real estate appraisal

REPORTING APPRAISAL OPTIONS

Basic Real Estate Appraisal: Principles & Procedures – 9th Edition

© 2015 OnCourse Learning

Chapter 16

STUDENT LEARNING OUTCOMES

• List the Three Conventional Formats of Written Appraisal Reports

• Describe the Two Written Reporting Options provided by USPAP

• Discuss the 12 Required Elements of an Appraisal Report, as set forth by USPAP

• Outline the Contents of a Formal Narrative Appraisal Report

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16.1 APPRAISAL REPORTS: THE FORMAT CHOICES

Practical Considerations • Written Appraisal Reports are a form of business

communication, and should be concise, well organized, and easy to read

• Consider the Knowledge Level of the Reader • Define Technical Terms to ensure understanding • Be sure the Information Reported is Adequate in

scope to Meet the Client’s Needs 3

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INTENDED USE AND INTENDED USER(S)

Choice of Report Type should depend upon… • Intended Use of Appraisal Report • Intended User(s) • Special Requirements of Client and/or

Intended User; and Specific Property Type • Knowledge Level of Client / User

The form and content of an appraisal report must result in a Credible report; and must be agreed upon between the Client and Appraiser.

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METHOD OF TRANSMISSION

• Typically Written, but can be Oral • Written Reports can be delivered as a:

• Hard Copy • PDF by email or uploaded to a secured website • Electronic Format (using third-party software) • Institutional Lenders require formats that

conform with the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal

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TYPES OF WRITTEN REPORTS

The Letter Report • Best Adapted to the Restricted Appraisal Report

reporting requirements in USPAP

The Form Report • Suited to the Appraisal Report requirements in

USPAP; but may require supplements to comply • Examples:

• Uniform Residential Appraisal Report (URAR) • Employee Relocation Council has its own form 6

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TYPES OF WRITTEN REPORTS (Con’t.)

The Narrative Report • Ideal for meeting the Appraisal Report reporting

requirements in USPAP • Typically the most comprehensive and formal as

to content and form • Best suited for Unusual Properties and/or Complex

Assignments; and often required for Demonstration Reports to earn designations

Some mix the features of all three report types to best suit the needs of the client and intended user

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16.2 LEGAL REPORTING REQUIREMENTS Standard 2 of USPAP… “each report must…”

1. “clearly and accurately set forth the appraisal in a manner that will not be misleading.”

2. “contain sufficient information to enable the intended users of the appraisal to understand the report properly.…”

3. “clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.”

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USPAP REPORTING OPTIONS Appraisal Report • A written appraisal report that must summarize

the appraiser’s analysis and the rationale for the conclusions

Restricted Appraisal Report • A written report that might not include sufficient

information for the client (no other intended users are allowed) to understand either the appraiser’s analyses or rationale for the appraiser’s conclusions. Minimum reporting format allowed.

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REQUIRED ELEMENTS OF AN APRAISAL REPORT 1. State the Identify of the Client and any Intended Users

by Name or Type. (Avoid violations of Confidentially section of the Ethics Rule)

2. State the Intended User of the Appraisal. 3. Summarize Information Sufficient to Identify the Real

Estate Involved in the Appraisal, including the Physical, Legal, and Economic Property Characteristics relevant to the Assignment.

4. State the Real Property Interest Appraised. 5. State the Type and Definition of Value, and Cite the

Source of the Definition. 10

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REQUIRED ELEMENTS OF AN APRAISAL REPORT (Con’t.) 6. State the Effective Date of the Appraisal and the Date

of the Report. 7. Summarize the Scope of Work Used to Develop the

Appraisal. 8. Summarize the Information Analyzed, the Appraisal

Methods and Techniques Employed, and the Reasoning that Supports the Analyses, Opinions, and Conclusions; Exclusion of the Sales Comparison Approach, Cost Approach, or Income Approach Must be Explained.

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REQUIRED ELEMENTS OF AN APRAISAL REPORT (Con’t.) 9. State the Use of the Real Estate Existing as of the Date

of Value and the Use of the Real Estate reflected in the Appraisal.

10. When an Opinion of Highest and Best Use was Developed by the Appraiser, Summarize the Support and Rationale for that Opinion.

11. Clearly and Conspicuously: • State all Extraordinary Assumptions and Hypothetical

Conditions; and • State that their use might have affected the Assignment

Results. 12. Include a Signed Certification in Accordance with

USPAP Standards Rule 2-3. 12

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RESTRICTED APPRAISAL REPORT • USPAP allows for much less detail • States the Required Minimum Content and

the Conclusions Reached • Requires a Prominent Use Restriction Clause

that limits the Use of the Report Solely to the Client (only Intended User)

• Must contain clear notice that it May Not be Understood without Review of Additional Information Contained in the Appraiser’s Work File 13

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FEDERALLY RELATED APPRAISALS

Shall at a minimum… • Conform to Generally Accepted Appraisal

Standards as Evidenced by USPAP, Unless Principles of Safe and Sound Banking Require Compliance with Stricter Standards.

• Be Written and Contain Sufficient Information and Analysis to Support the Institution’s Decision to Engage in the Transaction.

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FEDERALLY RELATED APPRAISALS (Con’t.) Shall at a minimum… • Analyze and Report Appropriate Deductions and

Discounts for Proposed Construction or Renovation, Partially Leased Buildings, Non- Market Lease Terms, and Tract Developments with Unsold Units, Using Market-Based Data.

• Be Based Upon the Definition of Market Value as Set Forth in the Regulation.

• Be Performed by a State Licensed or Certified Appraiser, in accordance with requirements set forth in the Regulations. 15

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UNIFORM APPRAISAL DATASET (UAD) Seeks to define the allowable content and format for roughly 209 of the 523 data fields in the URAR. The information in these fields must be in the correct format for the appraisal report to successfully transfer through the Uniform Collateral Data Portal.

Most URAR Software Programs are set up to assist the Appraiser in the preparation of a UAD-compliant report.

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16.3 FORM REPORTS: A CLOSER LOOK

• Most Common – the URAR, a.k.a. • Freddie Mac Form 70 (circa March ‘05) • Fannie Mae Form 1004 (circa March ’05) • Intended Use is for Loan Appraisals • Typical Attachments (Legal Description, Maps,

Sketch of Improvements, Photos); see Figures 16.7 through 16.11 (pages 546-558)

• Since April 2009, the Market Conditions Addendum (FNMA 1004MC) is Required; see Figure 16.1

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16.4 CONTENT OF THE NARRATIVE APPRAISAL REPORT

• Introduction • Description • Analyses and Conclusions • Addenda

Detailed on the slides that follow 18

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INTRODUCTIONARY MATERIAL

• Title Page • Letter of Transmittal • Table of Contents • Photograph of the Subject Property • Summary of Relevant Facts & Conclusions • Standard and Special Limiting Conditions

and Assumptions • Scope of Work of the Appraisal

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DESCRIPTION

• Identification of the Property • Description of Neighborhood &

Community; Current Market Conditions • Description of Land, Zoning, Community

Services, and Taxes • Description of Improvements • Sales History of the Subject Property; this

would include any Leases 20

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ANALYSES AND CONCLUSIONS

• Highest and Best Use • Explanation of and Support for the

Exclusion of Any Value Approaches • Estimate of Land or Site Value • Analysis of Data by the Value Approaches • Reconciliation and Final Conclusion of Value • Certification, with the Signature of the

Appraiser(s) 21

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SALES CHART IN A NARRATIVE REPORT

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ADDENDA OR SUPPORTING MATERIAL • Location and Plat Maps • Plot Plan of the Subject Property • Legal Description • Floor Plan of the Improvements • Additional Photographs of Subject Property • Sales Data Sheets, Sales Photographs and Sale

Location Map • Relevant Cost, Income & Market Study Exhibits • Qualifications of All Appraisers Signing Report

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SAMPLE ADDENDA ITEM

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CHAPTER SUMMARY The written appraisal report is a formal business communication from the appraiser to the client. Minimum requirements as to the form and content of appraisal reports are defined by the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP permits two Reporting Options – the Appraisal Report and the Restricted Appraisal Report.

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CHAPTER SUMMARY (Con’t) In practice, appraisal reports tend to mix the features of the three basic formats for written reports; the Letter Report, Form Report, and the Narrative Report. For federally-related appraisals, regulations require that all reports be written, conform to the Uniform Standards of Professional Appraisal Practice, and meet other minimum content standards set by financial institutions of the federal government.

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IMPORTANT TERMS & CONCEPTS

Appraisal Report Limiting Conditions

Assumptions Market Conditions Addendum

Certification Narrative Appraisal Report

Fannie Mae Form 1004 Professional Appraisal Standards

Fannie Mae Form 2055 Qualifications of the Appraiser

Fannie Mae Form 2075 Restricted Appraisal Report

Form Appraisal Report Sales History

Freddie Mac Form 70 Uniform Appraisal Dataset (UAD)

Letter of Transmittal URAR

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