Earlier this month, The Appraisal Foundation’s newly-created Appraisal Practices Board released its first Exposure Draft, Adjusting Comparable Sales for Seller Concessions. The draft has been released for appraisers to review and make scholarly comments and recommendations for modifications to the Appraisal Practices Board.

This first Exposure Draft covers six important topics:

• Definitions of sales concessions and financing concessions
• Important considerations when verifying concessions
• Determining when to adjust for concessions
• Methodology for special and creative financing, seller paid loan discount points or buy-down programs, inclusion of personal property and cash incentives, settlement assistances or seller contributions, and statistical analysis
• Considerations for concessions and non-residential property
• Working with concessions in the cost approach and income approach

Historically there have been multiple approaches and opinions related to identifying and adjusting for concessions. This draft is significant because it not only emphasizes The Appraisal Foundation’s attention to this issue, but also the value it places on your opinion, the appraiser, who is actively dealing with concessions.

Some approaches worth reviewing are as follows:

Fannie Mae’s Guidance for Lenders and Appraisers says that sales and financing concessions should be adjusted to the market at the time of the sale, and that dollar adjustments should reflect the market reaction to the difference rather than the cost of the difference. In Question 15 of Fannie Mae’s recent Appraisal and Property Report Policies and Forms FAQs, it is explained that sales concessions must be analyzed for impact on the sale price and that an appraiser must make adjustments for what the property would have sold for without the concession, rather than the dollar amount of the concession itself. They do not suggest across the board adjustments but instead note that each comparable property must be analyzed individually for its differences and similarities to the property in question.

The FHA, in Question 31 of its Frequently Asked Questions, offers clarification on its guidance for concessions, explaining that each individual comparable sale must be analyzed on a cash-equivalent basis that reflects the market difference in sale prices. FHA notes specifically that dollar for dollar cash equivalency adjustments are not reliable for buyers. Adjustments for concessions should not be based on how typical a concession is in its market segment, but rather only by how it affected the sale price. Adjustments also need to be made for special or creative financing. Appraisers should compare the financing terms of the comparable property to those offered by a third party lender who is not involved in the current transaction. Adjustments are to be made in terms of market reaction and not by dollar for dollar cost of financing nor concessions.

The Appraisal Institute’s Appraisal Journal, Winter 2009 offers solid guidance and detailed examples on concessions.   The article also refers to the Uniform Standards of Professional Appraisal Practice’s Standards Rule 1-2(c), which states that any financing terms with unusual conditions or incentives must be clearly identified and their impact on the property’s selling price thoroughly analyzed. AI recommends compliance with USPAP and places an emphasis on full disclosure. Appraisers should specifically indicate where concessions are included and whether the appraisal is based on cash or cash equivalent. Appraisals also need to indicate in their reports whether concessions have been assumed to be typical.  See the article, it is worth your time.

Appraisers are reminded to consult the “Definition of Market Value” on page 4 of the Uniform Residential Appraisal Report  and review the language that addresses market value and concessions.

It’s worth reviewing these opinions, but don’t pass up this opportunity to inform yourself, generate your own opinion, and share it with the APB!

The Appraisal Practices Board is looking for your comments on this first Exposure Draft. The Board plans to take these comments under consideration and will then vote on adopting suggestions and making revisions to guidance that will be reflected in future exposure drafts.

All comments will be thoroughly read and considered by each member of the Board. Send comments by December 2, 2011, to:  

Appraisal Practices Board

The Appraisal Foundation

1155 15^th Street NW, Suite 1111

Washington, DC 20005

Comments can also be faxed to 202-347-7727, or emailed to APBcomments@appraisalfoundation.org.  

Commenters should include references to line numbers, thorough explanations about your concerns, examples or illustrations, suggestions for change, and finally, any other issues you think the APB should take under consideration.
 
 
 
 

The contents of this blog may only be republished with the permission of the author. To request permission, please contact Mel Black by email or by phone at 800-268-6180.

Hello!  I have been in Washington, DC for the past few days at the Association of Appraiser Regulatory Officials (AARO) conference.  AARO is celebrating their 20 Year Anniversary and graciously invited me, as one of their former presidents, to attend as a guest.  One of the benefits of attending the AARO conference is meeting with and attending presentations given by the members of the Appraisal Standards Board. (ASB)  As you know, the members of the ASB are the folks that write and update the USPAP.  Back when I was part of the NC Appraisal Board staff, I was lucky enough to have the opportunity to receive this level of training for many years.  It was extremely valuable then, just as it is today, to be able to receive this information directly from the authors of USPAP.

Some major changes to the New USPAP, effective January 1, 2012 are: revisions to the definitions of “client”, “extraordinary assumption” and “hypothetical condition”, additional guidance related to “exposure time”, creation of the new RECORD KEEPING RULE, and an addition to the appraisers certification, revisions to Standards 7 & 8, updated illustrations in AO-21, and some new frequently asked questions.

Upon returning to NC this week, I will be briefing all of the BrightPath USPAP instructors on the information I’ve gathered at this conference.  Already, all of our NC USPAP instructors have successfully completed the instructor renewal course that is required of all approved USPAP instructors.  And very soon we will all be fully prepared to give you a detailed explanation of all the USPAP changes.  It is our goal to explain the changes, the reason behind the changes, and their application to your job of appraising in the real world.

While the focus of the meeting was on USPAP 2012-2013, we were given information on possible changes coming in 2014.  But, let’s focus on the task at hand and worry about that later.

So, get your new USPAP 2012-2013 book, and enroll in one of our many classes.  And we’ll do our job of explaining USPAP accurately and timely so you can know the rules and lower your risk as you go about your profession of appraising.
 
 
 
 

The contents of this blog may only be republished with the permission of the author. To request permission, please contact Mel Black by email or by phone at 800-268-6180.

In my role as an attorney helping and advising appraisers and appraisal firms, I have been contacted lately by a number of appraisers who have been served with a subpoena.  Typically, the subpoena will seek to compel the appraiser to appear and testify before the court or at a deposition or to produce and permit inspection and copying of named documents (usually the appraisal and work file.)  In some cases, the compelling party is neither the client nor a named intended user and the issue in the related action is nowhere close to the intended use of the appraisal.

There are a number of issues to be evaluated and possible steps to take once an appraiser is subpoenaed.  In addition to me, there are also some good sources of information on this topic.  First, the North Carolina Appraisal Board has published a very good article on page 4 of their February 2011 newsletter.   The article is not attributed to a particular author.  Next, Claudia Gaglione provides guidance on things to keep in mind when an appraiser has been subpoenaed related to an old appraisal and the file has been shredded.

So next time you are subpoenaed, relax, take a deep breath and do what you need to do.  Ignoring it and hoping it goes away is not a viable option.  HS5J6JTKG26H
 
 
 
 
The contents of this blog may only be republished with the permission of the author. To request permission, please contact Mel Black by email or by phone at 800-268-6180.

With HUD’s Mortgagee Letter issued this week to FHA Roster Appraisers there is some confusion about when the UAD is actually going to be effective.

September 1, 2011 is still the effective date for Fannie Mae and Freddie Mac.

HUD is making the UAD mandatory for all FHA case numbers assigned on or after January 1, 2012 and for all REO and PFS properties within an effective date on or after January 1, 2012.  This delay by HUD is “to allow Mortgagees sufficient time to make any necessary data system changes.”

Keep in mind that FHA will only apply the UAD to the URAR (1004) and the condo report (1073).

Of particular note on page 3 of this week’s letter are the 4 areas where FHA has specific compliance requirements that relate to the improvements, finished/unfinished basement area, “as-is” appraisals and the use of supervisory appraisers and trainees.

So, is the UAD effective September 1, 2011 or January 1, 2012?  Both dates may apply based on the type of assignment.

HS5J6JTKG26H
 
 
 
 
The contents of this blog may only be republished with the permission of the author. To request permission, please contact Mel Black by email or by phone at 800-268-6180.

Three new members of the NC Appraisal Board were sworn in at the August 9, 2011 board meeting. It is anticipated that two additional new members will be sworn in at the September 13, 2011. This could mean that by September a majority of the board members (5 of 9) will be newly-appointed. I post this to the blog not as a commentary on the individuals who have rotated off the board after their service or on those who are new to the board and not as any prediction in policy changes, but simply to note the significance of the change.

The NC Appraisers Act calls for the appointing authorities (Governor, Speaker of the House, and President Pro Tempore of the Senate) to make appointments on a schedule so that “members of the Board shall serve three-year terms, so staggered that the terms of three members expire in one year, the terms of three members expire in the next year, and the terms of three members expire in the third year of each three-year period.” However two of the appointments that were to have been made in 2010 were actually made in 2011, giving us the total of 5 new members in a year.

I have been connected to the NC Appraisal Board for over twenty years (licensed as an appraiser on January 1, 1991, on the board staff from 1995 to 2003, and now as an attorney handling appraisal cases and an appraisal instructor since 2003) and I do not recall any one year in which a majority of the board members changed. In addition, one of the new board appointments was made under last year’s change to the statute that requires one of the appointees, “…shall be a person representing either the real estate appraisal management industry or the banking industry.”

Here is the current list of board members that will likely be updated to show all 9 members after the September meeting. You can expect the Appraiser Report, the board’s newsletter, to introduce the new members in the next issue.
 
 
 
 
The contents of this blog may only be republished with the permission of the author. To request permission, please contact Mel Black by email or by phone at 800-268-6180.

Appraisal Issues on Capitol Hill Today

Today at 2:00 pm in Washington DC the House Committee on Financial Services is hearing testimony related to a number of appraisal issues. The hearing is entitled “Mortgage Origination: The Impact of Recent Changes on Homeowners and Businesses.” Based on the agenda and access to prepared comments, witness will address the role of AMC’s, appraisal independence, The Dodd-Frank Act, customary and reasonable fees, and other appraisal-related topics.

Of interest are the prepared comments of Don Kelly on behalf of Real Estate Valuation Advocacy Association (REVAA) and the Coalition to Facilitate Appraisal Integrity Reform (FAIR.) FAIR is a coalition of five of the nation’s largest AMCs who have engaged a K street law firm to lobby Congress on their behalf.

There have been a number of negative reactions from appraisers nationwide related to Mr. Kelly’s comments. Check the various appraiser website to get involved in the discussion. Frank Gregoire’s blog, Appraiser Active, has more information and some more opinions and links related to the hearing.

Here are some related links:

http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=250158

http://financialservices.house.gov/UploadedFiles/071311kelly.pdf

http://www.scribd.com/doc/44330612/Registration-by-K-L-GATES-LLP-to-lobby-for-Coalition-to-Facilitate-Appraisal-Integrity-Reform-FAIR-300308032

http://appraiseractive.blogspot.com/2011/07/us-house-committee-on-financial.html
 
 
 
 
The contents of this blog may only be republished with the permission of the author. To request permission, please contact Mel Black by email or by phone at 800-268-6180.