Intended use

[Vetteman]

Just would like some suggested wording for the following situation, which I have never encountered before and don't know how to phrase it:

A private individual (intended user) is planning on using any potential equity in an older SF property as collateral with a private investor for financing on another newly-constructed property. The investor told him to get an appraisal of current market value on this older property. What would you state as minimum for the intended use? I subscribe to the theory that less you say, the better.

BTW, I have no intention of listing the un-named private investor as an additional intended user and I plan on using a non-FNMA URAR report with my own market analysis.

 

[hastalavista]

BTW, I have no intention of listing the un-named private investor as an additional intended user and I plan on using a non-FNMA URAR report with my own market analysis.

It sounds like the intended use of the appraisal is for a loan. How can the lender (private investor) not be an intended user under such circumstances?

Look, I think I understand the nature of the question: How can I limit my liability. I can appreciate that. But if your client is hiring you to appraise the property for a loan, how can the lender not be an intended user?
Read Statement 9 in USPAP and tell me if you come to a different conclusion (perhaps you may convince me I'm wrong). :new_smile-l:

 

[Vetteman]

As it was explained to me, the client/intended user will be using the appraisal to determine the amount of equity in the subject property. The investor will be lending the client money to finish construction on another property. The subject's equity will reportedly be used as collateral and secured by whatever vehicle the parties agree to. I can only assume it will be some sort of lien or quit claim deed. Not my problem, is it?

 

[hastalavista]

As it was explained to me, the client/intended user will be using the appraisal to determine the amount of equity in the subject property. The investor will be lending the client money to finish construction on another property. The subject's equity will reportedly be used as collateral and secured by whatever vehicle the parties agree to. I can only assume it will be some sort of lien or quit claim deed. Not my problem, is it?

Let me play a bit of the Devil's advocate here (don't take it personally):
A. The client wants to borrow some money.
B. The lender who is going to loan the money told the client to go get an appraisal so they can determine how much money to loan.
C. The client engages an appraiser to do the appraisal.
D. The client explains to the appraiser why he needs the appraisal ("I want to borrow some money and the lender told me to get an appraisal to determine how much I can borrow").
E. The intended use is for a loan purpose.
Question: Who is a reasonable intended user for an appraisal that is being completed for a loan? (I say the lender)
Question: Does the client expect the lender to rely upon the appraisal in the lending decision? (I say "yes")

So, if you read SOW and SMT-9, the answer to the question "not my problem, is it?" is "Yes, it is the appraiser's problem." The appraiser needs to identify the intended use and users. The client's intent is to use the appraisal for a loan. The lender is going to rely upon the appraisal to make a lending decision. How can the lender not be an intended user (either by name or type)?

It is because John Q. Public doesn't understand the nuances of "client", "intended user", "intended use" that it is incumbent on the appraiser to make sure that the assignment is consistent with what the client needs and expects- or if it cannot be completed (because of conflict with USPAP or professional choice), then the assignment needs to be declined.

Let me put it this way: if you were to give the client the following choices:
A. I am going to complete this appraisal for you; I know you want it for a loan but I'm going to format it in such a way that I'm only responsible to you as the client and intended user; in fact, I'm essentially going to write it such that I'm specifically implying the lender cannot rely upon it.

B. I am going to complete this appraisal for you; I know you want it for a loan so I'm going to format it in such a way that I am only responsible to you as the client but I will write it so your lender can explicitly rely upon it for their lending decision.

Which one would the client choose?

What I'm not clear on is why you would want to do a mortgage-finance appraisal and not want the lender to rely upon your work. That's what most of us do everyday in the mortgage-finance appraisal segment of our business? :new_smile-l:

 

[Vetteman]

I guess I have never done an appraisal for a loan where the client was not the lender. To me, no "lender" in their right mind would ask the borrower to select the appraiser. That is akin to asking the fox to watch the hen house. In this case, the "lender" is a private individual who has not been identified to me. For all I know, it could be anybody. I don't like putting "any individual the client intends to show this appraisal to in order to get them to lend the money." Way too much liability for me.

Thankfully this may all be a mute point. I just noticed the subject property is listed for sale, and has been for over two years. Why on earth would anybody lend money when the collateral is for sale? The client only speaks spanish and mine isn't good enough to discuss these important details. Before going to the appointment tomorrow to do the inspection and pick up the check, I am going to have my wife discuss the intended use in fluent spanish. It may just end up being something entirely different than what was explained to me by his translator today. Thanks for your detailed "devil's advocate" response. Gotta love living down here in Miami.

 

[hastalavista]

Good luck! :new_smile-l:

 

[Terrel L. Shields]

The intended use is for collateral planning purposes. The intended users are the client and the named/unnamed private lender.

 

[jimmyfrank]

Let me play a bit of the Devil's advocate here (don't take it personally):
A. The client wants to borrow some money.
B. The lender who is going to loan the money told the client to go get an appraisal so they can determine how much money to loan.
C. The client engages an appraiser to do the appraisal.
D. The client explains to the appraiser why he needs the appraisal ("I want to borrow some money and the lender told me to get an appraisal to determine how much I can borrow").
E. The intended use is for a loan purpose.
Question: Who is a reasonable intended user for an appraisal that is being completed for a loan? (I say the lender)
Question: Does the client expect the lender to rely upon the appraisal in the lending decision? (I say "yes")

So, if you read SOW and SMT-9, the answer to the question "not my problem, is it?" is "Yes, it is the appraiser's problem." The appraiser needs to identify the intended use and users. The client's intent is to use the appraisal for a loan. The lender is going to rely upon the appraisal to make a lending decision. How can the lender not be an intended user (either by name or type)?

It is because John Q. Public doesn't understand the nuances of "client", "intended user", "intended use" that it is incumbent on the appraiser to make sure that the assignment is consistent with what the client needs and expects- or if it cannot be completed (because of conflict with USPAP or professional choice), then the assignment needs to be declined.

Let me put it this way: if you were to give the client the following choices:
A. I am going to complete this appraisal for you; I know you want it for a loan but I'm going to format it in such a way that I'm only responsible to you as the client and intended user; in fact, I'm essentially going to write it such that I'm specifically implying the lender cannot rely upon it.

B. I am going to complete this appraisal for you; I know you want it for a loan so I'm going to format it in such a way that I am only responsible to you as the client but I will write it so your lender can explicitly rely upon it for their lending decision.

Which one would the client choose?

What I'm not clear on is why you would want to do a mortgage-finance appraisal and not want the lender to rely upon your work. That's what most of us do everyday in the mortgage-finance appraisal segment of our business? :new_smile-l:

Denis, you are right. To not disclose the lender as intended user would be misleading as the client has told the appraiser he would use it for "equity", otherwords a loan. SOW should be spelled out ,also....

 

[Elliott]

What?!? A hard money investor wouldn't rely on a BPO for a real estate loan
using his own money? He must have rocks in his head.

 

[MNRural]

I wouldn't subscribe to the theory of the less said about the intended user, the better.

Disclose everything you know and appraise the property to the best of your judgement. Dont be misleading.

My opinion is: If you are afraid of liability (probably because you are not confident in your opinion of value), turn down the assignment.