C O A L I T I O N Corner Coalition Corner: Business training tools for HR staff, real estate agents and other service professionals in the relocation and real estate industries Relocation and Mortgage Appraisals – What are the Differences? By Arnold Schwartz, SRA, SCRP Arnold M. Schwartz & Associates, Inc., Atlanta, GA © 2004, Employee Relocation Council/Worldwide ERC ® Coalition

C O A L I T I O N Corner Program objectives This program supplements a monthly editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: –Examine the primary differences between residential property appraisals conducted for the purposes of mortgages and employee relocations

C O A L I T I O N Corner Introduction Several types of residential property appraisals Differences can center around such things as: –Intended Use –Purpose –Definition of Value The following specifically examines relocation and mortgage appraisals side by side, highlighting some of the primary differences between the two…

C O A L I T I O N Corner Intended Use/User Mortgage Used by lenders to facilitate lending decisions Relocation Used by employers and relocation management companies to facilitate corporate relocation

C O A L I T I O N Corner Purpose Mortgage Conducted to develop an opinion of Market Value Seeks to answer the question: “What is the property worth?” Relocation Conducted to develop an opinion of Anticipated Sales Price Seeks to answer the question: “What will the property sell for?”

C O A L I T I O N Corner Marketing Time Mortgage Appraisal Because it develops an opinion of Market Value, it assumes the property’s exposure to the market precedes the date of appraisal, analyzing historical market data Relocation Appraisal Because it develops an opinion of Anticipated Sales Price, the marketing time occurs after the date of appraisal, and consideration is given to what trends will occur during the prospective marketing period

C O A L I T I O N Corner Decision Period Mortgage Appraisal As mortgage terms can last up to 30 years, it is a long-term decision making tool Relocation Appraisal Based on a short-term decision, typically up to 120 days, implying a greater level of risk and need for higher degree of accuracy

C O A L I T I O N Corner Reporting Format Mortgage Appraisal Provides data in the Uniform Residential Appraisal Report (URAR) Relocation Appraisal Reports data in the Worldwide ERC ® Summary Appraisal Report Both reports follow the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines, but relocation appraisals typically include an expanded analysis of market trends

C O A L I T I O N Corner Property Condition/Appeal Mortgage Appraisal Property’s condition will likely be reflected in the purchaser’s offering price Relocation Appraisal Greater emphasis is placed on items such as appeal and décor, as the appraiser is attempting to reflect how a potential buyer will react to the property’s appearance While both types take into account a property’s condition…

C O A L I T I O N Corner Financing Considerations Mortgage Appraisal No adjustments made for costs paid by the seller if they are typical for that market Relocation Appraisal Adjustments made for all seller paid sales or financing concessions While both types value the property on a cash equivalency basis…

C O A L I T I O N Corner Comparable Properties/Forecasting Mortgage Appraisal Considers historical market data only No forecasting Relocation Appraisal Considers historical sales, as well as analyzing pending sales and competing properties Forecasting is applied to reflect the anticipated trend of market conditions and prices during the subject property’s prospective marketing period

C O A L I T I O N Corner Reasonable Market Time Mortgage Appraisal Based on what is normal in market, without limit Relocation Appraisal Develops an opinion of anticipated sales price during a reasonable marketing period, not to exceed 120 days, and commencing on date of appraisal

C O A L I T I O N Corner Conclusion While by no means an exhaustive analysis, most of the primary differences are explored here Differences can perhaps best be remembered by the two separate questions each type of appraisal seeks to answer… Mortgage Appraisal What is the property worth? Relocation Appraisal What will the property most likely sell for?