Unpermitted Addition

[Rich Heyn]

Otis and Greg,

For the purposes of this discussion, let's assume the appraiser is reporting assignment results on the new URAR and the loan is being sold to Fannie Mae. Here's the entire limiting condition #1 off the new form:

1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing the appraisal. The appraiser assumes that the title is good and marketable, and therefore, will not render any opinions about the title. The property is appraised on the basis of it being under responsible ownership.

This limiting condition is much the same as the one on the current version of the form, although "except for information that he or she became aware of during the research involved in performing the appraisal" is new. If you reword the sentence it becomes "The appraiser will be responsible for matters of a legal nature that affect the property being appraised, that he or she became aware of during the research involved in performing the appraisal"

In Cythia's case, she did become aware of it. So, under the new certification, she would have to deal with this.

In your case, you are saying that you don't research permits and I don't have a problem with that, either from a practical standpoint or from a USPAP "normal course of business" perspective. But the question is how to handle it (for purposes of avoiding liability) in the future if the final version of the new URAR is worded the same as the test version. I suppose that some protection may be had by referencing, probably in the extended scope discussion, that the appraiser did not research permits, etc. However, you won't be able to use the word assume anymore due to the following statement at the top of page three:

This appraisal report is subject to the following definitions, statement of assumptions and limiting conditions, and appraiser’s certification. Modifying, adding or deleting the definitions or assumptions and limiting conditions is not permitted. Modifications or deletions to the appraiser's certifications are also not permitted. However, additional certifications that do not conflict with this report form may be included on a separate page or form. Acceptable additional certifications might include those required by law or those related to the appraiser’s continuing education or membership in an appraisal organization.

Now, to make things really ugly, reconcile the above statement with SR 2-1 © which states that the appraiser must "clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions and limiting conditions used in the assignment."

Sometimes, ya gotta make an assumption. What does the appraiser do if the assumption is not covered under the new certifications #1 or #5. Fannie says no additional assumptions, USPAP says must disclose. If the apprasier needs to make the assumption and USPAP says it must be disclosed, does this mean that there are many properties that will no longer be elegible for purchase by Fannie?

 

[CANative]

When I was a kid riding in the back seat of the car on long trips I would annoy my parents with a long string of questions and counter-questions to their answers. One time my mom turned around and said to me: "You'd argue with a shark!"

Well for the sake of a good argument:

The appraiser that sees no evil, hears no evil and reports no evil and thinks they are covering their butts with a simple, its not my job reply in the addendum, are to lazy to actually do the job they were hired, which is to be the eyes and ears of our clients.

Keep in mind that we are talking about unpermitted additions or improvements as opposed to illegal additions or improvements.

I did not advocate not disclosing or not dealing with the issue. I do recommend checking to see if there are permits recorded for additions. However, if there are no permits then there are no permits. But just because there are no permits does not mean that something has no value. It is our job (assuming this appraisal is for mortgage lending purpsoes) to determine a market value. If the market will pay more for unpermitted additions then that is what should be considered. I don't think its acceptable to just "give no value" and to do so would require the use of a hypothetical condition (the value of the property would be $zzz,zzz if the addition were not there.) To give a cost to cure for removing the unpermitted addition is arbitrary and unless you have real data where this has actually happened, then the opinion is not supported.

Rich.. you're scenario is giving me a headache. Let me think about it some more or read what others with more experience have to say.

 

[The Matrix]

Is it the appraiser's job to verify that all improvements made to a property are legally permitted? Isn't this going beyond the scope of a typical residential appraisal assignment? Is an appraiser required to have a thorough knowledge of the building codes and zoning ordinances in every city, county and village they do appraisal work in?

 

[Edd Gillespie]

Originally posted by Greg Boyd@Dec 26 2004, 05:50 PM
Keep in mind that we are talking about unpermitted additions or improvements as opposed to illegal additions or improvements.

Good thread. I think Rich is right and Fannie's new language is going to put it out of the business of buying 95% of the mortgages it buys now. Yeah, right. If Fannie handles this the way other penetrating questions of interpretation of Fannie rules, we will be told to just quit arguing and move on.

Actually I had a point or counterpoint. At the stage we are intersecting this problem isn't the unpermitted addition illegal until it is permitted, or is there some distinction I am missing here?

 

[Phil Rice]

The question seems to be:

I can't sketch the house and then a bonus room as separate space.

I don't see a problem here. Sketch everything as one house, there is no need for "seperate space". You can show the interior walls, and put in a label that identifies which space (room) is which.

You are making this harder than it needs to be. Let ANSI be your guide when it comes to the question - is it GLA or not?

Should you disclose in the report that the space is not permitted? IMHO, yes you should. Write a sentence or 2 in the body of the report, such as - the homeowner told me the addtion was done by the former owner and there are no permits. I have not confirmed this with the local dept in charge of issuing permits, because in this market area, the lack of permit(s) does not adversely affect market value. The quality of materials and workmanship is consistent with the rest of the house.

If the client wants to harrass you because the lender worries about permits, your best course of action is to offer to do all the research they want, and charge a fee that makes you happy to do the research. Get paid for the work you do.

Get the value right.

 

[CANative]

isn't the unpermitted addition illegal until it is permitted

Not necessarily.

One example might be like in an area I appraise. Theere is a zoning overaly called the Coastal Zone. It only allows one residence per parcel. It will allow an auxilliary living unit as long as it is not designed for full time occupancy. So you can have an in-law unit as long as it does not have a kitchen or cooking facility in it. Before 1978, there was no permitting process. So say you have an old house with an old auxilliary living unit on it. It is unpermitted (never issued a building permit.) But it is legal per the zoning. If a kitchen was put in it, then it would be illegal.

Unpermitted does not always mean illegal.

 

[Ron Hauser]

FNMAE APPRAISAL REGULATIONS

The appraiser's role is to provide the lender with an accurate, and adequately supported, estimate of value and a complete, accurate description of the property.

We require appraisers to provide complete and accurate reports. The estimate of market value must represent the appraiser's professional conclusion, based on market data, logical analysis, and judgment. When the information or methodology of an appraisal requires additional clarification or justification, the lender's underwriter must obtain from the appraiser any information that is necessary to make an informed decision concerning the property.

These requirements are intended to provide guidance to underwriters and appraisers as to the type of information that is needed to make a prudent underwriting decision. They are also designed to provide what we feel are minimum acceptable appraisal standards. We recognize that our guidelines may not address every appraisal problem; therefore, we allow the appraiser discretion to properly develop the value estimate. The appraiser must, however, provide sound reasoning in his or her appraisal report for any decisions he or she makes that are not specifically covered by our standards.

Section 403.01 - Zoning

The appraiser is responsible for reporting the specific zoning classification for the subject property. The appraiser must include a general statement to describe what the zoning permits--"single-family," "two-family," etc.--when he or she indicates a specific zoning such as R-I, R-2, etc. The appraiser must also include a specific statement indicating whether the improvements represent a legal use; a legal, but non-conforming (grandfathered) use; or an illegal use under the zoning regulations; or whether there is no local zoning.

We will purchase or securitize a mortgage secured by a single- family or a two-family property that includes an illegal additional unit or accessory apartment (which may be referred to as a mother-in-law, mother-daughter, or granny unit) as long as the illegal use conforms to the subject neighborhood and to the market. The property must be appraised in conformity with its legal use, that of a single-family or two-family property (and the borrower must qualify for the mortgage without considering any rental income from the illegal unit). The appraiser must report that the improvements represent an illegal use and demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same illegal use. The lender must also make sure that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property. We will not purchase or securitize a mortgage secured by a three- or four-family property that includes an illegal accessory apartment.

Section 404 - Improvement Analysis

The appraiser must provide a clear, detailed, accurate, and comprehensive description of the improvements. The appraiser should be as specific as possible (commenting on such things as needed repairs, additional features, modernization, etc.) and should provide supporting addenda, if necessary.

The description of the improvements should include a general overall description and specific descriptions of the exterior, foundation, basement, insulation, interior surfaces, heating and cooling systems, kitchen equipment, attic, amenities, and car storage. If the property that is being appraised includes an accessory apartment, the appraiser should describe it in the "comments" section of the improvement analysis portion of the appraisal report form.

Gross building area, which is the total finished area (including any interior common areas, such as stairways and hallways) of the improvements based on exterior measurements, is the most common comparison for two- to four-family properties. The gross building area must be consistently developed for the subject property and all comparables that the appraiser uses. It should include all finished above- and below-grade living areas, counting all interior common areas (such as stairways, hallways, storage rooms, etc.) but not counting exterior common areas (such as open stairways).

Based on the factual data of the improvement analysis, the appraiser must express an opinion about the condition of the improvements. The appraiser must report the condition of the improvements in factual, specific terms. Any condition that may affect the value or marketability of the subject property must be reported to assure that the appraiser adequately describes the property. The appraiser must report a detrimental condition of the improvements even if that condition is also typical for competing properties. For instance, the appraiser should note if a property is characterized by deferred maintenance or a lack of updating even if the same condition applies to competing properties in the neighborhood.

 

[Otis Key]

Ron - I see where you're going with those references but here is another perspective to consider. NM is a non-disclosure state and therefore matters of real estate and real estate transactions are NOT considered to be a matter of public record. As a home owner I can obtain the recorded pertinent details about my property. However, as an appraiser, all I can obatin is the owner of record, legal description, property taxes and a history of those taxes. We (appraisers) cannot pull a sketch, square footage, age, improvement status or permits. Only the owner of record can do that here.

So, as I stated before, "in the normal course of business" (ie, what my peers would also attempt to do or do) we do not and will not pull permits - it's available to me as an appraiser. When I do get these requests and statements from the lender then I inform them of these facts and state that they insist that I obtain the permit, then I inform them that I will contact the owner/borrower to set an appointment to meet at the court house, only after I've received advance payment in full for my time. If they will go through the borrower/owner, there won't be a charge from me.

Rich - Fannie is just going to have to learn to live with USPAP. USPAP supercedes Fannie's guide lines and I guess Fannie will eventually learn that the reputable and reliable appraisers will, as has been the past record, supplement any form, certification and limiting conditions to comply with USPAP and to protect themselves from such rediculous law suites, claims, etc.

 

[Edd Gillespie]

Originally posted by Otis Key@Dec 27 2004, 08:48 AM
Rich - Fannie is just going to have to learn to live with USPAP. USPAP supercedes Fannie's guide lines and I guess Fannie will eventually learn that the reputable and reliable appraisers will, as has been the past record, supplement any form, certification and limiting conditions to comply with USPAP and to protect themselves from such rediculous law suites, claims, etc.

And I thought it was tuff in CO where there are only partial secrets. So you require disclosure from the borrower through the client-what about comps?

But back to the point I was thinking about when I initiated this response.

Would you please PM me with what you say about certifications in addition to the FANNIEs that they say can't be modified or supplemented? Thanks in advance.

Can we unite to resist FANNIE? Its not too hard for us to get fired individually which is what is going to happen if we don't do as we are told, but if we just could unionize on this one issue maybe there would be some concessions and we won't go in the red from lack of work.

 

[Smokey Bear]

Originally posted by Ron Hauser@Dec 26 2004, 01:44 PM
Cynthia, I think the lender is trying to tell you that without the permits they may not lend on this property. They are your clients not a perspective buyer. I do not believe that the addition is not an issue of whether or not it will be excepted in the market place but more a property legal issue. Even though Ottis posts that we are not responsible, I feel that it is my responsibility to cover my own butt. I am guessing from your post that if you use the lesser GLA you may have a value issue. In your post you sound like you asking for our assurance that it is ok to use the additional sf. Find out what your client wants and report it to them. If there is no permit, then report that to them and find out how they wish for you to continue your report. I hope that you got paid at the door or that this client is one of your regulars that pay. I also indicated in my earlier post that if that property is destoried because of some fault in the new addition and you did not disclose the lack of inspection and occupancy by the county or city, you may be responsible for the repairs. I dought my E&O insurace will pay for that mistake.

Ron - there is no issue with value - and them's is fightin' words. I don't push value. Also, I have not yet had a response from the lender, I'm just talking about lenders in that area and my experience with how they want it handeled. And I'm not asking for someone's assurance that it's ok to use the space as GLA - again, I give it the same value whether it's GLA or a bonus room, since that's what most buyers would pay for it in this area.

I decided this morning to go back over my pictures - and lo and behold the "missing" wall is the size of a sliding glass door - mystery solved, I have a home with a bonus room and I'm sketching it as separate space, with lots of disclosures about the no permit status and the roofline being recreated to incorporate the new space and it appears (heavy emphasis on "appears") to be done in a workmanlike manner blah blah blah. If the lender doesn't like it, I can knock off the bonus room, do a heavy cost to cure, reduce the value and see how they like that one. B)