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I really can't believe I heard this

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Gregt

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Sophomore Member
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Jan 8, 2008
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Licensed Appraiser
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Arizona
I need advice. I'm doing an appraisal on an REO. The reviewer is insisting that valuation should be "repaired value should reflect up to double the cost of total cost to cure". In other words, a valuation of $100,000 and repair cost of $10,000 will result in a value of up to $120,000 and may not exceed that valuation. Any higher determination of value is thereby precluded.
My understanding is that such a procedure could not possibly be USPAP compliant. Essentially the reviewer is saying that no market response to repairs can possibly exceed numbers reached by her formula. I was told that USPAP didn't enter into it because the REO addendum does not have to be USPAP compliant. Only the rest of the appraisal. I told the reviewer this was absolute nonsense and that I would make no revisions until talking with others at the company involved. I also requested she put her statements concering USPAP compliance in writing and email them to me. She refused.

She called back a few minutes later. The implication was that I wouldn't be receiving any more work from that particular appraisal management company.

Do I completely misunderstand USPAP?
What steps can I take to continue getting work?

Help please.
 

Terrel L. Shields

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Certified General Appraiser
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Arkansas
Why do you want to work for scumbags? Fire 'em and go on.
 

Mztk1

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Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
It is absolutely nonsense. REO forms include opinions of value and must comply to the USPAP. They are not Fannie Mae forms and are not covered by Fannie guidelines.

Never argue over the phone about a stip. Always ask for it in writing and tell them point blank that you do not consider any changes in a report unless the request is made in writing.

On the other hand, though, and probably where the reviewer is coming from, I personally do not believe many improvements to a house in need of repair are going to even have a cost of repair return, let alone double the cost of the repairs. It can and does happen but it is rare.

In the REO market, which is investor driven where returns are anticipated by the buyer, returns above cost are usually related to external forces caused by who owns the property. Mr & Mrs Avg Buyer are less likely to be involved in the purchase of an REO due to the stigma of foreclosure. Mr Iwanna Money will.

For instance, if you have three sales, one average condition market sale selling for $140,000; one market sale in similar condition to the subject, NOT an REO, selling for $125,000; and one REO sale in similar condition to the subject selling for $100,000, all other things being equal, you have a $15,000 market reaction for the condition of the property, and a $25,000 market reaction for the external effect of ownership. Therefore, if your $100,000 REO property "as is" were to be repaired, the "as repaired" market value would be $115,000, not $140,000.
 
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Tom Woolford

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Nov 20, 2005
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Certified Residential Appraiser
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Florida
Making any market value determination from the basis of cost alone would seem to violate just about every principle of a market value. Your as repaired costs should reflect what the market would reasonably pay, based upon comparable sales, of properties in a condition similar to the subject AFTER repairs are effected. I don't give a crap what it costs, whats it worth?
 

hastalavista

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May 16, 2005
Professional Status
Certified General Appraiser
State
California
I need advice. I'm doing an appraisal on an REO. The reviewer is insisting that valuation should be "repaired value should reflect up to double the cost of total cost to cure". In other words, a valuation of $100,000 and repair cost of $10,000 will result in a value of up to $120,000 and may not exceed that valuation. Any higher determination of value is thereby precluded.


There is no such thing as a set formula, and the correct answer depends on the market and specifics of the property.

However, turn this a bit around I can understand some of the rationale of the review argument:
If the subject is suffering from deferred maintenance or needed repairs, the adverse impact on value is likely more than the cost to cure the situation.
Notice I made a general statement without using a formula (2x cost to cure). However, in almost all of my markets, the statement is true-
If a property is worth $100k in a deferred as-is condition, and the cost to bring it to average is $10k, then the impact on value is going to be more than $10k (could be 2x, 3x or more!). Again, the other way of looking at this is that a cosmetic fixer with $10k worth of repair may sell for $100k vs. one that is in average condition that could sell for $130k.
In a declining market, my observation is that negative influences are maximized. There are so many competing properties in "average" or better condition that the less-than-average homes need a substantial discount to incent the typical buyer into purchasing them.

This dynamic needs to be explained in the addendum and the approach/rationale used by the appraiser in his/her analysis needs to be detailed (IMNSHO). The days of three comps and minimal comments are over.

If the reviewer is basing her opinion on some predetermined formula that is not market-derived or supported, that's a USPAP problem, and unfortunately a well communicated report may not make a difference.
My experience is the best defense against a poor review is an adequately developed and summarized analysis: it is not a guarantee, but it works more than not!

Good luck!
 

Mike Kennedy

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Joined
Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
"may not exceed that valuation. Any higher determination of value is thereby precluded."

And if the market indicates a 4 or 5 to 1 return ....... ?

QUESTION: Is that "formula" indicating a maximum a "standing guideline" that should have been discussed and agreed to BY the Appraiser (formerly a supplemental guideline) that in 2007 would have precluded accepting such an assignment but in 2008, thanks to another "loophole" loosening, falls under CLIENT-DIRECTED Scope of Work ??
 
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Kevin Keck

Junior Member
Joined
Jun 2, 2006
Professional Status
Certified Residential Appraiser
State
Ohio
The reviewer is crazy. That said, what you have here is a failure to communicate, not a USPAP issue. I think too often appraisers throw up the USPAP shield when in conflict with a reviewer or user of our reports. Your time is better spent trying to explain the market conditions and logic that led to your opinion of value. If at all possible leave USPAP out of the discussion. The reviewer is most likely not an appraiser and they will never understand USPAP. Heck, most appraisers have to take USPAP classes ever other year and they still don't get it.
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
I won't try to second guess the OP's opinion of value but will take it as a given for the purpose of discussing the client's policy.

I'm betting this client has a policy (self imposed or otherwise) of using that 2x formula for their own decision making regarding whether or not to actually make the repairs or market 'as is'.

And I'm betting the individual employees of that client are trying to 'get out of' having to make the repairs that would be mandated by their own policy.

Thus, they try to force the appraiser to subvert his opinion of value to make their individual lives easier and make the necessity of actually ordering the repairs go away.

Of course it's a USPAP issue regarding an independent opinion of value but I agree the USPAP argument doesn't work well with such clients.

The best one can do is get the request in writing from an UW and do a good job in supporting the opinions of value.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Document all of this with all names and phone numbers and times of the phone calls. Get it all to me please!

my email: pec514 @ yahoo. com (remove the spaces)
 
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