- How can the client help to expedite the process and
shorten "turn around" time?
- How does BOSS Appraisal handle hypothetical situations?
- What can we expect from a "drive-by" appraisal order?
- Can BOSS Appraisal provide us with a standard Letter of Engagement?
- What about changes after the report is completed and
submitted?
- Do you complete the "Manufactured Home Checklist" for your clients
if needed?
QUESTIONS REGARDING THE APPRAISAL ORDER
There is much erroneous information regarding precisely who the "client" is
in the appraisal process. Identification of the client is important to that
process, and can determine who "owns" the appraisal report and sometimes even
whether or not the appraisal can be used for the intended purpose.
Under provisions of the Uniform Standards of Professional Appraisal Practice
(USPAP) the client is always the person or entity that orders
the property appraisal. Typically, that will be the proposed lender since
the lender will not generally accept an appraisal ordered directly by a borrower.
When the lender orders the appraisal, the lender becomes the client.
At this point, the appraiser owes all allegiance to the lender/client and a
confidential relationship is created.
All copies of the completed appraisal report are forwarded to the client and
all information contained in the report is considered confidential between the
appraiser and the client. This relationship does not consider when the
appraisal fee is paid nor who pays for the appraisal or the report. Regardless
of who pays for the report, the client is the person or entity ordering the
report.
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December 1991 amendments to the federal Equal Credit Opportunity Act, known
as 12 USCA Section 1691(e) require a lender to provide, upon written request,
a copy of the appraisal report to any person who applies for a residential
mortgage.
The text of that section reads: "(e) Each creditor shall promptly furnish
an applicant, upon written request by the applicant made within a reasonable
time of the application, a copy of the appraisal report used in connection
with the applicant's application for a loan that is or would have been secured
by a lien on residential property. The creditor may require the applicant
to reimburse the creditor for the cost of the appraisal.".
Some loan programs provide that the lender pays for the appraisal.
In this case, the borrower may receive a copy of the report only upon
request and reimbursement of appraisal fees to the lender. Some
loan programs require that the borrower pay the appraisal fee either directly
to the appraiser or to the lender in advance, usually at the same time the
credit reporting fee is charged by the lender. In the latter case, the borrower
need only make written request to the lender in order to receive a copy of
the appraisal report.
In addition to federal law, the California Business and Professions Code,
Section 11423(b) mandates that the lender must provide a notification to the
loan applicant advising the loan applicant of their right to receive a copy
of the appraisal report provided that they have paid for the appraisal
report. There are specific requirements for both lender and applicant in this
section, and all parties to the loan transaction should be familiar with the
provisions of this section.
IMPORTANT NOTES ON THIS ISSUE:
- This law applies to nearly all real estate secured mortgage lenders, including
banks, S&L's, credit unions, mortgage bankers, mortgage brokers, mortgage
originators, etc., regardless of the actual funding source.
- Rules promulgated by the Federal Financial Institutions Regulatory Agencies
allow borrowers a 90 day period within which to file a written request for
a copy of the appraisal.
- The lender is required to supply a copy, not the original appraisal
report.
- The borrower, or potential borrower, must obtain the appraisal report copy
from the lender and NOT from the appraiser.
- Only the borrower, or applicant, has a right to receive a copy of the appraisal
from the lender. Sellers, brokers, and other parties who are not the borrower
have no right to obtain a copy of the appraisal report.
- The lender who ordered the report, accepted delivery, and based a business
decision on the content of the appraisal report is the appraiser's client,
regardless of who paid for the appraisal, or when, or how. At all times, the
appraiser is obligated and must comply with the confidentiality provisions
of the Uniform Standards of Professional Appraisal Practice (USPAP).
- The appraiser has no right or obligation to discuss the appraisal or the
report with the borrower or proposed borrower. The borrower is not the client
unless the borrower ordered the report directly. The appraiser must comply
with the confidentiality provisions of USPAP.
- The appraiser may not re-issue, retype, recertify, update, transfer, or
otherwise pass an appraisal report prepared for one lender/client to another
lender without a written release from the original lender/client. Any such
subsequent appraisal report should clearly identify the original lender/client,
original appraisal date, and original value conclusion in the Statement of
Limiting Conditions section of the subsequent report. It is also recommended
that a copy of the written and signed release by the original lender/client
be included in any subsequent report issued.
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The documents that may be required by the appraiser in connection with the assignment
will be determined by the assignment itself. If the assignment is for
estate valuation purposes, for example, the client should provide confirmation
of any effective date of value if the date is to be any time other than the
date of the physical inspection of the property by the appraiser. If
the assignment is for lending purposes resulting from a sales transaction, the
appraiser must be provided with any and all contracts, disclosures, agreements,
inspection reports, personal property lists, etc. at the time the order is placed.
Failure to provide the appraiser with all such documentation could result
in the inability of the appraiser to address or consider a value influencing
factor and a final value conclusion that could prove deceptive to the client.
Since the appraiser can assume no responsibility whatsoever for the impact
of terms, conditions, title related issues, or documents unknown to the appraiser
at the time the assignment is accepted, it is imperative that such information
is made available before the assignment is ordered and accepted. The client
should not pass the obligation of obtaining documents on to the appraiser.
Often, the real estate agents involved will not provide all documentation to
the appraiser, or the information will be illegible, unsigned, or otherwise
unenforceable.
In the event the property being appraised is to be considered an income producing
property, it is the responsibilty of the client to obtain and provide the appraiser
with the actual reported income and expenses for the property being appraised.
The accuracy and reliability of the valuation report are directly related to
the information available to the appraiser.
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The more the appraiser knows about the general description of the property at
the time the order is placed and accepted, the better. Typically, the appraiser
has knowledge of the market area that will enable the ability to select "most
likely" comparable sales prior to the physical inspection of the subject property
if the initial description is accurate. This ability, of course, is not possible
if the appraiser has insufficient or inaccurate information about the property
being appraised.
If, for example, the client tells the appraiser that the subject property is
an approximate 2000 square foot, newer, single story, three bedroom, two bath
home with a detached two car garage and a swimming pool, the appraiser is able
to select potential comparable sales with features that "bracket" the primary
features of the subject property. If such information is not accurate, and the
home is actually an older remodeled two story, two bedroom plus den home with
the second bath in the garage and an above ground vinyl pool...then the comparables
selected by the appraiser based upon client information are virtually worthless.
While the appraiser will ultimately determine a detailed description of the
property being appraised, we believe it is critical to the process and certainly
in the best interest of the client and the client/appraiser relationship to
provide a reasonably accurate description of property at the time the appraisal
order is placed. A very few questions of the borrower can save precious "turn
around" time for the client and the appraisal firm.
We understand, of course, that many appraisals are performed on properties for
which no reasonable description can be obtained by the client prior to ordering
the appraisal. These are totally understandable circumstances and we work equally
well within such limitations. Communicating with your appraiser regarding the
conditions and limitations of the order is considered imperative to the timely
completion of the assignment.
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It is against all known appraisal standards to accept an appraisal order with
a "minimum value" provision or clause. When the placement of an appraisal
order is contingent upon reaching a predetermined value, the appraiser is at
risk of losing the license to practice and the client is in violation of the
provisions of the Office of Thrift Supervision. When an appraisal order
is received by BOSS APPRAISAL that states a minimum value requirement, that
value is ignored and/or not considered in the appraisal process nor in any final
value determination made by the appraiser.
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It depends on who has been designated to pay the fee at the time the appraisal
is ordered. If the assignment is ordered by an individual property owner/client
the fee is generally paid in advance or at the time of the appraiser's physical
inspection of the property being appraised. If the assignment is ordered
by the lender/client, then the client may direct the appraiser to collect the
fee from the borrower or may elect to pay the fee directly upon delivery of
the completed report. It is the appraiser that ultimately determines the
terms and conditions for payment, and how or when to extend credit. The
client, whether the property owner or lender, should realize that the extension
of credit is not mandatory. When ordering an appraisal from BOSS Appraisal
it is important to know that all appraisal fees must be paid in full prior to
delivery of the final report unless other arrangements are made IN ADVANCE,
and that we DO NOT accept payment of appraisal fees through any sale or loan
escrow.
Note: It is a violation of the Uniform Standards of Appraisal Practice (USPAP)
to condition the payment of appraisal fees upon a certain value. In the
event the appraiser would elect to receive fee payment through escrow, the appraiser
would be committed to arrive at a "predetermined" value in order to assure that
the loan escrow would close, and thus assure that the appraisal fee would be
paid from that escrow. This is a clear and definite violation of appraisal
standards.
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Asking for a "comparable sales search" for a street or neighborhood where a
potential appraisal is pending is the clients way of making an advance decision
on whether or not to proceed with the loan process. In some market areas,
where tract home subdivisions are prevalent, or where real estate sales activity
is brisk, the appraiser may provide such services at little or no cost
to the client as a courtesy. In market areas like Lake and Mendocino counties,
however, where tract home subdivisions are rare and activity is typically limited,
providing a courtesy "comp search" is bad practice for both the client and the
appraiser. Our office does not generally provide such services for two
reasons, either 1) the appraiser may suggest that neighborhood values are lower
than the client expects and the client rejects an otherwise viable property,
or 2) the appraiser suggests a value range that fits the needs of the client
and then finds himself committed to that range on an otherwise substandard property.
Either way, both parties are not acting in the best interest of their respective
clients. In addition, great caution must be taken when stating that a specific
neighborhood reflects a certain value range since there are almost always extremes
that cannot be determined without a physical inspection of the property to be
appraised. Perhaps the best analogy of the "comp search" concept would
be to compare the appraisal function with the pest control inspection function.....both
of which are typically required in the lending decision. The client could
not contact the pest control inspector in advance with an inquiry as to how
many termites the inspector expects to find in any given neighborhood........before
the pest control inspection is ordered. In much the same way, the client
should not expect the appraiser to commit to a value range before the appraisal
is ordered. In both cases (the pest control inspection and the
appraisal) when the order is placed it is to have the professional provide the
client with the best opinion and assessment. Not until lenders will commit
to a loan before a credit check is performed will appraisers comfortably provide
a free advance opinion of value without the opportunity of looking at the property
and the factors that influence the property value.
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QUESTIONS REGARDING THE APPRAISAL PROCESS
The three most commonly utilized and accepted valuation approaches include:
1) a "Reproduction" or "Replacement Cost Approach" where the appraiser
estimates the actual cost to rebuild the property to near like kind. This would
involve establishing a site value and an improvement value as of a specific
date with allowances for physical, functional, and economic depreciation; 2)
an "Income Approach" where the appraiser utilizes the actual or estimated
income and expenses from an income producing property to estimate market value
through gross income multipliers or the capitalization of net operating incomes
supported by market indicators as of the effective date of the appraisal, and;
3) the most commonly accepted methodology for the valuation of residential properties,
the "Sales Comparison Approach", where the appraiser estimates the value
of the property by locating closed sales that have occurred recently in reasonable
proximity to the property being appraised, that can be considered "competing"
with the property being appraised, and with similar features and conditions
that will tend to "bracket" the primary features of the property being appraised.
After adjustment for the apparent market reaction to any such differences in
features and conditions, the appraiser will estimate the market value from a
weighted calculation based upon the degree of adjustment required to reflect
any value impact.... where the lesser the required adjustment the greater the
comparability and the greater the required adjustment the lesser the comparability.
The appraiser may use one, all, or any combination of these approaches in determining
an opinion of value.
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Remember...the three primary approaches are the Replacement (or Reproduction)
Cost approach; the Income approach; and the Market Comparison (or Sales Comparison)
approach. The weight of each approach, or the exclusion of one or more approaches,
is a direct result of the appraisal problem itself and the answer, while usually
obvious, is at the discretion of the appraiser performing the assignment. If
the appraisal does not include improvements, a replacement cost is usually excluded
from analysis. When the property is improved and the improvements are new, the
cost approach can be the most accurate approach available. If the property is
not income producing, the income approach is usually excluded, and when the
property is income producing, the approach is typically the most valuable approach
to the exclusion of all others. The market comparison approach typically allows
for the impact of all other considerations (income, cost, and comparable sales)
when sales negotiations are concluded between a prudent buyer and seller, but
the approach loses reliability when sales are infrequent or when sales are dated
or less than ideally comparable to the subject property.
The appraiser will use their best judgement and consideration of the problem
in determining which approaches to utilize and which to weight heaviest. There
is no set rule or guideline that specifies which approaches must be included
or to what degree the approach must be weighted in the final analysis.
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Why does the appraiser need copies of purchase contracts, disclosures, etc.?
The appraisal of real property is predicated on the parameters of the order
placed by the client. If the assignment is based on a purchase money lending
decision, then it follows that the entire purchase must be clearly understood
by the appraiser performing the task of analyzing all value influencing impacts.
The entire meeting of the minds between buyer and seller are found in the
written agreements that complete the purchase. The contract, all addenda thereto,
and all disclosures made must be provided in order to assure that the appraiser
is aware of any and all factors that may impact value. Examples could include
a list of personal property included in the price; that old antique boat in
the garage; a seller concession regarding pest control work to be done; a
concession where the seller may lease back the property until a new home is
built elsewhere; a new roof to be installed prior to close of escrow; and
any number of other concessions that would have an impact on value. Even more
important, the appraiser is obligated by the Uniform Standards of Appraisal
Practice to review all applicable purchase agreements. Typically, the purchase
agreement will refer to, or be conditioned upon, such items as disclosures,
pest control reports, or the happening of a certain event. If such items are
referenced in the purchase contract, the appraiser is obligated to review
the item and consider its impact on value, if any.
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QUESTIONS SPECIFIC TO LENDER REQUESTS
What can the client do to expedite turn around time?
The appraisal order is critical to the process. When incorrect or incomplete
information is provided at the time the order is placed, the appraiser must
first correct the errors or omissions of the client before the assignment
can be considered acceptable. The appraiser generally uses the information
provided by the client in the initial selection of possible comparable sales.
Thus, if the client provides little or no information, or worse, incorrect
information, the process can significantly delayed.
BOSS Appraisal estimates a problem with the appraisal order creates delays
anywhere between minutes and days in about 60% of the orders received. Such
problems include missing or incorrect: phone numbers, subject property addresses,
contact names, client delivery address, room counts, number of improvement
counts, site sizes (like 40 acres instead of a city lot), and many other similar
items. Such errors are generally the result of either not asking the borrower
the simplest of questions, or not paying attention to the borrower's answers.
We believe these issues are beyond the control of the appraiser and can easily
be remedied by the client.
Shipping arrangements are the second most prevalent cause of appraisal report
delivery. In our market area, Federal Express does not pick up after 3:00
pm and is not used by BOSS Appraisal unless so specified by the client in
advance. UPS Ground generally provides overnight service to all San Francisco
Bay Area locations. Any specific "overnight" delivery must be requested at
the time the order is placed and shall be charged to the client. By far the
BEST delivery method is via electronic transmission or EMAIL.
BOSS Appraisal will deliver the client order to your desktop via email at
no charge. This method generally saves 1-4 days in turn around time, and virtually
eliminates loss or delivery delay caused by mail delivery, UPS mis-routing,
etc.. We find that most lenders can accept email delivery in Adobe Acrobat
format (*.pdf) with no problem, but that many do not have a color printer
to print photos. Even the best color laser printers are right around $1000.
We believe that such an investment to save such a huge amount of turn around
time is a wise one. BOSS Appraisal has maintained the ability to transmit
all reports within minutes, and we strongly suggest all lender clients do
the same. The cost of printing a report on the client end (and the ability
to print multiple copies at no additional charge) far outweighs the expense
and delay of any other alternative.
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What
can we expect from a "Drive By" Appraisal?
You can expect an opinion of value that is typically and primarily formulated
upon data provided by the client at the time the appraisal order is placed.
The level of detail presented in the finished report is significantly less than
found in a full appraisal. The "Drive-By" appraisal is considered to be a "limited"
appraisal, thus invoking the departure provisions of the Uniform Standards of
Professional Appraisal Practice (USPAP). The finished report is considered to
be a "restricted" report, restricted to use by the original ordering client
for the original intended purpose and no other purpose. Typically, the appraiser
forms an opinion of value based upon very specific and limited assignment parameters
and the completed report is not suitable for alternative purposes. Only certain
properties are suitable for a limited "drive-by" type of appraisal. When there
are an abundance of recent comparable sales in the vicinity of the property
being appraised, this type of appraisal and report may be suitable. In the Lake
and Mendocino county market areas, however, the limited drive by appraisal is
not generally suitable. The BOSS Appraisal staff is very familiar with this
market area, and will correctly advise the client whether or not a less than
complete appraisal is advisable, and we will not accept a drive by appraisal
assignment when it is apparent that the finished report may result in a less
than meaningful final opinion of value.
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The appraisal report is completed based on the appraisal order. While the
appraiser will make every effort to correct obvious order errors, the appraiser
cannot be responsible for such errors. If the borrower's name is spelled wrong
on the order, it will probably be spelled wrong on the appraisal report. The
lender's name on the appraisal order will be the client's name on the report.
It is important to all parties that the appraisal order be complete and accurate
to the best of the client's ability. This is especially important if
the order specifies that the appraiser not inspect the property improvements.
If the lender indicates three bedrooms on the order in conflict with public
record, it is possible (and perhaps likely) that there is a converted garage
or non-permitted addition that would be overlooked.
The appraiser assumes no responsibility whatsoever for errors or omissions
by the client or as submitted in the assignment order. In the event report
modifications or alterations are required after submission, it is likely that
additional charges and/or time delays will occur.
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Appraisal Questions