practice of appraisal review fha protocol course no. 145 instructor:email:phone: columbia institute
TRANSCRIPT
Practice of Appraisal Review
FHA ProtocolCourse No. 145Instructor:Instructor:
Email:Email:
Phone:Phone:
Columbia Institute
Welcome – A Bit of Housekeeping
Please complete your registration Course No. 145
Class time 8:00 a.m.-5:00 p.m. Lunch at Noon for 1 hour
Breaks will be given in morning and afternoonNo taping, recording, texting or laptop use
during class timeTopic Relevant Questions are welcome,
Filibustering is not.
Welcome – A Bit of Housekeeping
Please avoid talking between yourselves or over other classroom discussion; one conversation at a time is for everyone’s 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)
Course ObjectivesUpon 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 appraiser’s
completion of the 1004D
Introduction to Appraisal Review
Page 1
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 appraiser’s work
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
Page 1
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
Page 1
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 can’t be observed from a field review, exterior only observation.
The need to rely on uncertain data requires an extraordinary assumption.
It’s 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.
Page 1
Working with Extraordinary Assumptions
•The reviewing appraiser can accept the appraiser’s 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
Page 1
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
Page 2
Independent, Impartial and Objective
Page 2
A review of another’s 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 appraiser’s knowledge
1.Intended use/user of the work under review
2.Economic Principles of Value
3.Specific Performance Standards of the USPAP known as Standard Rules
4.Typical Practice Based on Actions of Peers and Users
5.Personal professional opinion
Putting it all together
Page 2
Scope of WorkIntended user and use dictate the work under review
Economic PrinciplesAffect the value of goods and services Apply to the value of the land and the
improvementsContributionCompatibilityHighest and Best Use
Economic Principles
Characteristics of Real Estate Affecting Application of Valuation Principles
1. Immovable2. Durable3. Long Life4. Heterogeneous (being unique in characteristics as
no two grains of sand are alike no two parcels of real estate are exactly alike)
Page 4
Economic Principles
Principles fall into two divisions (I ) Productivity or (II) Marketability and within three categories
1. Market Area Principles2. Land and Improvement or 3. Investor
Page 4
Economic PrinciplesPage 4
Principles of ProductivitySurplus ProductivityBalanceContributionIncreasing and Decreasing ReturnsHighest and Best UseAnticipationCostsAgents of ProductionMarginal Utility
Marketability PrinciplesSupply and DemandChangeExternalitiesCompetitionIntegration, Equilibrium, Decline and Renewal
ConformitySubstitution
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 commodity’s relative scarcity.
Page 4
In real estate the quantity supplied is typically slow to adjust to changes in price
Supply of real estate is dependent upon the availability of capital necessary to develop it to its highest and best use.
The slowness is attributable to the length of time required to bring new improvements into existence
Supply and Demand
Page 4
In real estate the quantity supplied is typically slow to adjust to changes in price
Supply of real estate is dependent upon the availability of capital necessary to develop it to its highest and best use.
Supply and DemandPage 4
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
Highest and Best UsePage 5
Highest and Best Use is a Land and Improvement Principle that represents productivity; it is a conclusion of a site’s maximum productivity
It’s 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)
Substitution Page 5
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 buyer’s behalf when deciding to purchase at that price
Principle of Balance Page 5
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).
Surplus ProductivityPage 6
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 $ 50,000Labor expense to construct $100,000Materials, permits, impact fees and marketing $112,000Coordinating 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
Increasing and Decreasing Returns
Page 6
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 <1 yr., with increasing repair costs over time the cargo lift will create a decreasing return.
Principle of ChangePage 6
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.
Principle of ConformityPage 6
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.
AnticipationPage 7
The value paid for real estate reflects the investor’s current opinion of value based on the investor’s 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.
CompetitionPage 7
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.
Essential Elements of Value
Page 7
Creating Forces Affecting Forces
D – Demand P - Physical
U – Utility E - Economic
S – Scarcity G - Governmental
T – Transferability S - Social
Review of ApproachesPage 9
In the Appraisal Process the Approaches to a Market value come after the problem has been properly identified and preliminary analyses:MarketSiteImprovementMarketability andHighest and Best Usehave 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.
An Overview of the Cost Approach
Page 9
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.
An Overview of the Cost Approach
Page 9
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 improvement’s value is not based on their Cost, rather what the market says through analysis of comparison the contribution
An Overview of the Cost Approach
Page 9
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.
An Overview of the Cost Approach
Page 9
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.
An Overview of the Cost Approach
Page 9
One of the more interesting observations are the intangibles in the Cost Approach. For example
Value of a special view would belong to the siteA celebrity owned or occupied property is more often
connected to the improvements as opposed to the siteIn 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.
An Overview of the Sales Approach
Page 10
One of the more common approaches is the Sales Approach. Sometimes referred to as the Direct Sales
Approach or the Market ApproachProcess 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.
An Overview of the Sales Approach
Page 10
One of the more common approaches is the Sales Approach. Sometimes referred to as the Direct Sales
Approach or the Market ApproachProcess 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 andMarket Conditions/Time when the market is in
motion and the sale price will obviously reflect a historical price paid
An Overview of the Sales Approach
Page 10
Once adjusted for the current real property price (unaffected by Interested Party Contributions IPC’s) 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 ReflectsLocation Immovable Property HereProperty 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
An Overview of the Sales Approach
Page 10
Being adjusted for all key factors of major significance the lessor dissimilar items can be addressed.
Item Adjusted Price ReflectsSite Ensures comparative lots/land parcelsView 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 subject’s comparative characteristics in the site section of the report
An Overview of the Sales ApproachPage 10
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/Acceptance
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 visualConformity while Quality is Related to how and what type Improvements are assembled
An Overview of the Sales Approach
Page 10
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”
An Overview of the Sales Approach
Page 10
”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).
An Overview of the Sales Approach
Page 10
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
The reviewing appraiser should carefully consider FHA’s directive when reviewing the Sales Approach for the adjustments used by the appraiser.
An Overview of the Sales Approach
Page 10
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
Viewing indicators of Value in the Sales Approach
Page 10
The four adjusted sales of the case study show value conclusions of:
1.$90,4002.$87,5803.$86,0004.$89,500
The regression scatter used 10 sales and shows theprice to square footof living area willbe near $90,000.
Sale price of Subjectis $88,000
The Sales Approach in the Case study reconciled at $88,000
USPAP
Pg IV-2 thru IV4
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
USPAP Pg IV-2 thru IV4
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?
Standard 3Page IV-6 and 7
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 appraiser’s minimum required Scope of Work
Standard Rule 3-3
Page IV-8
SR 3-3 (a) requires the reviewer to develop an opinion as to the:
CompletenessAccuracyAdequacyRelevance, andReasonableness of the
analysis of the work under review
Standard Rule 3-3
Page IV-9
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
Standard Rule 3-3
Page IV-9
Comments to SR 3-3 (c) state the following:These requirements apply to:
The reviewer’s own opinion of value when the subject of the review is the product of an appraisal assignment;
The reviewer’s own opinion regarding the work reviewed by another when the subject of the review is the product of an appraisal review assignment; or
The reviewer’s own appraisal consulting conclusion when the subject of the review is the product of an appraisal consulting assignment
Guidance from ASB on Reviewing
Page IV-14 thru 23
There is one AO (AO 20) and 21 FAQ’s on the subject of appraisal review
Take a few moments and read over the FAQ’s on the subject of review beginning on page IV-21
Section VSection V
Revised Appendix DA step by step, line
by line guide to the requirements of FHA
Pages D1-D37
Mortgagee LettersML 09-28 Appraiser
IndependenceML 09-09 Fannie Mae Form
1004MCML 09-51, 10-13, Fannie
Mae Form 1004DML 10-15 FHA Case Number
and Roster AssignmentsML 05-48 Repair and
Inspection RevisionsML 05-02 Seller Concessions
and Verification of Sales
FHA Residential Appraisal Requirements
Page V-2
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:
1. 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
2. Manufactured Home Appraisal Report (Form 1073)3. Individual Condo Unit Appraisal Report (Form 1073)
and4. Small Residential Income Property Appraisal Report
(Form 1025)
Appraiser Independence ML 09-28
Page V-39
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 LenderA 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 appraiser’s 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
Adoption of 1004MC and Reporting Requirements
Page V-14
As of 04/01/09 all appraisals performed for FHA must include the 1004MCEconomic instability continues to impact many
segments of the economy…FHA 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
Appraisal Reporting Requirements Appraisal Reporting Requirements in Declining Marketsin Declining Markets
Page V-45
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 timeAdjust active listings to reflect list to sale price ratio
Appraisal Reporting Requirements Appraisal Reporting Requirements in Declining Markets (continued)in Declining Markets (continued)
Page V-45
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
Let’s Take a Look at the Case Study
Page V 46 and 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?
Let’s Take a Look at the Case Study
Page V 46 and Page V 46 and Case StudyCase Study
Was the subject reported to be in a declining Was the subject reported to be in a declining market?market?
Let’s Take a Look at the Case Study
Page V 46 and Page V 46 and Case StudyCase Study
Is there any indication the appraiser may have incorrectly judged the market?
Observations of 1004MC (Historical Events)
Page V 46 and Case Study
11/13/0812/13/08
12/13/0801/13/09
01/13/0902/13/09
02/13/0903/13/09
03/13/0904/13/09
04/13/0905/13/09
Col. 17-12 m
05/13/0906/13/09
06/13/0907/13/09
07/13/0908/13/09
Col. 24-6 m
08/13/0909/13/09
09/13/0910/13/09
10/13/09To current
Col. 3Current to 3 m
Presidential Election took Place, Democrat Barrack Obama wonTop 3 Auto Makers in Trouble and are asking for financial assistanceHousing Market continues to Decline from East Coast to West Coast
Tax Receipts down 25% from 08’Recession was officially 1 yr. oldHealth Care Reform is negotiatedGlobal Warming is discredited
Unemployment continues to riseGDP artificially inflated by stimulusNavy Seals capture top Terrorist
Observations of 1004MCPage V 46 and Case Study
11/13/0812/13/08
12/13/0801/13/09
01/13/0902/13/09
02/13/0903/13/09
03/13/0904/13/09
04/13/0905/13/09
Col. 17-12 m
05/13/0906/13/09
06/13/0907/13/09
07/13/0908/13/09
Col. 24-6 m
08/13/0909/13/09
09/13/0910/13/09
10/13/09To current
Col. 3Current to 3 m
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 thefirst six months of 16 listings and Higher Inventory. Is the increase in activity due to a market readying to an increase in demand?
Although there are lower numberof list days on the market there isa 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 probableSale 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
ML 09-51 Adoption of Form ML 09-51 Adoption of Form 1004D 1004D
Page V 48
When to Use the Appraisal Update and/or Completion When to Use the Appraisal Update and/or Completion Report (Part A)Report (Part A)..
1. To extend validity period of an existing appraisal due to expire and when lender doesn’t 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 Who Can Use the Appraisal Update and/or Completion Report (Part A/Summary Appraisal Update Report)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.
ML 09-51 Adoption of Form ML 09-51 Adoption of Form 1004D 1004D
Page V 49
When the Appraisal Update and/or Completion Report When the Appraisal Update and/or Completion Report
may not may not be used (Part A)be used (Part A)..1. The property has declined in value
2. The building improvements that contribute value to the property cannot be observed from the street or public way.
3. 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.
How to Use the Appraisal Update ReportHow to Use the Appraisal Update Report
Page V 49
1004D
How to Use the Appraisal Update How to Use the Appraisal Update ReportReport
Page V 49
1004D
ML 09-51 Adoption of Form ML 09-51 Adoption of Form 1004D 1004D
Page V 48
When to Use the Appraisal Update and/or Completion When to Use the Appraisal Update and/or Completion
Report (Part B)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 Who Can Use the Appraisal Update and/or Completion Report (Part B/Summary Appraisal Update Report)Report (Part B/Summary Appraisal Update Report)
1. The FHA appraiser who performed the original appraisal if currently in good standing on the FHA Appraiser Roster.
2. Any other FHA appraiser currently in good standing on the FHA Appraiser Roster.
ML 09-51 Adoption of Form ML 09-51 Adoption of Form 1004D 1004D
Page V 49
When the Appraisal Update and/or Completion When the Appraisal Update and/or Completion
Report Report may not may not be used (Part B)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.
How to Use the Appraisal Update ReportHow to Use the Appraisal Update ReportPage V 49
1004D
How to Use the Appraisal Update ReportHow to Use the Appraisal Update ReportPage V 49
1004D
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
3.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.
ML 10-13 Form 1004D March 31, 2010 ML 10-13 Form 1004D March 31, 2010
Page V 51
Purpose of the Letter1.Provides two additional prohibitions on use of the Appraisal Update Report2.Clarifies that the Market Conditions Form must be completed in conjunction with the Appraisal Update Form and3.Defines the validity periods for appraisals with and without and Appraisal Update Report4.Effective Date – Effective for all case numbers assigned on or after February 15, 2010
ML 10-13 Form 1004D March 31, 2010 ML 10-13 Form 1004D March 31, 2010
Page V 51
Prohibitions to Use of Appraisal Update ReportIn 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
ML 10-13 Form 1004D March 31, 2010 ML 10-13 Form 1004D March 31, 2010
Page V 51
Prohibitions to Use of Appraisal Update ReportIn 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
ML 10-13 Form 1004D March 31, 2010 ML 10-13 Form 1004D March 31, 2010
Page V 51
1004MC FormThe 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
ML 10-13 Form 1004D March 31, 2010 ML 10-13 Form 1004D March 31, 2010
Page V 51
Permissible Validity PeriodsA) 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)