Interagency Guidelines, FDIC and AS IS Values

[Meandering]

Out of curiousity, anyone ever heard of a revolving line of credit?

Yup,

They were big in 70s, why are they coming back tied to Real Estate as Equity lines again?

.

 

[Ken B]

It is common that builders will utilize a revolving line of credit to finance new construction. A lender might need a SFR appraisal to determine the draw schedule for a specific proposed SFR within a larger subdivision. The SFR appraisal likely does not determine the size of the line of credit.

To those who ask how the size of the line of credit might be determined, I would respond that the lender underwrites that decision, in part, based upon an appraisal someone like me would make on the entire subdivision.

And yes, when I perform an appraisal on an entire subdivision, I report the "as is" value, along with a number of other values, in the report.

 

[Terrel L. Shields]

Please identify exactly what is ridiculous and contrary to what is understood by most appraisers

In my area most appraisers recognized for a long time that the as is and the as proposed values must be disclosed and commented upon.

Like all "rule books", it goes along with the 3 year history of a subject, and a host of other perfunctory obligations imposed upon the appraiser for no seemingly good reason. It's just there... like that stop sign.

 

[mark hurlock]

In my area most appraisers recognized for a long time that the as is and the as proposed values must be disclosed and commented upon.

Like all "rule books", it goes along with the 3 year history of a subject, and a host of other perfunctory obligations imposed upon the appraiser for no seemingly good reason. It's just there... like that stop sign.

So what is ridiculous and contradictory?

 

[George Hatch]

First of all, George, the examples were to illustrate when a lending institution “might” be expected to follow their guidelines, and it provided a basis for when an institution might not NEED to ask an appraiser for as is value. It was not an example of when an as is value would NEVER be needed. In fact, if you had actually read the comment you might have understood that.

Therefore, your assumption that “90% of you” inadequately develop the cost approach is just uncalled for in this thread and certainly inappropriate in response to my comments.

Lastly, we already had an exhaustive thread on what language is necessary to establish an enforceable “requirement” in any rule or regulation which the original guideline failed to establish. The resulting controversy of this failure was the addition of an appendix, making it an enforceable requirement.

I don't care what someone told you twenty years ago or what you think they know about regulation enforcement. And I certainly don't care if you disagree.

First of all, my crack about how 90% of you guys back into site value in SFR appraisals is based on my experience - it's not an assumption. You know I was a CE instructor for 16 years, right? The 7-Hr Cost Approach course (developed by M&S) was one of the courses I was teaching on a regular basis, and I've had literally thousands of appraisers take that course from me at one point or another.

You sure as hell don't have that kind of exposure to what residential appraisers have been doing.

Moreover I was probably being diplomatic at pegging it as low as 90%.

Secondly, you were the one who made the foolish and ill-considered comment about the "as is" already being in the Cost Approach, not me. All I did was point out the obvious disconnect. So yes, it was *entirely* appropriate for me to correct you on your error. Even if you want to be stubborn about it I'm not about to allow that form-monkey mentality stand for others to believe without challenging it. I may not care how you do your appraisals but I'm not going to let you mislead other people if/when you're wrong.


Secondly, when I have personally heard senior regulatory officials and their review appraisers - acting in their official capacity - speak of the topic and have actually read reviews from the feds on a bank writing them up for not getting as is values on those reports you're welcome to disagree based on your interpretation of the semantics in the regs all you want. It doesn't change how the feds have been using those regs.

If my choices are to take them them at their word about their intent vs your interpretation of the regs that's not a particularly difficult choice to make. I assume everyone in this thread is capable of making their own choices.

I'm not telling anyone what to think. I'm just conveying what I know and expressing my opinions.

Now I'll concede the point that the auditors who go out to do the banks to do the reviews are among the least informed and least experienced employees at those regulatory agencies, and they don't always catch the violations when they see them, and they certainly aren't real conversant with appraisals; but their incompetence doesn't represent a change in the official position at those agencies.


As an avid player of word games I know you're capable of understanding the distinction between a clarification or elaboration vs a change in policy or intent. It happens all the time in the rules and regulations.

 

[Mike P]

Mark, spot on. The FDIC, etc, in the creation of the updated Interagency Guidelines have so convoluted the areas they are to pertain to, that it simply has created more confusion than clarity. I personally do not believe the intent of these IA guidelines was to have appraisers develop an AS IS value of a single family home under construction.

Now once again, to Mark's example....why in the world would a Lender need an AS IS value on a home, that will not be the security for the mortgage, until it is 100% complete???

Someone please answer this for me? What do they care???? They do not care at all.

Too many examples so far pertain to commercial properties and tract developments.

Did anyone notice that on the Appendix A-D with the Effective date of April 2011 Section A.4140.1 that at the bottom of each page it states "Commercial Bank Examination Manual".

I think we need some real clarity here....again My personal example was of one home under construction in a subdivision, where multiple phases are already complete and there are already resales. If the lender will not lend any money on this home for the new, happy buyer, until the home is 100% complete, what is the purpose of an AS IS value for this Lender during the construction phase? At that point they have no "skin" in the game at all.

I am reaching out to my old time friends, mostly retired from high up in the Lending universe to add some clarity.

 

[Mike P]

George are you talking about an appraisal of just one home under construction in a newly developing subdivision or established subdivision, with a new phase? Or are you talking about a tract development commercial appraisal?

Please clarify...what the regulators were looking at.

And again, I am not talking about a Bank Construction Loan, I am talking about a perm mortgage for a new home buyer that puts a contract on a home under construction.

Thanks

 

[CANative]

VII. Transactions That Require Appraisals

Although the Agencies' appraisal regulations exempt certain real estate-related financial transactions from the appraisal requirement, most real estate-related financial transactions over the appraisal threshold are considered federally related transactions and, thus,

require appraisals.18 The Agencies also reserve the right to require an appraisal under their appraisal regulations to address safety and soundness concerns in a transaction. (See Appendix A, Appraisal Exemptions.)

Each appraisal must contain an estimate of market value, as defined by the Agencies' appraisal regulations. The definition of market value assumes that the price is not affected by undue stimulus, which would allow the value of the real property to be increased by favorable financing or seller concessions. Value opinions such as "going concern value," "value in use," or a special value to a specific property user may not be used as market value for federally related transactions. An appraisal may contain separate opinions of such values so long as they are clearly identified and disclosed.

The estimate of market value should consider the real property's actual physical condition, use, and zoning as of the effective date of the appraiser's opinion of value. For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property's current market value in its "as is" condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization.24 Prospective market value opinions should be based upon current and reasonably expected market conditions. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis.25 An institution should understand the real property's "as is" market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable.

So what has got you hung up? The use of the phrase "would generally request?"

 

[Meandering]

It is common that builders will utilize a revolving line of credit to finance new construction. A lender might need a SFR appraisal to determine the draw schedule for a specific proposed SFR within a larger subdivision. The SFR appraisal likely does not determine the size of the line of credit.

To those who ask how the size of the line of credit might be determined, I would respond that the lender underwrites that decision, in part, based upon an appraisal someone like me would make on the entire subdivision.

And yes, when I perform an appraisal on an entire subdivision, I report the "as is" value, along with a number of other values, in the report.

ditto,

But on a single house? What are they 1004D'ing every construction draw?

Don't you guys just use the construction progress inspection report in the software package for all the contractor draws until the 1004D at the end of the construction?

Why is anyone doing a full appraisal, mid construction? Lack of a better "form number"?

Gheeze, this sounds like the issue. Construction progress inspections are a valuation service, typically, that does not require an appraisal, or USPAP compliance as you are not opining values. Unless there is some weird reason the bank needs a residential appraisal mid-construction.

If they need a mid-construction appraisal, there is a bigger problem than what are the discounts and comps. What are the outstanding encumbrances that did not complete the project? When do the permits expire?

This is just to weird to be legit.

.

 

[CANative]

The issue that seems to bring this topic up is an after submission request to provide an as is value and the appraiser gets all up in arms because it wasn't included in the original engagement agreement.

An appraiser probably will not "get in trouble" for not doing the as is value but OTOH the appraiser has no argument not to comply with the request (assuming the client is a Bank or CU.) The appraiser should have expected this in the first place.