Understanding HC's and EA's

[George Hatch]

If it's helpful to their thinking, and appraiser can read "subject to" as meaning "if".

 

[bnmappraisal]

The FannieForms® are what's confusing you and many others. In FannieWorld, the truth of the extraordinary assumption must be verified before the appraisal is valid for it's intended use. That what all this "subject to" stuff is all about. For non-lending situations, it is up to the client/intended user to verify the truth, if that's what they want or need to do.

Just thought worth repeating

 

[Renee Healion]

In case we forgot what he posted an hour before? Okay it's remedial AF.

 

[Terrel L. Shields]

would the appraiser need to invoke an EA to consider the current improvements as HBU because the conversion isn't LEGALLY PERMITTED

All kidding aside, those are the type of issues that confuse me.

Me too... but I think I would handle it this way. The HBU is "as is" (residential since the property is likely more valuable with the existing improvements than if a bare lot. Don't worry trying to create the perfect improvement as a standard as this is not about the "ideal" improvement being something with all the t's crossed and "i's" dotted.) So I would (unless I see some obvious defect) assume (EA) that the improvements will meet code as well as pass inspection, and I would EA that the correction of the permitting and inspection would not be unduly expensive and otherwise has no real impact upon value with the caveat that it MIGHT impact value significantly if the property cannot be "made legal" for a small amount or faces a sanction from the city. The property is there, and it exists "as is" so I would not be evoking an HC. I am assuming (EA) that the issue of the garage as a garage might be allowed to be exempted as a conditional permit.

 

[Renee Healion]

If it's helpful to their thinking, and appraiser can read "subject to" as meaning "if".

Yes, it is the lack of clarity in the forms to be overcome. But the problem is that some appraisers end up learning their fundamentals from Fannie forms. The OP has a lot of questions that show he is curious and is trying to grasp the methodology. I am no one to judge if he is trying to learn while working but I suggest it is just a crutch for the present and frustration, not fluency, follows.

If an appraiser learns the methodology, then he will be able to navigate what the forms make of appraising. He will have a solid foundation and mostly be impatient with the forms' weaknesses rather than struggle against them. If he tries to learn the methodology from the forms and he may just learn to be a form-filler. That is a trap--seems easier in the short run but it isn't even that. Further, if Fannie is killing off formwork, then a curious person would be better served by trying to learn appraisal not just form-filling. I say this with sympathy because the OP is a thinker. (By his own admission an overthinker, but you cannot be that without being a thinker!)

The OP posts an urgent question and can learn from suggestions that go to the specific instance, but if he wants to build a core of his own knowledge, learning from decent coursework can build one. Appraisers take crap seminars to meet the minimums for license renewal but why not at least take a real course for renewal and have something that sticks? I just see him as curious and if he can make the time, he could do well with building his knowledge base.

Also just taking time from the deadline to think through the problem matters because we what we offer is that we are problem solvers. It is the thinking through of the problem that builds competency. But fundamentals first.

 

[ZZGAMAZZ]

I just used that variable because it's one everybody is familiar with. You can swap out that variable for any other and it would work the same.

The appraiser isn't making demands that something be done. The appraiser is simply saying that "this is the value if this property is brought into compliance with the lender's underwriting criteria".

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Emoticon for "epiphany."

 

[Mike Kennedy]

OP, I suggest printing this article on topic out in hard copy and reading it at least once a week till you "got it" cold

Extraordinary Assumption or Hypothetical Condition?

> How to Support and Prove Your Adjustments (7 Hours CE) (Highest Rating!) Extraordinary Assumption or Hypothetical Condition? By Phil Spool, ASA Every now and then, I come across an appraisal report where the appraiser is confused about whether the appraisal requires an extraordinary...

www.workingre.com

 

[glenn walker]

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Here's one: I understood from a recent thread that the appropriate treatment of a covered in-ground pool is to impose an Extraordinary Assumption that the pool is being winterized at present but that the pool is functional and the pool equipment functioning appropriately . . . although before reading that post I conditioned an empty pool that was waiting to be reglazed as "Subject to" the pool being filled with water and the pool equpiment working; and the DEU required the borrower to do so, which she did. So . . . . . . . . does the DEU ever over-ride the appraiser's "subject to," and if so, is the appraiser notified, towards it being a learning experience that improved Public Trust?

Normally the Underwriter will not over rule a Work or Repair Condition- BUT CAN SHE ? YES --If the appraiser did not call it out she will. There are cases-when the appraiser is overly zealous, a plain idiot, or both. On FHA the DE Underwriter is responsible for the appraisal and she also has to review it. Often She requires an-inspection or repair because the appraisers own photos indicate there is a problem. IE: Peeling paint or bare wood, on a Pre-1978 house, maybe a rear photo of the house that clearly shows a roof that looks like its in poor condition.

Sometimes the appraiser is a Skippy or a "chicken little " and is a pleaser, who doesn't want to upset anyone, so he/she writes a long blah. blah, about a required repair or H & S issue but then fails to call for the repair or inspection and hits the "As Is' Box hoping the UW does his dirty work for him. Does the UW have to inform the appraiser ? No but he will find out when she orders the 1004 once the repair or inspection has been completed. If the appraiser is not co-operative , the Lender simply has one of there other appraisers complete the 1004-D and then the appraiser wonders why he no longer receives any new orders. As far as Public Trust-- I have no idea what Underwriters And Appraisers Conditions have to do with the Public Trust. But in general the Public does not trust appraisers, because we have no interaction with them and that's because, appraisers whined and cried about how they felt pressured and so Dodd & Frank fixed that problem and gave the AMC's .


As far as Hypothetical & Extraordinary Assumptions : My advice is to read your Entire Fannie-Mae Certification, before you sign and deliver your reports. After about 100 reports you will be able to know when or if any additional HC or EA needs to be invoked. If placed on a witness stand you can recite all the certifications by name and number, and your attorney and the Judge or Jury will think you are a genius. Almost every issue a residential appraiser is involved with is included in that Fannie Certification. If it's not then he/she has to consider whether to go into detail and why they are invoking additional assumptions. The Page-2 the Subject to repair or inspection box Clearly states a Hypothetical Assumption that the repairs or inspections have been completed- or the Extraordinary Assumption that the condition or deficiency does not require alternation or repair. Those two boxes solve 80% of the Residential Appraisers issues with HC & EA-- The people at Fannie did the thinking for you.

Fannie Mae Pre-Printed Forms: When residential appraisers start to think too hard they get headaches, which often result in confusion and agitation, and next they start traveling down those Rabbit Trails to Review Hell. If the appraiser has to think too long about An-Assumption- He/She has to also consider not making any-Assumption because if you declare something that is proven to be false, even if accidentally, that is not a good excuse if someone suffers damages. EA or HC--Thinking...Thinking... Gee I don't know-Red-Light Hard STOP--Go back read Fannie Certification if your particular issue is not covered, consult with a few other appraisers, go back and read the difference between a EA & HC and if still confused make no Assumptions.

Satire : Your Honor= I saw the guy walking into the crosswalk , but I quickly and mentally invoked the Hypothetical Assumption, that he would be out of my way before I crossed. Unfortunately, I miscalculated and ran him over. I was wondering if the court would allow me to declare an-Extraordinary-Assumption which seems to be the better choice since my original Hypothetical-Assumption was proven to be false ? Response From Judge: No Walker you are not capable of making assumptions, and you cannot assume and disclaim your way out of this one. -- I hereby Sentence you in "As Is" Condition to spend 8 years in State Prison, but I am also declaring a Hypothetical Assumption that, due to our over-crowded prison, and being a Sanctuary State, you may get an-early release.

 

[George Hatch]

There are limitations to the use of HCs and EAs. And as a practical matter an HC is usually created by the user's expectations and which valuation scenarios they are requesting. EAs are more commonly created by subject property attributes that pop up during the problem identification phase. Either way, it's usually not a situation that's created by the appraiser or that involves the appraiser's discretion. You can't HC your way out of an inconvenient truth or EA your way out of exercising the amount of due diligence that your assignment actually required.

If your assignment includes the users expecting you to run down the permit status of that room addition then you don't get around making that effort by using the EA as a copout. OTOH, if you have made the effort and still can't nail down that situation then it basically forces you to use an EA in order to proceed.

It's just like any of the "general" assumptions we cite in every report we sign - We assert and disclose them in our reports as a means of providing the context for our conclusions - they don't exist and aren't intended to be used as a "Get Out of Jail Free" card.

 

[alebrewer]

Just the amount of interaction on this thread should be sufficient to induce agreement with the OP that classess on the topic(s) would be VERY helpful for a LOT of appraisers.