Thank you.
Cathy Putegnat
Homestead Appraisals
info@homesteadappraisalsinc.com

Dear Cathy,

The USPAP requires that appraisals be reported in one of three different types of appraisal reports. Most residential appraisals are Summary Appraisal Reports but it sounds like from your question that your client may be asking for a Self Contained Appraisal Report in their scope of work requirements. The first step in the required scope of work dialogue between the appraiser and the client is to agree upon which type of report is required. The USPAP specifies the minimum that is required for each report type, but the client and the appraiser can agree on any additional material the lender/client requests.

I once did a 25 mile pipeline right-of-way "taking" appraisal where we were asked to provide information about every sale in the past 10 years that took place within a mile of the proposed right-of-way. It was a great assignment because our fee was in the six figures and the client agreed to pay half of it 'up front' so that we could pay for the additional appraisers used to do the extensive research. By the way, this client also had a standard format for reporting each sale. The only problem I can see here is whether you are going to be adequately paid for all of the extra work involved, assuming you are willing to do what they request.

HSH
askhenryharrison@revmag.com

Sincerely,
OJ
Madison, WS

Dear OJ
You are correct when you say there is no direct definitive answer to this question in the USPAP. There is an answer in the just released Appraisal Qualification Board Q & A Vol.4, No.1 dated June 2012.

This is a summary of what it says:

1. Some states have specific requirements that cover this situation. Therefore the first then than any appraiser who is considering getting a Residential or General Certification is to check with your state to see what their specific requirements are. The simplest way to do this is to send them a letter asking what if any requirement you state has. I always prefer a letter to a verbal request as if some time in the future what you have done is questioned you can fall back on the letter to explain what you did or did not do. The only problem with this communication method is that some states take a very, very long time to answer appraiser inquiry letters. If this apply to you state you should make a verbal inquiry and when you get someone who will talk to you ask them if they have anything in writing that they can send to you.

The entire AQB Q & A Vol.4, No.1, June 2012 is available to download by clicking here.

Robert O'Brien
obrienconsultants@gmail.com

Dear Robert,

So far no one has sent me a valid reason why complying with the UAD would require an appraiser to make an appraisal that does not meet the requirements of the USPAP. I do not know who has been making these claims, but I don't think they are valid.

HSH
askhenryharrison@revmag.com

Soon, later or never? I predict it will last beyond the term of whomever is elected president this fall.

In 2005, my neighbor, the Yale economist Robert Shiller, predicted in “Irrational Exuberance, 2nd Edition” that the Housing Bubble would soon burst. He was called Dr. Doom in the media, and ignored by most people, especially those in government who might have done something to avert the pending crisis.

The bubble did not burst all at once, as in a stock market crash, but rather, values fell more gradually in some markets and much faster in others, proving once again that there is no "national" real estate market in the country, but rather many different markets, each highly dependent upon location (location, location, location).

Now we are coming up to a national election in the fall of 2012 and we keep hearing murmurs that the end is in sight. This may be true in some localities, like the San Francisco Bay area, but I believe it is wishful thinking in most places in the United States. During 2011, over a million houses were actually foreclosed or sold via short sales. Almost double that number entered into the foreclosure process. The current slow down in foreclosures is not due to the improved economy but rather to a slow down caused by the courts, who are now insisting that the foreclosure documents be legally correct. (Revelations of widespread fraud in document preparation has led to what is probably a temporary reprieve for many homeowners who are currently under water.) There are now about 100 million detached single family homes in the United States of which nearly 15 million are underwater. Furthermore millions of them are vacant.

Here is my own experience, which I believe is typical for Florida and many other parts of the country. The house that we purchased three years ago was built in 1995, at a cost including the site of about $225,000. At its peak in 2005, it was worth about $375,000. We bought it for $130,000 and today it would sell for about $110,000. The cost to build it today would be about the same as in 1995, that it, about $225,000. In our solvent 55+ development with nearly 800 units, about 10% of the houses are on the market. This figure has been constant for the past three years, because as fast as houses are being sold, others come on the market. There are practically no new houses being built in our market area. And there is nothing on the horizon that I can see that is going to significantly change this picture in the near future.

I know two families whose homes have been in foreclosure for over a year. Neither of them make any payments on their mortgage, or pay any taxes. If they were served papers today, it would take six months to a year to actually foreclose their homes and get them out. The lender would then have to fix up the houses, which both have deferred maintenance, and will likely take a 25% to 50% loss on both properties. Their neighbors who have been making their payments all along feel like fools whenever they learn that a delinquent homeowner is not only not being foreclosed on, but often having their mortgage renegotiated with more favorable terms. It makes those folks who are "playing by the rules" feel duped by the system.

I don’t see any quick fix to this problem. What will happen if the government forces the banks to "write down" the mortgages for delinquent homeowners — and doesn't do something similar for those people who've been making their payments all along, even though the value of their home has fallen below the unpaid amount of their mortgage?

I know from what I hear first hand and read that these two examples are duplicated in millions of situations throughout the country. When the bubble burst, those of us who predicted it would take at least 10 years for a recovery were accused of being "gloom and doomers." I predict that in 2015, we will be thought of as too optimistic!

The Appraisal Practices Board (APB) of the Appraisal Foundation has just released “APB Valuation Advisory #3 – Residential Appraising in a Declining Market” dated May 7, 2012. This 33 page document is available at the Appraisal Foundation Website: www.appraisalfoundation.org (When you land on their Homepage, single click on the left side column “Appraisal Practices Board (APB)” ; and then single click on “APB Valuation Advisory” and then on “APB Valuation Advisory #3.”)

The most frequent question I’ve received in my “Ask Henry” mailbox over the past few years is “How does an appraiser make an appraisal of a property in a declining market?” The majority of these questions come from residential appraisers and express their confusion as to how to include (or not include) consideration of distressed sales, short sales, foreclosure sales, etc. — and if such comps are to be used, how they should be adjusted. I will address these problems in more detail as I summarize and comment on the eight subjects that make up the Valuation Advisory #3.

I. How Should an Appraiser Define a Declining Market?
Since there is no universally accepted definition of a declining market, it is incumbent upon the appraiser, when they report that the subject property is in a declining market, to include in the appraisal a definition of the term “Declining Market.” Support must be presented that demonstrates that the subject market area fits the provided definition.

For example, you might say: “A declining market is one where the median house prices go down for two consecutive 3-month periods.” To use this definition, you would then have to supply the necessary data about median sale prices in the subject market, showing that they have gone down during the past two 3-month periods. Keep in mind that an appraisal is based on historic information and is not a forecast of future conditions. It is not good appraisal practice to forecast the market direction or trend for the subject market into the future.

Bank of America will pay Freddie Mac $330 million dollars to buy back allegedly flawed home loans, Bloomberg reported on May 23.

Dan Frahm, a spokesman for the Charlotte, N.C.-based Bank of America, told Bloomberg that the bank has agreed to the repurchase “because the valuation method used at origination did not meet the investor’s technical requirements.” Frahm noted the flaws have since been repaired.

Bank of America CEO Brian T. Moynihan is looking to mitigate further losses after incurring more than $42 billion dollars in costs related to defective home loans, Bloomberg reported. Buyers and insurers of mortgage securities have insisted on compensation for faulty debt created by Countrywide Financial Corp., which the bank purchased in 2008, at a time when the institution was the nation’s largest residential lender.

Freddie Mac and Bank of America announced a $1.28 billion settlement in January 2011 resulting from bad loans sold through 2008 by Countrywide. Other transactions between the entities were not included in the deal, and a portion of the loans covered by Freddie’s latest announcement had more recent origination dates.

Bank of America’s backlog of pending requests for refunds on shoddy loans reached a record $16.1 billion in the first quarter 2012 as the dispute widened between BOA and Fannie Mae, which ceased accepting new loans from Bank of America in January, according to the Bloomberg report.

“It is also unclear if this is a one-time issue or a process that will be revisited at some regular interval,” the Barclays analysts told Bloomberg. “Another concern would be whether similar buyouts are being considered or being implemented at Fannie Mae.”

Nationally Recognized Appraisal Leader Ann O'Rourke is a featured speaker!

Adele Schnabel
adele@tuxapp.com

Dear Adele,
It is quite possible that anything not on the subject property — including a house of worship — could cause external obsolescence. Excess noise, traffic and other issues might ensue. It is up to you as the appraiser to assess whether or not these conditions exist and if they cause external obsolescence.

HSH
askhenryharrison@revmag.com

Ben Powell
Powell's Appraisal Services, Inc
bpowell7@tampabay.rr.com

Dear Ben,

Many houses have second kitchens. However, you have to be careful about 2nd kitchens on the upper floors as many zoning regulations would consider this to be a conversion to a two family house. You need to check with your building inspector to find out what applies in the subject community.

I cannot make a judgment about a house I have never seen. Generally, you have to decide how much extra value this second kitchen adds, keeping in mind that it might be an over-improvement and suffer from some functional obsolescence.

HSH
askhenryharrison@revmag.com

Carlene S Mathison
Cornerstone Appraisal
crnstone@comcast.net

P.S. I did check with Lender A and was told it is okay to do this "because it’s an FHA assignment & FHA has mandated portability."

Dear Carlene,
You are correct the FHA does permit the original lender to transfer the appraisal to a second lender under certain circumstances. Here is a summary of this ruling:

"Appraisal Transfer and Change of Client Name in Appraisal Report"

In cases where a borrower has switched lenders, the first lender must, at the borrower's request, transfer the case to the second lender. FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.

In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment. To effect a client name change, the second lender and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change. A new client name should include the name of the client (lender) and HUD.

There are a bunch of other requirements the lenders must comply with.

It is still my opinion that you are not required to do anything and in fact most anything you do will be treated as a new appraisal and you must comply with the USPAP requirements for making a new appraisal for which you should be paid.

I think you have a choice. Do nothing or tell lender B if they want you to do anything it will require you to make a new appraisal and you expect to be paid for it.

HSH
askhenryharrison@revmag.com

William Kalif
wkutopia@yahoo.com

Dear William,
In most areas of the country, a foyer is not counted as a room. If in your market area it is customary to do so, however, you should follow the custom. In order not to confuse the reviewers, you should explain in a comment the reason you included it.

HSH
askhenryharrison@revmag.com

Thanks
Rick Bacich
rickbacich@ssctv.net

Dear Rick,
It is not possible for me to give advice about specific properties. However, here are some thoughts that may be helpful. It is up to you to determine what the actual GLA is and use it as a basis for your appraisal. This is a separate problem from estimating what the value is. From what you say I see no reason not to include the upper area in the GLA. However you can give it less value than other parts of the house. You must make this judgment based on what is expected in your market area. You must describe what is causing a loss of value (if any) due to functional obsolescence.

HSH
askhenryharrison@revmag.com

Thanks!
Paul Ryan
paulgryan@cox.net

Dear Paul,
It does not make any difference what form you use (or maybe just a letter) as long as it is crystal clear that you are not making an appraisal or rendering any opinion as to what affect the connection of the utilities will have on the value of the property. If you give such an opinion, you are making an appraisal and must conform to all the USPAP requirements for making an appraisal.

Thanks for your kind comments.

HSH
askhenryharrison@revmag.com

"The FHA Appraisal"
Denver, CO
February 23, 2012

This FREE one-day class discusses FHA appraisal requirements including Appraisal Protocol, & updates to FHA appraisal policy, and equips attendees with the knowledge to determine property eligibility. (The earlier class, on Feb. 16th, is full.)

This course provides a refresher for seasoned FHA appraisers, as well as provides valuable information to appraisers new to the FHA roster. Prior Registration by Feb. 20th is required, but the course is free of charge.

Click here: FHA Class

HSH
askhenryharrison@revmag.com

The Appraisal Foundation, a congressionally-authorized nonprofit organization dedicated to the advancement of professional valuation, announced that the 2012-13 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) has been released. USPAP is the generally accepted standards of practice for the appraisal profession in the USA.
 
The 2012-13 edition of USPAP will be valid for two years, from January 1, 2012 through December 31, 2013. As with the prior edition, the new edition includes the standards of professional practice for all appraisal disciplines as well as guidance from the Appraisal Standards Board (ASB) in the form of USPAP Advisory Opinions and USPAP Frequently Asked Questions (FAQs).  
 
Changes to the document include:
• Revisions to DEFINITIONS of “Client,” “Extraordinary Assumptions,” and “Hypothetical Condition,” as well as a new definition of “Exposure Time”;
• Creation of a new RECORD KEEPING RULE and related edits to the Conduct Section of the ETHICS RULE; 
• Revisions to Advisory Opinion 21, USPAP Compliance; and, 
• Revisions to STANDARDS 7 & 8: PERSONAL PROPERTY APPRAISAL, DEVELOPMENT & REPORTING.

CLICK HERE TO VIEW THE VIDEO ON 2012-13 USPAP CHANGES

Copies of the 2012-13 edition of USPAP are now available for purchase from the Appraisal Foundation Store at www.appraisalfoundation.org. The 2012-13 edition of USPAP is available in printed spiral bound copy for $75 or as an electronic PDF download for $60.
   
In the coming weeks, USPAP will also be available in Flipbook format and for eReaders including the iPad, Kindle, Nook and the Sony Reader.

Don
apps1@compfxnet.com

Dear Don,     For all practical purposes, a 99 year lease is a sale. It is not the original lease date that counts ~ it is how long the lease has to run.  Some states prohibit leases longer than 99 years and others say they are the same as sales. Trying to discount income for 99 years into the future, and then trying to add the present value of a reversion 99 years in the future results in a meaningless figure. Should you consider global warming (aka climate change) or that the population of the world may be 10 billion people or may be zero?  Some appraisers take the position that some small number is needed to reflect the difference between such a lease and ownership.  My problem is that I don't know whether it should be a plus or minus adjustment.  In most condemnations I am familiar with, a very long lease is treated as a sale.

HSH
askhenryharrison@revmag.com

Thank you,
Matt Gloege, Certified Res. Appraiser
Oregon City, OR 97045
fho2@comcast.net

Dear Matt,

I had a discussion with Henry about your email to me, and while we both agree that a cohesive well-represented national appraisal profession would be an excellent thing, based on our experiences over the past 40+ years, we do not see any hope that this "gang of cats" can be herded together, even if it would be very much in their best interests.

Sadly, unlike doctors and lawyers, appraisers do not have any history of working in a unified manner on the national level that would enable them to have real political impact.

We appreciate your efforts in advance, and wish you the best of luck.

Yours,
Ruth Lambert, Editor

Yours,
Dianne Mendel
mndcns@att.net

Dear Dianne,

The USPAP states that for every appraisal, the appraiser and the lender client must have a scope of work dialogue. The designers of the URAR 1004 have incorporated some of their scope of work requirements into the URAR. What the URAR is telling you is that Fannie Mae and Freddie Mac do not require that you estimate the remaining economic life while the HUD/VA does require it. However, if the appraiser feels it is necessary in order to make a credible appraisal (which is required by the USPAP) it should be included. What the underwriter is saying to you is that for the lender/client they represent, it is required, which is their right.

HSH
askhenryharrison@revmag.com

Thanks for your time,
Rob
rburkley@columbus.rr.com

Dear Rob,

The USPAP is quite clear that when the client changes, it requires a new scope of work dialogue and a new appraisal. There is nothing that requires you to make a new appraisal for the new client but why not do so? However, there is also nothing to stop you from making the inspection as long as it does not become part of your original appraisal report. For a new appraisal, you are permitted to use any of the data in the old appraisal as long as it was not provided to you on a confidential basis. It should be easy to update the physical description of the property, the neighborhood data, etc., and make the attic inspection which will be part of the new scope of work requirement. I suggest offering to make a new appraisal for Mortgage Company B, taking into consideration that much of data will already be available to you. You'll make the homeowner happy, and may even develop a new client.

HSH
askhenryharrison@revmag.com

Jack Sotack, Waymart PA
accent@echoes.net

Dear Jack,
The effective date of the appraisal is determined at the scope of work dialogue between the appraiser and the client. There is nothing in the USPAP other than this requirement. Often when the appraisal is made for estate work the date of appraisal is the date of the death of the owner, but not always. Whatever the effective date of the appraisal is date that you use for the condition of the property on that date and the market at that time.

HSH
askhenryharrison@revmag.com

For many appraisers, a video presentation will be the least painful way to learn about the forthcoming USPAP regulations.

The Appraisal Foundation has announced the release of a free video on its website entitled "A Preview of Changes to the 2012-13 Uniform Standards of Professional Appraisal Practice (USPAP)". It is ready now.

The video is just 23 minutes in length, and features an interview with the 2011 Chair and Vice Chair of the Appraisal Standards Board (ASB), J. Carl Schultz, Jr. and Barry Shea, respectively. A PowerPoint presentation is available for simultaneous viewing as well.

USPAP changes discussed in this video include:

1) Revisions to DEFINITIONS of “Client,” “Extraordinary Assumptions,” and “Hypothetical Condition,” as well as a new definition of “Exposure Time”;

2) Creation of a new RECORD KEEPING RULE and related edits to the Conduct Section of the ETHICS RULE;

3) Revisions to Advisory Opinion 21, USPAP Compliance; and,

4) Revisions to STANDARDS 7 & 8: PERSONAL PROPERTY APPRAISAL, DEVELOPMENT & REPORTING.

A Mock Administrative Hearing and an audio webinar on Fair Value Measures are also available online from the AF's eLibrary.The Appraisal Foundation has plans to expand its eLibrary later this year with a videotaped session on Green Buildings and their Valuation, coming in late 2011.

Click here now for the USPAP VIDEO.

Any questions? Please Contact the AF directly:
Paula Douglas Seidel, Executive Administrator
paula@appraisalfoundation.org

HSH
askhenryharrison@revmag.com

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*Reprinted with permission, from HOUSES: The Illustrated Guide to Construction, Design and Systems, by Henry S. Harrison