Appraisal and Appraisal Review Forms

1. Chapter 4 Appraisal and Appraisal Review Forms

2. Chapter Objectives • Upon completion of this chapter, the participant will be able to: • Recognize the key sections of the Uniform Residential Appraisal Report Form and how these sections should be completed in compliance with USPAP Standards and guidelines, including Subject, Contract, Neighborhood, Site, and Improvements. • Explain the reviewer’s perspective in analyzing the Sales Comparison Approach section of the URAR form, including all the data categories.

3. Chapter Objectives continued • Upon completion of this chapter, the participant will be able to: • Recognize the guidelines and requirements of Fannie Mae, Freddie Mac, FHA, VA and other lending entities and how they may impact the reviewer’s task in a particular review assignment. • Explain general guidelines and industry requirements related to adjustments within an appraisal review assignment.

4. Chapter Objectives continued • Upon completion of this chapter, the participant will be able to: • Discuss the reviewer’s perspective in analyzing the Reconciliation section of the URAR form. • Recognize the reviewer’s perspective in analyzing the Income and Cost approach sections on the URAR form, when used. • Discuss the reviewer’s examination of required exhibits for the work under review.

5. Chapter Objectives continued • Upon completion of this chapter, the participant will be able to: • Understand the reviewer’s perspective in analyzing the Market Conditions Addendum. • Discuss types of mortgage industry appraisal review forms that may be used in a review assignment. • Discuss consequences when an appraiser’s work receives an extremely poor review.

6. Mortgage Industry Appraisal Forms • There are a variety of mortgage lending industry appraisal forms: • Exterior only property inspection • Interior and exterior property inspection • Single-family properties • Multi-unit properties • Condominiums • Manufactured homes

7. Uniform Residential Appraisal Report The Uniform Residential Appraisal Report (URAR) Form: Fannie Mae Form 1004 Freddie Mac Form 70 7

8. Uniform Residential Appraisal Report Considered to be an Appraisal Report Designed to report an appraisal of a one-unit property or a one-unit property with an accessory unit; including a unit in a planned unit development (PUD), based on an interior and exterior inspection of the subject property continued 8

9. Uniform Residential Appraisal Report In an appraisal review assignment (and given the scope of work): The reviewer must determine if the reporting meets the minimum standards of USPAP to summarize certain information  continued 9

10. What URAR is NOT URAR is NOT designed to report an appraisal of: Manufactured home Unit in a condominium Unit in a cooperative project 10

11. UAD Compliance UAD reporting compliance is required for appraisals with an effective date of September 1, 2011 or later, reported on the URAR form Therefore, work being reviewed may not have required compliance with UAD requirements unless performed after the required date 11

12. Reviewer’s Perspective • In an appraisal review assignment, the reviewer must first assess the overall report in compliance with the general use provisions and other requirements provided within this section of the reporting form

13. General Use Provisions of URAR • Pages 4-6 of the form sets forth: • Types of property for which the reporting form is applicable • Certain aspects of the assignment • Unacceptability of modifications, additions, or deletions to assignment elements with the exception of scope of work • Limitations regarding modifications, additions, or deletions to appraiser’s certification

14. Scope of Work • Abbreviated description of the assignment’s scope of work • Establishes the minimum diligence expected regarding: • Inspection • Research • Verification • Analysis • Reporting

15. Scope of Work The URAR form does not limit or control the appraisal process The appraiser’s analysis should go beyond any limitations of the form and be expanded as needed with additional comments and exhibits to: Adequately describe the subject property Document the analysis and valuation process Support the appraiser’s conclusions continued 15

16. Scope of Work The Scope of Work section of the form identifies several elements of problem identification that serve as the basis for the scope of work in the assignment Examples: Intended Use – For a lender/client to evaluate the property for a mortgage finance transaction Intended User – The lender/client continued 16

17. Scope of Work Another element of problem identification is: Type and definition of value Type of value is specified as market value The illustration presented illustrates the most commonly used definition continued 17

18. Scope of Work Note: The discussion continues regarding how adjustments for financing terms and concessions should be handled In the course of an appraisal review assignment, the reviewer must observe if the appraiser, in the work being reviewed, properly handled such transaction conditions appropriately and consistently with the assignment condition continued 18

19. Statement of Assumptions and Limiting Conditions • This statement assists the appraiser in establishing limitations of responsibility • Some portions of this section further emphasize the scope of work performed in the assignment, such as: • Providing a sketch of the improvements • Research of flood information • Other commentary regarding any unfavorable conditions found or not found

20. Reviewer’s Perspective • In an appraisal review, the reviewer must ascertain if the appraiser in the work being reviewed adequately complied with the assignment conditions

21. Appraiser’s Certification • The Appraiser’s Certification contained within the URAR, and then significantly expands the certification statements to a more specific and greater level than is required by USPAP

22. Examples • Certification statements include: • Specific methodology used in the assignment • Analysis and reporting of offerings and any current sales agreement of the subject property • Research, verification, analysis, and reporting of prior sales of the comparable data • Process of selecting and analyzing comparable sales data • Techniques for adjusting comparable sales • Competency in the assignment

23. Additional Certifications • No content in the certification may be deleted or modified • To accommodate required certifications mentioned in the general provisions and certain disclosures required by USPAP: • An Additional Certifications page may be added to the report

24. Examples • Items that may need to be added as Additional Certifications for USPAP compliance include: • Whether the appraiser has, or has not, provided any services as an appraiser (or in any other capacity) regarding the subject property within the prior three-year period immediately preceding acceptance of the assignment

25. Examples continued • Items that may need to be added as Additional Certifications for USPAP compliance include: • Specific name(s) of individuals not signing the certification who provided significant professional assistance in the assignment • Any fees, commissions, or things of value that were paid by the appraiser in connection with procurement of the assignment

26. Subject • The Subject section is a combination of: • Identifying elements of the subject property • Specifics regarding the appraisal assignment • Much of the information in this section is fairly straightforward and factually stated

27. Reviewer’s Perspective • The primary concern of the reviewer for the Subject section is to observe if the information is adequate and accurate 

28. Subject continued • Information that must be reported includes: • Property Address • Owner of Public Record • Legal Description • Assessor’s Parcel Number • Tax Year/Real Estate Taxes • Neighborhood Name • Census Tract • Occupant

29. Subject continued • Information that must be reported includes: • Special Assessments • Home Owners Association (HOA) Fees • Assignment Type • Lender/Client (per Fannie Mae, not an AMC ordering the appraisal) • Current and/or Prior Offering of the Subject Property

30. Subject continued • The reviewer should note any special commentary and/or addenda that may be required when: • The seller is not the owner of public record • The legal description of the property is lengthy • The property has been offered for sale in the 12 months prior to the effective date of the appraisal

31. Contract • The Contract section of the URAR requires several responses when a purchase transaction has been indicated in the Subject section as the Assignment Type, which the reviewer must observe for accuracy

32. Contract continued • The appraiser must first indicate if he did or did not analyze the contract for sale, and then go on to report pertinent specified information regarding the transaction, including: • Analysis of the Contract for the Purchase Transaction • Contract Price/Date of Contract/Property Seller • Financial Assistance

33. Reviewer’s Perspective • The reviewer must carefully assess if a description of any unique contractual condition is present and has been fully disclosed and discussed such as: • Related parties • Personal property • Items being paid on behalf of the borrower or to the borrower • Special financing such as seller financing or seller paid financing costs

34. Neighborhood • The Neighborhood section should reflect the area surrounding the subject property. • In an appraisal review assignment, much of what is critiqued by the reviewer depends on the scope of work • If the scope of work is only for compliance, the reviewer observes the reporting for completeness, adequacy, logicalness etc. • If the scope of work is expanded to determine accuracy of the information, an analysis of market competency on the part of the reviewer is required

35. Reviewer’s Perspective • The Neighborhood section is a common area where shortcomings are identified in the appraisal being reviewed

36. Reviewer’s Perspective Example • The appraiser may indicate that property values are declining while supply and demand is in a state of shortage • Such a condition, while usually not logical, should be accompanied by a significant commentary supporting such a market state • Otherwise, the indications appear suspect

37. Neighborhood continued • The URAR report requires the appraiser to observe neighborhood characteristics and surrounding properties to make informed opinions that are incorporated into the valuation of the subject property

38. Neighborhood continued • The appraiser must report: • Neighborhood Characteristics • One-Unit Housing Trends • One-Unit Housing Age/Price • Neighborhood Boundaries • Neighborhood Description • Market Conditions

39. Reviewer’s Perspective • Reviewers must observe if there is market resistance to a neighborhood because of the known presence of an environmental hazard • If a property is located in a neighborhood with vacant or boarded-up properties that affect the value and/or marketability of other properties in the neighborhood, the appraiser should have addressed these conditions in his analysis and appraisal report

40. Marketing Time and Exposure Time • The URAR reporting form requires the reporting of Marketing Time within this category • USPAP requires, for appraisal reports with an effective date on or after January 1, 2012, the reporting of exposure time for an assignment in which exposure time has been developed • The market value definition used in the URAR report requires the development and reporting of exposure time

41. Reviewer’s Perspective • The reviewer must check to ensure that the required reporting of exposure time is present in those appraisal reports for which the requirement is applicable • There is no area of the report specified for this reporting to take place. The discussion would be logical to include in the Market Conditions commentary or in the addenda of the report

42. Site • Most of the information in the Site section is factual in nature • Depending upon the scope of work, in addition to checking the completeness of the information reported in this section, the reviewer may also need to confirm the accuracy of the information

43. Site continued • Within the Site section, the appraiser must report: • Dimensions • Area • Shape • View • Specific Zoning Category • Zoning Description • Zoning Compliance

44. Site continued • Within the Site section, the appraiser must report: • Highest and Best Use • Utilities • Street/Alley • FEMA Information • Utilities and Off-Site Improvements • Adverse Site Conditions or External Conditions

45. Additional Commentary • There are a number of items in this category that may require additional commentary, including: • When the zoning is anything other than “Legal,” the appraiser must explain • If the current use of the property does not represent the highest and best use, “No” is indicated

46. Additional Commentary continued • There are a number of items in this category that may require additional commentary, including: • When a utility is not public, but rather from another source (Other), the appraiser must provide commentary describing that source • When the utilities and off-site improvements are not typical for the market area • If there is a presence of adverse site conditions, the appraiser must describe those conditions

47. Photographs • The photographs found in the appraisal report being reviewed can sometimes “give away” certain locational and view characteristics that should have been discussed and addressed in the valuation methodologies, yet were not mentioned or accounted for

48. Photographs: Example • The street scene may display a non-residential property use adjacent to the subject property that may be considered adverse, but the neighborhood is described as completely residential and all views are rated as favorable • Or, on the other hand, the report may mention an adverse view factor, but no photograph was included to illustrate the condition

49. Highest and Best Use: Example • The reporting of highest and best use, specified by the form, may fall short of the reporting level for an Appraisal Report in compliance with USPAP • Therefore, the commentary should be expanded

50. Highest and Best Use: Example continued • Standards Rule 2-2(a)(ix) and (x) obligates the appraiser to: • State the use of the real estate existing as of the date of value and the use of the real estate reflected in the appraisal; • and, when an opinion of highest and best use was developed by the appraiser, summarize the support and rationale for that opinion. (Bold and underline added for emphasis)