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FIRREA and USPAP

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H.B. Userman

Junior Member
Joined
Nov 11, 2003
Professional Status
Certified General Appraiser
State
Wisconsin
My subject was a run down industrial building. The property was being purchased and renovated to almost new condition.

The client ordered the report while the building was in the midst of remodeling. The client requested an "as completed" value only.

My appraisal was reviewed and the review stated that per USPAP and FIRREA, the appraisal should have included an "as is" value.

Is he correct? I have read through USPAP and FIRREA, but may have missed the part that states that an "as is" value is ALWAYS required.
 
That's a Fannie rule. Strange the client doesn't want both values though.
 
FIRREA always requires an "as is"
 
FIRREA requires nothing of appraisers. It tells the five regulatory agencies what they and the institutions they regulate must do. It gives the regulatory agencies latitude in making determination as to what is necessary for the safety and soundness of the banking system. It tells state governments what they ought to do, if they want to the regulated institutions to make loans in that state (ie, set up a licensing system per AQB criteria).

The "as is" requirement is listed in the interagency guidelines that would be supplemental standards to USPAP. It is also in the OCC announcement on constructions loans, which would also be supplemental to USPAP.

The institutions are required to lend on as-is value. However, as the guidelines suggest, the lenders might also want or need to know the completed value. (I would say to be sure that the finished project won't end up over leveraged).

As an appraiser, you would have no way of knowing that the lender did not already have an as-is valuation, and that their request for as-completed value may have been part of the lending officer not following the regulations. In my opinon, the only appraiser in error here, is the reviewer,
 
Last edited:
Steven Santora said:
As an appraiser, you would have no way of knowing that the lender did not already have an as-is valuation, and that their request for as-completed value may have been part of the lending officer not following the regulations. In my opinon, the only appraiser in error here, is the reviewer,
Just like a residential appraiser is expected to be familiar with Fannie and Freddie requirements, I think it's incumbent on a commercial appraiser to have a passing familiarity with FIRREA. The appraiser should at least know enough to ask the client if they need as "as is" value.

It all keeps coming back to communication with the client ...
 
The "as is" value requirement is in USPAP. An "as is" value is not required of all assignments but is required in assigments for Federally Related Transactions. See Statement 10, D(2).
 
Alex,

I am under the impression that is only when a hypothetical assumption is being used.

Scott J. Lanz
 
PL, It seems you're assuming I didn't communicate with my client. In most cases, I've completed an "as is" value at the request of this same client. However in this case it was decided that it wasn't needed because the "as is" state was a building in the midst of an extensive remodel. The client requested an "upon completion" value only and I did just that.

My only question is- Am I in violation of USPAP and FIRREA?
 
The ASB highlighted the federal banking requirements and how they relate to USPAP in Statement 10. Inasmuch as FIRREA and other banking regs are directed at banks, not appraisers, any problem for the appraiser would be in "violation" of USPAP. This assignment was apparently subject to some supplemental standards and they were not identified by the Appraisers during the SOW decision phase. In this case, had Gatlin been more familiar with Statement 10 he probably would have provided the "As Is" for the client whether he asked for it or not.

My personal solution is that I provide an "as is" for every appraisal that is subject to something being completed, FRT or not.

There are worse problems out there. This one is easily cured. I'd just fix it and move on.
 
My personal solution is that I provide an "as is" for every appraisal that is subject to something being completed, FRT or not.

That is what I have always done as well, although I personally don't and haven't seen to many other appraisers spend a considerable amount of time on this part of the appraisal.

Scott J. Lanz
 
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