Did I make a huge mistake? Accessory unit?

[Tharax]

Thanks Redfish, Michigan, Mark, TJ and USPAP compliance. for the comparables with the above grade in law suites, I added the sq footage to the GLA, for the basement unit, I did not include it in the GLA.

To TJ's comment, the zoning is RA residential agricultural and it is listed as a 1 unit on the tax records. The tax records only show the square footage of the primary structure though.

 

[Michigan CG]

I will likely take some abuse for saying this but,

Based on what you just posted, I would say it is a judgment call how you reported the subject GLA because your comps were interior and attached units with the GLA included.

If you had no similar detached units and no way of separating the comp's GLA, what were you supposed to do? If this was properly explained and the underwriter accepted your method???????

As long as you did not deliberately overlook more suitable sales that would indicate a different value, or intentional mislead the client, I would defend your report.

In a humble manner that is. Explaining why you did what you did is your defense. It is called a complex assignment that can require methods outside the box.

You just might discover the other appraiser gave the unit NO value at all and according to the sales you have, they would be wrong.

If that is the case, it is just a shame the borrower drug you into this the way it happened.

I agree with most of this, especially the possibility of the second to last sentence. As to the second sentence in this post I would humbly disagree. It is what it is.

 

[Tim The Enchanter]

The second unit isn't GLA. Doh!

But if your value was "right" or reasonable at least, just maybe not as well supported as it might have been, maybe you'll be OK.

I'd run research along those lines as others have suggested, and try not to sit on pins and needles waiting for that detailed letter.

Unless you are very persuasive and charismatic, you're probably better off doing the written response anyway, vs an in person or phone grilling. Imho.

Good luck with it. You might look for new clients anyway, always a good idea.

 

[smackodu]

I am very curious how he possibly arrived a a value so much lower than mine.

Because the other appraiser probably used 1,000 to 1,400 sq ft comparables in the subject's immediate neighborhood and gave little to no value to the accessory unit.

In addition, I will make an extraordinary assumption here and say that you probably used a few 2,000+ sq ft comparables in your original report. No way should these be considered comps to a 1,200 sq ft rambler. If you went outside of the subject's market area and skipped over 1,200 sq ft comps in the subject's immediate neighborhood a reviewer may believe you tried to inflate value. How does a reviewer for the lender ignore this?

One more thing. A 1,200 sq ft rambler in Maryland usually has a 1,200 sq ft basement. A 1,700 sq ft rambler usually has a 1,700 sq ft basement. That's 500 sq ft of basement space. Did you make basement adjustments for that additional improved or unimproved space?

If they give you 45 days suspended now be happy. Ask them to look at the bulk of your work and hopefully that is of good quality.

And in the future remember the # of meters means nothing. A homeowner can pay to have as many meters on the property as they are willing to pay for.

Good luck!

 

[hastalavista]

Last July I appraised a property for a mortgage transaction in MD. The subject was a rancher of about 1,200 sq ft above grade. It also had a second separate 500 sq ft building with separate heating/cac/ kitchen 1 br 1ba but not separately metered (which I referred to as an in-law apt in the report). I combined both areas for the total GLA and used comparables of similar size.

Now the new owner tried to refi and the new appraiser did not count the separate building as part of the GLA and his value came in way lower than mine. The lender has now put me on probation for 45 days and is going to have a meeting in which I get to defend my decision and then possibly (likely) terminate me.

I don't know if this question has been asked:
You appraised the property last July... improperly based on what I read.
You now say there is a "new" owner.
Was your
(a) prior appraisal for the purchase, with the "new" owner being the buyer?
Or,
(b) was your prior appraisal for a refi, and subsequently the property sold, and coincidently, the new owner is using the same lender for her/his loan?

If "a", I think this situation is serious.
If "b", less serious (but not trivial).

 

[Tharax]

To Denis, it is option A. I did the appraisal for the purchase transaction. Then the now owner went to refinance. The purchase and attempted refi were done with the same lender.

 

[smackodu]

OK. I don't want to pile on here. Since the report was prepared for the AMC of a large lender, was the work all your own? Or were you coached and guided by one of their so called quality(choke) experts(gag) who helped you circumnavigate their strict underwriting guide lines? If the 2nd scenario is the case, I would compile every piece of communication you had with them when you prepared the report.

 

[Tharax]

To Smackodu, no all of the work was my own. I'm totally responsible for everything I write.

 

[TJSum]

Thanks Redfish, Michigan, Mark, TJ and USPAP compliance. for the comparables with the above grade in law suites, I added the sq footage to the GLA, for the basement unit, I did not include it in the GLA.

To TJ's comment, the zoning is RA residential agricultural and it is listed as a 1 unit on the tax records. The tax records only show the square footage of the primary structure though.

IMO this is the most serious issue to address, unless you are in a very rural area, most likely this second unit is illegal and not allowed. It is probably why you couldn't find any other detached units to compare. Contact the county zoning office to see what is allowed on the site. There are "minor" zoning and permit issues, but this isn't one of them, this is major. If found out many counties would make the homeowner remove it or turn it back into a garage or "shed". You may also want to contact the listing agent when it sold last year to see what knowledge they have about its legality.

I find it amazing the original appraisal passed through their review process, and now they could be looking to scapegoat you to take all the blame when they deserve some themselves.

If it is legal, you still should not have combined the GLA on the second unit with the main structure, but it should not have created that much of difference on the bottom line value however you added it all up, my guess is the second appraiser gave it no value because of the legal problems of its presence.

We all have made mistakes along the way in this profession, the best course of action when it happens is to come clean, explain what you have learned after researching it in depth, and if it is a good client, sometimes it brings you closer together. On the positive side, you did not try to hide or overlook this potential illegal unit, so it wasn't intentional "fraud", just an honest mistake of how it was handled.

 

[hastalavista]

I find it amazing the original appraisal passed through their review process, and now they could be looking to scapegoat you to take all the blame when they deserve some themselves.

TJ is giving you (Tharax) a significant benefit of the doubt.
I'm not surprised the appraisal went through. Not all appraisals are reviewed to any great detail. This is a case where you probably wish it were.

On the positive side, you did not try to hide or overlook this potential illegal unit, so it wasn't intentional "fraud", just an honest mistake of how it was handled.

On this, I agree with TJ. It wasn't fraud (an ethics violation... obviously the worst of the worst).

There are (IMO) three types of appraiser errors:
Ethics (everyone agrees this is not an ethics issue).
Competency (I think this is the issue).
Oversight/lack of due diligence (this is rushing a job, or going through something really quickly and missing a detail).

I think this is a competency issue.
No intent to mislead.
Not a consequence of being rushed or missing something (checking the wrong box).
Applying a valuation process which is not consistent with the recognized methods, not one that would be done by a peer, and not one that the client expects to be performed.

If you knew better, and someone pushed you into doing this, then that would be an ethics violation.
If you simply rushed the job and incorrectly put the GLA together (which has happened to some forumites), that would be a due diligence issue.
In this case, you thought it was acceptable. That's competence (as harsh as it sounds).

For a fact, you are being forthright in identifying the error, and being genuine (as I far as I can tell, and I'll take it at face value that it is the case) that you recognize the error. I respect that.

And, by the way, when I say this is a competency issue, I'm not saying you are an idiot. I am saying, professionally, you did something that a peer wouldn't do because they would have realized it was incorrect.

Ok, that's my two-cents on what the issue is. You want advice on what to do about it.

Obviously, you recognize the error and won't do it again.
I'd call my E&O and ask for advice; only because I'd want to know from them if I should admit I made a mistake or not. Everyone always says, "don't ever say you made a mistake". That may be the right tack to take in this case. But, unless there is something more, you made a mistake; one that cannot be explained away.
If you don't admit it, that may create hard feelings with the borrower and with your client/employer (many will say the borrower is not an intended user... and they'd be right. However, I'd say the borrower may have a legitimate beef here, intended user or not).
If you do admit it, you may be putting yourself on the losing end of some litigation action. So call them and ask them what you should do.

Regardless of admitting a mistake or not, I'd ask my client/employer what they think I can do to right the error. I'd be willing to do most anything that is ethical and reasonable to make good on the error.

I'm of the mindset that aggressively trying to fix/address the issue is better than trying to hunker down. But that's me. I might be wrong. You really should contact your E&O or some other legal representative to get their advice.

Good luck (and I mean it!).

Denis