Request to Remove Addition from Appraisal

[Corbyn Reece]

I just e-mailed her again. Between you and me, I think I know what room was added on, but I'm not 100% sure and the addition happened before the present homeowners purchased. So I asked "are you sure there's been an illegal addition? Perhaps public records data is wrong. I've seen it happen" That will hopefully make her think twice and three times about asking me to appraise based on a smaller GLA than what my inspection found.

 

[Randolph Kinney]

Another reply from underwriter, paraphrasing:

"other appraisers have mentioned unpermitted additions and not included the square footage or value in their appraisals. That way they are NOT ignoring the addition nor are they giving it any value. This is common practice and I have not had any issues with appraisers understanding this"

I'd tell her where to stick it and/or talk to her supervisor, but this is an important client. Thinking about my next move . . .

All you have to do to settle the value issue with an addition with out permits is to show market acceptance by providing other comparable sales with additions with out permits. Use your paired sales, with and with out, to extract market value of the addition. Use a separate line item in the grid for the addition.

Case closed, according to Fannie guidelines.

 

[residentialguy]

Isn't not giving value to something that has value considered "ignoring"?

UW sounds like an ignoramus.

 

[Mike Kennedy]

All you have to do to settle the value issue with an addition with out permits is to show market acceptance by providing other comparable sales with additions with out permits. Use your paired sales, with and with out, to extract market value of the addition. Use a separate line item in the grid for the addition.

Case closed, according to Fannie guidelines.

Actually, the process above is ONLY permitted by Fannie for certain Exceptions (i.e. in-law/accessory apartments) Illegal Additions "As-is" are not one of the Exceptions - per both Fannie, Freddie and FHA. :icon_idea: The OP subject must be appraised either as legal (CO confirmed) or based on EA or HC (as necessary) the improvements are in compliance and "as-improved" represent the HABU of the site.

"Highest and Best Use
If the current improvements clearly do not represent the highest and best use of the site as an improved site, the appraiser must so indicate on the appraisal report. Fannie Mae will not purchase or securitize a mortgage that does not represent the highest and best use of the site."

Printed copies may not be the most current version. For the most current version, go to the online version at
http://www.efanniemae.com/sf/guides/ssg/. 532

 

[residentialguy]

All you have to do to settle the value issue with an addition with out permits is to show market acceptance by providing other comparable sales with additions with out permits.

That ought to be a piece of cake. That's the first thing they say in a listing..."Illegal room in back...chance of a life time to own a house that may burn up at any given second. Hurry before it's gone!"

No problem...just find a few perfect matched pairs with that.

 

[Randolph Kinney]

Actually, the process above is ONLY permitted by Fannie for certain Exceptions (i.e. in-law/accessory apartments, coastal plains, etc.) Illegal Additions "As-is" are not one of the Exceptions - per both Fannie and FHA. :icon_idea:

They exist here and it is easy to show. Enforcement is discussed along with retro permitting. Not a problem.

If there are sales with additions with out permits, then the market values those sales and it shows marketability.

 

[Terrel L. Shields]

Doesn't it seem weird that UWs are suddenly picking up on loan killer stips more and
more? Its like AMCs are rewarded for screwing up the appraisal. Could that be?

not unusual when the bank's goal is to turn down the loan and they are trying to figure out the easiest way to do so without violating Fair Lending Law. They blame the appraiser...

"other appraisers have mentioned unpermitted additions and not included the square footage or value in their appraisals.

that is an option under the Q & A 2008 i mentioned above. BUT you must do more than MENTION that addition and also must address the impact upon value and in doing so you almost certainly have to suggest that it DOES impact value and its absence could certainly impact the utility of the property AND certainly you have to comply with the USPAP section that says

1-2 (e) (v) - "whether the subject property is a fractional interest, physical segment, or partial holding;.." and clearly identify what is being valued.

Valuing only a part of the house is valuation of a physical segment and neither EA nor HC has to be evoked.

 

[Pat Butler]

Just an ancillary issue for those of you who are the permit police. Your biggest liability is going to occur when your inquiry to B&Z results in the homeowner getting a fine for an unpermitted addition.

The one time I ran into this with a rental property (SFR being used illegally as a duplex) I required the homeowner's written permission to call B&Z. They refused to give it me and the loan fell apart. That shows you how much the homeowners did not want me to contact B&Z. Imagine what would have happened if I did.

Remember GLB? I'd be very careful about disclosing private information to the 'authorities' without written permission.

What's illogical about this whole verification process is that there is no end to what you can verify- kind of like Lee said. How do we know that any of their improvements were done with the proper authorizations?

 

[Mike Kennedy]

Valuing only a part of the house is valuation of a physical segment and neither EA nor HC has to be evoked.

True enough when the Intended Use and applicable SOW is to valuation a physical segment only. This is not applicable to the OP. :icon_idea:

 

[Mike Kennedy]

DODD-FRANK FINANCIAL REFORM ACT OF 2010

SEC. 1472. APPRAISAL INDEPENDENCE REQUIREMENTS.
(a) IN GENERAL.—Chapter 2 of the Truth in Lending Act (15
U.S.C. 1631 et seq.) is amended by inserting after section 129D
(as added by section 1461(a)) the following new section:

‘‘§ 129E. Appraisal independence requirements

‘‘(a) IN GENERAL.—It shall be unlawful, in extending credit or in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under this section.

‘‘(b) APPRAISAL INDEPENDENCE.—For purposes of subsection (a),
acts or practices that violate appraisal independence shall include—
‘‘(1) any appraisal of a property offered as security for repayment of the consumer credit transaction that is conducted in connection with such transaction in which a person with an interest in the underlying transaction compensates, coerces, extorts, colludes, instructs, induces, bribes, or intimidates a person, appraisal management company, firm, or other entity conducting or involved in an appraisal, or attempts, to compensate, coerce, extort, collude, instruct, induce, bribe, or intimidate such a person, for the purpose of causing the appraised value assigned, under the appraisal, to the property to be based on any factor other than the independent judgment of the appraiser;
‘‘(2) mischaracterizing, or suborning any mischaracterization of, the appraised value of the property securing the extension of the credit;

‘‘(3) seeking to influence an appraiser or otherwise to encourage a targeted value in order to facilitate the making or pricing of the transaction; and
‘‘(4) withholding or threatening to withhold timely payment for an appraisal report or for appraisal services rendered when the appraisal report or services are provided for in accordance with the contract between the parties.

‘‘(c) EXCEPTIONS.—The requirements of subsection (b) shall not be construed as prohibiting a mortgage lender, mortgage broker,
mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, consumer,
or any other person with an interest in a real estate transaction from asking an appraiser to undertake 1 or more of the following:
‘‘(1) Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal.
‘‘(2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion.
‘‘(3) Correct errors in the appraisal report.