Write it Right

1. Write it Right A Summary of Residential Comments Instructor: Diana T. Jacob Email: dianatjacob@yahoo.com 254.582.3940 home 210.363.5950 cell

2. 1-3 Contract Analysis • Why is the contract pending relevant to the appraisal assignment? • Why is the history of the past three years relevant to the appraisal assignment?

3. 1-3 Contract Analysis Explain the results of the analysis or why it wasn’t performed! USPAP SR 2-2(b) (viii) When reporting an opinion of market value, a summary of the results of analyzing the subject sales, options, and listings in accordance with Standards Rule 1-5 is required. If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required

4. Page 1-4 1.2 Discussion Question(s) • Note the sample comments and identify which comment best examples answering the question “explain the results of the analysis”. Circle which answer appears to be sufficient and compliant.

5. Pg 1-4 Solution to Question 2 d. URAR: I [X] did “Terms of the 9 page contract received and analyzed included seller concessions to be paid toward closing costs of the loan no greater than 3% of the sale price, personal property to remain includes curtains, fireplace equipment, refrigerator, seller to pay Home Warranty Insurance in the amount of $450, contingent upon loan approval of the buyer on a conventional loan 75/25 LTV, 30 yr. fixed rate of 6% A.P.R., monthly amortized. None these terms represent a significant variance from the negotiated terms of comparable sales based on reported MLS data and verified information from related and/or interested parties associated with each comparable analyzed.

6. Pg 1-5 What is the Contract Price? • The appraiser has misread the contract and is being asked for a revision. The sale price stated in the appraisal was actually the mortgage amount. In the revision of the report, is there a comment that may need to also be added, amending the comments from the original appraisal?

7. Page 1-5 What is the Contract Price? Question: When an appraiser concludes a value that is close to the mortgage amount and then is asked to revise their error in the reported sale price is there a comment that may need amending? _________

8. Page 1-5 Solution to Discussion Q. __Yes__ The original report will show a different price that was in error; the appraiser should date the revision and offer an explanation:

9. Page 1-5 Solution to Discussion Q. Example: “The original sale price shown as $225,000 in report dated 01/20/2012 (effective date 01/18/2012) was in error as the appraiser misread the contract and is now amending the price as the contract states @$275,000. No amendment or revision was made to the value as the contract price has no impact on the value concluded.

10. Page 1-5 Discussion Q. Is it possible the value conclusion will change when the revision request to correct the error in reporting the sale price is made? _________

11. Pg 1-5 Solution to Discussion Q. Is it possible the value conclusion will change when the revision request to correct the error in reporting the sale price is made? ___No___ Continued Solution: The appraisal is not influenced by the contract price; the contract price is a price paid to obtain a property which may or may not be closely associated with the value concluded.

12. Pages 1-5 and 6 Reporting Financial Assistance -Finding the IPCs • Sometimes the seller assistance isn’t found in the front pages

13. Pages 1-5 and 6 Reporting Financial Assistance -Finding the IPCs • In many cases the concessions are reflected near the rear of the contract

14. Pg 1-7 There’s a “catch-all” for item 12 • Sample Comments: “The contract has a voidable clause that allows the contract to become null and void if the expenses agreed to be paid by the buyer exceed the amount expressly stated. The buyer cannot pay charges and fees expressly prohibited by (FHA, VA, Texas Veterans Land Board or other governmental loan program regulations). “

15. Pg 1-10 FAQ Guidance from the ASB on the request 135. DOES CHANGING THE SALE PRICE RESULT IN A NEW ASSIGNMENT? Question: I recently completed an appraisal for mortgage financing purposes in a purchase transaction and delivered the report to my client. My opinion of value did not support the pending sale price. As a result, the purchase transaction was not consummated. However, one week later the buyer and seller entered into a new purchase agreement where the sale price coincided with my appraised value. My client asked if I can provide a revised report that includes the analysis of the newly agreed-upon sale price. To provide a revised appraisal report, must I consider the client’s request as a new assignment?

16. Pg.’s 1-10/11 FAQ Guidance from the ASB on the request 135. DOES CHANGING THE SALE PRICE RESULT IN A NEW ASSIGNMENT? Response: If the client does not require a more current effective date, USPAP would not mandate treating the request as a new assignment. However, if the client does require a more current effective date, the request must be treated as a new assignment. In this example, regardless of whether the effective date is changed, the date of the report would have to change to accurately reflect the appraiser’s consideration of the newly obtained agreement of sale. Because the new purchase agreement was obtained after the date of the first report, the revised report would need to have a date of report that is the same as or later than the date the new purchase agreement was obtained by the appraiser……

17. Pg.’s 1-11 FAQ Guidance from the ASB on the request • To help make the decision as to whether or not the renegotiated sale it is a new assignment one needs to consider “is the pending sale or renegotiated sale price a value?”. According to USPAP definition a value is never a fact. A sale price offer, acceptance or offer and acceptance states a price which once stated is a fact. In some cases state appraisal boards have “dinged” appraisers for failing to treat the renegotiated sale price as a new assignment. State rules and regulations would need to be followed as state laws, rules and regulations can exceed USPAP.

18. Page 1-2 Cover Yourself • Comments on Contract Analysis: “The contract (found in the appraiser’s workfile/attached as an exhibit) was believed to be the final ratified contract including all addendums and final accepted counter offers. This contract included __9__ pages. In the event a new contract was written after the effective date of this appraisal or subsequent to the receipt of the contract analyzed by the appraiser, the appraiser makes it known that it was not part of this assignment analysis.

19. Page 1-12 Cover Yourself • The inclusion of personal property in the contract, i.e. washer, refrigerator, was deemed by the appraiser to be a concession of the sale. This personal property was not considered in the final value conclusion of the real property interest. Further the appraiser makes it known that he or she did not inspect the personal property nor does the appraiser warrant its functional utility. The items of personal property do not in the appraiser’s opinion impact the sale price upward or downward but are seen as a typical concession between buyers and sellers in virtually all transactions. The lack of these items would not in the appraiser’s opinion prevent the sale from passing or affect the price that was negotiated between the parties.”

20. Pg. 2-3 How is an Appraisal Problem Defined? • Without understanding what the problem is, the attempt to solve is meaningless. Who decides? • Assignment Elements Define the Problem • client and any other intended users; • intended use of the appraiser’s opinions and conclusions; • type and definition of value; • effective date of the appraiser’s opinions and conclusions; • subject of the assignment and its relevant characteristics; and • assignment conditions.

21. Pg. 2-4 How is an Appraisal Problem Defined? Who decides? • Communication with the client is required to establish most of the information necessary for problem identification.. However, the identification of the relevant characteristics is a judgment may by the appraiser that requires competency in that type of assignment.

22. Pg. 2-4 How is an Appraisal Problem Defined? UAD and the Client

23. Pg. 2-5 Case Study-Which are Correct?

24. Pg. 2-5 Case Study-Which are Correct?

25. Pg. 2-5 Case Study-Which are Correct?

26. Pg. 2-5 Case Study-Which are Correct?

27. Pg. 2-5 Case Study-Which are Correct? Prepared For: Prepared For: NBC Appraisal Management Bank of Logan 1890 Hwy 57 83469 Main Street Ankle High, Wyoming 98456 Ankle High, Wyoming 98456

28. Pg. 2-5 Case Study: This is a Cover Page – Which is Correct? Prepared For: Bank of Logan 83469 Main Street Ankle High, Wyoming 98456

29. Page 2-6 Identifying the Property It is here the appraiser may have difficulties when the title or survey in possession of the client differs.

30. Pg. 2-7 FAQ as of 10/2011 for UAD

31. Pg. 2-7 Sample Comment • MUNICIPAL ADDRESS – Regardless of any existing title or survey the appraiser is required under the UAD to report the address according to the United States Postal Service ( www.usps.gov ). The compliance entry requires street names to be abbreviated for conformance with the U.S. Postal Service, i.e. Street=St, Avenue = Ave., Lane = Ln, Drive = Dr, Hill = Hi. Any request to change must be tendered with the consequence of receiving an appraisal that is in non-compliance with the UAD. A non-compliant UAD report may result in the report being unacceptable for delivery to the Secondary Market.

32. Page 2-8 When it’s a PUD • If subject is attached and the developer is in control of the homeowners association, the PUD section of the URAR must be completed. • If subject is NOT attached, or if the developer is NOT in control of the homeowners association, additional information about the PUD is still required by Chase, but may appear in either the PUD section of the URAR or an addendum. • Regardless of where the information is reported, the appraiser must report the PUD’s legal name, the HOA assessment fees, and the property rights for each comparable sale; and must compare them to the subject PUD.

33. Page 2-8 When it’s a PUD • The appraiser must also identify the Common Elements/Amenities available to the unit owners, comment on their condition, and analyze how they compare to the Common Elements/Amenities of competing PUDs. • If you use single family residences as comparables located outside the PUD development, you must provide analysis to support the inclusion of the non-PUD comparables and the impact deed restrictions will have on the subject’s marketability and value

34. Page 2-12 PUD • You can read the clear exhortation whether yes or no the data sources must be provided. • In a refinance it’s quite simple if the subject was not listed for sale but the MLS system, if used as a research to identify whether it had been offered, does have to be reported. For example if the subject is a refinance and is in San Antonio the appraiser would report it as follows:

35. Page 3-3 Communications of the Neighborhood • Warren Buffet was quoted as saying “The most important thing in terms of your circle of competence is not how large the area of it is, but how well you've defined the perimeter.” • The same can be said of defining your neighborhood-it’s not the size that is relevant but how well you’ve defined the perimeter.

36. Page 3-3 Understanding the blocks • These three blocks communicate information about the land area within the boundaries of the defined “neighborhood boundaries”. These three blocks communicate information about the land area within the boundaries of the defined “neighborhood boundaries”.

37. Page 3-6 Reporting Neighborhood Description • The results of a neighborhood analysis enable appraisers not only to identify the factors that influence the value of properties in the market area, but also to define the area from which to select the market data needed to perform a sales comparison analysis. • Item #7 of certification states…. locationally, physically, and functionally the most similar to the subject property .Compare that statement of ethical obligation to bulleted items of FHA minimum requirement

38. Page 3-8 Neighborhood • Lender Appraiser Guidance states….”Appraisers must: perform a neighborhood analysis to identify the area that is subject to the same influences as the property being appraised based on the actions of typical buyers in the market area ……(center bullet)

39. Page 3-10 Neighborhood Comments that report unfavorable conditions must address the reasons for the vacancies or boarded-up properties in factual terms through the provisions of data that relates to such things as: • Demand/supply • Foreclosure rates • Tax sales, etc. • And-discuss how this factor affects the market value and marketability of the subject and surrounding properties in the neighborhood

40. Page 3-11 Writing Comments for Neighborhood Conclusion • There are three formats that the appraiser can easily provide their conclusions of their economic analysis • Narrative paragraphs with blank lines or • Summarized illustrative sentences with bullet points or • Report in a table format

41. Page 3-11 Illustration of Narrative Summary Format • The location of the bounded neighborhood is <_____ miles and under ______ minutes driving time from the major employment centers via nearby Interstate/Highways. Unemployment rate for the town is ____% which is higher/lower/in balance with the overall state unemployment rate of _____. Local amenities < _____ miles within _____ minutes driving time are Parks/Recreational Sports Fields/Golf/Lakes/Museums/Movie Theatres/Public Tennis Courts/Water Parks/Football/Bowling/_________(choose or add applicable amenity attraction).

42. Page 3-10 Illustration of Summary Format - tab short answers • Neighborhood Time and Distance Proximities: • Major Employment Centers < 15 mi < 30 min • Interstate < 5 mi < 15 min • Local Basic Shopping < 2 mi < 10 min • Retail Mall >15 mi < 60 min • Parks, Ball-fields > 10 mi < 30 min

43. Page 3-11 Illustration of Summary Format-Using the Table Method

44. Page 3-13 Rural Neighborhood Mkt.’s • Rural Defined (Census Bureau and FHA) • A place having fewer than 2,500 inhabitants; • A county or parish with an urban population of 20,000 inhabitants or less; • Territory, persons and housing units in the rural portion of “extended cities”; • Open country that is not a part of or associated with an urban area; • Any place with a population not in excess of 20,000 inhabitants and not located in a Metropolitan Statistical Area.

45. Page 3-15 Rural Markets-Typically Seen • Shopping Amenities in the Rural Market • One primary discount center (one-stop shopping) • Farm Supply Centers • Grocery Store(s) • Family owned drug stores • Family medical clinics • Dental (one to two general dentists) • Plant nurseries (seeds, plants, fertilizer, small garden tools) • Gas Station • Dollar Store • One or Two Fast Food restaurants • Family owned restaurant (family style or cultural foods of the region) • Family owned dry cleaner • Discount furniture and appliance sales and service • Higher ratio of religious facilities to population • Public schools (private schools aren’t typical in these markets) • Protective Services (county sheriff, volunteer fire department, rural ambulance

46. Page 3-17 Case Study 3.4 • Write a review comment on the quality of reporting this neighborhood-what if anything is missing if it were to comply with the secondary market?

47. Page 3-16 Case Study 3.4 Solution • Write a review comment on the quality of reporting this neighborhood-what if anything is missing if it were to comply with the secondary market? • Answer: • The description summary of “easy driving distance” fails to note by miles or time the distance. No specific information about residential design styles, lot sizes, no mention of employment stability, only 50% is single-family, no mention of the probability of the remaining Vacant Land of 26%, no mention of availability of emergency services, etc.

48. Page 3-18 Rating systems in Vacant Land • One of the greater misunderstandings is the vacant land report with Rating Chart • It’s a comparison chart-the lack of an amenity doesn’t automatically negative its marketability or demand

49. 4-3 Writing Comments • Using form reports without a comment ensures a summary communication that does not comply with the minimum content of a Summary Appraisal Report. Narrative comments are the link between the field response and the reasoning why the field response was concluded as reported.

50. 4-3 Seller Concessions • One of the greater abuses of appraisers is their communication of seller concession by the misuse of canned comments. • Unsupported comments impose a “COMMISSION” of data that creates confusion and misleads the intended users. • Do you see your comment in one of the three bullets?