REPORTING APPRAISAL OPINIONS

Chapter 16

AssumptionsCertificationLimiting ConditionsFannie Mae Form 1004Fannie Mae Form 2055Fannie Mae Form 2070FNMA Desktop UnderwriterForm appraisal reportFreddie Mac Form 70Letter of transmittal

Narrative appraisal reportProfessional appraisal standardsQualifications of the appraiserSales historySelf-Contained Appraisal ReportSummary Appraisal ReportUniform Appraisal Dataset(UAD)URAR

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CHAPTER TERMS AND CONCEPTS

LEARNING OUTCOMES

1. List the three conventional formats of written appraisal reports.

2. Describe the three written reporting options provided by USPAP.

3. Discuss the eleven required elements of a Self-Contained Appraisal Report.

4. Outline the contents of a narrative appraisal report.

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APPRAISAL REPORTS: THE FORMAT CHOICES

Practical Considerations Intended Use and Intended User(s) of the

Appraisal Report Method of TransmittalWho Determines: Intended Use and User? Method of Transmittal?

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TYPES OF WRITTEN REPORTS

The Letter Report Restricted use reportThe Form Report URAR 2055 & 2070 Report UCIRThe Narrative Appraisal Report Most Comprehensive

The USPAP Reporting Standard

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.…” Note that only the intended users need to be able to understand the report. Review the definition of intended user in Section 3.1.

3. “clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.” Source: USPAP, 2012-2013

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FEDERALLY RELATED APPRAISALS• 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.

• 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 Regulations.

• Be Performed by a State Licensed or Certified Appraiser.

Uniform Appraisal Dataset (UAD)

• attempts to define the allowable content and format for roughly 62 of the 200 data fields in the URAR. These 62 fields must be in the correct format for the appraisal report to successfully transfer through the Uniform Collateral Data Portal. Another 15 fields also will be transmitted to Freddie/Fannie, but these do not have mandatory formatting requirements that might cause a report to be automatically rejected.

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ISSUES IN SELECTING THE REPORT FORMAT

1. The Intended Use and Intended Users2. Mutual Understanding of the

Differences Between the Reporting Options

3. Legal Requirements4. Whether the Intended Use Warrants a

Detailed or Concise Disclosure of the Steps and Information Considered in the Appraisal Process

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USPAP REPORTING STANDARDS

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 Property”

3. “Clearly and Accurately Disclose all Assumptions, Extraordinary Assumptions, Hypothetical Conditions, and Limiting Conditions Used in the Assignment”

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TYPES OF WRITTEN APPRAISAL REPORTS

Self-Contained Appraisal Report: A written appraisal report that presents the

required information in comprehensive detailSummary Appraisal Report A written appraisal report that summarizes

information for a more concise presentationRestricted Use Appraisal Report A written appraisal report that states the required

information with the least detail. It is the minimum reporting format allowed.

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REQUIRED ELEMENTS

1. State the Identity of the Client and any Intended Users by Name or Type

2. State the Intended Use of the Appraisal3. Describe Information Sufficient to Identify the

Real Estate Involved in the Appraisal, Including the Physical and Economic Property Characteristics Relevant to the Assignment

4. State the Real Property Interest Appraised5. State the Type and Definition of Value and Cite

the Source of the Definition.a. Do not cite USPAP

6. State the Effective Date of the Appraisal and the Date of the Report.

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More REQUIRED ELEMENTS7. Describe the Scope of Work Used to Develop the Appraisal8. Describe the Information Analyzed, the Appraisal Methods

and Techniques Employed, and the Reasoning that Supports the Analyze, Opinions, and Conclusions; exclusions of the Sales Comparison Approach, Cost Approach, or Income Approach Must Be Explained.

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

10. Clearly and Conspicuously:a) state all extraordinary assumptions and hypothetical

conditionsb) state that their use might have affected the assignment

results11. Include a Signed Certification in accordance with USPAP

Standards Rule 2-3.

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SUMMARY AND RESTRICTED USE APPRAISAL REPORTS

A Summary Appraisal Report Summarizes the factual data, analysis and conclusions

developed in the appraisal process

A Restricted Use Report Presents the required minimum content and the

conclusions reachedo The appraiser must have sufficient data in their workfile to

present the data in a summary formato Requires a prominent use restriction clause. o Client has the right of access to your workfile.

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FORM REPORTS: A CLOSER LOOK

URAR Form, also known as Freddie Mac Form 70 Fannie Mae Form 1004 Only for Loan AppraisalsFNMA Loan Forms 2055 and 2070 Form 2055 for exterior inspection

appraisals Form 2070 inspection, NOT appraisalThe AI Report Form Designed to be used for many appraisals

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OUTLINE OF THE NARRATIVE APPRAISAL REPORT

A. Introduction

B. Description

C. Analyses and Conclusions

D. Addenda

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INTRODUCTION

1. Title Page2. Letter of Transmittal3. Table of Contents4. Photograph of the Subject Property5. Summary of Relevant Facts and

Conclusions6. Standard and Special Limiting

Conditions and Assumptions7. Scope of Work of the Appraisal

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DESCRIPTION

1. Identification of the Property2. Description of Neighborhood and

Community, and Marketing Conditions

3. Description of Land, Zoning, Community Services, and Taxes

4. Description of the Improvements5. Sales History of the Subject Property;

this would including any leases

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ANALYSES AND CONCLUSIONS

1. Highest and Best Use2. Explanation of and Support for the

Exclusion of any of the Usual Approaches to Value

3. Estimate of Land or Site Value4. Analysis of Data by the Value Approaches

a. The Cost Approachb. The Sales Comparison Approachc. The Income Approach

5. Reconciliation and Final Conclusion of Value

6. Certification, with the Signature of the Appraiser(s)

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ADDENDA

• Location and Plat Maps• Plot Plan of the Subject Property• Legal Description• Floor Plan of the Improvements• Photographs of the Subject Property• Sales Data Sheets, Sales Photographs,

and Sale Location maps• Any Relevant Cost, Income, and

Market-Study Exhibits• Qualifications of all Appraisers Signing

the Report

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Zoning Map

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ZONING MAP LEGEND

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COMPARABLE SALES CHART

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INFORMAL DATA SHEET

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PLOT PLAN

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SAMPLE QUALIFICATIONS

SUMMARY

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The written appraisal report is a formal business communicationfrom the appraiser to the client. Both the form and content of appraisal reports are defined by the Uniform Standards of Professional Appraisal Practice.

In practice, appraisal reports tend to mix the features of thebasic formats for reports, containing some features of the letterreport, some of the form, and some of the narrative report. In 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 the financial institutions of the federal government.