However, the Lenders, in their wisdom, demand their use.

Comments anyone?

 

[Mountain Man]

I may be just half blind, but I missed the one about using MLS photos????