Wendy,
I am sure you and others often get requests from lenders, clients, borrowers and others for "recertifications" and "updates". You can find the Advisory Opinion for "updates" on page 129 of the 2002 USPAP.
There are 3 tests for doing an update. I have made copies of this and often give it to lenders, borrowers, clients who request an "update" or "recertification". If the 3 TESTS are not met, I will do a new appraisal with a new inspection and date at a reduced price from the original appraisal.
You may want to copy this Advisory Opinion and keep it handy for those who don't know the procedure.
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ADVISORY OPINION 3 (AO-3)
This communication by the Appraisal Standards Board (ASB) does not establish new standards or interpret existing standards. Advisory Opinions are issued to illustrate the applicability of appraisal standards in specific situations and to offer advice from the ASB for the resolution of appraisal issues and problems.
SUBJECT: Update of an Appraisal
THE ISSUE:
Statement on Appraisal Standards No. 7 (SMT-7) on Permitted Departure from Specific Requirements for Real Property and Personal Property Appraisal Assignments addresses the term "Update of an Appraisal." An update combines an original report with descriptions and analyses of changes in conditions between the effective date of the update and that of the prior report or update. What should be considered in agreeing to develop and report an update?
ADVICE FROM THE ASB ON THE ISSUE:
An update is an extension of an original Complete or Limited Appraisal and report relied on by a client for a prior business decision. The practice of requiring periodic updates is a reasonable portfolio management technique for financial institutions in monitoring asset quality and for certain other uses.
In residential practice, updates are commonly required by lenders and secondary market participants when the time frame between the effective date of the appraisal and the closing of a loan exceeds four months and is less than one year.
Because the update is an extension of an original appraisal, three conditions should be met before an update assignment is accepted:
1. the original appraiser’s firm and client are involved;
2. the real estate has undergone no significant changes since the original appraisal; and
3. the time period between the effective date of the original appraisal (or most recent update) and the effective date of the pending update is not unreasonably long for the type of real estate involved.
In the update, the appraiser addresses any changes in market conditions and the status of the subject property since the effective date of the original appraisal or prior update, then analyzes the effect of these changes in arriving at a current value opinion for the property.
All approaches to value developed in the original appraisal should be updated, and the data used in these approaches should be analyzed again. New data used in the update and data used in any prior updates also must be analyzed.
In preparing an update, an appraiser should clearly state that the update report can be relied on only by a reader familiar with the original report and any prior updates. In reviewing an update, a client should consider it in the context of the original appraisal and any prior updates. A good practice would be to file an original and updates in the same place.
Sample Content Outline for an Update Report
(Use for real estate or personal property other than a one-to-four family residence)
Introduction
Title page
Expanded Letter of Transmittal (Summary of Appraisal with reference to/excerpts from original appraisal, definition of value, date of value opinion, property rights appraised, approaches used, reconciliation and value conclusions, etc.)
Certification
Qualifying and limiting conditions/general underlying assumptions
Attachments
Identification of the subject property with photograph
Changes in market conditions since original appraisal (include current assessment/taxes, etc.)
Changes in subject property since original appraisal (repairs, new leases, damage, obsolescence,etc.)
Highest and best use update, if applicable
Cost approach update, if applicable
Sales comparison approach update, if applicable
Income capitalization approach update, if applicable
Addenda
Detailed description (legal description if real estate)
Other relevant information pertinent to the update
Qualifications of the appraiser
Sample Content Outline for an Update Report
(Use for a one-to-four family real estate holding or personal property)
Letter of Transmittal with:
Specific reference to original appraisal report
Statement of any changes in market conditions since original appraisal
Statement of any changes in subject property since original appraisal
Statement of value or extension of original value opinion and statement of new effective date
Certification
Attachment
Presentation and analysis of any additional data considered
This Advisory Opinion is based on presumed conditions without investigation or verification of actual circumstances. There is no assurance that this Advisory Opinion represents the only possible solution to the problems discussed or that it applies equally to seemingly similar situations.
Approved March 5, 1991
Revised May 25, 1993
Revised March 22, 1994
Revised September 16, 1998
Revised September 15, 1999
