Other Forms and Reports

1. Chapter 3 Other Forms and Reports

2. Chapter 3: Key Terms • Appraisal Review The act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment. • Broker Price Opinion (BPO) A method used by lenders and others to determine elements of value and marketability for a property. • Recertification of Value A process performed to confirm whether or not the conditions of a prior appraisal have been met. A Recertification of Value does not change the effective date of the value opinion.

3. Introduction • Numerous other reporting forms and formats communicate the appraiser’s opinions and conclusions in various assignments. • Some reporting forms used primarily for mortgage lending may be specified by the client and the use agreed to by the appraiser, based on the level of risk perceived by the lender. • Other forms are specific to a particular appraisal discipline, such as appraisal review or for a specific type of property, such as manufactured homes, condominiums, etc. • Many of the most common appraisal reporting forms will be discussed.

4. Other Common Appraisal Reporting Forms • Common appraisal forms used to communicate an appraisal of residential real property for a mortgage finance transaction will be reviewed. • In most cases, the key differences of the particular form and the Uniform Residential Appraisal Report (URAR) will be discussed.

5. Exterior-Only Inspection Appraisal Report • Referenced by both Fannie Mae and Freddie Mac as Form 2055. • Designed for reporting an exterior-only appraisal of a single-family dwelling, including planned unit developments (PUDs), but not manufactured homes. • May not be used for condominiums or cooperative units.

6. Form 2055: Scope of Work • Required during development process when Form 2055 is being used for reporting. • Very similar to that required for the URAR. • Form spells out that the appraiser must, at a minimum: • Perform a visual inspection of the exterior areas of the subject property from the street. • Inspect the neighborhood. • Inspect each of the comparable sales from the street. • Research, verify, and analyze data from reliable public and/or private sources. • Report the analysis, opinions, and conclusions in the appraisal report.

7. Form 2055: Scope of Work (cont.) • Scope of work integral with Form 2055 indicates appraiser is only inspecting the exterior of the subject property from the street. • Additional instruction, unique to Form 2055, specifies requirements for the appraiser in performing an appraisal utilizing the form.

8. Form 2055: Scope of Work (cont.) • "The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to, condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and from reliable public and/or private sources to perform this appraisal. The appraiser should use the same type of data sources that he or she uses for comparable sales such as, but not limited to, multiple listing services, tax and assessment records, prior inspections, appraisal files, information provided by the property owner, etc."

9. Form 2055: Scope of Work (cont.) • Since the integrity and accuracy of the data obtained from most of these sources are believed to reflect the actual state of the portions of the property that the appraiser cannot see first hand, but is not certain, the use of an extraordinary assumption would be appropriate. • As discussed in Chapter 1, when an appraiser employs an extraordinary assumption in the development process, its use must be appropriately disclosed in the appraisal report, per Standards Rule 2-2 (a), (b), and (c)(x).

10. UAD Requirements of Form 2055 • Key differences regarding the UAD requirements for completing Form 2055 mirror those of the URAR form with the exception of the requirement to provide information regarding any material work done to the kitchen or bathrooms in the prior 15 years, the level or work completed, and the timeframe for work completed to those areas.

11. Form 2055: Statement of Assumptions and Limiting Conditions • This section of Form 2055 is very similar to the corresponding section in the URAR. All assumptions and conditions are the same, except that Form 2055 removes the statement regarding the sketch. • The appraiser is not required to provide a sketch for the dimensions of the improvement, since the appraiser did not enter the premises to determine the exact layout of the property.

12. Form 2055: Statement of Assumptions and Limiting Conditions (cont.) • As with the URAR, the appraiser is not held responsible for legal matters affecting the property, nor is the appraiser expected to give testimony in court about the appraisal unless arrangements are made beforehand.

13. Form 2055: Statement of Assumptions and Limiting Conditions (cont.) • Appraiser certifies that he or she has examined available flood maps and noted in the appraisal any adverse conditions that may affect the property. • Aside from those things noted in the appraisal report, the appraiser makes the assumption there are no hidden or unapparent deficiencies present that would lower the property's value.

14. Form 2055: Statement of Assumptions and Limiting Conditions (cont.) • If any repairs are noted or required, the appraiser assumes they will be performed in a professional manner. • Appraiser does not make any guarantees about the property, nor does the appraiser assume any liability for items that are unknown at the time of the appraisal or could only be discovered by a person with specific expertise in a given discipline.

15. Form 2055: Appraiser’s Certification • Certification is very similar to the corresponding section in the URAR. • The appraiser's certifications (and the supervisory appraiser's certifications) are the same, except Form 2055 removes any statements that refer to inspecting the interior of the subject property. • Like the URAR, the certifications detail actions that the appraiser performed in developing an opinion of value for the subject property.

16. Form 2055: Appraiser’s Certification (cont.) • As noted with the URAR form in Chapter 2, the appraiser is not permitted to modify or delete any part of the certifications. • Appraiser may only add additional certifications that do not materially alter the appraisal report, such as state-specific requirements— those statements that must be added due to requirements of a trade organization of which the appraiser is a member.

17. Form 2055: Exhibits Required • Exhibit requirements are less than those for the URAR. • Appraiser must attach a street map that shows the location of the subject property and all of the comparable sales used in the sales comparison approach. • Appraiser must also include a photograph of the front of the subject property. • Appraiser must attach as an exhibit any other data deemed necessary to support the value opinions and conclusions found in the appraisal report.

18. Individual Condominium Unit Appraisal Report • Used for the appraisal of an individual unit in a condominium project, including a condominium that is part of a PUD. • Not designed for valuing cooperative units or for manufactured homes that are part of a project or complex. • Appraiser performs most of the same steps as in a regular appraisal.

19. Individual Condominium Unit Appraisal Report (cont.) • Some additional project data needed, so Fannie Mae and Freddie Mac developed the individual condominium unit appraisal report to ensure that all necessary information is presented in the appraisal report to the lender-client. • Fannie Mae designates this form as Form 1073 and Freddie Mac designates the report form as Form 465.

20. Individual Condominium Unit Appraisal Report (cont.) • Similar to the URAR (Form 1004) discussed in Chapter 2, but has additional sections requiring the reporting of details of entire condominium project. • One important difference is there is no cost approach reported (or developed) for condominium units.

21. Individual Condominium Unit Appraisal Report (cont.) • Because of their co-ownership structure, condominium units have unique appraisal requirements. • Fannie Mae and Freddie Mac recognize this. • Condominiums are properties developed for co-ownership, where each co-owner has a separate interest in an individual unit and an undivided interest in the common areas (grounds, lobby, hallways, etc.,) of the property.

22. Individual Condominium Unit Appraisal Report (cont.) • Condominium residents must follow the declarations and bylaws set forth by the founder of the condominium. • These bylaws are maintained and enforced by the owners' association. • Most condominiums are designed for residential use.

23. Individual Condominium Unit Appraisal Report (cont.) • Typical condominiums look like apartments, but residents usually have exclusive ownership of their units. • A condominium is a legal concept rather than a design concept, so condominiums could also be free standing units. • Condominiums should not be confused with PUDs or cooperatives.

24. Planned Unit Developments (PUDs) • PUDs are special subdivisions that do not have to comply with standard zoning and subdivision regulations. • Residential and non-residential buildings are often combined in the overall plan, and common areas may be owned by the homeowners' association for the benefit of all residents. • Since no co-ownership is involved, a PUD is appraised using the standard URAR form, with the "Project Information for PUDs" section filled in.

25. Cooperatives • Cooperatives are buildings owned by corporations, with the residents as shareholders who each receive a proprietary lease on an individual unit and the right to use common areas. • Title to the cooperative building is held by a corporation formed for that purpose. A person who wants to live in the building buys shares in the corporation and is given a proprietary lease for a unit in the building. • Proprietary leases have longer terms than ordinary leases and give the shareholder more rights than an ordinary tenant.

26. Cooperatives (cont.) • To transfer a cooperative interest, a shareholder conveys his or her stock and assigns the proprietary lease to the new shareholder. • The value of a cooperative is determined by the estimated market value of the cooperative interest and accompanying occupancy rights. • Reporting the appraisal of a cooperative unit uses a different form, which is not discussed in this text.

27. Condominiums • If the condominium unit is free-standing and no common areas are co-owned, the URAR form is used. • In this case, the appraiser must include comments and information about the homeowners' association, condominium fees, and quality of maintenance. • Most condominiums have common ownership of some areas. • Because of this and the shared external maintenance, the appraiser must report the characteristics of the entire condominium project as a whole, in addition to reporting specific information applicable to subject unit.

28. Form 1073/465: Scope of Work • Similar to that required for the URAR. • The appraiser must, at a minimum: • Perform a complete visual inspection of the interior and exterior areas of the subject unit. • Inspect and analyze the condominium project. • Inspect the neighborhood. • Inspect each of the comparable sales from the street. • Research, verify, and analyze data from reliable public and/or private sources. • Report his or her analysis, opinions, and conclusions in the appraisal report.

29. Form 1073/465: UAD Requirements • For the most part, the UAD reporting requirements somewhat mirror those of the URAR form with several exceptions. • Specific fields must be UAD compliant for reporting. (continues)

30. Form 1073/465: UAD Requirements (cont.) • Unit # • Project Name • Project Description • General Description • Developer/Builder in Control of HOA • Any Commercial Space in the Project • Condominium Unit Housing Trends • # of Levels

31. Form 1073/465: UAD Requirements (cont.) • No field for reporting site area as the concept is not consistent with the definition of a condominium. • Design or style also is not a required reporting element. • Other fields appear in the URAR which may be reported in a slightly different manner in the condominium report, such as heating/cooling sources. • Some fields common to both forms may be included under different sections of the respective report.

32. Form 1073/465: Statement of Assumptions and Limiting Conditions • Significantly the same as the URAR. • Appraiser is not held responsible for legal matters affecting the property and is not expected to give testimony in court about the appraisal unless arrangements are made beforehand. • Appraiser certifies that he or she has examined available flood maps and has noted any adverse conditions that may affect the property.

33. Form 1073/465: Statement of Assumptions and Limiting Conditions (cont.) • Aside from those things noted in the appraisal report, appraiser makes the assumption that no hidden or unapparent deficiencies that would adversely affect the property's value are present. • Appraiser assumes any repairs noted will be performed in a professional manner. • Appraiser is not making any guarantees about the property, nor is the appraiser assuming any liability for unknown items.

34. Form 1073/465: Project Information • In addition to specific information about the condominium unit, the appraisal report requires information relating to the project or complex in which the unit is located. • Since the desirability of the unit is also associated with the appeal of the complex, there is an entire section in the appraisal form for clearly reporting sufficient data so that the lender-client may understand the subject’s project and its characteristics.

35. Form 1073/465: Project Information (cont.) • Reporting fields are specific to two categories: condition and ownership. • Fields regarding condition address desirability of the subject's condominium project compared to other competing condominium projects in the same market area. • Was the project created by converting existing buildings into condominiums? • Are the units, common elements, and recreation facilities complete? • Is there any commercial space in the project? • Describe the condition of the project and quality of construction. • Describe the common elements and recreation facilities.

36. Form 1073/465: Project Information (cont.) • Reporting fields specific to ownership provide the appraiser the opportunity to describe additional measures of desirability within the condominium project. • Includes source of fees and likelihood that they will rise, as well as the owner-occupancy level of the complex. • Is the developer/builder in control of the homeowners’ association? • Does any single entity (individual, investor group, corporation, etc.,) own more than 10% of the total number of units in the project? • Are any common elements leased to or by the homeowners’ association? • Is the project subject to ground rent?

37. Form 1073/465: Project Information (cont.) • Fannie Mae and others will not approve mortgages in condominium complexes where owner-occupancy falls below a specified level. • Details must be reported regarding the current primary occupancy and number of units in various stages of completion for all phases of the condominium project. • Fees paid by unit owners are an important aspect of desirability of a condominium.

38. Form 1073/465: Project Information (cont.) • Poor management and budgetary planning or insufficient reserves can lead to sudden fee increases in the future. • A major concern of most lender-clients is the soundness of the condominium project's management company and that there are enough funds available for future repairs.

39. Form 1073/465: Appraiser’s Certification • Certifications are the same as the URAR. • They detail actions that the appraiser performed in reaching a conclusion of value for the subject property, including research and verification of data to give the client confidence in the results as well as other required disclosures.

40. Form 1073/465: Exhibits Required • Addenda for Form 1073 are similar to those for the URAR. • Appraiser must attach a street map showing the location of the subject property and comparable sales used in the sales comparison approach. • For a condominium unit in a complex, appraiser must include an interior sketch of the unit, including calculations for gross living area. • As an alternative, appraiser may attach a copy of the building plat to the appraisal report instead of a floor plan sketch.

41. Form 1073/465: Exhibits Required • Appraiser must also include clear and descriptive photographs that show the front and rear of the subject unit, as well as a street scene. • Pictures of each comp used must show the front of the property and may be copied from other sources. • Appraiser must attach as an exhibit any other data deemed necessary to support the value opinions and conclusions found in the appraisal report.

42. Manufactured Home Appraisal Report Form • Also known as Fannie Mae Form 1004C or for Freddie Mac, Form 70B. • Form is designed for the appraisal of a one-unit manufactured home. • Includes a unit located in a planned unit development (PUD). • If manufactured home is part of a condominium project or cooperative, additional information about the project must be supplied on a separate form and attached as an addendum to the reporting form.

43. Manufactured Home Appraisal Report Form (cont.) • Fannie Mae defines manufactured housing units as single-width or multi-width units constructed off-site and transported to the permanent site. • There, they are completed and/or attached to the foundation. • Under this definition, the dwelling is built to HUD specifications with a HUD certification label attached and recognized as a manufactured home.

44. Manufactured Home Appraisal Report Form (cont.) • No UAD reporting requirements. • Scope of Work section as well as the Statement of Assumptions and Limiting Conditions are consistent with other forms that have been discussed, as is the Appraiser’s Certification. • Required exhibits also are mirrored.

45. Form 1004C: Unique Reporting Fields • Several reporting fields are unique. • These fields require relatively brief yes or no responses or explanations, but may have required the appraiser to conduct additional research or investigation during the development process of the appraisal. • Most of these fields address improvements and are focused at reporting the permanence of the structure on the site.

46. Form 1004C: Unique Reporting Fields (cont.) • These required fields include: • Is the manufactured home attached to a permanent foundation system? • Have the towing hitch, wheels, and axles been removed? • Is the manufactured home permanently connected to a septic tank or sewage system and other utilities? • Appraiser is also asked to describe any additions or modifications to the structure (e.g., a deck), and to rate the quality of construction based on objective criteria.

47. Form 1004C: Unique Reporting Fields (cont.) • Most significant reporting section of the form is the HUD data plate section. • Purpose of this section is to report data significant to compliance with HUD and local requirements. • HUD data plate or compliance certificate is located on the interior of the subject, and the HUD certification label is located on the exterior of each section of the home. • Both of these contain much of the information needed to complete this section of the form.

48. Form 1004C: Unique Reporting Fields (cont.) • These required fields include: • Is the manufactured home attached to a permanent foundation system? • Have the towing hitch, wheels, and axles been removed? • Is the manufactured home permanently connected to a septic tank or sewage system and other utilities? • Appraiser is also asked to describe any additions or modifications to the structure (e.g., a deck), and to rate the quality of construction based on objective criteria.

49. Form 1004C: Unique Reporting Fields (cont.) • These required fields include: • Is the manufactured home attached to a permanent foundation system? • Have the towing hitch, wheels, and axles been removed? • Is the manufactured home permanently connected to a septic tank or sewage system and other utilities? • Appraiser is also asked to describe any additions or modifications to the structure (e.g., a deck), and to rate the quality of construction based on objective criteria.

50. Form 1004C: Unique Reporting Fields (cont.) • One section of Form 1004C that varies from the standard URAR is the Cost section. • In calculating costs of the structure, there is a breakdown of the subject's dimensions by modular section of the home. • Calculations can be performed for each section of single-width or multi-width units independently, with the results added together at the end. • Cost field for entering the amount needed for delivery, installation, and setup of the manufactured units. • Ensures that all potential replacement costs are considered.