Chapter 16 REPORTING APPRAISAL OPINIONS
CHAPTER TERMS AND CONCEPTS • Narrative appraisal report • Professional appraisal standards • Qualifications of the appraiser • Sales history • Self-Contained Appraisal Report • Summary Appraisal Report • Uniform Appraisal Dataset • (UAD) • URAR • Assumptions • Certification • Limiting Conditions • Fannie Mae Form 1004 • Fannie Mae Form 2055 • Fannie Mae Form 2070 • FNMA Desktop Underwriter • Form appraisal report • Freddie Mac Form 70 • Letter of transmittal
LEARNING OUTCOMES List the three conventional formats of written appraisal reports. Describe the three written reporting options provided by USPAP. Discuss the eleven required elements of a Self-Contained Appraisal Report. Outline the contents of a narrative appraisal report.
APPRAISAL REPORTS: THE FORMAT CHOICES • Practical Considerations • Intended Use and Intended User(s) of the Appraisal Report • Method of Transmittal • Who Determines: • Intended Use and User? • Method of Transmittal?
TYPES OF WRITTEN REPORTS • The Letter Report • Restricted use report • The Form Report • URAR • 2055 & 2070 Report • UCIR • The Narrative Appraisal Report • Most Comprehensive
The USPAP Reporting Standard “clearly and accurately set forth the appraisal in a manner that will not be misleading.” “contain sufficient information to enable the intended users of the appraisal to understand the report properly.…” Note that only the intended users need to be able to understand the report. Review the definition of intended user in Section 3.1. “clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.” Source: USPAP, 2012-2013
FEDERALLY RELATED APPRAISALS • Conform to Generally Accepted Appraisal Standards as Evidenced by USPAP, Unless Principles of Safe and Sound Banking Require Compliance with Stricter Standards. • Be Written and Contain Sufficient Information and Analysis to Support the Institution’s Decision to Engage in the Transaction. • Analyze and Report Appropriate Deductions and Discounts for Proposed Construction or Renovation, Partially Leased Buildings, Non-Market Lease Terms, and Tract Developments with Unsold Units, Using Market-Based Data. • Be Based Upon the Definition of Market Value as Set Forth in the Regulations. • Be Performed by a State Licensed or Certified Appraiser.
Uniform Appraisal Dataset (UAD) • attempts to define the allowable content and format for roughly 62 of the 200 data fields in the URAR. These 62 fields must be in the correct format for the appraisal report to successfully transfer through the Uniform Collateral Data Portal. Another 15 fields also will be transmitted to Freddie/Fannie, but these do not have mandatory formatting requirements that might cause a report to be automatically rejected.
ISSUES IN SELECTING THE REPORT FORMAT • The Intended Use and Intended Users • Mutual Understanding of the Differences Between the Reporting Options • Legal Requirements • Whether the Intended Use Warrants a Detailed or Concise Disclosure of the Steps and Information Considered in the Appraisal Process
USPAP REPORTING STANDARDS • “Clearly and Accurately Set Forth the Appraisal in a Manner that Will Not Be Misleading” • “Contain Sufficient Information to Enable the Intended Users of the Appraisal to Understand the Report Property” • “Clearly and Accurately Disclose all Assumptions, Extraordinary Assumptions, Hypothetical Conditions, and Limiting Conditions Used in the Assignment”
TYPES OF WRITTEN APPRAISAL REPORTS • Self-Contained Appraisal Report: • A written appraisal report that presents the required information in comprehensive detail • Summary Appraisal Report • A written appraisal report that summarizes information for a more concise presentation • Restricted Use Appraisal Report • A written appraisal report that states the required information with the least detail. It is the minimum reporting format allowed.
REQUIRED ELEMENTS • State the Identity of the Client and any Intended Users by Name or Type • State the Intended Use of the Appraisal • Describe Information Sufficient to Identify the Real Estate Involved in the Appraisal, Including the Physical and Economic Property Characteristics Relevant to the Assignment • State the Real Property Interest Appraised • State the Type and Definition of Value and Cite the Source of the Definition. • Do not cite USPAP • State the Effective Date of the Appraisal and the Date of the Report.
More REQUIRED ELEMENTS • Describe the Scope of Work Used to Develop the Appraisal • Describe the Information Analyzed, the Appraisal Methods and Techniques Employed, and the Reasoning that Supports the Analyze, Opinions, and Conclusions; exclusions of the Sales Comparison Approach, Cost Approach, or Income Approach Must Be Explained. • 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, Describe the Support and Rationale for that Opinion • Clearly and Conspicuously: • state all extraordinary assumptions and hypothetical conditions • state that their use might have affected the assignment results • Include a Signed Certification in accordance with USPAP Standards Rule 2-3.
SUMMARY AND RESTRICTED USEAPPRAISAL REPORTS • A Summary Appraisal Report • Summarizes the factual data, analysis and conclusions developed in the appraisal process • A Restricted Use Report • Presents the required minimum content and the conclusions reached • The appraiser must have sufficient data in their workfile to present the data in a summary format • Requires a prominent use restriction clause. • Client has the right of access to your workfile.
FORM REPORTS: A CLOSER LOOK • URAR Form, also known as • Freddie Mac Form 70 • Fannie Mae Form 1004 • Only for Loan Appraisals • FNMA Loan Forms 2055 and 2070 • Form 2055 for exterior inspection appraisals • Form 2070 inspection, NOT appraisal • The AI Report Form • Designed to be used for many appraisals
OUTLINE OF THE NARRATIVE APPRAISAL REPORT • Introduction • Description • Analyses and Conclusions • Addenda
INTRODUCTION • Title Page • Letter of Transmittal • Table of Contents • Photograph of the Subject Property • Summary of Relevant Facts and Conclusions • Standard and Special Limiting Conditions and Assumptions • Scope of Work of the Appraisal
DESCRIPTION • Identification of the Property • Description of Neighborhood and Community, and Marketing Conditions • Description of Land, Zoning, Community Services, and Taxes • Description of the Improvements • Sales History of the Subject Property; this would including any leases
ANALYSES AND CONCLUSIONS • Highest and Best Use • Explanation of and Support for the Exclusion of any of the Usual Approaches to Value • Estimate of Land or Site Value • Analysis of Data by the Value Approaches • The Cost Approach • The Sales Comparison Approach • The Income Approach • Reconciliation and Final Conclusion of Value • Certification, with the Signature of the Appraiser(s)
ADDENDA • Location and Plat Maps • Plot Plan of the Subject Property • Legal Description • Floor Plan of the Improvements • Photographs of the Subject Property • Sales Data Sheets, Sales Photographs, and Sale Location maps • Any Relevant Cost, Income, and Market-Study Exhibits • Qualifications of all Appraisers Signing the Report
SUMMARY The written appraisal report is a formal business communication from the appraiser to the client. Both the form and content of appraisal reports are defined by the Uniform Standards of Professional Appraisal Practice. In practice, appraisal reports tend to mix the features of the basic formats for reports, containing some features of the letter report, some of the form, and some of the narrative report. In federally related appraisals, regulations require that all reports be written, conform to the Uniform Standards of Professional Appraisal Practice, and meet other minimum content standards set by the financial institutions of the federal government.