hastalavista
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Steven-
SRIP= Small Residential Income Property.
SRIP= Small Residential Income Property.
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Lender Wants Only 5 Acres Valued Out Of 13?
- Thread starter BenRScott
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Rich Heyn
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Steven,
Is it required for legal purposes, purposes of reasonable analysis, or purposes of comparison?
Can the request be met in a USPAP compliant manner?
And the appraiser would have to decline the assignment.
If there are no other givens, there is no way that an appraiser can answer:
Is it required for legal purposes, purposes of reasonable analysis, or purposes of comparison?
Can the request be met in a USPAP compliant manner?
And the appraiser would have to decline the assignment.
Are you trying to hang that "willful blindness" on me?
Rich Heyn
Senior Member
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- Certified General Appraiser
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- Michigan
Steven,
Beg your pardon, but the post was addressed to me. I do not identify at all with promoting "willful blindness" and don't believe I've ever done so.
If you did not direct that at me, all you had to do was say so. Since you chose not to, I find your "if you identify with it, so be it" to be implicative and offensive.
Beg your pardon, but the post was addressed to me. I do not identify at all with promoting "willful blindness" and don't believe I've ever done so.
If you did not direct that at me, all you had to do was say so. Since you chose not to, I find your "if you identify with it, so be it" to be implicative and offensive.
hastalavista
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- Certified General Appraiser
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I'll make my point one last time (probably to the relief of many of you!):
Is the use of an HC in the appraisal process acceptable when the HC requires the value to be based on something that is contrary to the facts?
Yes.
Is the use of an HC in the appraisal process acceptable when it is employed in an assignment for a mortgage finance transaction?
Yes.
Is the use of an HC appropriate in the 5-acre scenario in this thread?
I say “yes’, but others disagree.
Is the use of an HC appropriate in Santora’s scenario of appraising a property with a lot size greater than its actual size?
It very well could be. I’ve appraised properties where the assignment was to appraise with additional land for a mortgage finance transaction. In my case, it was disclosed to me that the specifics were the neighbor was selling a portion of their land to the borrower. But had I not known the specifics, and was only told it was for a “mortgage finance transaction”, was the assignment any less appropriate?
What are the major concerns of appraising a property using an HC mentioned in this discussion?
I read two:
A- The report may be misleading-
I don’t see how the report can be misleading if it clearly states what the facts are, and then clearly states what the HC is, and then clearly states that the value is conditioned on the HC being factual.
If I’m writing this for a mortgage lender and using the standard (current) 1004 form (which is the original case), I am satisfied that if:
· I Prominently (bold type, larger font in the addendum) describe the factual condition and the condition based on the HC.
· Check the box “subject to”, and make an additional comment in the space provided above my signature, page two, “This report is based on and subject to an HC described in the addendum”
I have written the report in a manner that is not misleading. And it is written to the level of competence, knowledge and sophistication of the intended user.
There are three things that I have control over: 1- Accepting the assignment. 2- The appraisal process I employ for the assignment. 3- The format of the report. A crooked LO/Broker can try to use any report I’ve written for a fraudulent use not intended. I would argue that by writing the report in the manner described above, I’m not being (wittingly or unwittingly) a party to fraud, but doing my best to make sure my report is not used for fraud.
B- Is it appropriate for the intended use/user?
Of all the arguments, this is the hardest to determine. But how far down the reasoning chain is one supposed to go? The intended use is for a mortgage finance transaction. Do I need to determine if their requirement of only valuing 5 acres is a valid analysis for their decision making process? No. They’ve already made that decision. In fact, its exactly what I’m not supposed to do- play the role of the lender in determining what is appropriate or not to make the loan.
I’m supposed to report what I see and form an opinion of value (I have reported what I’ve seen by describing WHAT IS, and then have stated the value is based on WHAT ISN’T). My job is to perform the analysis and form an opinion of value that is credible and reasonable, in a manner not misleading. The HC imposes a condition that makes it possible to form a credible and reasonable value- the condition imposed is that the value is based on something that is physically, legally and financially possible. That the particular HC actually occurs is not part of the assignment (although the less likely the possibility, the more likely I would add a statement commenting on this). Since the HC is part of the “given”, a reasonable and credible value is arrived at BASED ON THE HC.
So, the analysis is based on the “HC”, and the report is written in a format that clearly states all of the above, so it is not misleading. I would submit I’ve performed the assignment in accordance with USPAP (Preamble, Ethics, and SR’s). And, if the report is used fraudulently, my best defense is the report itself.
(Ok, I’ve set myself up for someone to say, “No, Denis, your best defense is not to accept the assignment!”)
The acceptance of an assignment using an HC is a professional and personal decision. I believe it can be done, professionally speaking. The personal part of the decision is ours individually.
Is the use of an HC in the appraisal process acceptable when the HC requires the value to be based on something that is contrary to the facts?
Yes.
Is the use of an HC in the appraisal process acceptable when it is employed in an assignment for a mortgage finance transaction?
Yes.
Is the use of an HC appropriate in the 5-acre scenario in this thread?
I say “yes’, but others disagree.
Is the use of an HC appropriate in Santora’s scenario of appraising a property with a lot size greater than its actual size?
It very well could be. I’ve appraised properties where the assignment was to appraise with additional land for a mortgage finance transaction. In my case, it was disclosed to me that the specifics were the neighbor was selling a portion of their land to the borrower. But had I not known the specifics, and was only told it was for a “mortgage finance transaction”, was the assignment any less appropriate?
What are the major concerns of appraising a property using an HC mentioned in this discussion?
I read two:
A- The report may be misleading-
I don’t see how the report can be misleading if it clearly states what the facts are, and then clearly states what the HC is, and then clearly states that the value is conditioned on the HC being factual.
If I’m writing this for a mortgage lender and using the standard (current) 1004 form (which is the original case), I am satisfied that if:
· I Prominently (bold type, larger font in the addendum) describe the factual condition and the condition based on the HC.
· Check the box “subject to”, and make an additional comment in the space provided above my signature, page two, “This report is based on and subject to an HC described in the addendum”
I have written the report in a manner that is not misleading. And it is written to the level of competence, knowledge and sophistication of the intended user.
There are three things that I have control over: 1- Accepting the assignment. 2- The appraisal process I employ for the assignment. 3- The format of the report. A crooked LO/Broker can try to use any report I’ve written for a fraudulent use not intended. I would argue that by writing the report in the manner described above, I’m not being (wittingly or unwittingly) a party to fraud, but doing my best to make sure my report is not used for fraud.
B- Is it appropriate for the intended use/user?
Of all the arguments, this is the hardest to determine. But how far down the reasoning chain is one supposed to go? The intended use is for a mortgage finance transaction. Do I need to determine if their requirement of only valuing 5 acres is a valid analysis for their decision making process? No. They’ve already made that decision. In fact, its exactly what I’m not supposed to do- play the role of the lender in determining what is appropriate or not to make the loan.
I’m supposed to report what I see and form an opinion of value (I have reported what I’ve seen by describing WHAT IS, and then have stated the value is based on WHAT ISN’T). My job is to perform the analysis and form an opinion of value that is credible and reasonable, in a manner not misleading. The HC imposes a condition that makes it possible to form a credible and reasonable value- the condition imposed is that the value is based on something that is physically, legally and financially possible. That the particular HC actually occurs is not part of the assignment (although the less likely the possibility, the more likely I would add a statement commenting on this). Since the HC is part of the “given”, a reasonable and credible value is arrived at BASED ON THE HC.
So, the analysis is based on the “HC”, and the report is written in a format that clearly states all of the above, so it is not misleading. I would submit I’ve performed the assignment in accordance with USPAP (Preamble, Ethics, and SR’s). And, if the report is used fraudulently, my best defense is the report itself.
(Ok, I’ve set myself up for someone to say, “No, Denis, your best defense is not to accept the assignment!”)
The acceptance of an assignment using an HC is a professional and personal decision. I believe it can be done, professionally speaking. The personal part of the decision is ours individually.
Pamela Crowley (Florida)
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Can it be done? YES
Is it 'appropriate' in certain circumstances? YES, as long as everything is well disclosed and explained.
Can it be done for a mortgage loan for Fannie? NO!!!
http://appraisersforum.com/forum/index.php?showtopic=14315
Is it 'appropriate' in certain circumstances? YES, as long as everything is well disclosed and explained.
Can it be done for a mortgage loan for Fannie? NO!!!
http://appraisersforum.com/forum/index.php?showtopic=14315
Carnivore
Elite Member
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- Jan 15, 2002
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- Certified Residential Appraiser
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- North Carolina
to add to Pamela's rubber meets the road perspective:
1. Will every MB in the country try and get you to put this on a Fannie Form in the eventual hope there POS loan applicant gets the lowest possible interest rate on the planet.
YES
2. Will they rip out all your fancy smancy addendums in attempt to hide the true facts of the report
YES
3. Can you stop any of this?
NO
Will you spend hours argueing with AMC Phone monkees, MB. LO and every whiney smart butt home owner about how bad an appraiser you are.
YES
Will you lose business because you know how to correctly report this HC
YES
anything I missed?
Probably
Does anyone see anything positive coming from lenders on tis topic?
Probably NO
George Hatch
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- Certified General Appraiser
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And I ignored this thread because I thought it was just another Fannie-centric question.
Just to show that someone may try and support the 5-acre hypothetical, I will post the following from the August Q&A issued by the ASB:
Okay, so the ASB says we can appraise segments or portions of a property. I can think of several scenarios that would fit the criteria for not having to use an HC, such as if the property being appraised is part of a leasehold interest or if it is a fractional interest that already exists as such.
I can think of a number of situations where an HC could be legitimately used, too. For instance, if there was a pending or proposed lot split or subdivision of the parcel; if there was a fractional interest in which the 5 acres was described; if the owners wanted an appraisal that dealt with feasibility "what would it be worth if I split it off" appraisal, etc..
The one element that all of these scenarios have that our typical mortgage broker trying to pound that square peg into the round hole lacks is that there is a basis for the property interest being appraised. In the case of the fractional interest it is that fractional interest; with the lot split or subdivision the basis of the HC is the proposal; for the "what if" question by the owners they are describing that hypothesis. Our MB lacks this specific proposal or existing interest of what it is we're trying to value - there is no proposal, no subdivision map, no basis for the hypothesis.
Further, we are appraising - and out clients are encumbering - a property that includes more than what the hypothesis assumes. That's why the 5-acre HC assignment for mortgage lending purposes is misleading. Joe Homeowner looks at the appraisal and sees that his 20-acre property is valued at "$zzz", which may in fact be a gross understatement of the market value for the property that is being encumbered.
The definition of "Market Value" we use for mortgage lending assumes that buyers and sellers are knowledgable and acting in their own best interests. If the property being appraised (which is identified by way of address, maps, legal descriptions, etc) consists of 20 acres then the market value would be based on 20 acres. After all, it is the entire 20 acres that is being encumbered by the loan.
What the MB is asking for does not fit the definition of Market Value we use in mortgage lending, but is actually a different definition of value; one that includes mortgage underwriting requirements that are not otherwise included in our definition of "Market Value". We have heartburn on this issue precisely because of the misleading nature of calling it "market value for the entire property" when in fact it isn't.
If I were going to perform an assignment involving such a request, I would want to be very explicit about the definition(s) of value in the appraisal and how that affects the valuation. It would be a different definition of value than the one we normally use. If they insisted on a market value being included in the appraisal I would do it both ways - the "Market Value" of the property being appraised is based on the 20 acres, and the "Mortgage Value" is based on the phantom 5 acres. That way, nobody is misled or thinks the property's market value is based on it only being 5 acres. Report it both ways and let the intended users make their own decisions.
BTW, I'd also be trying to identify my intended user(s) and build that report to their policies, which means I'd have to have access to those policies. Verbals don't cut it. I'd like to see how many written appraisal policies there are that still reference the "never going to happen" 5-acre hypothetical.
Just to show that someone may try and support the 5-acre hypothetical, I will post the following from the August Q&A issued by the ASB:
Okay, so the ASB says we can appraise segments or portions of a property. I can think of several scenarios that would fit the criteria for not having to use an HC, such as if the property being appraised is part of a leasehold interest or if it is a fractional interest that already exists as such.
I can think of a number of situations where an HC could be legitimately used, too. For instance, if there was a pending or proposed lot split or subdivision of the parcel; if there was a fractional interest in which the 5 acres was described; if the owners wanted an appraisal that dealt with feasibility "what would it be worth if I split it off" appraisal, etc..
The one element that all of these scenarios have that our typical mortgage broker trying to pound that square peg into the round hole lacks is that there is a basis for the property interest being appraised. In the case of the fractional interest it is that fractional interest; with the lot split or subdivision the basis of the HC is the proposal; for the "what if" question by the owners they are describing that hypothesis. Our MB lacks this specific proposal or existing interest of what it is we're trying to value - there is no proposal, no subdivision map, no basis for the hypothesis.
Further, we are appraising - and out clients are encumbering - a property that includes more than what the hypothesis assumes. That's why the 5-acre HC assignment for mortgage lending purposes is misleading. Joe Homeowner looks at the appraisal and sees that his 20-acre property is valued at "$zzz", which may in fact be a gross understatement of the market value for the property that is being encumbered.
The definition of "Market Value" we use for mortgage lending assumes that buyers and sellers are knowledgable and acting in their own best interests. If the property being appraised (which is identified by way of address, maps, legal descriptions, etc) consists of 20 acres then the market value would be based on 20 acres. After all, it is the entire 20 acres that is being encumbered by the loan.
What the MB is asking for does not fit the definition of Market Value we use in mortgage lending, but is actually a different definition of value; one that includes mortgage underwriting requirements that are not otherwise included in our definition of "Market Value". We have heartburn on this issue precisely because of the misleading nature of calling it "market value for the entire property" when in fact it isn't.
If I were going to perform an assignment involving such a request, I would want to be very explicit about the definition(s) of value in the appraisal and how that affects the valuation. It would be a different definition of value than the one we normally use. If they insisted on a market value being included in the appraisal I would do it both ways - the "Market Value" of the property being appraised is based on the 20 acres, and the "Mortgage Value" is based on the phantom 5 acres. That way, nobody is misled or thinks the property's market value is based on it only being 5 acres. Report it both ways and let the intended users make their own decisions.
BTW, I'd also be trying to identify my intended user(s) and build that report to their policies, which means I'd have to have access to those policies. Verbals don't cut it. I'd like to see how many written appraisal policies there are that still reference the "never going to happen" 5-acre hypothetical.
CANative
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Denis, thank you for your input. I have read all your posts with interest.
I'll make my last posting also.
As others have said, it's never been a question of can this type of appraisal be done, but a question of should it be done given the intended use.
For me, it's partially a matter of finding it distasteful. The client doesn't understand the appraisal issues and doesn't care and they have no respect for our position. Often times, a broker will try to pressure the appraiser into converting a simple report into one of these complex assignments after the fact and without offering additional compensation for the signficant amount of extra work involved. It's also a matter of AMC's and brokerages who put these requirements in a simplistic and casual set of "appraisal requirements" and who also utilize the appraiser who will offer their services for the lowest fee, with no reqard to experience. And this type of appraisal requires signficant experience.
But it's more than just a matter of my own opinion and the issue of adequate compensation. There has been an argument that since Fannie Mae won't play this game, then just make sure your appraisal is not for Fannie Mae consumption and you will be safe. I disagree strongly with this. Fannie Mae is such a huge force in the industry that an appraiser cannot disregard Fannie's policies completely no matter who the intended users will be. It could probably be successfuly argued by a state appraisal board or an attorney that these policies set industry standards or precedent. Fannie Mae guidelines have made a clearl and positive statement that the "house and 5 acre" appraisals are unaceptable appraisal practice and are misleading. This carries a lot of weight for any appraisal where the intended use is mortgage lending, IMO.
I'll make my last posting also.
As others have said, it's never been a question of can this type of appraisal be done, but a question of should it be done given the intended use.
For me, it's partially a matter of finding it distasteful. The client doesn't understand the appraisal issues and doesn't care and they have no respect for our position. Often times, a broker will try to pressure the appraiser into converting a simple report into one of these complex assignments after the fact and without offering additional compensation for the signficant amount of extra work involved. It's also a matter of AMC's and brokerages who put these requirements in a simplistic and casual set of "appraisal requirements" and who also utilize the appraiser who will offer their services for the lowest fee, with no reqard to experience. And this type of appraisal requires signficant experience.
But it's more than just a matter of my own opinion and the issue of adequate compensation. There has been an argument that since Fannie Mae won't play this game, then just make sure your appraisal is not for Fannie Mae consumption and you will be safe. I disagree strongly with this. Fannie Mae is such a huge force in the industry that an appraiser cannot disregard Fannie's policies completely no matter who the intended users will be. It could probably be successfuly argued by a state appraisal board or an attorney that these policies set industry standards or precedent. Fannie Mae guidelines have made a clearl and positive statement that the "house and 5 acre" appraisals are unaceptable appraisal practice and are misleading. This carries a lot of weight for any appraisal where the intended use is mortgage lending, IMO.
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