Certification #23 – “Intended User” Clarification

When the new forms were released, Fannie Mae stated that the certification and limiting conditions could not be altered. However, Certification #23 created a lot of confusion and concern in the industry due to its statement about other parties relying on the appraisal. Due to this confusion, Fannie Mae has softened its position and now allows the following modification to the report’s existing certifications:

“The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.”

If you use the above statement in your reports, you must use it exactly as stated. No deviations will be allowed by Fannie Mae.

This change was made possible through the collaboration effort by the Appraisal Institute and Fannie Mae. For additional information on this new announcement, you can go to www.efanniemae.com or visit www.appriasalinstitute.org.

One last note on the new forms: Fannie Mae is allowing some lenders to postpone using the new forms until January 1, 2006. So check with your clients if they are requiring the new forms or if they will be waiting until the first of the year to require them.

Cost Approach and New Forms

We’re getting a lot of calls on whether the cost approach is required with the new forms. To give you the best possible answer, we asked Henry Harrison, noted industry expert, to provide an answer. We’d like to thank Henry for his contribution to ClickTalk, and we encourage you to reference Henry’s excellent books and mini-guides for answers to all sorts of appraisal questions.

The Cost Approach - To Use or Not to Use It: That is the Question by Henry S. Harrison

It has been the conventional wisdom of the Appraisal Profession that using three approaches to value produces a more reliable appraisal than an appraisal where only one or two approaches are used. The Appraisal Foundation, which was created by the appraisal profession, presently requires the use of all three approaches unless the appraiser determines that one or more of the approaches is not applicable to a particular appraisal assignment.

However, USPAP says that if an approach to value is not used because the client does not require it, and the client eliminates the approach from their scope of work, and the appraiser does not use the approach for that reason, then the appraiser is creating a Limited Appraisal. USPAP delineates very clear and specific requirements about what must be done under these circumstances. The most important requirement is a prominent disclosure in the appraisal that the appraiser has invoked the Departure Provision of USPAP and has included a valid reason for doing so.

An appraiser therefore has three choices:

• Use the Cost Approach. Fannie Mae and Freddie Mac do not prohibit the use of the Cost Approach and your Lender/Client is well within their rights to require you to provide a Cost Approach.

• Decide not to use the Cost Approach because it is not required in the Scope of Work on the 2005 revision of the forms. You are then making a Limited Appraisal and must comply with all of the USPAP requirements for a Limited Appraisal.

• Determine that the Cost Approach is not necessary to make a “creditable appraisal” for this particular assignment, and make a comment in the appraisal supporting your decision not to include the Cost Approach.

A typical comment is: “I have considered using the Cost Approach, but did not do so because:

I was unable to obtain sufficient information to estimate the value of the site.”

or:

the improvements were ____ years old and substantially remodeled and I was unable to estimate the reproduction cost.”

or:

due to the (age, condition, location, unusual design, unconventional construction, etc.) I was unable to accurately estimate the (physical deterioration, functional obsolescence or economic obsolescence).”

Finally, all of this is going to change in 2006. The ASB has voted to eliminate Departure in the 2006 USPAP, which will go into effect July 1, 2006. Check out the WINTER (January) 2006 issue of Real Estate Valuation Magazine Online at www.revmag.com which will feature a detailed article about this change.

Henry Harrison is nationally recognized real estate author and educator with 30 books in print. He is the author of the Mini-Guide to the new Fannie Mae 2005 URAR form which has sold over 10,000 copies since its release on May 1st, 2005.

For more information about books by Henry Harrison contact Forms and Worms Inc.
at www.formsandworms.com.

Group Medical Plans for California Residents Now Available!
Bradford Technologies customers in California now enjoy access to a group medical program sponsored by OREP ( www.orep.org). California residents qualify for programs offered through Kaiser Permanente and PacifiCare. Kaiser Permanente programs feature no pre-existing condition limitations and no-deductible plans. They also offer low co-pays for doctor and emergency room visits, x-rays, lab services and prescriptions. PacifiCare offers two PPO and three HMO plans to choose from, featuring a choice of physicians, low co-pays and open enrollment. The Kaiser and Pacific Care Plans are available to California residents only.

By special arrangement, the OREP membership requirement to participate in this group program is waived for Bradford (members). (Membership/Affiliate in a Board of Realtors is required.) For more information, please email: info@orep.org with "Calif. Health – Bradford Customer" in the subject line. A qualified insurance professional will follow up to help you evaluative your needs and explain your options. 

Fannie Mae's Revised Appraisal and Property Report Forms

Frequently Asked Questions (FAQs)

In the last ClickTALK, we asked you to write in with your questions on the new Fannie Mae forms. Well, you were heard loud and clear. We thought you’d like to see the answers to your questions. Unfortunately, space doesn’t allow for them all to be placed in this newsletter, so we recommend that you go to www.bradfordsoftware.com where you will find a complete listing.

Note: These FAQs were written prior to the “Intended User” clarification (see article above).

Tech Tip: Using Google Earth for better Drive-bys

Recently, we spoke with a lender who told a drive-by horror story: An appraiser did a drive-by on a Sandstone townhouse in Chicago. The façade looked perfect and the appraiser appraised the building for high market value. Unfortunately, behind the façade was a burned-out hulk; there was nothing behind it.

This incident could have been prevented had the appraiser taken a few minutes to use Google Earth. Google Earth lets appraisers look at a property from a bird’s eye view and see what’s behind the scenes of a property. It will let the appraiser see if, for example, the property has a pool or roof damage, etc.

To use Google Earth, go to http://earth.google.com/ and download the Google Earth applet. Then, type in the property address and do a search. Google Earth will zoom in on the property and show a high-level view. At that point, you can use arrow keys to move left or right or zoom in or out as needed.

Google Earth is a wonderful program – and it’s free. But obviously, it should not be used as a sole source of information. It’s best used as a quick check *before* going out to drive-by a property.

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