Does a FIRREA compliant appraisal require an AS IS value?

[CANative]

If they want two values (two appraisals) then what's the point asking about requirements? - Not being snarky. Just too lazy to phrase my question politely.

 

[CANative]

A friend explained this to me in detail. The "retrospective value" is the "as is" value. He prefers to remain anonymous but said that I could share this.

All banks require an as-is appraisal when originating a loan that must be consistent with the Interagency Appraisal & Evaluation Guidelines (IAEG); the IAEG outlines what is necessary to comply with FIRREA with regard to appraisals.

As you know, an as-is appraisal can be made with EAs. An as-is appraisal cannot be made with any HCs. Simple so far (no news to you).

As-is isn’t dependent on the date; it is dependent on the condition of the property as of the date of value.

Here is the definition of from the IAEG (my bold for emphasis):

‘‘As Is’’ Market Value—The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal’s effective date.

The effective date is always the benchmark date for the valuation; an opinion of market value of a property 10-years ago with no hypothetical conditions would be the as-is value of that property as of that date.

The terms “retrospective” and “prospective” provide a reference date of the appraisal development and reporting. The property’s as-is condition as of the development/reporting date is not the benchmark date for its condition, etc., as of the effective date.

An as-is opinion of market value can be developed in either case because “as is” doesn’t reflect the condition the property is in as of the date of report development and communication, it represents the condition of the property as-of the effective date.

A bank could have many valid reasons for asking for a retrospective value; they certainly have many valid reasons for asking for a prospective value (as-complete and as-stabilized). This is also covered in the IAEG:


Effective Date of the Appraisal— USPAP requires that each appraisal report specifies the effective date of the appraisal and the date of the report. The date of the report indicates the perspective from which the appraiser is examining the market. The effective date of the appraisal establishes the context for the value opinion. Three categories of effective dates— retrospective, current, or prospective— may be used, according to the intended use of the appraisal assignment.

 

[Helpless]

Gregb: Thanks for the links! I have seen the Investopedia one before but not the FDIC one and I think that is the most relevant one.

All that said, I still don't see any language about a requirement for a current value?

I see the following definitions:

"Appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information."

"Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer..."

It doesn't appear to say the specified date has to be a current value.....?

 

[Helpless]

A friend explained this to me in detail. The "retrospective value" is the "as is" value. He prefers to remain anonymous but said that I could share this.

All banks require an as-is appraisal when originating a loan that must be consistent with the Interagency Appraisal & Evaluation Guidelines (IAEG); the IAEG outlines what is necessary to comply with FIRREA with regard to appraisals.

As you know, an as-is appraisal can be made with EAs. An as-is appraisal cannot be made with any HCs. Simple so far (no news to you).

As-is isn’t dependent on the date; it is dependent on the condition of the property as of the date of value.

Here is the definition of from the IAEG (my bold for emphasis):

‘‘As Is’’ Market Value—The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal’s effective date.

The effective date is always the benchmark date for the valuation; an opinion of market value of a property 10-years ago with no hypothetical conditions would be the as-is value of that property as of that date.

The terms “retrospective” and “prospective” provide a reference date of the appraisal development and reporting. The property’s as-is condition as of the development/reporting date is not the benchmark date for its condition, etc., as of the effective date.

An as-is opinion of market value can be developed in either case because “as is” doesn’t reflect the condition the property is in as of the date of report development and communication, it represents the condition of the property as-of the effective date.

A bank could have many valid reasons for asking for a retrospective value; they certainly have many valid reasons for asking for a prospective value (as-complete and as-stabilized). This is also covered in the IAEG:


Effective Date of the Appraisal— USPAP requires that each appraisal report specifies the effective date of the appraisal and the date of the report. The date of the report indicates the perspective from which the appraiser is examining the market. The effective date of the appraisal establishes the context for the value opinion. Three categories of effective dates— retrospective, current, or prospective— may be used, according to the intended use of the appraisal assignment.

Great! Thank you for sharing this.

 

[George Hatch]

I would never do an appraisal for a mortgage lender without a current value of the property in its "as is" condition. If they want a retrospective or prospective value I'll add that as well. Whether in "As Is" or "Subject to" scenarios. Which combination of attributes as of the date is a separate issue from effective date itself.

Even if they never asked for the current value, I'd still provide it for the simple fact that the current "As Is" value will help demonstrate the effects on my opinions (if any) of these other valuation scenarios. In other words, I do it for me even if they don't yet realize they need or want it.

When in doubt, I always show it both ways and leave the way they handle it to them.

 

[andrew81]

edit//
i was confused as to the question
what i was referencing was the requirement for both as-is and as-complete valuations.
the only mention i found of retrospective is effective dates, but no specific requirement for retrospective and current date of value

 

[alebrewer]

Isn't a FIRREA 'compliant' appraisal just a USPAP compliant appraisal? As FIRREA doesn't establish appraisal standards, but it did lay out the requirements for establishing USPAP? And wouldn't the effective date of appraisal establish the date for the opinion of MV? IOW, if they want an appraisal with effective date in the past, it's retrospective, if current, it's contemporary, and if in the future, it's prospective. I'm not sure how 'as is' relates to the effective date of value?