For those of you who are familiar with--and have used--the "Supplemental REO Appraisal Addm.", you are aware of the requirement for multiple opinions of "value". It is to the additional opinions of "value" that I am looking for your input.
2 of the 4 opinions of value are Market Value; the definition of MV is incorporated into the Fannie/Freddie appraisal report form to which this addendum is attached.
The other opinions of value include the following directive: "...estimate of market value based on a client-imposed restricted market exposure time..."
The "client-imposed restricted market exposure time" is clearly not incorporated in the definition of MV in the Fannie/Freddie form.
USPAP requires (Std. Rule 2-2; a,b,c; v) that the appraiser "state the type and definition of value and cite the source of definition".
I ask: Do you consider this to be a problem (or, challenge) for the USPAP-compliant appraiser? Why or why not?
Lee-
An excellent question.
First, the definition of value needs to be included in the appraisal report so the client/intended user(s) can understand what the opinion of value represents. USPAP does not provide a specific definition, but USPAP does state that appraisers must be aware if there are any jurisdictional/regulatory requirements (like FIRREA, etc.).
Clearly in GSE work, the standard is the MV definition included in the pre-printed form.
The standard REO addendum asks for 4-types of value.
The as-is and as-repaired with "reasonable market exposure" is consistent with the Market Value definition included in the pre-printed certification of the original report; there should be no conflict here.
IMO, when the exposure time as concluded in the original report is equal-to or more-than the client imposed exposure time, there is no conflict.
So, we are talking about a client-imposed exposure time that is different from and less than the market's "reasonable" duration. Your basic question (as I understand it), is
Should an appraiser provide a new definition of value when the conditions conflict with the pre-printed definition of market value.
And, if so, what source/citation should that definition refer to?
The reason we have to put in a "definition" is to make sure the client and intended users are clear on what the value opinion is related to. Labels are insufficient, so the elements that constitute the definition are essential. I think we'd all agree on this.
In the REO addendum, the specific change is in exposure time. And, we are assuming for this discussion that it is less than what is reasonable in the market. Clearly that changes the pre-printed definition.
So, the only question that I consider important is,
Does that change require a new re-write of the definition?
Personally and professionally,
I don't think so (although in the future, I think I will add a comment in my REOs to clarify that).
For mortgage-related work done consistent with GSE requirements, our clients/intended users understand the difference, so there is nothing misleading. I could make the argument that the client/intended user understands (without additional, supplemental discussion in my report) the difference in the REO/restricted exposure time values vs. non-restricted values.
While a client-imposed exposure time restriction would change the character of the seller's motivations (the restriction may cause results in an opinion of value that are different (and likely less) than
market value: i.e., the seller would be willing to accept something less than market value due to the shortened exposure time, that restriction is
specifically spelled out in the REO addendum and the consequence of that restriction is clearly understood by the client/intended user of the appraisal's results.
Nonetheless, since you've raised the point, I think in the future (and I don't do a lot of REOs myself) I will add a few simple sentences in my REO addendum similar to
Note: The client imposed exposure-time condition modifies the definition of market value in the original report for the X and Y scenarios in this REO Addendum. X & Y values reflect a value less than market due to the less than reasonable exposure time. Since these values reflect a price-point lower than what could be achieved with reasonable exposure, the implication is that the seller's motivations are different from a typical seller without such restrictions.
Although I think the above comment is implied, it wouldn't hurt to add it in (and I'm going to do so, so thanks for bringing this up).
Again, no need to re-write the definition of market value. Everyone who should understand what is occurring does understand.
As to citing a source, other than USPAP's statement that appraisers need to to be aware that jurisdictional requirements may be applicable to the assignment, the definition of value used in a report can come from nearly anywhere... and be created by the client & appraiser. So while referring to a
published source is almost always a good idea, it is not necessarily a requirement.
Defining what "value" means (in terms of the appraiser's opinion) and stating where that definition came from
is the requirement.
