Important detail in interpretation.

[Beth Stevens]

Hey Everyone,

I've got an issue that keeps coming up regarding Certified Residential Appraiser $$$ limits for doing commercial work. I have my own opinion, but would like to know how it is interpreted/practiced in other areas by other folks. So here it is: Is the $$ limit for commercial work based on the total market value/sales price, or based on a percentage of the amount being borrowed? (In essence, if the LTV ratio is low enough, can we appraise a commercial property being sold well above the $$ limit?)

Thank you in advance for all responses!
Beth

 

[Green Hornet]

Beth,

I may be missing somthing here. I have always thought that a certified residential in WA state could appraise up to 4 units without a $ limit. Commercial work has never been an issue as it is not allowed beyond what I stated above.

Have I been limiting myself needlessly?

Please clarify.

 

[Beth Stevens]

Green Hornet,

I copied the below from the Appraisal Foundation website. So yes, if you are a CRA and have not realized that you can appraise commercial properties up to $250,000 you have limited yourself. However, there aren't too many commercial properties under $250,000 in value. In my market, it occasionally applies to "Ye Olde Ma & Pa Grocery" and similar type properties. My question pertains to precisely those types of properties. If the pending sale price is $750,000 but the LTV is only 20%, it puts the amount being requested for the loan at $150,000 which is well below the commercial limit of $250,000 that a Certified Residential Appraiser is allowed to value. To me..........the rule reads "transaction value," NOT "borrowed value," but its being interpreted differently by others in my market.

Licensed Residential Appraiser: may appraise non-complex 1-4 family
residential properties with transaction values up to $1 million and all other properties with transaction values up to $250,000 (subject to the COMPETENCY RULE inUSPAP and applicable state laws).
Certified Residential: may appraise all 1-4 family residential properties without regard to value or complexity, and all other properties with transaction values up to $250,000 (subject to the COMPETENCY RULE in USPAP and applicable state laws).
Certified General: may appraise all types of real property (subject to the COMPETENCY RULE in USPAP).

 

[Lee Lansford]

Green Hornet,

I copied the below from the Appraisal Foundation website. So yes, if you are a CRA and have not realized that you can appraise commercial properties up to $250,000 you have limited yourself. However, there aren't too many commercial properties under $250,000 in value. In my market, it occasionally applies to "Ye Olde Ma & Pa Grocery" and similar type properties. My question pertains to precisely those types of properties. If the pending sale price is $750,000 but the LTV is only 20%, it puts the amount being requested for the loan at $150,000 which is well below the commercial limit of $250,000 that a Certified Residential Appraiser is allowed to value. To me..........the rule reads "transaction value," NOT "borrowed value," but its being interpreted differently by others in my market.

Licensed Residential Appraiser: may appraise non-complex 1-4 family
residential properties with transaction values up to $1 million and all other properties with transaction values up to $250,000 (subject to the COMPETENCY RULE inUSPAP and applicable state laws).
Certified Residential: may appraise all 1-4 family residential properties without regard to value or complexity, and all other properties with transaction values up to $250,000 (subject to the COMPETENCY RULE in USPAP and applicable state laws).
Certified General: may appraise all types of real property (subject to the COMPETENCY RULE in USPAP).

Better check your state's regulation regarding this matter! For example, in Illinois, Certified Residential can not appraise beyond 1-4 unit residential.

 

[Beth Stevens]

Lee,

Been there and done that. I know what MY state is saying. Now........what is YOUR state saying? I'm looking for a broader picture than my neck of the woods.

 

[Mztk1]

I don't know what it is from state to state because they can have more strict restrictions than the minimum but I do believe the baseline is:

Licensed appraisers 1 to 4 family residential up to a federally related transaction amount (FRTA) of $1,000,000; and on non-residential properties up to a $250,000 FRTA.

Certified Residential appraisers are all 1 to 4 family residential no FRTA limit and up to a $250,000 FRTA on non-residential.

Certified Generals are all properties regardless of FRT Amount.

All require competency.

To the best of my knowledge any part of the transaction that is not federally related in terms of dollar amount is not counted. So if it is a $1,200,000 residential dwelling with a total FRT amount of $450,000 then a licensed appraiser can do it. An FRT is any transaction involving a federally regulated lender/bank.

Likewise, if it is a commercial appraisal for estate purposes and there is no federally related transaction taking place, or even if it is a state bank that is not federally regulated, a certified residential and a licensed residential appraiser is allowed to preform the assignment, as long as they are competent, no limits.

The Federally Related Transaction Amount is the amount going from the Federally Regulated Instution (Mortgagor) to the Mortgagee. It is not the market value of the property, nor the sale price. If it was, there would be a conflict of interest.

I once appraised a property for $1,030,000 and was asked by a major lender's certified staff appraiser to cut the value to $995,000 because I am licensed and am not allowed to appraiser properties with values in excess of $1,000,000. We discussed it. The FRT amount was $700,000. I told him I am, therefore, qualified. He disagreed. It went up to the senior reviewer, and he laughed. Of course it was okay this guy said.

 

[Michigan CG]

Ms. Stevens,

I would ask if the Certified Residential appraiser understands commercial work?

"Ye Olde Ma & Pa Grocery"

, are they appraised solely using the sales comparison approach?

I find that these assignments are the hardest to complete and pay the lowest fees. Give me a shopping mall any day vs. this assignment.

Would the appraiser know how to find applicable cap rates for the property and know how to apply them? In the appraisal would the appraiser identify alternative users for the property should Ma and Pa go dark?

Dollar limits for the transaction are not the question, competency is. I would bet that your state would frown on complex commercial assignments, which your example is one of them.

Remember to always write your reports as if you had to testify in court or before your state board. If you always keep that in your head you will never have to worry about your license.

 

[Frederick]

Regardless of the regulation I would advise caution as you will be in a very weak position if you push the limits with a minimal level of credentials. It won't take long for your legal fees to exceed your appraisal fee if challenged. As has been illustrated in this forum many times there is substantial inconsistency between state boards and their interpretations of the law.

 

[The Warrior Monk]

Another thing to keep in mind is that if these appraisals are done unsupervised, you might not be able to use these as experience if you intend to apply for your GC.

 

[Mark K]

Hey Everyone,

I've got an issue that keeps coming up regarding Certified Residential Appraiser $$$ limits for doing commercial work. I have my own opinion, but would like to know how it is interpreted/practiced in other areas by other folks. So here it is: Is the $$ limit for commercial work based on the total market value/sales price, or based on a percentage of the amount being borrowed? (In essence, if the LTV ratio is low enough, can we appraise a commercial property being sold well above the $$ limit?)

Thank you in advance for all responses!
Beth

The FRT guidelines are based on TRANSACTION value, not property value. I read "transaction" value as loan amount. I don't know what your state laws allow but my state allows CR's to appraise many types of non-res. I've appraised many non-residential properties, several of them multi-million $, but keep one thing in mind there's a good chance that your E&O will not cover you for commercial property appraising unless you have included it in your policy. That alone might make it easier to decide.