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USPAP Compliance Addendum

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Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
I include a USPAP Compliance Addendum in my reports. It contains the following statements:

A reasonable marketing time for the subject property is _____ days utilizing market conditions pertinent to the appraisal assignment.

A reasonable exposure time for the subject property is _____ days utilizing market conditions pertinent to the appraisal assignment.

I typically use the number 90 in both places. To give a simple (non-technical) example of what I intend it to mean:

If the subject were listed in MLS , the owner could expect to receive at least 1 acceptable (typical terms and conditions) offer within 90 days. The final sale price would be the appraised value. The 90 day period would be measured from the listing date to the date the property was “under contract”.

It is not clear to me why 2 statements are used. What is the difference between marketing time and exposure time? Is it reasonable for them to be the same amount of time?

Are other appraisers using this same form, and if so, where are you (what market) and what is the exposure/marketing time in your area?

Has anyone ever had a question from a client or the USPAP police about this?

Has it ever actually mattered? For example, you said 60 days and later (in hindsight) wished you had said 75? Is a higher number “safer” for the appraiser because no one ever got sued because the house sold sooner than estimated?
 

larryhaskell

Senior Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Nevada
The third edition of The Dictionary of Real Estate Appraisal has definitions of both. Of course, like any other statements, the definitions are open to interpretation.
 

Rich Heyn

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified General Appraiser
State
Michigan
Phil:

Check out the following :

Standards Rule 1-2© Comment

Statement 6, lines 3222-3233

AO-7, lines 16-20


Here's my take on it:

Why not just take the easy road and state only the exposure time? USPAP does not require the appraiser state marketing time unless part of an agreed-to supplimental standard.

If fact, things can get messy if you state both marketing time and exposure time and the two are NOT the same. Your opinion of market value, as typically defined, is within the context of EXPOSURE time, not marketing time.

Consequently, an opinion of market value (same date, same property) within the context of MARKETING time is not consistent with the typical definition of market value.

Rich Heyn
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
The purpose of estimating exposure time in relation to a value opinion developed under the definition of Market Value is to provide the context necessary to understand the valuation. Going back to Appraisal 101, the length of time used to expose a property for sale can affect the sales price. If the market conditions are such that the property would normally sell at market value after an average exposure time of 90 days, there may be some impact on a saleprice if a seller attempts to sell it, no matter what, within 30 days. In order to ensure the sale occurs, the seller might have to take less than they would had they allowed for adequate exposure. The same can be said for a seller who is willing to hold out for every last dime no matter how long it takes. If they expose that property for 6 months to find that perfect (or dumb) buyer, they might get a tad more than market value.

The users of appraisals have reason to care about these estimates because it can affect their decisions asbout the property. Obviously, a lender is going to be a little more confident in pushing an LTV a little if the exposure time is less than 30 days; and they're going to be a little more cautious when the exposure time is a year or more. These estimates are not simply boxes to be filled in, with no regard for the message they convey.

Requiring appraisers to include an estimate of exposure time in relation to their value opinions protects the appraiser from being held accountable for marketing schemes that fall outside the norm. Assuming the appraiser does not simply use an arbritrary number, like 90 days, for every single appraisal, but instead bases that estimated exposure time on the data collected for the Sales Comparison and other local market data, there is no reason to assume that estimate would ever be substantially incorrect. It's not a wild guess, at least it's not supposed to be. I doubt anyone is going to get worked up if an appraiser estimates 60 days and it takes 75 days to move the property. In my book, that's basically the same time frame. Besides, market conditions do fluctuate some from one month to the next and from one year to the next.

Matter of fact, I usually include the clarification that the exposure time is also linked to "adequate exposure by competent brokerage". I don't ever want to be held accountable for what happens when some idiot broker puts a "For Sale - Bank Repo" sign on the property or fails to list it in the MLS.

Marketing time is a little bit different because the appraiser is now trying to foretell the future. Sure, the appraiser is supposed to base that forecast on the recent sales data, current market activity and any readily apparent indications of future market activity (whatever that means), but the appraiser is still trying to do something nobody can reasonably be expected to do with any amount of accuracy, and that's foretell the future. Overly long estimates of marketing time can trigger requirements for discounting the value of the property to reflect the impact of that holding time and otherwise reflect the present value. That's why marketing time is not considered a Binding Requirement under USPAP, but is a optional Supplemental Standard that will not be applicable or desirable for every assignment.

Certainly, there are going to be a large percentage of circumstances where the length of time estimated for exposure time and marketing time are similar, if not the same. But there are exceptions to that. When the dynamics of the market change radically, the time periods can also shorten or lengthen dramatically. For instance, if the stock market collapses, marketing time estimates may indeed be different than exposure time estimates for the same property. How about if a major manufacturing concern in town suddenly goes belly up, or announces huge increases in staffing? The example I always liked was the discovery of gold in a remote town. Think that could change the marketing time to a different (shorter) length than the exposure time immediately prior to the discovery? Or, to use current events, a natural disaster like earthquake, flood, or tornado?

Every assignment is different. This is one where the appraiser should be coming off of autopilot and using their head. Use the data and your best judgement accordingly, and the reader will not be ill informed by the valuation. That way, is and when some reader makes a risky decision, they can't come back and accuse the appraiser of not telling them. As usual, it's all about CYA.


George Hatch
 

Jo Ann Meyer Stratton

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arizona
Just had that question from a lender on a review I completed a couple of days ago. The manufactured home and site had been on the market by a dealer as a package for over two years (which I described in my new 2000 field review--original appraiser hadn't said a word). So then the lender called and asked me to explain why and what would be the marketing time if they made the loan. My reply was that I already had explained why (dealer as asking about $20,000 too much based on my opinion of value in the review) and in my USPAP Compliance addendum I had a statement that based on an aggressive marketing technique for the subject property; both the exposure time and the marketing time would have been/would be three to nine months. In other words if the property had been marketed with a more in line original asking price (my opinion of value) it would have sold two years ago and if they should foreclose on the property sometime in the future (with a loan amount based on my opinion of value instead of the value in the report being reviewed) they would be able to sell it within three to nine months marketing time (opinion based on current market conditions). Reply from lender was "oh they hadn't read my USPAP Compliance Addendum and now that they had, everything was fine--no more questions for me". So yes, clients do ask that question regarding both exposure time and marketing time.

After all, the lender needs to know the answer to two questions before they make the loan--will the borrower pay back the loan (purpose of credit report, employment history, etc, etc) and if something happens and they have to foreclose on the property, will they be able to get their money back by selling the property (the real reason for the appraisal order).
 

Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Thanks to those who replied. Any comments about the proposed wording of my new statement:


Exposure Time: Exposure time is presumed to precede the effective date of the appraisal. Pursuant to USPAP Standards Rules 1-2© and 7-2©, I have developed an opinion of reasonable exposure time linked to my opinion of market value of the subject property (see condition (3) in the Definition of Market Value). It is my opinion that a reasonable exposure time for the subject property is 90 days. This opinion was developed using statistical information about days on market (DOM).

Marketing Time: The reasonable marketing time is my opinion of the amount of time it might take to sell the subject property at the concluded market value during the period immediately after the effective date of this appraisal.

Pursuant to USPAP AO-7 (lines 40-41) a reasonable marketing time opinion exceeds the normal information required for the appraisal process. In a good faith effort to meet or exceed the expectations of my valued client, I provide the following information at no extra charge. It is my opinion that a reasonable marketing time for the subject property is the same as the exposure time stated above. This opinion was developed using statistical information about days on market (DOM). I made no attempt to anticipate changes in the market. Local market data indicates that marketing time is directly related to price level. For example, the marketing time of million dollar (top quartile) properties is typically in the 12 to 18 month range. Bottom quartile properties are typically in the 2 to 4 month range.

If the client has an interest in procuring additional services, such as a range of marketing times tied to the relevant range of asking prices for the subject, anticipated changes in the market (my prediction of the future), and/or customized consulting services, please feel free to contact me for a fee quote.
 

Francois K. Gregoire

Senior Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Phil and All,

Take a look at paragraph #7 of the Certification Page (2) of Freddie Mac form 439 6-93/Fannie Mae Form 1004B 6-93.
 

Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
I looked at para #7.

This paragrapgh deals with my estimate of "reasonable exposure time". The last sentence says that my stated exposure time is "consistent with the marketing time noted in the neighborhood section of this report".

Within the neighborhood section of the report, there is a subsection for market conditions which calls for "marketing time". My take -- in the neighborhood section of the report, the appraiser is asked to provide market data about DOM for the neighborhood (historical data, for example actual DOM for closed sales). This is not the same as predicting the future "reasonable marketing time" for the subject property. What the last sentence of paragraph #7 says is that my estimate of "reasonable exposure time" is consistent with the neighborhood actual market data unless otherwise stated.

This is my interpratation. Unfortunately, it is not 100% clear to me. Even if I am right, I can easily see how someone reading my report could confuse the issue of "marketing time" meaning actual data for the neighborhood and "reasonable marketing time" meaning my forward looking estimate.

Does anyone read paragraph #7 to mean that estimated reasonable exposure time (looking backward) for the subject property is consistent with estimated reasonable marketing time (looking forward) for the subject property? I am OK either way, because my statement is that exposure time is equal to estimated marketing time which is also equal to actual market data from the neighborhood.

Is this nit picking a small issue to death? Not worth the trouble?

Here is revision #1 of my marketing time boilerplate:

Marketing Time: The reasonable marketing time is my opinion of the amount of time it might take to sell the subject property at the concluded market value during the period immediately after the effective date of this appraisal.

Pursuant to USPAP AO-7 (lines 40-41) a reasonable marketing time opinion exceeds the normal information required for the appraisal process. In a good faith effort to meet or exceed the expectations of my valued client, I provide the following information at no extra charge: It is my opinion that a reasonable marketing time for the subject property at the concluded market value is consistent with actual market data from the neighborhood and the exposure time stated above. This opinion was developed using statistical information about days on market (DOM). I made no attempt to anticipate changes in the market. Market data from the Boston North Shore area indicates that DOM is directly related to price level. For example, DOM of million dollar (top quartile) properties is typically in the 12 to 18 month range. Bottom quartile properties are typically in the 2 to 4 month range.

If the client has an interest in procuring additional services, such as a market value linked to a specific marketing time (what could we get if we needed to sell in 30 days?), a range of marketing times tied to the relevant range of asking prices for the subject, anticipated changes in the market (my prediction of the future), and/or customized consulting services, please contact me for a fee quote.
 
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