Need Retrospective Appraisal Guidance

[Susan Klimaszewski]

I have my first order for a retrospective appraisal for market value with an effective date of July 2001. The owner is the client and says that the property was rented from July of 2001 to July of 2004 and he didn't take deductions that he was allowed as it was a rental at that time. The owner occuppied the property from new construction 1997-2001 and is the current occupant again. This property is in a cookie cutter neighborhood however he is vastly overimproved for the neighborhood.

1. Proper form? Old 1004?

2. The income approach is not appropriate in this neighborhood as it is most definatly a predominently owner occupied subdivision. Does that fact that it was rented in July 2001-2004 have any bearing on this assignment? Will I need copies of leases etc?

3. The cost approach would have been appropriate if this had been done in 2001 based on age, however I don't think I can get my hands on M&S for 2001.

4. Do I describe the neighborhood, subdivision etc as it was back in 2001? I was appraising then and know the area well.

5. Usually for market conditions I am pretty specific with how many active, sold and under contract properties are available, range of asking prices, selling prices, DOM's etc, however our MLS doesn't have a search function to enable properties that may have been active at a time in the past. They are changed to sold, expired, withdrawn and every listing dated during that time would have to be individually analyzed to determine what dates they were active. In a retrospective appraisal is it permissible to use a more narrow brush and stick with the known solds and general financining trends, DOM's etc?

6. Is it most appropriate to use MLS photos if available since they are representative of the condition of the comparables at effective date?

Thanks in advance for any guidance. I'm kind of looking forward to doing this one and want to make sure that I'm doing it all correctly.

Ohhhh 1 more guestion. Do I reference USPAP 2001 as it is the effective date or do I reference the current USPAP as the signing date is now?


Thangs Again.

 

[ccooper]

I'd use the new form.

If properties were not bought and sold as rentals in this neighborhood and an income approach is not a reliable indicator then I wouldn't worry about income. Always get the rental info, though. No such thing as too much data.

Marshall & Swift has the Comparitive Cost Multipliers in the back of the "green pages" in the book. They are separated by region (NW, SW, etc.) The US average for 4th qtr 2005 = 1.00. 1st Qtr 02 is 1.203 and 1st Qtr 00 is 1.233 for masonry (1.205 & 1.239 for wood frame). Using today's M&S calculations, you would have to divide by these factors to figure out the 2001 cost estimate.

I would describe the neighborhood as well as you can for the July 2001 time frame. If you don't have listing and sold stats for then, then you don't have them.

I don't normally support MLS photos but in this case, the argument is very valid. The old MLS photos reflected those homes in their condition five years ago more accurately than one taken today. A statement to that effect would help.

 

[Carnivore]

You dont have a good reason to use the new form! To many limitations.

MLS photos are a good idea even in current work if they represent or illustrate the subject more accurately to the reader. Its nonsense to arbitrarily elect to not use MLS photos on any assignment. There are not USPAP restrictions on photo use. There are problems with USPAP when photos(if any) mislead the client or dont help explain the appraisal.

Use the old form or produce a narrative.

In regards to USPAP. Use the current USPAP. The only time you use the old USPAP is if your developing a retrospective review and then it only applies to the report under review.

 

[Stephen J. Vertin MAI]

Susan:

What is the purpose of the report? Is is for federal income tax? You mentioned deduction. If it is in fact for taxes why would you use any respective form? Are they not designed for financing? Seems to me there would be two different scopes. Would you not have to go through the form and take out references to Fannie or financing? I think AI designed a new form for such purposes. I had heard it was free. Maybe someone has more information on it.

Steve Vertin

 

[Webbed Feet]

To Retrospect or not to Retrospect, that is the question!

Ms. Klimaszewski,

How fun!

1. Proper form? Old 1004?

The old 1004 would be fine... review it for financing language that should be redacted if needed.

2. The income approach is not appropriate in this neighborhood as it is most definatly a predominently owner occupied subdivision. Does that fact that it was rented in July 2001-2004 have any bearing on this assignment? Will I need copies of leases etc?

If the income approach is not applicable, then it's not applicable. The fact it was rented does not matter. Besides that, even if it was you have a perfect case for just a tax matter to invoke Departure and do a Limited appraisal if needed to save money and still provide a good service.

3. The cost approach would have been appropriate if this had been done in 2001 based on age, however I don't think I can get my hands on M&S for 2001.

If the cost approach is applicable and needed to produce credible results, you have to do it. Doesn't matter if getting your hands on the data is tough or not. However, I would seriously question it is needed to produce a reliable appraisal for tax purposes. Again you could probably invoke Departure and do a Limited appraisal. If not, try using M&S on line as a one time shot with a fee for doing so. The M&S software can be easily backdated for Retrospective work.. very handy.

4. Do I describe the neighborhood, subdivision etc as it was back in 2001? I was appraising then and know the area well.

Yes. Neighborhood data from old appraisals you did there in 2001 would be a good source for you. However, just exactly like using a Hypothetical Condition, in your scope of work make sure any and all readers of the report can understand that all the information is reflecting 2001.

5. Usually for market conditions I am pretty specific with how many active, sold and under contract properties are available, range of asking prices, selling prices, DOM's etc, however our MLS doesn't have a search function to enable properties that may have been active at a time in the past. They are changed to sold, expired, withdrawn and every listing dated during that time would have to be individually analyzed to determine what dates they were active. In a retrospective appraisal is it permissible to use a more narrow brush and stick with the known solds and general financining trends, DOM's etc?

You're thinking too much like an appraiser producing a report for secondary refinancing. This is not for a FRT or a loan. You do not have to hit Fannie standards etc. Again, your old appraisals in that area, at that time, are a good source. Just state data from prior work at that time and reference or copy what you need into your work file.

6. Is it most appropriate to use MLS photos if available since they are representative of the condition of the comparables at effective date? Do I reference USPAP 2001 as it is the effective date or do I reference the current USPAP as the signing date is now?

That's fine. But drive those comps and take pics anyway of them for your work file. You use USPAP 2005, You're doing it now, not in 2001.

One last thing. In Retrospective appraising forget nonsense you might hear about not using sales that closed after your Retrospective Effective Date. If you have a good sale that was pending at the time and closed a couple of weeks later, use it!!! It was clearly showing the most current market activity at the time. It just wasn't closed. One of the weakest research items of course is going to be condition and concession adjustments... If you have some good comps in old files that are appropriate and researched at that time .. toss em in even if they are a little less desireable than one that's perfect only you can't get much first hand information about it from an involved party.

Enjoy,

Barry Dayton

 

[Peter LeQuire]

Susan -

1) The 6/93 1004 might be an appropriate report, if you provide appropriate certifications, limiting conditions and market value definition. I've used that report for for retrospective appraisals, but typically will use it as an attachment to a very brief letter summary of the appraisal result, in which I very carefully set out the retrospective nature of the appraisal, the
limitation(s) on data collection and verification, etc.

2) The fact that the property was rented doesn't necessarily change the nature of the neighborhood. The fact that it was rented on the effective date would affect how you report the occupancy of the property (owner/tenant/vacant). I don't see why you would necessarily need leases: if you have to report rent of the subject, report what the owner tells you.

3) Cost inmformation is probably available. An appraisal firm that was in business in 2001 might have old M&S information. You might also try the M&S web site and their on-line cost approach service.

4) Yes. You describe the neighborhood as it was on the effective date of the appraisal.

5) You can't report or analyze information you don't have. Reporting historic information about sales, DOM, expired, withdrawn, etc. may be the best you can do. If you don't have MLS data about listings contemporaneous with the effective date of the appraisal, you have to use what you have. But, I think that information about the ratio of sales to list prices, solds to expireds/withdrawn can certainly help amplify your neighborhood analysis.

6) Yes.

And, you use the current USPAP.

And, Statement 3 of USPAP might offer a little insight for you in taking on this assignment.

 

[xm39hnu]

For historical (retrospective) cost approach information, see Page F-11 under "Comparative Cost Multipliers by Region." If you've got the RCH, you can use these for a retrospective cost approach.

 

[Susan Klimaszewski]

Thank you all for your responses. As always, you all are a fountain of good solid information and advice. The appraisal is underway and going smooth.

Thanks!

 

[Pat Butler]

Be aware of the language on the new 1004 that says the effective date of the appraisal is the same as the inspection date. I think there's too much language on the new form that would have to be changed.

I'd use the old 1004, and even then, there's enough language that will have to be edited to make it appropriate for your client's use.

 

[JM2187]

"One last thing. In Retrospective appraising forget nonsense you might hear about not using sales that closed after your Retrospective Effective Date. If you have a good sale that was pending at the time and closed a couple of weeks later, use it!!! It was clearly showing the most current market activity at the time."

I would advise being cautious about using any data which closed after the requested effective date, unless approved by your client. In my experience this is not acceptable unless you're dealing with extremely limited market data.