This is a bank's comments on a commercial

[Stephen J. Vertin MAI]

This is not an AMC or mortage broker. Check this out.

Below are our points we would like you to consider:

- The engineering report did not mention any violations. After we called up the engineer and discussed the appraiser’s findings, they told us that the city did not have any record of any violations. As far as commenting on things which they ‘saw’, their answer was that some of the older buildings in that area usually don’t conform to current building codes, but they can obtain a variance. For instance, our property doesn’t have individual sprinklers but the owner has obtained a variance for this. To the naked eye, this could be mistaken as a code violation.

- We performed a site inspection yesterday. We checked up on some of the violations that the appraiser mentioned, such as hallway lighting. The hallway lighting is connected to a timer which automatically turns on after 5 pm. We could not go into the individual units to check up on the other violations.

- Overall, we believe the appraiser does not need to feel obligated to comment on violations in his final report without doing further investigation, which is usually considered beyond his scope. If he wants, he could indemnify himself by putting some kind of disclaimer. Maybe something such as ‘This appraisal does not include a code violation analysis as it was not included in the scope. A further investigation on code violations may be warranted….’

- Having said that we do appreciate the appraiser bringing out these issues in his draft report. We will address these violations, and instruct the client to remedy them as a condition to close. However, for securitization purposes, it is very important that we try to tone down any inflammatory language in third party reports. We appreciate your help in this regard.

- We would also like the appraiser to refer to the condition of the property as being ‘good to average’ instead of just ‘fair.’ Our site inspector was of the opinion that the subject in similar condition to most of its competing buildings in the neighborhood.

 

[stefan olafson]

Why did they hire you?

Did they just give you the value and as their scope of work tell you to ignore all and come in at this value based on the property being in good to average condition?

Things are spiraling out of control when good quality lenders start doing this. I can understand with a properly worded scope of work from the client, you could exclude items dealing with building codes, I'd probably say something like this 'This appraisal was completed with no effort to address whether the property was in compliance with existing building codes, as per scope of work instruction from the client'. That would fry their grizzle!

 

[Lost Cause]

While I would agree with that lender that citing specific violations is beyond the typical scope of an appraisal assignment, it is (obviously) essential that the appraiser consider and describe the condition of any improvements.

The part that bothers me is the last request. Maybe it would make sense to describe the condition as "fair, and typical for the neighborhood" (if that is true), but it is pretty difficult to confuse "fair" and "good".

Here's the answer:

However, for securitization purposes, it is very important that we try to tone down any inflammatory language in third party reports. We appreciate your help in this regard.

The secondary market strikes again!

 

[Caligirl]

We would also like the appraiser to refer to the condition of the property as being ‘good to average’ instead of just ‘fair.’ Our site inspector was of the opinion that the subject in similar condition to most of its competing buildings in the neighborhood.

Well then have the site inspector complete the appraisal. Problem solved. (sarcasm intended)

 

[Stephen J. Vertin MAI]

While I would agree with that lender that citing specific violations is beyond the typical scope of an appraisal assignment, it is (obviously) essential that the appraiser consider and describe the condition of any improvements.

Just for your edification these were code violations that threatened the safety of tenants, like lack of emergency hallway lighting and fire extinguishers. Further there were electrical safety issues. Personally I do not want local news knocking on my door after a serious fire where someone dies (if you lived in Chicago you would know what I mean). I do not usually get into code violation myself unless they are directly related to someones safety.

 

[stefan olafson]

Your actions are perfectly obvious and appropriate, to fellow appraisers and to most lenders. This lender must be attempting to hide something to get this through as cleanly as possible. Sounds like they need 'skippy' to do what they want.

The scope of work rule has really dramatically changed the profession. What once was typical appraisal practice, may now be scoped out of the appraisal by a deftly written scope of work. While it's not typical to cite specfic violations of the code, isn't it proper to do just that? To protect the client and in the end the tenants? The Scope of Work is a negotiation between the client who wants the least possible for the lowest cost and the appraiser who wants to be as thorough as possible and be paid a reasonable fee. I guess that is why 'skippy' is still out there, for lenders such as this.

 

[Stephen J. Vertin MAI]

Even so FIRREA requires we provide an "as is" value. While you could scope the issue away for "as proposed" it would be dificult "as is".

 

[Boonders]

and scope of work can't make an appraisal misleading, as their request likely would.

Sounds like deferred maintenance & obsolescence type of issues, deduct cost to cure?

Hmmmmm......New York bank?

 

[CBBoston]

Recently we've had the opposite experience. A large national multifamily lender told us that average condition for 100 year old apartments would include no deferred maintaince. Every see one of those? They further went on in a seperate email to all appraisers telling us to note literally all defects we might see. Loose bricks, cracked paving, peeling paint, worn flooring, cracked tiles, leaning fences, excessive dirt, etc and then estimate the cost to cure all the items and deduct this from the value. Since we rarely see all the units in a multifamily building, my postion is that any number we come up with could be wildly inaccurate. If they're that concerned, let them send out their own inspection teams. Appraisers are not construction engineers or contractors. To estimate the cost of repairing many of these defects is way beyond our expertise. One property owner recently told me he had quotes ranging from $40k to $100k for repairing a parapet. If lenders want this level of work including getting quotes for repairs, they need to pay more than chump change for appraisals. Oh, and good luck on the two week turnaround.

 

[Caligirl]

Oh, and good luck on the two week turnaround.

Around here lenders started asking for 1 1/2 weeks on summary commercial reports. Depending on the property and location finding and verifying good comparable data alone can take a couple days.