Here's a scenario. An appraiser completes an appraisal of a bank owned property from which the kitchen cabinets, appliances, countertops and bathroom vanities have been removed. The appraiser checks the "subject to the following repairs or alterations..." box, making the appraised value based on the condition that the cabinets, etc. have been replaced. The lender refuses to finance the mortgage until the repairs are completed. The seller refuses to complete the repairs as it is bankowned and being sold as is. The buyer can't get financing, even though the contract price is well below what it should appraise at "as is". Shouldn't the lender when ordering the appraisal be able to specify they are ordering the appraisal "as is", and get the appraiser to agree to that before accepting the order? There is no influence on value in this scenario, jut a request from a client (lender) to a vendor supplying a service (appraiser) for a specific type of service to be rendered. Yes? No? Opinions?
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Who decides if appraisal is "as is" or subject to completion/repairs?
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Mr Rex
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Its called an engagement agreement or letter. See SOW rule. It is the appraisers responsibility to make sure he or she identifies the problem to be solved to determine the appropriate SOW or something like that.
Randolph Kinney
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From Fannie Mae 2009 Selling Guide:
Chapter 1, Appraisal Guidelines, Appraisal Document Standards, Report, and Property Inspections
Requirements for Existing Construction When the Appraisal is
Based on the As-Is Condition with Minor Deferred Maintenance
The appraisal may be based on the as-is condition of the property provided existing conditions are minor—i.e., do not affect the livability of the property, such as minor deferred maintenance—and the appraiser’s opinion of value reflects the existence of these conditions.
Lenders must review the appraisal to ensure that the property does not have physical deficiencies or conditions that affect livability.
Minor repairs do not need to be completed before the mortgage loan is delivered to Fannie Mae if there are no physical deficiencies or conditions that affect livability.
Requirements for Existing Construction When the Appraisal is Subject
to Completion for Items that Affect the Livability of the Property
The appraisal must be subject to completion of specific alterations or repairs when incomplete items or conditions affect the livability of the property, such as partially completed additions or renovations, or physical deficiencies affect the soundness or structural integrity of the improvements.
Lenders must obtain a certificate of completion from an appraiser before the mortgage is delivered to Fannie Mae.
The certification does not need to include photographs of the property unless those that accompanied the original appraisal report are no longer representative of the completed property.
The original appraiser should complete any required certification of completion; however, the lender may use a substitute appraiser.
Chapter 1, Appraisal Guidelines, Appraisal Document Standards, Report, and Property Inspections
Requirements for Existing Construction When the Appraisal is
Based on the As-Is Condition with Minor Deferred Maintenance
The appraisal may be based on the as-is condition of the property provided existing conditions are minor—i.e., do not affect the livability of the property, such as minor deferred maintenance—and the appraiser’s opinion of value reflects the existence of these conditions.
Lenders must review the appraisal to ensure that the property does not have physical deficiencies or conditions that affect livability.
Minor repairs do not need to be completed before the mortgage loan is delivered to Fannie Mae if there are no physical deficiencies or conditions that affect livability.
Requirements for Existing Construction When the Appraisal is Subject
to Completion for Items that Affect the Livability of the Property
The appraisal must be subject to completion of specific alterations or repairs when incomplete items or conditions affect the livability of the property, such as partially completed additions or renovations, or physical deficiencies affect the soundness or structural integrity of the improvements.
Lenders must obtain a certificate of completion from an appraiser before the mortgage is delivered to Fannie Mae.
The certification does not need to include photographs of the property unless those that accompanied the original appraisal report are no longer representative of the completed property.
The original appraiser should complete any required certification of completion; however, the lender may use a substitute appraiser.
Mr Rex
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Its re-iterated in the FAQ with the Fannie 1004MC announcement:
https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/appraisalfaqs.pdf
16. What is the appraiser’s responsibility for reporting property condition?
[FONT=Arial,Arial][FONT=Arial,Arial]Fannie Mae’s requirement of the appraiser’s property inspection for an appraisal based on an interior and exterior inspection is a complete visual inspection of the accessible areas of the property. The appraiser is responsible for noting in his/her report any adverse conditions (such as, but not limited to, needed repairs; deterioration; the presence of hazardous wastes, toxic substances, or adverse environmental conditions
that were apparent during the inspection of the property
[/FONT][/FONT]
https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/appraisalfaqs.pdf
16. What is the appraiser’s responsibility for reporting property condition?
[FONT=Arial,Arial][FONT=Arial,Arial]The appraiser is responsible for considering all factors that have an impact on value in the development of his/her opinion of market value for the subject property. Fannie Mae requires the appraiser to express an opinion about the condition of the property on our appraisal report forms. The appraiser must report the condition of the property in factual, specific terms. We believe that an accurate description of the physical condition of the subject property is a critical element in arriving at a supportable opinion of market value, as well as in the prudent underwriting of a mortgage loan. [/FONT]
[FONT=Arial,Arial]With the introduction of the Market Conditions Addendum, the appraiser must provide information about market conditions in the neighborhood of the subject property to provide additional support for his/her conclusions about the property’s value. [/FONT]
[/FONT]17.
What is expected with regard to the appraiser’s inspection of a property? [FONT=Arial,Arial]With the introduction of the Market Conditions Addendum, the appraiser must provide information about market conditions in the neighborhood of the subject property to provide additional support for his/her conclusions about the property’s value. [/FONT]
[/FONT]17.
[FONT=Arial,Arial][FONT=Arial,Arial]Fannie Mae’s requirement of the appraiser’s property inspection for an appraisal based on an interior and exterior inspection is a complete visual inspection of the accessible areas of the property. The appraiser is responsible for noting in his/her report any adverse conditions (such as, but not limited to, needed repairs; deterioration; the presence of hazardous wastes, toxic substances, or adverse environmental conditions
that were apparent during the inspection of the property [/FONT][/FONT]
[FONT=Arial,Arial][FONT=Arial,Arial]or [/FONT][/FONT][FONT=Arial,Arial][FONT=Arial,Arial]that he/she became aware of during the research involved in performing the appraisal. [/FONT][/FONT][FONT=Arial,Arial]
[/FONT][FONT=Arial,Arial][FONT=Arial,Arial]© 2009 Fannie Mae. Trademarks of Fannie Mae. FM Updated 0309 Page 4 of 7 [/FONT][/FONT]
[/FONT]
[FONT=Arial,Arial]The appraiser is expected to consider and describe the overall quality and condition of the property and identify items that require immediate repair as well as items where maintenance may have been deferred, which may or may not require immediate repair. On the other hand, an appraiser is not responsible for hidden or unapparent conditions. In addition, Fannie Mae does not consider the appraiser to be an expert in all fields, such as environmental hazards. In situations where an adverse property condition may be observed by the appraiser but the appraiser is not qualified to decide whether that condition requires immediate repair (such as the presence of mold, an active roof leak, settlement in the foundation, etc.), the property must be appraised subject to an inspection by a qualified professional. In such cases, the lender may need to ask the appraiser to update his or her appraisal based on the results of the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any, on his or her final opinion of market value. [/FONT]
[/FONT]18.
In what situations should a property be appraised "as-is" versus "as-repaired"? [FONT=Arial,Arial][FONT=Arial,Arial]Fannie Mae permits an appraisal to be based on the "as-is" condition of the property as long as any minor conditions, such as deferred maintenance, do not affect the livability, soundness, or structural integrity of the property, and the appraiser’s opinion of value reflects the existence of these conditions. Minor conditions and deferred maintenance items include worn floor finishes or carpet, minor plumbing leaks, holes in window screens, or cracked window glass. Minor conditions and deferred maintenance typically are due to normal wear and tear from the aging process and the occupancy of the property. Such conditions generally do not rise to the level of a "required repair." Nevertheless, they must be reported. [/FONT]
[FONT=Arial,Arial]The appraiser must identify physical deficiencies that could affect the soundness, structural integrity, or livability of the property as part of his or her description of the physical condition of the property. These may include cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, inadequate electrical service or plumbing fixtures, etc. In [/FONT]
[FONT=Arial,Arial]The appraiser must identify physical deficiencies that could affect the soundness, structural integrity, or livability of the property as part of his or her description of the physical condition of the property. These may include cracks or settlement in the foundation, water seepage, active roof leaks, curled or cupped roof shingles, inadequate electrical service or plumbing fixtures, etc. In [/FONT]
[/FONT][FONT=Arial,Arial][FONT=Arial,Arial]© 2009 Fannie Mae. Trademarks of Fannie Mae. FM Updated 0309 Page 4 of 7 [/FONT][/FONT]
[*]
situations where an adverse property condition may be observed by the appraiser but the appraiser is not qualified to decide whether that condition requires immediate repair, the property must be appraised subject to an inspection by a qualified professional. In such cases, the lender must have the property inspected and any material conditions repaired before it delivers the mortgage loan to Fannie Mae. The appraiser may be asked to update his or her appraisal based on the results of the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any, on his or her final opinion of market value.
[/FONT][/FONT]
The appropriate FNMA guidelines have been presented dictating their requirements.
But, just keep in mind (FNMA guidelines aside): Most any assignment can be done "as-is" or "subject to". Typically, it is the client's desire that dictates how they want to handle it. But, ultimately, it's the appraiser's responsibility to decide when circumstances dictate otherwise (such as guidelines and requirements FNMA/FHA).
But, just keep in mind (FNMA guidelines aside): Most any assignment can be done "as-is" or "subject to". Typically, it is the client's desire that dictates how they want to handle it. But, ultimately, it's the appraiser's responsibility to decide when circumstances dictate otherwise (such as guidelines and requirements FNMA/FHA).
Caterina Platt
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Let me see if I understand the situation.
The property is an REO, and has significant deficiencies in terms of a working kitchen, bathroom sinks, among other items.
An As Is appraisal can certainly be done, but most lenders won't touch it without the property being in average, fully functional condition. You have a catch 22 here. As Is value and the contract may indeed be in line with each other, but do you have a lender that is willing to lend on a property with such functional deficiencies?
This property is likely a good candidate for a 203K rehab loan, or a cash buyer. I believe there's a conventional rehab source called Brookline Financial (could be others as well). This property does not sound like a candidate for a standard mortgage in it's current condition. An As Is appraisal is not going to fix the problem as I understand the situation.
FHA has fairly liberal requirements as to what constitutes a working kitchen and doesn't require cosmetic repairs, but even then, it sounds as though the subject property has some deficiencies.
The property is an REO, and has significant deficiencies in terms of a working kitchen, bathroom sinks, among other items.
An As Is appraisal can certainly be done, but most lenders won't touch it without the property being in average, fully functional condition. You have a catch 22 here. As Is value and the contract may indeed be in line with each other, but do you have a lender that is willing to lend on a property with such functional deficiencies?
This property is likely a good candidate for a 203K rehab loan, or a cash buyer. I believe there's a conventional rehab source called Brookline Financial (could be others as well). This property does not sound like a candidate for a standard mortgage in it's current condition. An As Is appraisal is not going to fix the problem as I understand the situation.
FHA has fairly liberal requirements as to what constitutes a working kitchen and doesn't require cosmetic repairs, but even then, it sounds as though the subject property has some deficiencies.
Terrel L. Shields
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If it sold "as is", then the borrower has to find a lender who will finance it "as is" or escrow the repairs. It is idiotic to appraise something 'subject to' if the client has requested an "as is" value. But if I am reading this right, the seller is selling "as is" and the lender wants to lend "subject to"....the problem is between them, if that is the case. I doubt Fannie or FHA want the property "as is" so they need to find an in house lender or a loan program that allows for repairs. Not the appraisers fault. Not the sellers fault and the lender should have explained what they could and could not lend on to the borrower/buyer.
I agree. As appraisers, we provide an opinion of value.....we do not determine whether or not a specific lender will make the loan.
Caterina Platt
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Mike,
My point isn't that the appraiser is responsible for loan programs. Merely that the borrower and lender are trying to fit a square peg in a round hole. An As Is appraisal is what the OP wants. Great, but what exactly are they going to be able to do with it once they get it?
SOW, communication and lack of knowledge on the part of the parties trying to secure the loan appears to be the problems.
My point isn't that the appraiser is responsible for loan programs. Merely that the borrower and lender are trying to fit a square peg in a round hole. An As Is appraisal is what the OP wants. Great, but what exactly are they going to be able to do with it once they get it?
SOW, communication and lack of knowledge on the part of the parties trying to secure the loan appears to be the problems.
Of course, you are right, Cat, but the only way they will learn is to get what they ask for. This type of thing has been going on for years, maybe centuries. I.e. ...giving value to only 5 acres when the entire parcel is 35 acres, calling a property residential when it is a house long ago converted for commercial use, wanting to know the value of a property before we do the appraisal. AND, for the last 10-15 years, adding more and more appraisal requirements but not considering how much longer it will take to complete and expecting you to agree to a pittance for a fee. Let's face it, these AMC ninnies are morons!
As I told Greg the other day...............Who said life was fair?"
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