Write it Right
A Summary of Residential
Comments
Instructor: Diana T. Jacob
Email:
dianatjacob@yahoo.com
254.582.3940 home
210.363.5950 cell
1-3
Contract Analysis
1.
Why is the contract pending relevant to
the appraisal assignment?
2.
Why is the history of the past three years
relevant to the appraisal assignment?
1-3
Contract Analysis
Explain the results of the analysis or why it wasn’t
performed!
USPAP SR 2-2(b) (viii) When reporting an opinion of market
value, a summary of the results of analyzing the subject sales,
options, and listings in accordance with Standards Rule 1-5 is
required.
If such information is unobtainable, a statement on the efforts
undertaken by the appraiser to obtain the information is
required. If such information is irrelevant, a statement
acknowledging the existence of the information and citing its
lack of relevance is required
Page 1-4
1.2 Discussion Question(s)
 Note
the sample comments and identify
which comment best examples answering
the question “explain the results of the
analysis”. Circle which answer appears to
be sufficient and compliant.
Pg 1-4
Solution to Question 2
d. URAR: I [X] did
“Terms of the 9 page
contract received and analyzed included seller
concessions to be paid toward closing costs of the
loan no greater than 3% of the sale price, personal
property to remain includes curtains, fireplace
equipment, refrigerator, seller to pay Home Warranty
Insurance in the amount of $450, contingent upon
loan approval of the buyer on a conventional loan
75/25 LTV, 30 yr. fixed rate of 6% A.P.R., monthly
amortized. None these terms represent a significant
variance from the negotiated terms of comparable
sales based on reported MLS data and verified
information from related and/or interested parties
associated with each comparable analyzed.
Pg 1-5
What is the Contract Price?
a)
The appraiser has misread the contract
and is being asked for a revision. The
sale price stated in the appraisal was
actually the mortgage amount. In the
revision of the report, is there a comment
that may need to also be added,
amending the comments from the
original appraisal?
Page 1-5
What is the Contract Price?
Question:
When an appraiser concludes a value that
is close to the mortgage amount and then
is asked to revise their error in the reported
sale price is there a comment that may
need amending?
_________
Page 1-5
Solution to Discussion Q.
__Yes__
The original report will show a different price
that was in error; the appraiser should date
the revision and offer an explanation:
Page 1-5
Solution to Discussion Q.
Example: “The original sale price shown as
$225,000 in report dated 01/20/2012
(effective date 01/18/2012) was in error as
the appraiser misread the contract and is
now amending the price as the contract
states @$275,000. No amendment or
revision was made to the value as the
contract price has no impact on the value
concluded.
Page 1-5
Discussion Q.
Is it possible the value conclusion will
change when the revision request to
correct the error in reporting the sale price is
made?
_________
Pg 1-5
Solution to Discussion Q.
Is it possible the value conclusion will change
when the revision request to correct the error
in reporting the sale price is made?
___No___
Continued Solution: The appraisal is not
influenced by the contract price; the
contract price is a price paid to obtain a
property which may or may not be closely
associated with the value concluded.
Pages 1-5 and 6
Reporting Financial Assistance Finding the IPCs
 Sometimes
the seller assistance isn’t found
in the front pages
Pages 1-5 and 6
Reporting Financial Assistance Finding the IPCs
 In
many cases the concessions are
reflected near the rear of the contract
Pg 1-7
There’s a “catch-all”
for item 12

Sample Comments: “The contract has a voidable
clause that allows the contract to become null and
void if the expenses agreed to be paid by the buyer
exceed the amount expressly stated. The buyer
cannot pay charges and fees expressly prohibited by
(FHA, VA, Texas Veterans Land Board or other
governmental loan program regulations). “
Pg 1-10
FAQ Guidance from the ASB
on the request
135. DOES CHANGING THE SALE PRICE RESULT IN A NEW
ASSIGNMENT?
Question: I recently completed an appraisal for mortgage
financing purposes in a purchase transaction and delivered
the report to my client. My opinion of value did not support
the pending sale price. As a result, the purchase transaction
was not consummated. However, one week later the buyer
and seller entered into a new
purchase agreement where the sale price coincided with my
appraised value. My client asked if I can provide a revised
report that includes the analysis of the newly agreed-upon
sale price. To provide a revised appraisal report, must I
consider the client’s request as a new assignment?
Pg.’s 1-10/11
FAQ Guidance from the ASB
on the request
135. DOES CHANGING THE SALE PRICE RESULT IN A NEW
ASSIGNMENT?
Response: If the client does not require a more current
effective date, USPAP would not mandate treating the request
as a new assignment. However, if the client does require a
more current effective date, the request must be treated as a
new assignment. In this example, regardless of whether the
effective date is changed, the date of the report would have
to change to accurately reflect the appraiser’s consideration
of the newly obtained agreement of sale. Because the new
purchase agreement was obtained after the date of the first
report, the revised report would need to have a date of report
that is the same as or later than the date the new purchase
agreement was obtained by the appraiser……
Pg.’s 1-11
FAQ Guidance from the ASB
on the request

To help make the decision as to whether or not
the renegotiated sale it is a new assignment one
needs to consider “is the pending sale or
renegotiated sale price a value?”. According to
USPAP definition a value is never a fact. A sale
price offer, acceptance or offer and acceptance
states a price which once stated is a fact. In some
cases state appraisal boards have “dinged”
appraisers for failing to treat the renegotiated sale
price as a new assignment. State rules and
regulations would need to be followed as state
laws, rules and regulations can exceed USPAP.
Page 1-2
Cover Yourself
 Comments
on Contract Analysis: “The
contract (found in the appraiser’s
workfile/attached as an exhibit) was
believed to be the final ratified contract
including all addendums and final
accepted counter offers. This contract
included __9__ pages. In the event a new
contract was written after the effective
date of this appraisal or subsequent to the
receipt of the contract analyzed by the
appraiser, the appraiser makes it known
that it was not part of this assignment
analysis.
Page 1-12
Cover Yourself

The inclusion of personal property in the contract,
i.e. washer, refrigerator, was deemed by the
appraiser to be a concession of the sale. This
personal property was not considered in the final
value conclusion of the real property interest.
Further the appraiser makes it known that he or
she did not inspect the personal property nor does
the appraiser warrant its functional utility. The
items of personal property do not in the
appraiser’s opinion impact the sale price upward
or downward but are seen as a typical concession
between buyers and sellers in virtually all
transactions. The lack of these items would not in
the appraiser’s opinion prevent the sale from
passing or affect the price that was negotiated
between the parties.”
Pg. 2-3
How is an Appraisal Problem
Defined?
 Without
understanding what the problem
is, the attempt to solve is meaningless.
Assignment Elements Define the Problem
• client and any other intended users;
• intended use of the appraiser’s opinions and
conclusions;
• type and definition of value;
• effective date of the appraiser’s opinions and
conclusions;
• subject of the assignment and its relevant
characteristics; and
• assignment conditions.
Who
decides?
Pg. 2-4
How is an Appraisal Problem
Defined?
Who
decides?
 Communication
with the client
is required to establish most of
the information necessary for
problem identification..
However, the identification of
the relevant characteristics is a
judgment may by the appraiser
that requires competency in
that type of assignment.
Pg. 2-4
How is an Appraisal Problem
Defined? UAD and the Client
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Pg. 2-5
Case Study-Which are Correct?
Prepared For:
NBC Appraisal Management
1890 Hwy 57
Ankle High, Wyoming 98456
Prepared For:
Bank of Logan
83469 Main Street
Ankle High, Wyoming 98456
Pg. 2-5
Case Study: This is a Cover Page –
Which is Correct?
Prepared For:
Bank of Logan
83469 Main Street
Ankle High, Wyoming 98456
Page 2-6
Identifying the Property
It is here the appraiser may
have difficulties when the
title or survey in possession
of the client differs.
Pg. 2-7
FAQ as of 10/2011 for UAD
Pg. 2-7
Sample Comment

MUNICIPAL ADDRESS – Regardless of any existing
title or survey the appraiser is required under the
UAD to report the address according to the United
States Postal Service ( www.usps.gov ). The
compliance entry requires street names to be
abbreviated for conformance with the U.S. Postal
Service, i.e. Street=St, Avenue = Ave., Lane = Ln,
Drive = Dr, Hill = Hi. Any request to change must
be tendered with the consequence of receiving
an appraisal that is in non-compliance with the
UAD. A non-compliant UAD report may result in
the report being unacceptable for delivery to the
Secondary Market.
Page 2-8
When it’s a PUD

If subject is attached and the developer is in
control of the homeowners association, the PUD
section of the URAR must be completed.

If subject is NOT attached, or if the developer is
NOT in control of the homeowners association,
additional information about the PUD is still
required by Chase, but may appear in either the
PUD section of the URAR or an addendum.

Regardless of where the information is reported,
the appraiser must report the PUD’s legal name,
the HOA assessment fees, and the property rights
for each comparable sale; and must compare
them to the subject PUD.
Page 2-8
When it’s a PUD

The appraiser must also identify the Common
Elements/Amenities available to the unit
owners, comment on their condition, and
analyze how they compare to the Common
Elements/Amenities of competing PUDs.

If you use single family residences as
comparables located outside the PUD
development, you must provide analysis to
support the inclusion of the non-PUD
comparables and the impact deed
restrictions will have on the subject’s
marketability and value
Page 2-12
PUD

You can read the clear exhortation whether
yes or no the data sources must be provided.

In a refinance it’s quite simple if the subject
was not listed for sale but the MLS system, if
used as a research to identify whether it had
been offered, does have to be reported. For
example if the subject is a refinance and is in
San Antonio the appraiser would report it as
follows:
Page 3-3
Communications of the
Neighborhood
 Warren
Buffet was quoted as saying “The
most important thing in terms of your
circle of competence is not how large the
area of it is, but how well you've defined
the perimeter.”
 The same can be said of defining your
neighborhood-it’s not the size that is
relevant but how well you’ve defined the
perimeter.
Page 3-3
Understanding the blocks
 These
three blocks communicate
information about the land area within
the boundaries of the defined
“neighborhood boundaries”.
These three blocks communicate information
about the land area within the boundaries of the
defined “neighborhood boundaries”.
Page 3-6
Reporting Neighborhood
Description

The results of a neighborhood analysis enable
appraisers not only to identify the factors that
influence the value of properties in the market
area, but also to define the area from which
to select the market data needed to perform
a sales comparison analysis.

Item #7 of certification states…. locationally,
physically, and functionally the most similar to
the subject property .Compare that
statement of ethical obligation to bulleted
items of FHA minimum requirement
Page 3-8
Neighborhood
 Lender
Appraiser Guidance states….”
Appraisers must:
perform a neighborhood analysis to identify
the area that is subject to the same
influences as the property being appraised
based on the actions of typical buyers in
the market area ……(center bullet)
Page 3-10
Neighborhood
Comments that report unfavorable conditions must
address the reasons for the vacancies or boardedup properties in factual terms through the provisions
of data that relates to such things as:
 Demand/supply
 Foreclosure rates
 Tax sales, etc.

And-discuss how this factor affects the market
value and marketability of the subject and
surrounding properties in the neighborhood
Page 3-11
Writing Comments for
Neighborhood Conclusion
 There
are three formats that the appraiser
can easily provide their conclusions of
their economic analysis
1. Narrative paragraphs with blank lines or
2. Summarized illustrative sentences with
bullet points or
3. Report in a table format
Page 3-11
Illustration of Narrative
Summary Format

The location of the bounded neighborhood is
<_____ miles and under ______ minutes driving time
from the major employment centers via nearby
Interstate/Highways. Unemployment rate for the
town is ____% which is higher/lower/in balance
with the overall state unemployment rate of _____.
Local amenities < _____ miles within _____ minutes
driving time are Parks/Recreational Sports
Fields/Golf/Lakes/Museums/Movie Theatres/Public
Tennis Courts/Water
Parks/Football/Bowling/_________(choose or add
applicable amenity attraction).
Page 3-10
Illustration of Summary Format
- tab short answers






Neighborhood Time and Distance Proximities:
Major Employment Centers
< 15 mi < 30 min
Interstate
< 5 mi < 15 min
Local Basic Shopping
< 2 mi < 10 min
Retail Mall
>15 mi
< 60 min
Parks, Ball-fields
> 10 mi < 30 min
Page 3-11
Illustration of Summary FormatUsing the Table Method
Item
Distance
Time
Major
Employment
< 15 miles
15-30 min
Grocer-Dry
Cleaning
< 10 miles
8-15 min.
Schools (1-12)
< 8 miles
15-25 min
Page 3-13
Rural Neighborhood Mkt.’s

Rural Defined (Census Bureau and FHA)





A place having fewer than 2,500 inhabitants;
A county or parish with an urban population of
20,000 inhabitants or less;
Territory, persons and housing units in the rural
portion of “extended cities”;
Open country that is not a part of or associated
with an urban area;
Any place with a population not in excess of
20,000 inhabitants and not located in a
Metropolitan Statistical Area.
Page 3-15
Rural Markets-Typically Seen
Shopping
Market
















Amenities in the Rural
One primary discount center (one-stop shopping)
Farm Supply Centers
Grocery Store(s)
Family owned drug stores
Family medical clinics
Dental (one to two general dentists)
Plant nurseries (seeds, plants, fertilizer, small garden tools)
Gas Station
Dollar Store
One or Two Fast Food restaurants
Family owned restaurant (family style or cultural foods of the region)
Family owned dry cleaner
Discount furniture and appliance sales and service
Higher ratio of religious facilities to population
Public schools (private schools aren’t typical in these markets)
Protective Services (county sheriff, volunteer fire department, rural
ambulance
Page 3-17
Case Study 3.4
 Write
a review comment on the quality of
reporting this neighborhood-what if
anything is missing if it were to comply
with the secondary market?
Page 3-16
Case Study 3.4 Solution



Write a review comment on the quality of
reporting this neighborhood-what if anything is
missing if it were to comply with the secondary
market?
Answer:
The description summary of “easy driving
distance” fails to note by miles or time the
distance. No specific information about
residential design styles, lot sizes, no mention of
employment stability, only 50% is single-family, no
mention of the probability of the remaining
Vacant Land of 26%, no mention of availability of
emergency services, etc.
Page 3-18
Rating systems in Vacant Land
 One
of the greater misunderstandings is
the vacant land report with Rating Chart
 It’s a comparison chart-the lack of an
amenity doesn’t automatically negative
its marketability or demand
4-3
Writing Comments
 Using
form reports without a comment
ensures a summary communication that
does not comply with the minimum
content of a Summary Appraisal Report.
Narrative comments are the link between
the field response and the reasoning why
the field response was concluded as
reported.
4-3
Seller Concessions
 One
of the greater abuses of appraisers is
their communication of seller concession
by the misuse of canned comments.
 Unsupported comments impose a
“COMMISSION” of data that creates
confusion and misleads the intended
users.
 Do you see your comment in one of the
three bullets?
4-3 & 4
Impact of canned comment
0%-6% on concessions
 It
seems like a simple statement that “cures
the ill” but the impact is significant-consider a
mortgage amount of $150K
 100%


LTV Ratio the $’s range from $0-$9,000
95% LTV Ratio the $’s range from $0-$8,550
90% LTV Ratio the $’s range from $0-$8,100
4-5
What does it mean to verify?
 The
APB doesn’t define verify but they
example the process. “verification of
concessions and the impact of the
concessions on the consideration of a
comparable can be done through
personal phone calls, text messaging,
email or questionnaires and should be
documented in the workfile.”
Pg. 4-5
Considerations of Concession
Analysis
 Would
the buyer have paid the same
amount for the property without the sales
or financing concession?
 What
are the details of the reported
concession?
 What
impact did the seller/purchaser
believe the concession had on the
contract price?”
Pg. 4-5
Connecting 1004MC to
Neighborhood
 Once
the neighborhood boundary is defined the
next step is to conduct the research, analysis
and communicate the results on the 1004MC
 Notice
the word “MUST” in the first
sentence…”must use the information on this form
as the basis for his/her conclusions, and must
provide support for those conclusions, regarding
housing trends and overall market conditions as
reported in the Neighborhood section of the
appraisal report form.”
Pg. 4-5 & 6
Connecting 1004MC to the
Neighborhood

It’s clear that this is the first analysis to
be made and is to be considered the
foundation for the conclusions reported in
the One Unit Housing Trend.
Pg. 4-6
4.3.1 Case Study Question
1.
Based on the information reported in
Exhibits 4.2 and 4.3 is there consistency
between the analysis of the 1004MC and the
One-Unit Housing Trends? ____ Yes _____ No
Pg. 4-6
4.3.1 Case Study Question Solution
Solution to Chapter 4
Page 4-6
1.
Based on the information reported in
Exhibits 4.2 and 4.3 is there consistency
between the analysis of the 1004MC and the
One-Unit Housing Trends? ____ Yes __X__ No
Pg. 4-6
4.3.1 Case Study Question
2. What comments would be appropriate
given the observation of the One-Unit Housing
Trend and the 1004MC?
_______________________________________________________
Pg. 4-6
4.3.1 Case Study Question Solution
Solution to Chapter 4
Page 4-6
The answers provided are the basic responses. “There is
clearly a large reduction in the number of sales which shows
a seller reaction that has pulled back their offerings. “
• It’s possible the columns represent too few transactions
to offer quantified analysis for the conclusions of the
Neighborhood.
• The report needs to detail why there is a different
conclusion from that of the 1004MC.
Pg. 4-7
Reporting Inconsistencies
between URAR and 1004MC
Examples of Statements:

The subject is in a rural, sparsely developed market.
Although the boundaries show an extended area the
number of comparable transactions were too
minimal to place weight or heavy reliance on the
conclusions. The 1004MC has its conclusions based
on statistical analysis. When data sets are small (liken
to this market of the subject) any change can
significantly shift the conclusion and therefore makes
this data analysis weak in its credibility. The
conclusions on the Neighborhood section of the
URAR in the One-Unit Trends, is based on the
appraisers experience in this market place with an
analysis of behavior that extends beyond a 12 month
period (i.e. 3-5 years); the evidence of this
observation and research used to render this decision
is in the workfile.
Pg. 4-7
Reporting Inconsistencies
between URAR and 1004MC
Examples of Statements:
 The 1004MC reflects a seasonal perspective. The
subject residential properties in this market in this
location are sensitive the seasonal changes.
The abrupt change between the columns does
not provide reasonable conclusions due to the
seasonal anomalies. The appraiser considered
two years perspective when concluding the
One-Unit Housing Trends in the neighborhood. It
is the appraiser’s belief that two-year
perspective is far closer in the measure of
housing inventory than the inept conclusions of
seasonal data within a 12-month period.
Pg. 4-8
Reporting Foreclosures
The view of this
exhibit show 62
listings for sale, 5
foreclosures for sale,
54 foreclosures.
The appraiser made
a good response to
the 1004MC form
4-9
Writing it Right

Communicating the market conditions needs
to be specific with direct comments that
explain the impact of any concession and the
distance between prices paid.

Value versus price paid is linked
proportionately to the amount of inflationary
additions to the price as terms are
negotiated.
4-9
Writing it Right
 Notice
the specificity of the comments
“Sale to List Price Ratios range between 95%-97%.
The LTVs range reported by cooperative agents
concludes a range from 98%-100%. The most
dominant sales are FHA with approximately 79%
of the market share. There is minimal new
construction within this 20 year+ neighborhood.
No new subdivisions exist within the boundary of
the site. The age of the market and on-going
demand promotes good appeal of existing
housing. Once listed at a market price a period
between 0-3 months exposure is most often the
maximum time a property is offered competitively
before absorption. “
Pg. 5-3
Site Analysis

The residential appraisal forms have a small
section devoted to the site reporting but it is
critical to the total value
– Many appraisers believe that if a survey is not provided at the
time of the appraisal their job ends there with a simple comment
such as noted above “Dimensions not provided”. Nothing could
be further from the truth. More than one appraiser has been
disciplined from varied governmental agencies for failing to
report the dimensions.
Pg. 5-4
Site Analysis Conclusion

The plat referenced was
the tax parcel plat and
gives no dimensions. It is
a good visual exhibit for
support of the shape. But
without dimensions and
only the area
communicated the next
question that is raised is
whether or not the
appraiser was able to
conduct a Highest and
Best Use analysis if he or
she did not know the
functional utility of the
site’s dimension.
Pg. 5-4
Site Analysis Sample
Comment

“The dimensions shown are not taken from a survey
or published public record. The dimensions are an
estimate based on the appraiser’s observation at
the time of the site visit. The information provided
and used to form the opinion of the site analyses,
highest and best use analyses and the land value is
based on researched data from the FEMA website,
Tax Assessor Office, Planning and Zoning as well as
the physical observation on the effective date of the
appraisal. No survey was provided or found to be
publically available during the normal course of
business. If a survey provides a significant
difference or an encroachment the information
assumed and reported as well as the analyses and
value conclusion can be significantly impacted.”
Pg. 5-5
Using Tax Assessor Value
One of the more common misunderstanding of
residential appraisers is the use of the Tax
Assessor Offices land assessed value. Numerous
problems and liabilities are associated with the
use of this information.
 The land was not the appraiser’s work it was
the tax assessor’s work
 The land assessed value is not performed by a
sales approach or allocation or income; its
conclusion of land value is by the benchmark
method of a mass assignment most often
using a regression analysis for which the
appraiser has not reviewed.
Pg. 5-5
Using Tax Assessor Value
Numerous problems and liabilities are associated
with the use of this information.



The assessed value may or may not be based on
100% of the market value. If the assessment is
based on a percentage of the land value the
conclusion can in error if considered representing
the whole of the market value derived by the
assessor.
In many areas the concern of being over-taxed
pressures the assessor office to produce a value
that is on the lowest end of the range of vales
concluded.
The assessment may be at the end of the
reassessment period and thus not reflective of any
current land value.
Pg. 5-5
Wrongful Assessments

A wrong land value creates a domino effect
in other key components of an appraisal.
Three key problems of an unsupported,
undeveloped land value by using a tax
assessor’s opinion are:
1. If the assessor has an error in the land value
the property owner and the lender who holds a
mortgage on the property will not have a clear
understanding of the improvement value.
Pg. 5-6
Wrongful Assessments
Key problems of an unsupported, undeveloped land
value by using a tax assessor’s opinion are:
2. Problems with risk assessment and need for proper
insurance coverage on the loan.
 Underwriters and investors will always be concerned
with their asset. A vigilant watch and study are
made of the trends and how they are either stable or
in transition.

When the appraiser has reported a value they did
not develop and then considered that a reasonable
communication of the asset they set into motion
critical processes that will be in error when the wrong
information begins the basis for that procedure.
There is a need to understand the land value and its
separate contribution to the value of the whole.
Pg. 5-6
Wrongful Assessments

Key problems of an unsupported,
undeveloped land value by using a tax
assessor’s opinion are:
3. Incorrect assessment of the sales approach
such as the failure to recognize proportionate
contributions for the purpose of establishing a
point at which other extractions of relevant
characteristics can be identified.
Pg. 5-7
Problems with Tax Land Value
Solution to Chapter 5
Page 5-7
Of the three perspectives shown which do
you believe would give the clarity of an
opinion that you could defend?
Note: This illustrates both the allocation
method of land valuation through known
ratios and the extraction method for GLA.
#3
Pg. 5-7
Zoning

Zoning is a key to conforming land use. The
lack of zoning raises red flags to the many
knowledgeable real estate participants such
as underwriters as the lack of zoning can
prompt a mixed-use, higher risk loan. This is
not an automatic which is evident by large
metropolitan cities such as Houston. A
comment is needed to ensure that lack of
governmental control is not a negative
impact on the marketability or value and is
typical of the comparable transactions.

One of the more common errors found in
state investigations is incorrect zoning
Pg. 5-9
What’s wrong ?
Question: What’s wrong with example encased in the
General Description?
Answer: The Design Style shows a non-compliant UAD
1-Story
Pg. 5-10
5.4.1 Case Study Question
Did the appraiser complete correctly the
Amenity section under UAD?
_____YES _____ NO
Pg. 5-10
5.4.1 Solution Case Study Question
Did the appraiser complete correctly the
Amenity section under UAD?
_X__YES _____ NO
Pg. 5-11
Swimming Pools
A swimming pool is considered a lifestyle project.
Many appraisers struggle with identifying
swimming pools; understanding types,
understanding value, and many don’t
understand how to communicate the amenity in
the Cost Approach. Swimming pools are
comprised of many systems and components, all
with varying life expectancies. The key to the life
of all pools is the maintenance, which requires
education for the owner.
In-Ground Pool Types
 Gunite
 Vinyl
 Fiberglass

Pg. 5-12
Quick View of Pools, Equipment
and Life
 When
reviewing contracts for lifestyle
project improvement the appraiser needs
to familiarize themselves with the varied
products to ensure the homeowner isn’t
over-paying and that the market can be
researched to be sure the contribution is
measured properly.
Pg. 5-13
Recommended Comments




“Swimming Pools offer the least Return on Investment (ROI)
due to their higher cost for homeowner insurance, above
typical monthly maintenance cost and rapid depreciation
of the pool fixtures and equipment. This site improvement
referred to as a “lifestyle improvement” in some markets
has an adverse reaction if the demand is low and the
buyer is faced with purchasing knowing the homeowner
costs will be higher or to find additional funds to cover costs
to fill in the pool excavation and remove pool equipment.
The contribution of the pool shown in the Sales Approach
was based on:
extracted reaction due to paired sales or,
percent of ROI based on reconciled national surveys
(choose one or the other). The aerial view of the
neighborhood shows the market’s expectation and
acceptance of this amenity.
Approximately ___% of the home sites in this residential
market house in ground pools.”
Pg. 5-14
Improvement Analysis-General
Description-Design Style
Texas
Bungalow
Mediterranean
Bungalow
One of the greater
infractions of the UAD
communication is the
Design Style where
often the appraiser will
enter a repeat of the
number of stories. To
use the “catch phrase”
of Bobby Crisp; “Fannie
wouldn’t ask the same
question twice in the
same box.”
Pg. 5-15 & 16
General DescriptionEffective Age
Appraisers struggle in their support of
effective age; this is especially so in soft
or declining markets. The challenge is
exacerbated by the lack of knowledge
in math formulas. Notice the
comparison of a comparable sale
analyzed for its present worth.
Pg 5-16
For Example: “The appraiser’s study of the
market afforded credible development of a
market extraction that was used to conclude
the subject’s effective age of ______.”
Pg. 5-16
Insufficient data to
quantify effective age

“No in depth analysis of comparison was made
between present worth and cost new in order to
derive concluded depreciation rates. The broad
age range and spans of maintenance did not offer
the quantity and quality of data sufficient to
develop a credible opinion of the effective age
through the market extracted method. For this
reason the appraiser considered the actual age
and the maintenance over the years of existence
as well as the more recent updates to the subject’s
_________, _________ and ________. From the actual
age it was reasonable to expect a buyer to
recognize the maintenance and renovation and
deduct from the actual age years passing in
exchange for years of renewal. It was that basis
the appraiser concluded the effective age shown.”
Pg. 5-17
The Wrong and the Right Way

One of the more challenging fields is the pool. There have
been a number of different descriptors used in this field.







In-Ground
Gunite
Yes
No
Poured
Above-Ground
Of these methods only Gunite
actually describes the type of
pool that can be associated with
a value





When completing this field the type of pool needs to be
entered.
When a pool exists it is also
Fiberglass
appropriate to give a
Gunite
narrative comment on the
Vinyl Lined
age and the type of filter
system.
Pg 5-18
Swimming Pools
Don’t forget if you use
the Cost Approach to
develop the value the
pool goes in the Site
Improvement Line.
DON’T put it in with
the house as the
depreciation rates
differ.
Pg. 5-18 thru 19
How do you determine and
comment on condition?

When judging condition keep in mind how you
would comment if asked as to how you made
that conclusion. For example “The conclusion
of condition is based on the limitations of the
UAD communication which will not consider
transitional conditions that may be a blend of
two, i.e. ave.-good. Rather, UAD, requires the
appraiser to emphatically and absolutely
choose between C1-C6, i.e. C2 or C3. The
appraiser chose the “best-fit” when reporting
the analysis of the subject and comparable
sales.”
Pg. 5-20
Don’t forget UAD revisions “The
condition rating for the subject
property must describe the physical
condition of the property as-of the
effective date of the appraisal and the
physical condition of each comparable
property as-of the date of sale for the
comparable properties on an absolute
basis, not on a relative basis or how the
properties relate to other properties in the
neighborhood. “
Pg. 6-3
The Sales Approach and USPAP
Excerpt of 2-2(b)(v)…. (v) state the type and
definition of value and cite the source of the
definition;
Comment: Stating the definition of value also
requires any comments needed to clearly
indicate to the intended users how the
definition is being applied.”

Go to Sample Comment in middle of page-can
you understand how the definition of market
value is being applied in this approach?
Pg. 6-4
Line Items of Sales Approach
 Data
Sources – Too many appraisers rely on
their software to catch UAD errors. The
current UAD manual should be the basis for
the entry. There is a specific format that is
being asked under the UAD specification.
 The entry needs to include first the identified
MLS system and then the Days on the Market.
For example, if it were Houston and the MLS
number was 56892 and the days on the
market were 110 it would be reported as
HAR#5682;DOM110
Pg. 6-5
Exercise-Circle the correct
expression of Data Sources
1
2
3
Pg. 6-5
Solution to Data Source
Exercise
3
Pg. 6-5
Below Market Financing
NOTE: Many appraisers fail to
read and communicate the
directive when “below-market”
financing exists. Below market
financing can have an impact
on the market values which
equates to a significant factor of
communication. A little known
fact that is right under the nose of
appraisers is the statement made
in the UAD manual. “The
appraiser must indicate if sales
transactions with below-market
financing are used for
comparable sales.”
Pg. 6-7
Comments for Sales
It should be noted that the need
Concessions
to make negative adjustments
and the amount of the
adjustments to the comparables
for sales and financing
concessions are not based on
how typical the concession might
be for a segment of the market
(large sales concessions can be
relatively typical in a particular
segment of the market and still
result in sales prices that reflect
more than the value of the real
estate).
Pg. 6-7
How do you say it?
Writing the comment
 Example: “The appraiser has reported the
adjustments paid by the seller towards
financing. The adjustment is in the amount
that reflects what the appraiser believes has
impacted the price. No adjustment is made
for the sales concessions of minor personal
property (identify if appliances or other
concessions were part of the sale) which also
were part of the exchange as of the date of
the contract and passed on the settled
closed date. “
Pg. 6-7
Date of Sale/Time
Keep in mind:
 Comparable Sale closed outside the effective
date month but no adjustment required


Comparable Sale closed inside the same effective
date month no adjustment is required


ZERO goes in field
Field is left BLANK
Comparable Sale closed outside the effective
date month in a changing market
 Adjustment required
Pg. 6-9
Exercise – What’s Wrong?
Pg. 6-9
Solution to Exercise - Site
Answer: ____________The appraiser has a comma in their site
section.
Pg. 6-12
Quality of Construction -When
it’s not an exact fit.

Example: “The UAD communication mandated as of 09/1/2011
requires ratings be given on quality of construction for the benefit of
standardization. The challenge is there are no allowances for quality
combinations and must be concluded on one sole rating. The
appraiser has determined the rating based on the dominance of
characterization. When there were obvious market recognized
differences that were isolated to quality of construction, as seen in
Sale #3, which did not qualify for a whole rating point upward or
downward the dollars associated with that slight difference was
made. This was necessary on Sale #3 that had one room which was
above a Q3 in that it was recently upgraded with superior custom
finishes easily recognized in its quick sale at its market price. The
quick absorption equated to a .5% of the Price less land Value
downward adjustment for its superior quality. That adjustment was
based on the Days On the Market being just under 2 months and the
verification of reaction based on the listing realtor. When compared
to typical Days on the Market that percentage difference was
extracted.”
Pg. 6-13
Condition It’s
important to ensure that when
condition is being spoken of your
comments reflect the absolute of each
transaction.
Sample Comments:
“Based on the actual age the subject
would normally begin to show signs of
wear and tear. The subject has been
well maintained and has no signs of its
physical six years. Based on the
observation coupled with the age the
appraiser has concluded the condition
rating of C2.”
Pg. 6-13
ConditionThe question is when does age difference become
necessary to adjust and how does the appraiser
support the evidence of a market that reacts for the
actual age differences. Factors to consider:
 Actual Age isn’t Effective Age-there is no evidence of
how maintenance impacted the market reaction to
any differences

Condition, although absolute in its determination,
cannot be isolated as a measure across the board to
encompass age. For example a 25 year old house
well maintained in average condition will not be the
same as a 10 year old house well maintained in
average condition.

Using mechanical dollar adjustments of $1,000 per
year of actual age has no basis if not supported by
analytical studies
Pg. 6-17
Adjusting the GLA

This has to be one of the most unknown and
creatively invented magic acts ever created by the
appraiser. Sometimes, even when paired sales are
used widely differing conclusions arise. Consider
weighting Comparisons-
Comparisons #1
$11.61 x 50% =
Comparison #2
$50.00 x 50% =
Conclusion of Sq. Ft. Adjustment for GLA=
“The appraiser considered within the
sales found suitable for comparative
analysis and found two conclusions
that were weighted and reconciled at
$30.81 per square foot for GLA.”
$ 5.81
+25.00
$30.81
Pg. 6-23
Reconciling the Sales
Approach

Net Dollars Weighted Analysis –

Gross Dollars Weighted Analysis –

Number of Adjustments Weighted Analysis –

Percentage Contribution – This is a weighting of
each net adjusted sale. Given the other
considerations of net dollars, gross dollars and
number of adjustment the percentages are
assigned and applied to the adjusted sales price
for a contribution of all sales to the final value.
Pg. 7-3
Outdated Language
 SR
1-1 (a) specially directs the
appraiser to keep current with
changes and to maintain their skills.
 Example
of Outdated Statements
 This is a complete appraisal
performed under the USPAPQuestion – Is there such a thing as an
“incomplete” appraisal?
Pg. 7-3
Outdated Language
 Example
of Outdated Statements
“The Departure Provision was not
invoked in this complete appraisal”
Question – Who knows when USPAP
last used the word Provision in their
RULES that apply to all disciplines?
Question – Who knows when USPAP
retired the Departure Rule from the
USPAP document?
Pg. 7-3
Outdated Language

Example of Outdated Statements
“The Departure Provision was not invoked
in this complete appraisal”
Question – Who knows when USPAP last
used the word Provision in their RULES
that apply to all disciplines?
Answer: 1998
Question – Who knows when USPAP
retired the Departure Rule from the
USPAP document?
Answer: July 1, 2006
Pg. 7-3
Outdated Language
 Example
of Outdated Statements
“The appraiser’s estimate of Market
Value was based on all appropriate
approaches to value with no
departure.”
Question – Who knows when USPAP
last allowed the word “estimate” to
be used in conjunction with the
phrase/term market value?
Pg. 7-3
Outdated Language
 Example
of Outdated Statements
“The appraiser’s estimate of Market
Value was based on all appropriate
approaches to value with no
departure.”
Question – Who knows when USPAP
last allowed the word “estimate” to
be used in conjunction with the
phrase/term market value?
Answer: 1999
Pg. 7-3
1999 key changes to USPAP
Pg. 7-4
Outdated or Inaccurate Language
 “A
full appraisal was completed in
compliance with USPAP.”
 Question-Can someone tell me what a
half/full or partially empty appraisal is?
 “The Cost Approach wasn’t developed
because Fannie Mae doesn’t require it.”
 Question-Is Fannie Mae the appraiser?
Does this GSE control the appraiser’s
SOW?
Pg. 7-4
Outdated or Inaccurate Language
 “The
cited source of the Market Value
definition is the USPAP.”
 Comment-People,
that’s just an outright
falsehood. The USPAP cites the FIRREA
definition in their Advisory Opinions and
they detail the criteria of a Market Value
but they do not define the value.
Pg. 7-5
Case Study-Inappropriate
Statements


Case Study-A residential vacant land appraisal in a
rural residential market with residential rural parcels
ranging from 1-3 acres has been ordered. The
subject is a 1.25 acre vacant rural undeveloped lot
ordered and completed for a local credit union. The
emergency services are provided by the county
sheriff, volunteer fire department and volunteer
emergency medical services (EMS).
Note the statements below found in the Summary
Appraisal Report and answer True or False whether
the statements are appropriate communications in
the development of a market value conclusion for a
residential vacant lot; and, whether these statements
add clarity to the understanding of the asset and its
economic value as a Fee Simple interest and the
appraisal process that brought about the market
value conclusion. Also make a brief statement as to
why you chose your answer.
Pg. 7-5
Is this statement appropriate?
1. True/False
“Subject property is not agricultural rural there is no agricultural
rural use there is no income from agricultural rural use.”
Why:
2. True/False
“The property is serviced by police and paid or volunteer fire
protection.”
Why:
3. True/False
“The appraisal is made in “as is” condition with no repairs or
inspections required.”
Why:
Pg. 7-5
Is this statement appropriate? Solution
1. True/False
Why: The lot description clearly details the size which is not
suitable for agricultural income. The lender/client who
originated the loan application took the application based on
the residential status of the lot. The appraisal was ordered as a
vacant residential land appraisal. Had the subject been of a size
suitable for income production the comment would have been
appropriate
2. True/False
Why:__If the property is rural the probability of police offering
protective services as opposed to the county sheriff is highly
unlikely. The statement that the fire protection is either paid or
volunteer leaves a question unanswered. The rural nature and
volunteer status may pose additional cost for insurance
Pg. 7-5
Is this statement appropriate? Solution
Case Study-A residential vacant land appraisal in a rural
residential market with residential rural parcels ranging from 1-3
acres has been ordered. The subject is a 1.25 acre vacant rural
undeveloped lot ordered and completed for a local credit union.
The emergency services are provided by the county sheriff,
volunteer fire department and volunteer emergency medical
services (EMS)
3. True/False
“The appraisal is made in “as is” condition with no repairs or
inspections required.”
Why: ___On a vacant residential lot there would be no repairs to
consider unless there were improvements. If the lot is rural and
the utilities are private there is a strong possibility the local codes
will ask for assurance of septic and private well capabilities.___
Pg. 7-6
Case Study-Inappropriate
Statements
4. True/False
“Adjustments in the market approach are made
for differences in sales data, market conditions,
lot sizes, square footage of improvements, and
other amenities as noted. The final estimate takes
into account the reconciliation of the various
value estimates in addition to the appraisers
judgment of the market data presented.”
Why:
Pg. 7-6
Is this statement appropriate?
4. True/False
“Adjustments in the market approach are made for
differences in sales data, market conditions, lot sizes,
square footage of improvements, and other amenities
as noted. The final estimate takes into account the
reconciliation of the various value estimates in addition
to the appraisers judgment of the market data
presented.”
Why: This appears to be a canned comment that is
intended to be used on improved residential sites.
What type of various estimates would be necessary on
a vacant lot unless it was to estimate the cost of putting
in a private well and septic?__
Pg. 7-6
Solution-Case Study #5 & #6
5. True/False
Why: __How would an interior inspection be
conducted on a vacant lot? _If the appraiser
believed this statement relevant it should have been
followed up by more specific details such as soil tests
or Why would comparable improved sales be
compared to the subject’s vacant lot?_________
6. True/False
Why: ___What type of builder’s inspection or
property inspection on a vacant lot be necessary or
considered associative with the appraiser’s role of
valuing a vacant lot?___
Pg. 7-7
Relevant Points of SR
Communication

Notice the opening sentence begins with the word “EACH”this is specifically expecting that common canned
comments should only be used if they are relevant to that
specific assignment.

Forms must be supplemented so that intended users are not
mislead.

The report must comply with applicable requirements in this
specific standard rule. For the sake of this course that
means each standard rule of 2-2 (b) should be reviewed to
ensure compliance.

Just because a request is made for additional or revised
information doesn’t mean it must be complied with. The
entity making the request must be an identified intended
user.
Pg. 7-8
Top 5 Missing Items in Reports

2-2(b)(i) State the identify of the client and any intended
users, by name or type;
Common Error of Appraisers’ – Many appraisers are hired
through Appraisal Management Companies (AMC) and will
often misunderstand the definition of a client when reporting
their appraisal. The USPAP revised the definition of client in
the 2012-2013 edition which now defines the client as “
CLIENT: the party or parties who engage, by employment or
contract, an appraiser in a specific assignment. Comment:
The client may be an individual, group, or entity, and may
engage and communicate with the appraiser directly or
through an agent.”
The last inclusion…”or through an agent”, speaks to the
advent of common practice, i.e. the engagement of the
appraiser through AMCs.
Pg. 7-10
Top 5 Missing Items in Reports

2-2(b)(iv) State the real property interest appraised;
Comment: The statement of the real property rights
being appraised must be substantiated as needed, by
copies or summaries of title descriptions or other
documents that set forth any known encumbrances.
Common Error of Appraisers’ – Fee Simple is an interest
that is either:
Absolute – All of the rights and privileges of ownership
Defeasible – Limitation on the rights and privileges of
ownership
Determinable – Specific use limitations based on the
terms of the donation.
Only the Absolute is an interest without encumbrance.
Pg. 7-9
Top 5 Missing Items in Reports

2-2(b)(v) state the type and definition of value and
cite the source of the definition;
Comment: Stating the definition of value also requires
any comments needed to clearly indicate to the
intended users how the definition is being applied.
When an opinion of market value is not in terms of cash
or based on financing terms equivalent to cash,
summarize the terms of such financing and explain their
contributions to or negative influence on value.
When an opinion of reasonable exposure time has
been developed in compliance with Standards Rule 12(c), the opinion must be stated in the report.
Pg. 7-10
Top 5 Missing Items in Reports

2-2(b)(v) state the type and definition of value and cite
the source of the definition;
Common Error of Appraisers’ – Most appraisers either
exercise the communication of the market value source
citation but they fail in communicating throughout the
report how the market value definition applied to the
specific part of the appraisal process. This isn’t a
deficiency in having a canned comment that covers the
standard rule. This point exhorts the need of the report to
comment in each step of the appraisal process how the
market value definition was applied.
Another common error is in reporting the exposure time.
The exposure time is a conclusion about a retrospective
behavior assuming a competitive price in an open market.
It does not have to be a single point but can be a range.
.
Pg. 7-11
Top 5 Missing Items in Reports
 2-2(b)(viii) …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; …..
The appraiser must provide sufficient
information to enable the client and intended
users to understand the rationale for the
opinions and conclusions, including
reconciliation of the data and approaches, in
accordance with Standards Rule 1-6.
Pg. 7-11
Top 5 Missing Items in Reports

2-2(b)(viii) ……
The appraiser must provide sufficient information to enable
the client and intended users to understand the rationale for
the opinions and conclusions……...
Common Error of Appraisers’ – This standard rule opens the
door for specificity. Notice the last sentence of the comment
section. “The amount of detail required will vary with the
significance of the information to the appraisal.” Consider the
lack of zoning in the appraisal. Would the lack of zoning
impact the analysis and value?





Zoning is a legal encumbrance
Zoning directs the use of the land
Zoning must be considered in the Highest and Best Use
Zoning as a comparative factor could be linked to a
location reaction
Zoning if enforced could identify non-conforming
improvements
Pg. 7-14
Top 5 Missing Items in Reports

2-2(b)(ix) …… 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, summarize the support and rationale for that opinion;
Common Error of Appraisers’ – More and more appraisers
nationwide are beginning to “get it” when it comes to Highest
and Best Use. This is a critical land-use analysis which is a
process of iteration . Pronounced IT-ter-a-teev, the iteration
process is a repetitive process requiring the same questions to
be asked. The Highest and Best Use analysis has a goal, i.e. the
conclusion of
maximum productivity that requires the act of repeating a
process of questions about the land:



As Vacant and available for development or
As If Vacant and available for development and when
applicable
As Improved
Pg. 7-17
Unreasonable Requests
Request for Legal Permit of Addition
and/or Renovation years before the assignment
In many circumstances when there is an addition the
client will ask the appraiser to go beyond their
scope of work to seek whether or not there was a
permit issued for the addition and/or significant
renovation.
 Some appraisers consider the tax records as their
documentation for whether or not a legal permit
was issued,
 some actually try to research the building and
planning permit office to identify whether or not
permits were issued.
 Some try and explain why they don’t believe this is
a reasonable request.

Pg. 8-3
Ethics and Competency
 The
appraiser must be competent in their
development of an appraisal and ethical
in their reporting. In reporting the Ethics
Rule relates to the appraiser’s willingness
to communicate the whole truth
regardless of the impact that truth will
have on the transaction that is pending.
The signed certification statement is a
signed statement of ethical obligations.
Because most appraisers use pre-printed
forms many of those certifications are
problematic and litigious and need
clarification.
Pg. 8-4
Suggested Additional Text for
Certification
Certification Statement Subsection
“The intended user is informed that these statements
represent the ethical obligations of the appraiser.
These statements are pre-printed; clarifications are
necessary so the intended users are not mislead as
to the limitations of these statements. Under the
appraiser’s obligatory development and
communication expectations of competency the
intended user has a right to understand the
information sufficiently to such an extent that
decisions, which prompted the appraisal order, can
be made. For this reason certain clarifications are
presented.”

Pg. 8-4 thru 8-10
Certification Problem Areas









Item # 2
Item # 5
Item # 7
Item #10
Item #14
Item #19
Item #21
Item #23
Item #___
The inspection
Sale Contracts-Limitations
Comparable Sale Selection
Verification “all info”
1004MC & Environmental
Names of Assistants
Disclosure & Distribution
Reliance Privileges
Other Items Needed
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