Products

Unity Standard Form: This Broker Price Opinion (BPO) form is a three listing, three sale comparable form with MLS sheets. This form is available with or without photographs. The standard number of photographs with this form is three: front of subject, side or rear if possible and a . . . → Read More: Unity Asset Management, Inc.]]> About Unity Asset Management, Inc.
Products and Services:

Products

Unity Standard Form: This Broker Price Opinion (BPO) form is a three listing, three sale comparable form with MLS sheets. This form is available with or without photographs. The standard number of photographs with this form is three: front of subject, side or rear if possible and a neighborhood shot.

Unity Short Form: This BPO form is an abbreviated, three sale comparable form with MLS sheets. This form is available with or without photographs. The standard number of photographs with this form is one.

Interior/Exterior Standard Form: The real estate associate gains entry into the subject property either by re-keying or contact information provided by the client. A second page addendum describing interior characteristics and detailed condition of the subject property is included with the standard form and MLS sheets. The photographs included with this product are: exterior front, exterior rear, street scene, kitchen, all bathrooms, main living areas and any visible damages. Additional photographs may be obtained upon request.

Drive-By Appraisal: Drive-By Appraisals are sometimes necessary for states or areas where BPO’s are difficult to contract for completion, interior access on full interior appraisal is not possible or DB Appraisal is product of choice. A certified appraiser licensed in the subject property state will complete the BPO form or use their own appraisal form (usually URAR 2055). Client preference will determine the form. Fees are negotiated with the appraiser to obtain the lowest possible rate.

Full REO Appraisal: A certified appraiser will complete a full interior appraisal on the URAR 1004 form. REO appraisals include: as is and as repaired values, a list of repairs with itemization of cost to cure, interior/exterior photos and listing comparables.

Commercial BPO: This is a one page three sold comparable, three listing comparable form with a second page narrative addendum that will describe economic, environmental, historical and other areas not covered by the BPO form. The Commercial BPO includes a minimum of three photos. The real estate associate is instructed to ensure that the photos demonstrate a comprehensive representation of the entire commercial entity including interior if accessible to the public. Fees are negotiated with the real estate associate then approved by the customer.

Customized Forms: Unity forms can be changed to meet specific needs. Additionally, clientele who prefer their own form can have that form added to the Unity Asset Management, Inc. system.

Mortgagee Letters

ML 09-37 titled “Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers” provides the following, “FHA Roster Appraisers are required to review the applicable FEMA Flood Insurance Rate Map (FIRM) and make appropriate notations on the applicable appraisal reporting form.  If the property is located within a . . . → Read More: FHA Mortgage Letters]]>

Mortgagee Letters

ML 09-37 titled “Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers” provides the following, “FHA Roster Appraisers are required to review the applicable FEMA Flood Insurance Rate Map (FIRM) and make appropriate notations on the applicable appraisal reporting form.  If the property is located within a SFHA, the appraiser must attach a copy of the flood map panel to the appraisal report.  The appraiser must enter the FEMA zone designation on the reporting form as well as identify the map panel number and map date.  If the property is not shown on any map the appraiser should enter “not mapped”.  It is noted that FEMA is digitizing its maps to provide more detail and actual pictures of existing buildings not seen on older maps which may benefit lenders and appraisers.”

ML 09-09 titled “Adoption of Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) and Appraisal Reporting Requirements for Properties located in Declining Markets” is a key Mortgagee Letter for appraisers. It provides specific direction as to the use of the 1004 MC and development and reporting requirements for assignments of properties located in declining markets.

A short but useful Web training presentation on the proper way to complete the 1004MC can be found at efanniemae.com;

https://www.efanniemae.com/is/appraisers/index.jsp?from=hp.

With regard to appraisal assignments in declining markets, the appraisal must include:

• at least two comparable sales that closed within 90 days prior to the effective date of the appraisal or include a detailed explanation as to why there is a lack of market data

• a minimum of two active listings or pending sales with adjustments in the sale comparison grid in the 4th to 6th position or higher

Appraisals not complying with the requirements found in ML 09-09 will be considered incomplete and not acceptable.

There is more in the ML than is covered here. You must refer directly to ML 09-09 for additional sales comparison development and reporting requirements for appraisals of properties located in declining markets.

Three Mortgagee Letters of direct interest to appraiser were issued one after the other.

Mortgagee Letter 2009-28 with the “Subject: Appraiser Independence”, should be read fully. It introduces new requirement for lenders and provides that, “FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.”

This ML has a section addressing “Appraisal and Appraisal Management (AMC)/ Third Party Organization Fees”.

It also has a section affirming existing requirements including “Prevention of Improper Influences on Appraisers” , “Appraiser Independence Safeguards”, and “Appraiser Engagement – Knowledge of Market Area – Geographic Competency.”

Mortgagee Letter 2009-29 with the “Subject: Appraisal Portability”, should be read fully. In contains the following; “FHA prohibits “appraiser shopping” where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser.   However, a second appraisal may be ordered by the second lender under the following limited circumstances:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.

2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.

3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.”

Further, “In cases where a borrower has switched lenders, the first lender must, at the borrower’s request, transfer the case to the second lender.  FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.

In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment.  To effect a client name change, the second lender and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change.  A new client name should include the name of the client (lender) and HUD.”

Appraisers should be aware that, as of this writing, October 2009, there is a “USPAP Q & A” from The Appraisal Foundation that calls into question the practice of limiting the scope of work of an assignment to simply a name change as outlined in Mortgagee Letter 2009-29.  The title of the October 2009 Q & A is “Client Request to Limit Scope of Work to New Client Name”.

It appears that if the direction regarding name changes in the portion of Mortgagee Letter 2009-29 cited here is followed, the assignment results may not be credible. That is, if the appraiser accepts the assignment conditions as outline in the ML, it does not appear the appraiser will have identified and executed a credible scope of work. The appraiser is referred to The Appraisal Foundation  ”USPAP Q & A” (link follows) where the Q & A can be read in full.

http://www.appraisalfoundation.org/s_appraisal/sec.asp?CID=12&DID=12

Mortgagee Letter 2009-30 with the “Subject: Appraisal Validity Periods”, should be fully read. It provides that, “Effective for all case numbers assigned on or after January 1, 2010, the validity period for all appraisals on existing and proposed and under construction properties will be 120 days.  This change aligns FHA’s requirements pertaining to the validity of an appraisal with current industry practices.

This is a change from the current validity periods of six months for an appraisal of an existing property that is complete and 12 months for proposed and under construction properties.”

REQUIRED EXHIBITS

Here is a list of the required exhibits for an appraisal assignment to be completed for FHA. The required exhibits include:

• Street Map

• Sketch
  - Show all dimensions and include patios, porches, garages and such.
  - A floor plan is required for houses with functional obsolescence due to floor plan.

• Subject Photographs
  Front and rear photographs from opposite sides to show all sides of the subject are required.

• Subject is Proposed Construction
  At a minimum, take a photograph of the lot to show the grade. In addition, provide whatever photos are needed to convey to your client the lot characteristics.

• Street scene
  When in doubt as to whether your street scene accurately conveys the area surrounding the subject, take multiple street scene photos

• Comparables Photos
  You may use photos from a data reporting service such as an MLS, but you must also include your own photograph of the comparable. So you will have two photos for the comparable in the report. As an example, the report may include the photo you took showing the locked gate which prevented you from getting a good photograph of the improvements and the MLS photo which shows the client the relevant characteristics of the comparable sale.

• The FHA Case Number should appear on each and every page of your appraisal report, including all supporting photograph exhibits, maps, deeds.

It is often, if not usually, true that a list of required exhibits is a starting point. You must be sure to include all appropriate additional exhibits which would help your client understand relevant characteristics.

]]> http://appraisalblogs.com/?feed=rss2&p=255 0 http://appraisalblogs.com/?p=245 http://appraisalblogs.com/?p=245#comments Tue, 04 May 2010 00:47:35 +0000 admin http://appraisalblogs.com/?p=245 SMALL RESIDENTIAL INCOME PROPERTY

What is a Small Residential Income Property

We all know that a small residential income property has two, three or four units. However, in some areas of the country small residential income properties can be found as part of a condominium project. In other parts of the country, . . . → Read More: SMALL RESIDENTIAL INCOME PROPERTY]]> SMALL RESIDENTIAL INCOME PROPERTY

What is a Small Residential Income Property

We all know that a small residential income property has two, three or four units. However, in some areas of the country small residential income properties can be found as part of a condominium project. In other parts of the country, one or more of the units could be a manufactured home. For those of you in areas where these are found, it is important to know that you should use the small residential income property appraisal report (SRIPAR) for these types of small income properties. In addition, if the subject is part of a condominium development, also complete the Condominium Project Information section of the individual condominium unit appraisal report. If one or more of the units is a manufactured home, also complete the HUD Data Plate and Improvements sections of the manufactured home form.

IMPROVEMENTS

In your development of the square footage of the subject for a small income property appraisal assignment, you develop both a Gross Living Area (GLA) and a Gross Building Area (GBA). These are two different measures.

The first, gross living area, is based on the square footage calculated by including the exterior perimeter walls of each unit. It is recognized that you may need to estimate the thickness of the walls. The GLA does not include attic, basement or other areas assigned to the unit. GLA is computed for two- to four-unit properties in the same way it is computed for a single family property.

FHA specifically advises, “The gross living area is obtained by drawing an imaginary line on the outside perimeter walls of each unit (similar to the method used to measure a single family dwelling).”

The concept of gross building area is not typically applied in single family or condominium appraisal assignments. GBA is the total finished area of the building or buildings, including hallways, interior stairways and common areas regardless if the area is above and below grade. The measurements are based on the exterior of the subject. All the finished area is lumped together. FHA specifies, “Use same method for calculating GBA of comparable sales.”

The unit of comparison which is supposed to be developed in the sales comparison for analysis purposes is Sales Price per Gross Building Area. The problem for appraisers is the data for comparison purposes may not be based on gross building area. That is, many area reporting services do not provide the GBA for the sales, but rather routinely report only the GLA as it is defined here or some approximation.

You may be forced, with proper disclosure, to use a price per GLA in the unit of comparison analysis of the sales comparison as you are not able to develop a reliable GBA for the comparable properties. If you are not able to develop a reliable GBA for the comparables, it follows you will not be able to develop a reliable price per GBA.

Be sure to develop both estimates (GLA and GBA) of the subject as you are required to by the assignment. Then, if your price per GBA analysis would not be reliable as your data sources report only GLA, disclose in the analysis summary you are using GLA as the basis of the comparison and why.

The key issue is consistency. For the unit of comparison analysis, be sure the unit of comparison for the subject is developed on the same basis as the units for the comparables. If you are not consistent in this way, you are comparing the proverbial apples to oranges. If you are not consistent, your result from the unit of comparison analysis based on price per square foot will be skewed in one direction or another.

COMPARABLE RENTAL DATA

The instructions at the start of this section of the SRIPAR read: “This analysis is intended to support the opinion of the market rent for the subject property.” No doubt that is true. Perhaps this statement would be better if it read, “This analysis is intended to develop a market rent estimate for the subject property.” By definition, if the analysis is properly completed, the result will be a properly supported opinion of the market rent estimate for the subject. There are three elements in the development of the market rent estimate. These are the rent survey, the lease or rent analysis of the subject, and the application of the results.

In the rent survey phase of the market rent estimation, you are attempting to find properties which are as similar to the subject as possible and confirming what their contract rents are, including the terms of the lease or rental agreement. The rental comparables may or may not be the same as the properties used in the sales comparison analysis. They often are different, because rental data may be more widely available.

By the processes of researching current contract rents of the rent comparables, the appraiser is then able to form an opinion of what the subject should rent for in the market. In a very real way, it is the application of the appraiser’s judgment which transforms researched contract rent data into a market rent estimate for the subject.

It is not appropriate to estimate “market rents” for rental comparables which are vacant or which the appraiser believes are rented at some rate other than market rent. If rent comparable units are vacant, they are simply not rent comparables. What they are offered for in the market is certainly a data point. What they were rented for prior to vacancy may be a good reflection of market rent and may be considered.

Similarly if you think a rent comparable is rented below the market, do not try to show it at what you judged it should rent for. All that does is weaken the credibility of your analysis, and it represents putting the cart before the horse in your analysis.

Be sure to analyze what is included in the rent of the rent comparables; water, sewer and garbage, among others.  Be sure you form your opinion of the estimate of the market rent for the subject on the same basis, including the same elements.

In the rental contract analysis for the subject, be sure to identify what is included in the contract rent for the subject. The subject’s contract rent may be below, equal to, or above the rents you find in the marketplace.

Ideally the properties you use to develop the market rent estimate for the subject will be different properties than those used in the sales comparison.  Finally, don’t forget the power of unit of comparison analysis in the development of a market rent opinion.  Unit of comparison analysis could include rent per GLA or GBA and rent per bedroom. There may be other meaningful units of comparison of which you are aware in your local area.

Be sure to summarize the adequacy of the comparable rentals and address any rental concessions which are included in your market rent estimates.  As an example, it is well known in many markets that there is a tradeoff between amount of the contract rent which can be charged and the amount of the security deposits and such.  The lower the security deposits, etc., the greater the rent a landlord will be able to charge.

SALES COMPARISON APPROACH

In a perfect world, where the subject is a tri-plex, the appraiser would be able to readily research and employ three comparable tri-plexes.  FHA recognizes the world is not perfect. FHA advises it is acceptable to mix properties with a differing number of units for comparison.  For example, it is acceptable to use a 3-unit property as a comparable for a 4-unit, or a 2-unit property as a comparable for a 4-unit property.

If you are forced to use a range of sales, then for purposes of estimating comparables available for sale and which have sold, open up your analysis to include those unit types.

There may be great properties to use in the sales comparison which are not rented at the time of their sale.  Resist the temptation to estimate market rents for comparables which were vacant at the time of sale, or for units which were above or below the prevailing market.  Estimating a market rent for vacant units or for those which are thought to be rented below the market significantly reduces the credibility of the analysis.  Such techniques may so limit the credibility of the analysis as to render it no longer credible.

The protocol instructs you to “Enter the Gross Monthly Rent for the subject property and each comparable sale.”  This is used to calculate the gross rent multiplier (GRM) of the sale.  If you ignore current contract rents, vacancies, and below or above market rents of the sales and impute or provide your own estimate of the market rent, you are not reflecting the actual market data from the sale.  By injecting your opinion of what the rent should have been for the comparable in such a way, you’re pulling more “information” (GRM) from the sale than the sale can really provide you.

Remember, you can always use different sales than those from the sales comparison analysis to develop a GRM.

FHA further suggests – and I think all appraisers would agree – that you should avoid minor adjustments in your sales comparison which probably do not reflect the market.  Also, not all dissimilarities result in market reactions.  There may be differences between comparables and a subject which are just that, differences, but the market is indifferent to the differences. FHA specifies adjustments must be “extracted from and supported by the actions in the market.”

For example, there may be certain adjustments you use in the single family world which you may, without much thought, apply in your two to four family assignments.  It can be true that differences in square footage between small income properties may not be as meaningful.  Rents may be fairly uniform over some range of square footages in your market area.  As a result, carrying over adjustments typically used in single family assignments may result in a sales comparison which does not properly reflect the influences on value found in the small residential income property market.

In the course of completing the sales comparison analysis, you will develop a fairly thorough unit of comparison analysis.  You will develop a value indication for the subject based on a reconciled price per room, price per unit, price per GBA and price per bedroom.  This, in addition to your unadjusted price per property and adjusted indicators, should provide strong indications as to the subject property’s value.

Of course, value indicators are rarely, if ever, totally consistent.  For this reason, you reconcile.  FHA advises to summarize the sales comparison, including reconciliation of indications of value from unit of comparison analysis.  While averaging, especially weighted averaging, has been gaining favor as a reconciliation technique over the years, remember averaging is just one technique or tool in your toolbox.  On the list of reconciliation techniques, it is near the bottom.  It should be used sparingly.  FHA advises you not to average to account for differences in the indications of value.

INCOME

The income approach, Gross Rent Multiplier (GRM) analysis, requires your thoughtful preparation. This seminar is not about how to develop a GRM analysis. It is assumed you know the mechanics of it. FHA’s direction here is to provide a reconciliation of the multipliers. “Judge comparability and applicability of each. Do not average, account for differences.” Sound familiar?

Provided here is the link to the Reference Guide for Gross Rent Multiplier analysis. As of this writing, it was a bit dated, as it refers to the separate GRM form which was allowed by FHA. Your 2 to 4 unit properties are to be completed on the SRIPAR form, so you no longer could or would use a separate GRM form. This link takes you to additional areas of interest for the appraiser completing a 2 to 4 unit property appraisal for FHA.

http://www.hud.gov/offices/hsg/sfh/ref/sfhp1-03.cfm

COST APPROACH

The cost approach is generally not required. It can be used if you complete it by choice. It must be completed if it is necessary for credible assignment results or you agree with your client to complete the cost approach. The cost approach is required if the subject is a specialized property or a manufactured house.

Even though you do not complete a cost approach, you must provide an estimate of remaining economic life of the subject. The estimate may be a single number or a range. Don’t forget the magic 30 years. If your estimate of the remaining economic life is less than 30 years, provide an explanation.

FHA advises, “The gross living area” is obtained by drawing an imaginary line on the outside perimeter walls of each unit.”

Operating oil or gas wells New construction – 75’ is the minimum distance of the dwelling from the oil or gas well site boundary Existing house – 300’ is the minimum distance of the dwelling from the oil or gas well site boundary

Abandoned oil or gas wells With . . . → Read More: FHA Manufactured & Specilized Requiremants]]> Some specialized requirements:

• Operating oil or gas wells
  New construction – 75’ is the minimum distance of the dwelling from the oil or gas well site boundary
  Existing house – 300’ is the minimum distance of the dwelling from the oil or gas well site boundary

• Abandoned oil or gas wells
  With safety letter – 10’ is the minimum distance
  Without safety letter – 300’ is the minimum distance

• Overhead high-voltage transmission lines (H-VET)
  “No dwelling or related property improvement may be located within the engineering (designed) fall distance of any pole, tower or support  structure of a high-voltage transmission line, radio/TV transmission tower, microwave relay dish or tower or satellite dish (radio, TV cable, etc.). For field analysis, the appraiser may use tower height as the fall distance.”
  H-VET are defined as 60 kilovolts or greater
  High voltage lines are 12-60kv
  Low voltage lines are 12kv or less
  Low voltage lines may not pass over any structure on subject property

• Stationary Storage Tank
  If the subject is within 300 feet of a stationary storage tank of 1000 gallons or more of explosive or flammable materials, the property is not eligible for FHA insured financing

From the 4150.2 “M. STATIONARY STORAGE TANKS

Stationary Storage tanks containing flammable or explosive material pose potential hazards to housing, including hazards from fire and explosions. If the property is within 300 feet of a stationary, storage tank containing more than 1000 gallons of flammable or explosive material, the site is ineligible.”

Foundation
Clearance between the bottoms of the floor joists and the earth is recommended to be 18”. It is “highly” recommended but not required.

If the subject property has a view which is typical of other houses in the neighborhood, you should describe the view: briefly

Certification Label

If the tags are missing, the property should be rejected, but even though HUD does not reissue Certification Labels, all may not be lost. The certification numbers may be verified from different sources including the manufacturer or the in-plant inspection agency; HUD may be able to issue a letter of label tag verification

Provided here is a copy of a January 4, 2006 response to a question submitted to the Santa Ana HOC providing direction to an appraiser who had written asking what to do when he could obtain all the information from the data plate, but was unable to find the certification label; it appeared the label had been covered.

“Response: All manufactured homes must have an affixed HUD seal(s) located on the outside of the home. If the home is a multi-wide unit, each unit must have a seal. They will be numbered sequentially. If for any reason the tags are missing, the Appraiser must recommend ‘rejecting’ the property and notify the Lender.  In some states, a manufactured home may not be re-sold if missing a seal.  If this is the case, the property is a reject.  If this is not the case, then, the Lender may send an E-Mail to the Department’s Manufactured Housing and Standards Division Program office, at (mhs@hud.gov) and request issuance of a letter stating that the home had originally been issued a HUD label.  The information, on the data plate inside the home, is not an acceptable alternative.  However, the Lender/Home Owner needs to obtain the serial number(s), of the home, from the data plate found inside the home, or the serial numbers found on the front cross member, on the steel chassis under the home; and provide the serial number(s), to the Program office listed above.  Additionally, the Department can more easily assist if you provide the following information: Name and Address of the Manufacturer, Date of Manufacture (Month, Day, and Year), Serial and Label Number(s) of the Home, and The Contact Person’s Name, Address, Telephone, and Fax Number. “

What follows is the link to the “Missing HUD Tags (Label)” Website.

http://www.hud.gov/offices/hsg/ramh/mhs/mhslabels.cfm

Section 7 Improvements Addition or Modifications

IMPROVEMENTS, ADDITIONS, or MODIFICATIONS

You are directed to, “Describe any additions or modifications made to the manufactured home since its initial placement on the site…”4150.2 D-59

It is best to ask the homeowner if any additions or modifications were completed in compliance with Manufactured Home Construction and Safety Standards (MHCSS). They probably will look at you with something approximating a “deer caught in the headlights” look, but it never hurts to ask. So that leaves it to you to judge if the additions or modifications present a risk to the structural integrity of the manufactured home. If you suspect the additions or modifications do cause a risk or a threat, then you are to notify your client.

The issue with manufactured houses is that the perimeter foundations are usually not designed to be load bearing. The ends of the structure are supported by the metal runners which rest on the posts. The ends are cantilevered.  Many homeowners and even contractors either do not realize or forget this when making additions or improvements. They will unwittingly attach decks or additions to the sides of the manufactured house expecting the foundation of the manufactured house to carry a portion of the load of the addition or modification. As the manufactured home perimeter foundation is not designed to carry any real load at all, the results can be spectacularly unsuccessful.

Again, if you suspect the addition or modification presents a risk to the manufactured home’s structural integrity; call the lender immediately for guidance.

Also, remember that the manufactured house cannot have been moved, other than for its original placement, to qualify for an FHA insured mortgage. There are times when a manufactured house, which has been placed on a permanent foundation, will be moved again. Perhaps it was sold and moved when its sellers were in the process of building a conventional house on their site. When the manufactured house is placed in its new location, the house will not be eligible for FHA insurance because it has been moved.

IMPROVEMENTS – PERMANENT FOUNDATION SYSTEM

“To be eligible for FHA-insured financing, the design of the permanent foundation must be in compliance with FHA criteria as evidenced by an engineer’s certification verifying such compliance.”

• You should ask the lender for a copy of the engineer’s certification verifying compliance. You should indicate in this section of the 1004C if the certificate was provided to you.

In the foundation protocol section, we find: “The appraiser is required to inspect the foundation and basement. The appraiser must address all visible deficiencies and may require a recommendation for an inspection. Consider deferred maintenance and physical deterioration in the valuation process.” 4150.2 D-54

When you look underneath the manufactured house, be sure to check that the towing hitch and running gear have been removed. If they have not, then the subject will not be eligible for FHA insured financing. You are directed to contact your lender. I suspect your lender will ask you to complete your appraisal assignment “subject to the removal of the tow hitch and running gear and an inspection by a qualified inspector to confirm the removal.”

You are asked to report the manufactured home installer’s name, either the person or company, if the information is readily available. If not, just note it is not in your report. Many states have their own requirements for installer’s tags. Often they are found next to or near the HUD tag. Be sure to copy down any serial or other identification numbers from the state label, if there is one. It may be easiest just to photograph it.

MFH COST APPROACH

The cost approach is required if the manufactured house is new construction. New construction is defined as the initial sale from the manufacturer. The cost approach is not required if the manufactured home is less than one year old, but the sale for which you are doing the appraisal is for the resale of the manufactured home. Occasionally you will run into this case. The cost approach is not required if the manufactured home is over a year old.

If the manufactured home is over one year old and the retailer’s invoice showing the purchase price is available, a copy should be included with your report.

Happily, if the manufactured house is new construction, you can use the retail purchase price including delivery, installation and set-up costs instead of relying on a recognized cost service. You must include a copy of the invoice showing the retail purchase price and all the other costs identified. Don’t forget that you will need to reconcile any data used in the development of the cost approach.

To summarize:

• The cost approach is not required – if less than one year old but a resale or MH is over one year old

• If MH is over one year old, if available, a copy of the invoice should be included in your report

• The cost approach is required if the subject is new construction

• If it is an initial sale from the manufacturer and the retail purchase price with delivery, installation and setup costs is available, you may “rely upon the retail purchase price and exclude reliance upon a cost service.” 4150.2 D-61

• Remember – If the subject is new construction and you are employing the retail price, including delivery, installation and set up costs – you must still provide an opinion of the value of the site

• Include a copy of the invoice showing the retail price, delivery, installation and set up costs as an exhibit in your report

• Reconciliation – very important

• Remaining economic life estimate – My best suggestion is to include the remaining economic life in both the Cost Approach and Reconciliation sections of the report.

SALES COMPARISON APPROACH

The completion of the sales comparison approach for a manufactured house is very similar to the sales comparison requirements for a “stick” or conventionally built house sales comparison analysis.

• At least two of the sales are to be manufactured homes.

• Recognize that it may be necessary to expand the search parameters. When you do, be sure to fully explain.

• You may use “stick” built houses as comparables. If you do, be sure that for the purposes of the assessment of the “comparable properties currently offered for sale in the subject neighborhood” and the assessment of the “comparable sales in the subject neighborhood within the past 12 months” you include stick built houses in your assessment.

You are taking in an order for an appraisal of a manufactured home. As part of the assignment, you should ask for: the location of the data plate

In the course of your inspection, you find a data plate that reports the subject manufactured home was built on June 15, 1977. You would: accept the manufactured house because it was built after June 15, 1976

]]> http://appraisalblogs.com/?feed=rss2&p=212 0 http://appraisalblogs.com/?p=193 http://appraisalblogs.com/?p=193#comments Mon, 03 May 2010 22:16:18 +0000 admin http://appraisalblogs.com/?p=193

An FHA appraiser may not require these repairs, but must include them in the overall condition rating and value opinion developed:

Repairs . . . → Read More: FHA Repairs]]>

An FHA appraiser may not require these repairs, but must include them in the overall condition rating and value opinion developed:

• Worn floor finishes or carpeting
• Missing handrails
• Holes in windows screens
• Cracked or damaged exit doors
• Cracked window glass
• Rotten or worn-out countertops
• Trip hazards
• Crawl space with debris or trash
• Lack of all-weather driveway surface

Repairs necessary to protect the Health and Safety of occupants, to protect the Security of the property, and to fix problems affecting the Soundness of the structure – The “3 S’s” – are:

• Inadequate access from bedrooms to exterior of dwelling
• Leaking or worn-out roofs
• If conditions are present with three or more layers –  roof tear off
• Evidence of structural defects, including excessive settlement
• Defective paint on houses built prior to1978

Examples when you might make an inspection or repair requirement include:

• Wood-destroying insects or organisms – where there is evidence of active infestation or such inspections are mandated or customary
• Inoperative or inadequate plumbing, heating or electrical systems
• Structural failure in framing members
• Leaking or worn-out roofs
• Cracked masonry or foundation
• Drainage problems

At the time of your inspection, you have evidence that plumbing is inadequate you should:

• Require an inspection by a qualified plumbing contractor

LOCATION FACTORS CAN AFFECT THE 3S’s:

• The subject may be rejected if the property is “subject to hazards, environmental contaminants, noxious odors, offensive sights or excessive noises to the point of endangering the physical improvements or affecting the livability of the property, its marketability, or the health and safety of its occupants.” Quote by: FHA 4150.2 D-3
• The guidance from the 4150.2 D-3 is, “If there is any doubt as to the severity, report the condition and submit the completed report. For those conditions that cannot be repaired, such as site factors, the appraised value is based upon the existing conditions.”

Detail all hazards and nuisances that may endanger the health and safety of occupants and/or structural integrity or marketability:

HOW TO HANDLE SITE HAZARDS & NUIANCES

• Subsidence
• Operating and abandoned oil and gas wells
• Abandoned water wells
• Slush pits
• Heavy traffic
• Airport noise, hazards, runway clear zones/clear zones
• Proximity to high pressure gas, liquid petroleum pipelines, or other explosive materials
• Location within the fall distance of high voltage transmission lines, radio/TV transmission tower or other types of towers
• Excessive hazard due to smoke, fumes, odors
• Stationary storage tanks containing flammable or explosive materials

Look for readily observable indications of the presence of hazardous substances:

• Pools of liquid
• Pits
• Ponds
• Lagoons
• Stressed vegetation
• Stained soils or pavement
• Drums or odors

In your appraisal report, be sure to note the proximity to dumps, landfills, industrial sites or other sites that could contain hazardous wastes. How about underground storage tanks is another thing to make note of while completing the appraisal inspection.

Make sure the subject is not significantly affected by adverse drainage or grading condition. You are looking for observable indications of grading and drainage problems. Readily observable conditions would include:

• Standing water near the property
• Lack of gutters and downspouts or appropriate grading or landscaping to control water flow
• Grade does not allow for positive drainage

An appraisal must be completed “subject to” the appropriate requirements, which could be further inspection or repair. The description and requirements should appear in the site section of the appraisal report.

INDIVIDUAL WATER SUPPLY

Report the type of water supply in the appraisal. The lender client may require water testing. There two general types of water testing – the first is for the quality of the water supply or potability, the second is of the quantity of water and is usually accomplished by a well flow and draw-down test. If there is known contamination or there are purification systems present due to contaminants, it will require an inspection. Also, the availability of public water must be reported. If it is available, connection will be required by the lender if it is reasonable and feasible. The lender uses a 3% benchmark to determine if connection is reasonable. That is, if the cost to hookup is 3% or less of the estimated value of the property, then hookup may be required by the lender.

Additional factors which may trigger an inspection include:

• Corrosion of pipes
• Intensive agricultural activity within ¼ mile
• Coal mining or gas drilling operations within ¼ mile
• Dump, junkyard, landfill, factory, gas station or dry cleaning operation within ¼ mile
• Unusually objectionable taste, smell or appearance
• Mandated by state, local or other jurisdiction

A domestic well must be a minimum of 50 feet from a septic tank and 100 feet from the septic tank’s drain field as well as a minimum of 10 feet from any property line. An appraiser is no longer required to show the distances on the sketch(Chapter 3-10 4150.2). An appraiser is directed to ask the homeowner or person on-site if there is a survey available and if they may have a copy of it.

When is a well test required?  when the state mandates, the water may be contaminated, corrosion of pipe, with 1/4 mile of large agricultural, dry cleaning,  gas operations, coal mining, land fill, junk yard, or compost spell.

HOW TO HANDLE AN INDIVIDUAL SEWAGE SYSTEM

INDIVIDUAL SEWAGE SYSTEM

sewage system in the appraisal. Inspection of the septic or individual sewage system if such an inspection is mandated or customary. Your inspection is a visual inspection. If there are signs of failure, require an inspection.

Signs of failure can include:

• Flowing liquid waste

• Excessively green or moist areas

• Odors

Report if there is a public or community sewage system available. If either is available, the lender may require hookup to the public or community sewage system. It is the lender who will determine if the connection is required.

ROOF INSPECTION

Report the type of roof surface in the appraisal and its observed condition. Observe and report indications of deterioration, such as:

• missing tiles, shingles, or flashing
• cupped, curled or worn surfaces

When you are not able to see the entire roof look in the interior for ceiling water stains or signs of damage due to a leaking roof.  Make sure to report the extent of your roof inspection so your client does not assume it was more complete than conditions permitted. If you find that one or more of the 3S’s is affected, require inspection or replacement of the roof surface.

But what if it’s snowing outside? Inspect the attic space and interior of the dwelling, comment on the snow covered roof and knowledge that there is no signs of leakage.

MECHANICAL SYSTEMS
Including Plumbing and Electrical Systems

Report the type and condition of mechanical, plumbing and electrical systems. For electrical systems, look for:

• Frayed or exposed wiring in living areas
• Adequate amperage
• Test a representative number of
  • Lighting fixtures
  • Switches
  • Receptacles

“The appraiser is not required to insert any tool, probe or testing device inside the panels or to dismantle any electrical device or control” – 4150.2 D-5

For plumbing systems, report the type and condition of the plumbing system. Do or check for the following items:

• Flush the toilets
• Turn on all faucets – both hot and cold
• Odors and leaks
• Evidence of leaks or structural damage
• Pressure & flow – multiple fixtures at the same time

For heating and cooling systems, report the type of type and condition. Do or check the following:

• Turn on the heating and cooling systems

• No unusual noises, odors or smoke

• Is heating and cooling reaching each room

Very Important: DO NOT turn on any system if damage may result from the test. As an example, outside weather conditions or other factors may not allow operation of a unit without damage.

Be sure to disclose that you did not inspect the unit due to climatic conditions. An electric outlet cover plate missing is another example of something that should be disclosed.

Lead Based Paint

Lead based paint issues are very important in assignments that are intended to serve as decision tools in conjunction with an FHA insurance program. As one element in an overall effort to reduce the possibility of lead based paint poisoning, the appraiser is required to call for correction of defective paint surfaces on properties with homes built before January 1, 1978.

For the appraisal inspection of homes built prior to January 1, 1978 the appraiser is to “Observe all interior and exterior surfaces…” for defective paint, including:

• Walls, stairs and decks
• Porches and railings
• Windows and doors
• Fences, detached garages, storage sheds
• Other outbuildings and “appurtenant”  structures

In your appraisal report, provide a complete description of what you observe. Photographs are particularly helpful. Specify the “exact location” of any defective surfaces. Defective paint includes paint that is:

• Peeling
• Scaling
• Flaking
• Chipping

The appraisal will be made be made “subject to” repair of the defective paint surfaces.

To study the rules in the original, you are directed to Title 24 CFR Part 35 – LEAD-BASED PAINT POISONING PREVENTION IN CERTAIN RESIDENTIAL STRUCTURES:

http://www.access.gpo.gov/nara/cfr/waisidx_01/24cfr35_01.html

Remember, even on properties built after January 1, 1978, it still may be necessary to require paint or some type of exterior surface covering to protect against damage to the structure.

Underground storage tanks, or UST’s: must be inspected if there are obvious signs of failure

The proper way to handle possible soil contamination is to: appraise “subject to” the appropriate requirements

I wanted to take some time and try to help eliminate confusion about the word inspection. In the minds of people who are not experienced in real estate matters it is important to distinguish between the two. This is also important for those appraisers that want to be able to educate . . . → Read More: Appraisal Inspection Vs. Home Inspection]]> Appraisal Inspection Vs. Home Inspection

I wanted to take some time and try to help eliminate confusion about the word inspection. In the minds of people who are not experienced in real estate matters it is important to distinguish between the two. This is also important for those appraisers that want to be able to educate consumers on the difference between appraisers and home inspectors.

Appraisers: Licensed or Certified as Appraisers, Complete Visual Inspection, Reports an Appraisal (Standard 2), and Estimates Value,Client Expectation – Appraisal

Home Inspectors: Licensed or Certified as Inspectors, Detailed physical inspection, Reports a Home Inspection, Estimates Costs, and Client Expectation – Home Inspection

Warning: What you are about to read could be career-ending. For me that is. But only if those who intend to drive a stake in to the heart of the AMC (Appraisal Management Company) industry win the day.

It’s worth it though, if it brings some . . . → Read More: Will State-by-State AMC Regulation Drive a Stake Into The Heart of AMCs?]]>

This article by Guest Blogger, Executive Director, Jeff Schurman of The TAVAMA Blog

Warning: What you are about to read could be career-ending. For me that is. But only if those who intend to drive a stake in to the heart of the AMC (Appraisal Management Company) industry win the day.

It’s worth it though, if it brings some people around to the genuine threat facing the mortgage lending ecosystem that state AMC registration laws pose. I remain convinced that federal AMC oversight is the safest, most effective, and least costly alternative, and is far better than the state-by-state approach underway. In fact, I wouldn’t even be too worked up if there was a single, federal overseer, with states taking on the enforcement role. It’s the 50 states crafting their own legislation that’s worrisome. What some state legislatures propose to rein in AMCs will put them out of business.

But before it goes that far a few points are worth noting. I’ll use New Mexico’s proposed AMC act as just one example of what can happen when states attempts to regulate entities that they don’t understand on the advice and counsel of populist outrage.

Lenders have two (2) choices when it comes to managing appraisal panels.

They can do it themselves or have someone else do it. Each choice has advantages and disadvantages; and each involves tradeoffs. By outsourcing to an AMC, the lender avoids appraisal coordination costs that it would otherwise incur.

Appraisal coordination includes the cost of hiring, equipping, training, and supervising people to find and qualify appraisers, place and track orders, perform underwriting reviews of finished products, among other duties. By outsourcing, lenders avoid certain technology investments, labor burden, order volume fluctuations, and keep the appraiser and originator at arms-length.

Significantly, AMCs enable lenders to convert the numerous fixed costs associated with fee panel management into variable costs. Lenders managing fee panels themselves must invest in all the requisite resources to perform these functions on a mostly fixed-cost basis. And it adds yet another cost center managing non-core functions.

Hence we arrive at critical point number 1: Appraisal reports don’t just show up; someone must invest in IT, facilities and carbon-based resources to acquire them; the lender… or AMC.

Production cost + coordination cost = the total cost of any good or service.

Few would dispute that it costs something to coordinate appraisal transactions. We can debate the amount of the cost. But surely we’d agree that there is some coordination cost. Someone has to find the appraiser, perform a background check, negotiate fees, turnaround times, and delivery methods; handle customer complaints, status updates, and underwriting reviews; pay the appraiser and bill the customer.

Charlie Elliott, who operates one of the nation’s largest appraisal firms, put this cost at $100 per appraisal. My own pro formas support his estimate. And it’s important to consider that that’s the cost to an AMC; the cost to a lender self-managing a panel will be even greater. Why? Because, while an AMC approaches supplier management as a core-competency, a lender necessarily does not. AMCs spend tons of time and resources organizing their value chains to maximize productivity and innovation, and reducing overall operating costs. Cost saving is another advantage for lenders that use AMCs.

Thus we come to critical point number 2: There’s upwards of $100 in transaction coordination cost to an AMC above and beyond the cost of the appraisal; even more to a lender self-managing suppliers.

New Mexico proposes to cap AMC fees at 10 percent of the appraisal cost.

That’s the poison pill at the center of Senate Bill 138, which was introduced this month by Senator Mark Boitano. If it carries, an AMC that pays an appraiser say $250 would earn $25, just one-forth of its internal coordination cost; at $400 it would earn $40, a not much better two-fifths of its cost.

[Author's Note: My understanding is that the NM legislature has dropped the 10% fee cap subsequent to the post being published. ]

Therefore, a 10% fee cap would mean one of two things. The AMC would either need to pay the appraiser $1,000 per appraisal, to cover the $100 cost to coordinate the transaction, or leave. This would mean NM consumers would pay more than twice what they pay today, which won’t sit well. Or AMCs will bail on the state.

So here are critical point(s) 3 and 3.1: Arbitrary fee caps will put AMCs out of business, harming the mortgage lending ecosystem, and raising administrative costs. 3.1: Such clauses demonstrate a stunning lack of understanding of the economics of the business model being regulated.

All this is stacked atop a $1,000 AMC registration fee.

Last year, New Mexico passed an AMC registration act requiring AMCs to pay a $1,000 registration fee the first year (and $550 annually thereafter). Of course, this won’t much matter because few AMCs will make it past the one-year mark. But regardless, coupling the $1,000 registration fee with the 10% fee cap means an AMC that earns $25 (in fee-cap imposed earnings) needs to do 40 appraisals that year; at $40 they’d need 25 orders in year-one, or 2.1 per month. Not huge order numbers relatively speaking. But given that the fee cap guarantees a loss on each order it’s understandable why the better option is to bail.

This suggests critical point number 4: High registration fees only add to the twisted cost-benefit equation for doing business in a state; adding a fee cap is lethal poison.

The problem is clear. Someone must pay to coordinate the transaction. The coordination cost — to AMC is upwards of $100 per order; to the lender potentially much more. Unable to pay premium appraisal fees to cover coordination costs under the cap, and having also to pay a $1,000 registration fee, and the specter of a large loss on each transaction, means that enacting NM SB 138 as-is will cause AMCs not to serve lenders that do business in New Mexico.

Four likely outcomes if I turn out to be right.

If I’m right there will be four (4) outcomes… beyond ridding the state of AMCs. 

The first is that other states will unwittingly adopt similar poison pills. Not understanding the unintended consequences of such a clause on not only AMCs but also mortgage lenders and mortgage availability to living, breathing, and voting taxpayers state legislators will view the fee cap poison pill as aspirin. It won’t be.

The second outcome will be that lenders who formerly used AMCs will suddenly have to manage appraisals themselves. This is significant given that 17 of the top 20 lenders use or own AMCs. Trouble is they won’t have the resources to tackle this new responsibility, at least for a while. And assuming they finally get their act together it is unlikely that lenders will replicate the productivity, innovation, cost controls and strategic advantage that the AMC industry – whose core competency after all is managing appraiser contracts and workflow – achieve currently.

The third outcome will be that lenders, faced with the prospect of building an AMC-light operation, will pass on the additional costs to consumers. These costs will prove significant. Beyond the coordination costs mentioned already, lenders would now need to reserve for risks they’re taking on. Some of these risks include HVCC compliance risk and reporting risk. Way more significant will be risk (and cost) associated with order volume volatility. Today, many lenders mitigate order volume volatility simply by placing more or fewer orders with AMCs. Absent that outsource safeguard, they’ll need to forever staff up and lay off workers in response to often wild swings in volume. Capacity will be constant anchor on profitability.

The forth outcome — and there surely are more than just these — is that we’ll quickly discover a disparity between the laws of various states with regard to bank-owned AMCs. Many states exempt banks from their AMC registration laws. I suspect this is to avoid going head to head with the existing federal bank exemption. Other states, including New Mexico, do not carve out banks from their AMC laws.

I’m not sure about how this bank-exemption thing will play out. However, in states that exempt banks, I suspect, bank-owned AMCs will claim the exemption. Should that strategy ultimately fail in a handful of states they’d simply bring the subsidiary AMC in-house as a department of the bank: the appraisal management department.

An opportunity for meaningful registration lost. 

Article Source: The TAVMA Blog

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