Practice of Appraisal Review

1
Columbia Institute

• Practice of Appraisal Review
• FHA Protocol
• Course No. 145

Instructor Email Phone
2
Welcome A Bit of Housekeeping

• Please complete your registration Course No. 145
• Class time 800 a.m.-500 p.m. Lunch at Noon for
  1 hour
• Breaks will be given in morning and afternoon
• No taping, recording, texting or laptop use
  during class time
• Topic Relevant Questions are welcome,
  Filibustering is not.

3
Welcome A Bit of Housekeeping

• Please avoid talking between yourselves or over
  other classroom discussion one conversation at a
  time is for everyones benefit
• Transcripts are prepared for those who
  pre-registered a minimum of 10 days prior to
  class all others will be mailed within 5
  business days from date school receives materials
  from instructor
• Transcripts available are given after course
  evaluation is completed at the end of the class
  (last 10 minutes of day)

4
Course Objectives

• Upon completion of this course you will be able
  to
• Advise clients on specific assignment requires
• Associate relate Economic Principles of Value ton
  the Review Process
• Review Scope of Work and Limitations
• Read Quick Tips of Revised Handbook 4150.2
  Appendix D
• Correlate Revised Appendix D to the URAR
• Identify Specific Repair and Inspection
  Guidelines
• Understand the FHA Roster Appraiser Independence
• Review the requirements of the FHA appraisers
  completion of the 1004D

5
Introduction to Appraisal Review

• USPAP defines the role of the review appraiser
  and the act of reviewing
• Standard 3 guides how the valuation service
  categorized as review should be performed
• USPAP defines review as the act or process of
  developing and communicating an opinion about the
  quality of another appraisers work

6
First Step in An Appraisal Review

• Identify the Problem in order to understand the
  Scope of Work necessary to complete the
  assignment competently and report ethically the
  results
• If developing an opinion of value within the
  review assignment adhere to Standard 1 in some
  assignments the review may be of the report only
  and not considerate of the real estate or real
  property interest

7
First Step in An Appraisal Review

• In those assignments involving a review opinion
  that includes a judgment of value the assignment
  is two-fold it is an assignment which includes
• 1. A judgment about the quality of the work and
• 2. An opinion about the value albeit concurring
  or differing

8
Using Unverified Data

• When reviewing the data in an appraisal report in
  order to form an independent opinion some data
  may not be verified such as interior information
  that cant be observed from a field review,
  exterior only observation.
• The need to rely on uncertain data requires an
  extraordinary assumption.
• Its not necessary to label the assumption
  extraordinary but it is necessary to state in
  the impacted areas of the report those uncertain
  data areas. Also, ensure that when that
  assumption is made you also warn the intended
  user of potential impact on conclusions/value.

9
Working with Extraordinary Assumptions

• The reviewing appraiser can accept the
  appraisers data about local market conditions
  but disagree with methodology or techniques
  applied
• The reviewer may not concur with some of the
  assumptions the original appraiser made which
  could lead to a different value conclusion
• In any case of disagreement between the field
  appraiser and the review appraiser the users can
  choose to accept whichever appears to be the most
  credible

10
Common Misunderstanding

• Review appraisers are not primarily concerned
  with value Any value opinion must be related to
  a date
• The review appraiser can agree with the opinion
  as of the same date or as of a different date
• Sometimes review reports are used in lieu of
  appraisal updates
• Review Appraisers can rely on data unavailable
  to the original appraiser

11
Independent, Impartial and Objective

• A review of anothers work requires objectivity
• achieved by using accepted techniques and
  methodology when possible, together with sound
  reasoning

• There are five commonly accepted areas of a
  reviewing appraisers knowledge
• Intended use/user of the work under review
• Economic Principles of Value
• Specific Performance Standards of the USPAP known
  as Standard Rules
• Typical Practice Based on Actions of Peers and
  Users
• Personal professional opinion

12
Putting it all together

• Scope of Work
• Intended user and use dictate the work under
  review
• Economic Principles
• Affect the value of goods and services
• Apply to the value of the land and the
  improvements
• Contribution
• Compatibility
• Highest and Best Use

13
Economic Principles

• Characteristics of Real Estate Affecting
  Application of Valuation Principles
• 1. Immovable
• 2. Durable
• 3. Long Life
• 4. Heterogeneous (being unique in characteristics
  as no two grains of sand are alike no two parcels
  of real estate are exactly alike)

14
Economic Principles

• Principles fall into two divisions
• (I ) Productivity or
• (II) Marketability and within three categories
• 1. Market Area Principles
• 2. Land and Improvement or
• 3. Investor

15
Economic Principles
Principles of Productivity
Surplus Productivity
Balance
Contribution
Increasing and Decreasing Returns
Highest and Best Use
Anticipation
Costs
Agents of Production
Marginal Utility
Marketability Principles
Supply and Demand
Change
Externalities
Competition
Integration, Equilibrium, Decline and Renewal
Conformity
Substitution


16
Supply and Demand

• A fundamental aspect of value is scarcity. In
  the Principle of supply and demand the supply on
  a given date in a specific area refers to a
  commoditys relative scarcity.

• Supply of real estate is dependent upon the
  availability of capital necessary to develop it
  to its highest and best use.

• In real estate the quantity supplied is typically
  slow to adjust to changes in price

• The slowness is attributable to the length of
  time required to bring new improvements into
  existence

17
Supply and Demand

• Supply of real estate is dependent upon the
  availability of capital necessary to develop it
  to its highest and best use.

• In real estate the quantity supplied is typically
  slow to adjust to changes in price

18
Supply and Demand

• The slowness is attributable to the length of
  time required to bring new improvements into
  existence while quality can change rather
  rapidly when modernization or remodeling are
  involved changing the appeal
• Demand for real estate is created by utility in
  terms of quality as well as quantity

19
Highest and Best Use

• Highest and Best Use is a Land and Improvement
  Principle that represents productivity it is a
  conclusion of a sites maximum productivity
• Its always a required step of the appraisal
  process in a Market Value opinion and it is
  always a two-step series of tests when the land
  is improved (tested first as vacant and then as
  improved)
• In cookie cutter subdivisions in urban and
  suburban markets a residential appraiser may not
  feel challenged in the analysis but that does not
  negate the obligation to perform the analysis and
  offer supportive reasoning in the appraisal
  report (see SR 2-2 (a), (b) or (c) ix)

20
Substitution

• A Marketability principle under the User
  category states prudent purchasers would pay no
  more for real properties than the costs of
  acquiring equally desirable substitutes on the
  open market.
• Because the User will pay no more it represents
  a high end decision on the buyers behalf when
  deciding to purchase at that price

21
Principle of Balance

• In all transactions each real property has three
  combining components to the improved land that
  when in proper proportion represent a balanced
  contribution for which value can then be
  optimized
• Those three improved land components are known as
  part of the agents of production. Those improved
  components are Labor, Capital and Coordination
  (land would be the fourth agent always last to be
  satisfied/considered in the investment).

22
Surplus Productivity

• Surplus productivity is a consequence of the
  income remainder after the income has been
  identified for its contributory respective
  production agent
• The last agent to be satisfied is always
  the land.

Example Land purchased for 50,000 Labor
expense to construct 100,000 Materials,
permits, impact fees and marketing
112,000 Coordinating contractor expects
15,000 compensation for risk and credit and
effort to put it together. Total 277,000
Sale price
280,000 ???????? Surplus
3,000 Land is now worth 53,000 as the
surplus residual is a result in the increase
demand for the land as improved
23
Increasing and Decreasing Returns

• When successive increments of one or more factors
  of production are added to fixed amounts the
  other factors will result in an enhancement
  (increased value) up to point upon which the
  depreciation or lack of demand over time will
  ultimately result in a decrease in the return.

• Example The Dwelling is built 12 feet above
  ground due to flood history. The weekly rental of
  the unit is 700. The cost to put in a cargo
  lift which allows transportation of luggage,
  groceries, etc. is 15,000 but the increase in
  weekly rent is projected at 1,100 per week. The
  life of the cargo life is 12 years, cost of lift
  is paid in lt1 yr., with increasing repair costs
  over time the cargo lift will create a decreasing
  return.

24
Principle of Change

• Property values are dynamic not static. Simply
  stated, the Market Principle of Change states
  that nothing stays the same.
• Appraisers often make adjustments to the sales
  prices for time, which is in reality changes
  in the market since then sale.
• The non-liquid asset of real estate makes the
  market less volatile than a commodity market,
  i.e. values tend to move more slowly.

25
Principle of Conformity

• Deed Restrictions and good planning for the land
  affords a uniformity of improvements that
  generally maintains value.
• A mixed use neighborhood/market area can rarely
  achieve a stable demand because the area lacks
  homogeneity/conformity.
• Conformity not only refers to use other
  characteristics which should conform include
• Price ranges,
• Style,
• Construction techniques,
• Size,
• Design, etc.

26
Anticipation

• The value paid for real estate reflects the
  investors current opinion of value based on the
  investors anticipated benefits. It is the
  present worth of an anticipated use and expected
  resale of the asset.
• Value of a property is based on neither the price
  paid for it in the past nor on the cost of its
  creation, rather on what participants in the
  market perceive to be the future benefits of
  acquisition.

27
Competition

• This principle holds that profits tend to breed
  competition and excess profits tend to breed
  ruinous competition.
• A healthy economy is one that is stable in its
  supply and demand. Competition aids in that
  stability when there is balance between the
  supply and demand of a property type.
• It is this principle that in part drives the
  request for absorption analysis in
  the 1004MC. That analysis affords a
  window into the economic conditions that impact
  the marketability of the subject.

28
Essential Elements of Value
Creating Forces Affecting Forces
D Demand P - Physical
U Utility E - Economic
S Scarcity G - Governmental
T Transferability S - Social
29
Review of Approaches

• In the Appraisal Process the Approaches to a
  Market value come after the problem has been
  properly identified and preliminary analyses
• Market
• Site
• Improvement
• Marketability and
• Highest and Best Use
• have been performed.

• Within the Scope of Work decision one or more of
  three approaches are performed in relationship to
  the quantity of data, the quality of the data and
  the appropriateness of the approach is
  determined. The driver in the decision to use
  any of the approaches to value is credibility
  within the context of the intended use.

30
An Overview of the Cost Approach

• This approach represents an economic analysis of
  the decision of a buyer broken down through
  separating the land from the improvements. In an
  existing improved appraisal assignment the
  replacement simulated construction cost is
  developed and then adjusted downward for any loss
  to the cost new from one or a combination of
  three causes 1) Physical, 2) Functional, 3)
  External.
• The site improvements contribution are part of
  the Cost Approach but not contributive under the
  same term of economic life as the dwelling and
  car storage.
• If the buyers in a market considered either
  building new or purchasing an existing property
  when the decision to purchase was made and there
  is sufficient quantity and quality of data the
  Cost Approach is both applicable and necessary to
  the developed value opinion.

31
An Overview of the Cost Approach

• Reproduction is defined as building an exact
  replica whereas Replacement is defined as
  constructing a structure of similar utility
• The principle of substitution plays an underlying
  role in the Cost approach, i.e. no one would pay
  more to purchase land and build improvement than
  they would to purchase a similar property,
  however the true underlying principle of the Cost
  Approach is the principle of Contribution.
• Under the principle of Contribution the
  improvements value is not based on their Cost,
  rather what the market says through analysis of
  comparison the contribution 

32
An Overview of the Cost Approach

• The Cost Approach is both applicable and
  necessary in developing a value opinion when
• the buyers in a market considered comparison of
  either building new or purchasing an existing
  property and
• when the decision to purchase was made and there
  is sufficient quantity and quality of data.

33
An Overview of the Cost Approach

• It is true that replacement cost may set an upper
  limit on value for improvements.
• However, when depreciation is properly accounted
  for the value conclusion of these joined elements
  will be in line with the other approaches
  indicators of value.

34
An Overview of the Cost Approach

•  One of the more interesting observations are the
  intangibles in the Cost Approach.
• For example
• Value of a special view would belong to the site
• A celebrity owned or occupied property is more
  often connected to the improvements as opposed to
  the site
• In some cases the decision to buy existing as
  opposed to building new is a factor of time. The
  buyer is in many circumstances is more interested
  in moving in quickly as opposed to waiting for
  the new construction. And, the desire for
  immediate occupancy results in a price paid that
  is a higher amount for current possession. In
  that circumstance the land as improved is more
  appealing than the land as vacant.

35
An Overview of the Sales Approach

•  One of the more common approaches is the Sales
  Approach.
• Sometimes referred to as the Direct Sales
  Approach or the Market Approach
• Process requires (below is quoted from revised
  Appendix D to Handbook 4150.2)
• Only closed (settled) sales may be used as
  comparable sales 1, 2 or 3. If a sale is over
  six months is used, an explanation must be
  provided.
• No sales over one year old are permitted except
  as additional comparable sales and would be
  identified as comparable sale(s) 4, 5 or 6.
• Any combination of conventional, FHA, VA or cash
  sales are acceptable as comparable sales.

36
An Overview of the Sales Approach

•  One of the more common approaches is the Sales
  Approach.
• Sometimes referred to as the Direct Sales
  Approach or the Market Approach
• Process requires
• Locating Most Recent Sales of Similar Property
  Types in the nearest proximity to the subject as
  possible
• Adjustments are initially made for
• Excessive Sales Concessions and
• Market Conditions/Time when the market is in
  motion and the sale price will obviously reflect
  a historical price paid

37
An Overview of the Sales Approach

•  Once adjusted for the current real property
  price (unaffected by Interested Party
  Contributions IPCs) and for changes in the
  market (known as Market Conditions or Time) then
  other items of dissimilarity can be adjusted to
  ensure comparative properties that are prices
  paid for
• Item Adjusted Price Reflects
• Location Immovable Property Here
• Property Interest Ownership Type to ensure
  comparison is based on similar benefits
• NOTE When reviewing dissimilar locations ensure
  there are supporting comments also found in the
  neighborhood

38
An Overview of the Sales Approach

•  Being adjusted for all key factors of major
  significance the lessor dissimilar items can be
  addressed.
• Item Adjusted Price Reflects
• Site Ensures comparative lots/land parcels
• View Stabilizes any market reaction for the
  visual impairments or enhances that are
  either inferior or superior to the subject
• NOTE When reviewing these line adjustments
  ensure there is consistency in the neighborhood
  comments for lot sizes typical of most
  residential homesites and attractions or
  detractions connected with what is seen from the
  site. There should also be comments on the
  subjects comparative characteristics in the site
  section of the report

39
An Overview of the Sales Approach

•  The next two items should be stated as the base
  expectation of the market in the neighborhood.
  Only the significant differences will require an
  adjustment
• Item Price Reflects Market Reaction/Acc
  eptance
• Design Style Generally there are dominant
  styles of housing previously summarized in
  the neighborhood
• Quality of Construction In many circumstances the
  quality of construction corresponds to the
  design style. To qualify for an adjustment
  there should be strong evidence of those
  dissimilar building components and/or
  finishing corresponding with neighborhood
  comments

Note Be careful not to Confuse the two line
items. One is related to the visual Conformity
while Quality is Related to how and what type
Improvements are assembled
40
An Overview of the Sales Approach

•  Condition and Age can often be double dipped
  in the sales approach
• Item Adjusted Price Reflects
• Condition Present State of Wear and Tear
• As compared with market
• Note If the subject were 12 years actual age
  but showed comparatively to other 10-15 year old
  dwellings a maintained property it would probably
  be concluded as average condition but if the
  floor cover and central condenser unit had
  recently been replaced when surrounding sales had
  not yet had that type of replacement it would
  probably be concluded as good

41
An Overview of the Sales Approach

•  Double Dipping Condition and Age
• Item Adjusted Price Reflects
• Age As stated on the line it is asking
  for the actual age
• Note For FHA the directive is very specific.
• Actual Age Enter only the actual age of the
  subject of each comparable sale. (Direct
  Quote from Appendix D)
• If appraiser chose to adjust for effective age
  that effective age should be entered on blank
  lines at end of itemized line items. There
  should be no condition adjustment in addition to
  effective age differences as the effective age
  reflects condition (exception is when using the
  Modified Age-Life Method where incurable is
  treated in the age and curable in the condition
  differences).

42
An Overview of the Sales Approach
The reviewing appraiser should carefully consider
FHAs directive when reviewing the Sales Approach
for the adjustments used by the appraiser.

• Adjustments are made to the price of the sale
  properties for price-influencing dissimilarities
  between each sale and the subject property
• Not all dissimilarities require adjustment
  because not all dissimilarities achieve price
  differentials in the market
• Be careful that adjustments are reasonable and
  not excessive
• Make adjustments only if the dissimilarity has a
  noticeable effect on the value

43
An Overview of the Sales Approach

• Normally, it is considered that there must be at
  least three closed sales, although pending sales
  can also be used and are often requested if known
  as additional indicator
• Listings would be the indication of the upper
  limits of value
• Computerized data and also become an analytical
  tool such as a regression analysis notice the
  next Power Point slide to view both the sales
  used in the approach and the regression analysis

44
Viewing indicators of Value in the Sales Approach

• The four adjusted sales of the case study show
  value conclusions of
• 90,400
• 87,580
• 86,000
• 89,500

The regression scatter used 10 sales and shows
the price to square foot of living area will be
near 90,000. Sale price of Subject is 88,000
The Sales Approach in the Case study reconciled
at 88,000
45
USPAP

• SR 1-2 (on page IV-2) elaborates the assignment
  elements of the real property appraisal
• Assignment elements are an integral part of the
  problem identification including assignment
  conditions and end with a demand to determine
  appropriate scope of work necessary to develop a
  credible appraisal

46
USPAP

• SR 1-3 (on page IV-3) is the land use standards
  of practice which has its focus on developing
  market value with emphasis on analyzing not only
  the subject but also surrounding land use
• SR 1-3 (a) comments demand support for market
  trends, remaining economic life and effective age
  
• Look at the Case Study, can you go through the
  URAR form and identify SR 1-2 items (a) through
  (h) and identify the necessary analyses that the
  appraiser should have developed?

47
Standard 3

• First Step is to identify the problem
• Second, determine the scope of work necessary to
  solve the problem and
• Correctly complete research and analyses
  necessary to produce a credible appraisal review

• SR 3-1 is the Competency Pre-Requisite to perform
  the review
• SR 3-2 outlines the specific steps within the
  reviewing appraisers minimum required Scope of
  Work

48
Standard Rule 3-3

• SR 3-3 (a) requires the reviewer to develop an
  opinion as to the
• Completeness
• Accuracy
• Adequacy
• Relevance, and
• Reasonableness of the analysis of the work under
  review

49
Standard Rule 3-3

• SR 3-3 (c) is only applicable to the review
  assignment that involves the reviewing appraiser
  to also form an opinion of value
• SR 3-3 (c)(i) requires Std 1 be followed when
  reviewing and also forming an opinion about real
  property value
• SR 3-3 (c)(ii) requires Std 3 be followed when
  forming opinion about the quality of the work
• SR 3-3 (c)(iii) speaks to appraisal consulting
  that requires a review of a real property
  appraisal with a value opinion

50
Standard Rule 3-3

• Comments to SR 3-3 (c) state the following
• These requirements apply to
• The reviewers own opinion of value when the
  subject of the review is the product of an
  appraisal assignment
• The reviewers own opinion regarding the work
  reviewed by another when the subject of the
  review is the product of an appraisal review
  assignment or
• The reviewers own appraisal consulting
  conclusion when the subject of the review is the
  product of an appraisal consulting assignment

51
Guidance from ASB on Reviewing

• There is one AO (AO 20) and 21 FAQs on the
  subject of appraisal review

• Take a few moments and read over the FAQs on the
  subject of review beginning on page IV-21

52
Section V

• Mortgagee Letters
• ML 09-28 Appraiser Independence
• ML 09-09 Fannie Mae Form 1004MC
• ML 09-51, 10-13, Fannie Mae Form 1004D
• ML 10-15 FHA Case Number and Roster Assignments
• ML 05-48 Repair and Inspection Revisions
• ML 05-02 Seller Concessions and Verification of
  Sales

• Revised Appendix D
• A step by step, line by line guide to the
  requirements of FHA
• Pages D1-D37

53
FHA Residential Appraisal Requirements

• The appraisal reporting form to be used will
  depend on the property type that is being
  appraised. The appraiser must select the
  appropriate appraisal form for reporting an FHA
  appraisal from the following March 2005 Revised
  Fannie Mae Report Forms
• Uniform Residential Appraisal Report (Form 1004)
  Required to report on appraisal of a one-unit
  property or a one-unit property with an accessory
  unit
• Manufactured Home Appraisal Report (Form 1073)
• Individual Condo Unit Appraisal Report (Form
  1073) and
• Small Residential Income Property Appraisal
  Report (Form 1025)

54
Appraiser Independence ML 09-28

• The majority of the ML letter was addressed to
  the lenders. The issues addressed to the lenders
  targeted the unacceptable practice of attempting
  to influence appraisers.
• Appraisers were specifically addressed in the
  Appraiser Engagement-Knowledge of Market
  Area-Geographic Competency with cautionary
  directives to the Lender
• A Lender must not assume, based on
  state-certification, that the appraiser is
  qualified and knowledgeable in a specific market
  area
• It is the lender who must determine whether an
  appraisers qualifications, evidenced by
  educational training and actual field experience,
  are sufficient to enable the appraiser to
  competently perform appraisals before assigning
  an appraisal to them

55
Adoption of 1004MC and Reporting Requirements

• As of 04/01/09 all appraisals performed for FHA
  must include the 1004MC
• Economic instability continues to impact many
  segments of the economyFHA finds it necessary
  and prudent to set forth additional guidance for
  collateral assessment practices for properties
  located in a declining market
• A declining market is considered to be any
  neighborhood, market area, or region that
  demonstrates a decline in prices or deterioration
  in other market conditions as evidenced by an
  oversupply of existing inventory or extended
  marketing times

56
Appraisal Reporting Requirements in Declining
Markets

• In order to ensure that FHA receives an accurate
  and thorough appraisal analysis, the inclusion of
  comparable listings and/or pending sales is
  required in appraisals of properties that are
  located in declining markets.

• Include 2 Active Listings or pending sales
• (comparable 4-6 position or higher)
• Active listings and pending sales must be market
  tested and have reasonable exposure time
• Adjust active listings to reflect list to sale
  price ratio

57
Appraisal Reporting Requirements in Declining
Markets (continued)

• Adjust pending sales to reflect the contract
  purchase price whenever possible or adjust
  pending sales to reflect list to sale price
  ratios
• Include original list price, any revised list
  prides, and total days on the market. Provide an
  explanation for DOM that do not approximate time
  frames reported in the Neighborhood section of
  the appraisal reporting form or that do not
  coincide with the DOM noted in the 1004MC
• Reconcile the adjusted values of active listings
  or pending sales with adjusted values of the
  settled sales

58
Lets Take a Look at the Case Study

• Take a look at the Neighborhood section and the
  1004MC
• Was the subject reported to be in a declining
  market?
• Is there any indication the appraiser may have
  incorrectly judged the market?

59
Lets Take a Look at the Case Study
Page V 46 and Case Study

• Was the subject reported to be in a declining
  market?

60
Lets Take a Look at the Case Study
Page V 46 and Case Study

• Is there any indication the appraiser may have
  incorrectly judged the market?

61
Observations of 1004MC (Historical Events)
Col. 1 7-12 m
04/13/09 05/13/09
02/13/09 03/13/09
03/13/09 04/13/09
12/13/08 01/13/09
01/13/09 02/13/09
11/13/08 12/13/08
Presidential Election took Place, Democrat
Barrack Obama won Top 3 Auto Makers in Trouble
and are asking for financial assistance Housing
Market continues to Decline from East Coast to
West Coast
Col. 2 4-6 m
Tax Receipts down 25 from 08 Recession was
officially 1 yr. old Health Care Reform is
negotiated Global Warming is discredited
05/13/09 06/13/09
06/13/09 07/13/09
07/13/09 08/13/09
Col. 3 Current to 3 m
Unemployment continues to rise GDP artificially
inflated by stimulus Navy Seals capture top
Terrorist
09/13/09 10/13/09
10/13/09 To current
08/13/09 09/13/09
62
Observations of 1004MC
Col. 1 7-12 m
04/13/09 05/13/09
02/13/09 03/13/09
03/13/09 04/13/09
12/13/08 01/13/09
01/13/09 02/13/09
11/13/08 12/13/08
The appraiser notes a stable market even though
there are 2 less sales in the latter six months
with a lower absorption rate and 27 listings as
compared to the first six months of 16 listings
and Higher Inventory. Is the increase in
activity due to a market readying to an increase
in demand?
Col. 2 4-6 m
Although there are lower number of list days on
the market there is a much lower sale to List
Price Ratio when comparing Col. 1 to Col. 3.
Comparatively the List Price in Col. 1 x Sale
to List would result in 89,131 probable Sale vs
Col. 3 with a Higher list Price 98K x 96 Sale
to List results in Higher probable sale 94,080
a 5.6 increase
05/13/09 06/13/09
06/13/09 07/13/09
07/13/09 08/13/09
Col. 3 Current to 3 m
09/13/09 10/13/09
10/13/09 To current
08/13/09 09/13/09
63
ML 09-51 Adoption of Form 1004D

• When to Use the Appraisal Update and/or
  Completion Report (Part A).
• 1. To extend validity period of an existing
  appraisal due to expire and when lender doesnt
  want to order a new appraisal report.
• 2. o extend the validity period of an existing
  appraisal for incomplete new construction.
• Who Can Use the Appraisal Update and/or
  Completion Report (Part A/Summary Appraisal
  Update Report)
• 1. The FHA appraiser who performed the original
  appraisal, if currently in good standing on the
  FHA Appraiser Roster.

64
ML 09-51 Adoption of Form 1004D

• When the Appraisal Update and/or Completion
  Report may not be used (Part A).
• The property has declined in value
• The building improvements that contribute value
  to the property cannot be observed from the
  street or public way.
• The exterior inspection of the property reveals
  deficiencies or other significant changes that
  did not exist as of the effective date of the
  appraisal report being updated.

65
How to Use the Appraisal Update Report

• The Appraiser Must
• Adhere to the SOW and Appraisers Certification
  listed on the form, which includes an exterior
  inspection of the subject property from, at
  least, the street.
• Research, analyze and verify current market data
  to determine if the property has declined in
  value since the effective date of the appraisal
  report being updated.
• Assure compliance with development and reporting
  requirements of the USPAP, and specifically AO 3.

1004D
66
How to Use the Appraisal Update Report

• The Appraiser Must
• Retain all supporting documentation in the work
  file.
• Check the box applicable to Part A.
• Concur with the original appraisal report and
  update the appraisal by incorporating the
  original appraisal report if the market value
  of the subject has not declined since the
  effective date of the original appraisal.
• 7. Provide a photo of the street scene and
  photos from as many angles of the home that are
  visible from a public way.

1004D
67
ML 09-51 Adoption of Form 1004D

• When to Use the Appraisal Update and/or
  Completion Report (Part B).
• 1. To report the completion of a repair and/or
  the satisfaction of requirements and conditions
  noted in the original appraisal report referenced
  in the header of the Summary Appraisal Update
  and/or Completion Report.

• Who Can Use the Appraisal Update and/or
  Completion Report (Part B/Summary Appraisal
  Update Report)
• The FHA appraiser who performed the original
  appraisal if currently in good standing on the
  FHA Appraiser Roster.
• Any other FHA appraiser currently in good
  standing on the FHA Appraiser Roster.

68
ML 09-51 Adoption of Form 1004D

• When the Appraisal Update and/or Completion
  Report may not be used (Part B).
• 1. The Completion Report may not be used in lieu
  of form HUD-92051, Compliance Inspection Report,
  for new construction and manufactured housing.

69
How to Use the Appraisal Update Report

• The Appraiser Must
• Retain all supporting documentation in the work
  file.
• Check the box applicable to Part A.
• Concur with the original appraisal report and
  update the appraisal by incorporating the
  original appraisal report if the market value
  of the subject has not declined since the
  effective date of the original appraisal.
• 7. Provide a photo of the street scene and
  photos from as many angles of the home that are
  visible from a public way.

1004D
70
How to Use the Appraisal Update Report
The Appraiser Must 1. Review the requirements
and/or conditions noted in the appraisal report
referenced in the header of the Summary Appraisal
Update and/or Completion Report

• 2. Check the box applicable to Part B
• Perform a thorough inspection of the items noted
  in appraisal referenced in the Summary Appraisal
  Report and confirm completion/satisfaction of
  requirements and/or conditions.
• 4. Describe the impact on the value of the
  property if requirements and/or conditions are
  not completed in accordance with the original
  appraisal report.

1004D
71
ML 10-13 Form 1004D March 31, 2010

• Purpose of the Letter
• Provides two additional prohibitions on use of
  the Appraisal Update Report
• Clarifies that the Market Conditions Form must be
  completed in conjunction with the Appraisal
  Update Form and
• Defines the validity periods for appraisals with
  and without and Appraisal Update Report
• Effective Date Effective for all case numbers
  assigned on or after February 15, 2010

72
ML 10-13 Form 1004D March 31, 2010

• Prohibitions to Use of Appraisal Update Report
• In addition to the prohibitions provided in ML
  09-51, the following prohibitions are applicable
  to the use of the Appraisal update Report
• One time use of Appraisal Update Report- An
  original appraisal report can only be updated one
  time via the Appraisal Update Report, limiting
  the use of the Appraisal Update Report to one time

73
ML 10-13 Form 1004D March 31, 2010

• Prohibitions to Use of Appraisal Update Report
• In addition to the prohibitions provided in ML
  09-51, (continued)
• Eligible Intended User of Report the Appraisal
  Update Report may not be used when ordered by a
  lender who is note identified as an intended user
  in the original appraisal report unless the
  incorporates the original report being update by
  attachment rather than by reference per AO 3 of
  USPAP

74
ML 10-13 Form 1004D March 31, 2010

• 1004MC Form
• The appraiser MUST include a completed MC
  Addendum (1004MC) for the subject property that
  is reflective of market conditions as of the
  effective date of the Appraisal Update Report

75
ML 10-13 Form 1004D March 31, 2010

• Permissible Validity Periods
• Appraisals with no Appraisal Update Report In
  no case may a loan be insured if the loan is not
  closed within 150 days from the effective date of
  the appraisal report (120 day validity period
  plus 30 day extension)