REPORTING APPRAISAL OPTIONS Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 16

STUDENT LEARNING OUTCOMES List the Three Conventional Formats of Written Appraisal Reports Describe the Two Written Reporting Options provided by USPAP Discuss the 12 Required Elements of an Appraisal Report, as set forth by USPAP Outline the Contents of a Formal Narrative Appraisal Report 2 Page 508 © 2015 OnCourse Learning

16.1 APPRAISAL REPORTS: THE FORMAT CHOICES Practical Considerations Written Appraisal Reports are a form of business communication, and should be concise, well organized, and easy to read Consider the Knowledge Level of the Reader Define Technical Terms to ensure understanding Be sure the Information Reported is Adequate in scope to Meet the Client’s Needs 3 Page 509 © 2015 OnCourse Learning

INTENDED USE AND INTENDED USER(S) Choice of Report Type should depend upon… Intended Use of Appraisal Report Intended User(s) Special Requirements of Client and/or Intended User; and Specific Property Type Knowledge Level of Client / User The form and content of an appraisal report must result in a Credible report; and must be agreed upon between the Client and Appraiser. 4 Page 509 © 2015 OnCourse Learning

METHOD OF TRANSMISSION Typically Written, but can be Oral Written Reports can be delivered as a: Hard Copy PDF by or uploaded to a secured website Electronic Format (using third-party software) Institutional Lenders require formats that conform with the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal 5 Page 510 © 2015 OnCourse Learning

TYPES OF WRITTEN REPORTS The Letter Report Best Adapted to the Restricted Appraisal Report reporting requirements in USPAP The Form Report Suited to the Appraisal Report requirements in USPAP; but may require supplements to comply Examples: Uniform Residential Appraisal Report (URAR) Employee Relocation Council has its own form 6 Page 511 © 2015 OnCourse Learning

TYPES OF WRITTEN REPORTS (Con’t.) The Narrative Report Ideal for meeting the Appraisal Report reporting requirements in USPAP Typically the most comprehensive and formal as to content and form Best suited for Unusual Properties and/or Complex Assignments; and often required for Demonstration Reports to earn designations Some mix the features of all three report types to best suit the needs of the client and intended user 7 Page 513 © 2015 OnCourse Learning

16.2 LEGAL REPORTING REQUIREMENTS Standard 2 of USPAP… “each report must…” 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.…” 3.“clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.” 8 Page 514 © 2015 OnCourse Learning

USPAP REPORTING OPTIONS Appraisal Report A written appraisal report that must summarize the appraiser’s analysis and the rationale for the conclusions Restricted Appraisal Report A written report that might not include sufficient information for the client (no other intended users are allowed) to understand either the appraiser’s analyses or rationale for the appraiser’s conclusions. Minimum reporting format allowed. 9 Page 515 © 2015 OnCourse Learning

REQUIRED ELEMENTS OF AN APRAISAL REPORT 1.State the Identify of the Client and any Intended Users by Name or Type. (Avoid violations of Confidentially section of the Ethics Rule) 2.State the Intended User of the Appraisal. 3.Summarize Information Sufficient to Identify the Real Estate Involved in the Appraisal, including the Physical, Legal, and Economic Property Characteristics relevant to the Assignment. 4.State the Real Property Interest Appraised. 5.State the Type and Definition of Value, and Cite the Source of the Definition. 10 Page 515 © 2015 OnCourse Learning

REQUIRED ELEMENTS OF AN APRAISAL REPORT (Con’t.) 6.State the Effective Date of the Appraisal and the Date of the Report. 7.Summarize the Scope of Work Used to Develop the Appraisal. 8.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. 11 Page 515 © 2015 OnCourse Learning

REQUIRED ELEMENTS OF AN APRAISAL REPORT (Con’t.) 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. 10.When an Opinion of Highest and Best Use was Developed by the Appraiser, Summarize the Support and Rationale for that Opinion. 11.Clearly and Conspicuously: State all Extraordinary Assumptions and Hypothetical Conditions; and State that their use might have affected the Assignment Results. 12.Include a Signed Certification in Accordance with USPAP Standards Rule Page 515 © 2015 OnCourse Learning

RESTRICTED APPRAISAL REPORT USPAP allows for much less detail States the Required Minimum Content and the Conclusions Reached Requires a Prominent Use Restriction Clause that limits the Use of the Report Solely to the Client (only Intended User) Must contain clear notice that it May Not be Understood without Review of Additional Information Contained in the Appraiser’s Work File 13 Page 516 © 2015 OnCourse Learning

FEDERALLY RELATED APPRAISALS Shall at a minimum… 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. 14 Page 516 © 2015 OnCourse Learning

FEDERALLY RELATED APPRAISALS (Con’t.) Shall at a minimum… 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 Regulation. Be Performed by a State Licensed or Certified Appraiser, in accordance with requirements set forth in the Regulations. 15 Page 517 © 2015 OnCourse Learning

UNIFORM APPRAISAL DATASET (UAD) Seeks to define the allowable content and format for roughly 209 of the 523 data fields in the URAR. The information in these fields must be in the correct format for the appraisal report to successfully transfer through the Uniform Collateral Data Portal. Most URAR Software Programs are set up to assist the Appraiser in the preparation of a UAD-compliant report. 16 Page 518 © 2015 OnCourse Learning

16.3 FORM REPORTS: A CLOSER LOOK Most Common – the URAR, a.k.a. Freddie Mac Form 70 (circa March ‘05) Fannie Mae Form 1004 (circa March ’05) Intended Use is for Loan Appraisals Typical Attachments (Legal Description, Maps, Sketch of Improvements, Photos); see Figures 16.7 through (pages ) Since April 2009, the Market Conditions Addendum (FNMA 1004MC) is Required; see Figure Page 520 © 2015 OnCourse Learning

16.4 CONTENT OF THE NARRATIVE APPRAISAL REPORT Introduction Description Analyses and Conclusions Addenda Detailed on the slides that follow 18 Page 525 © 2015 OnCourse Learning

INTRODUCTIONARY MATERIAL Title Page Letter of Transmittal Table of Contents Photograph of the Subject Property Summary of Relevant Facts & Conclusions Standard and Special Limiting Conditions and Assumptions Scope of Work of the Appraisal 19 Page 527 © 2015 OnCourse Learning

DESCRIPTION Identification of the Property Description of Neighborhood & Community; Current Market Conditions Description of Land, Zoning, Community Services, and Taxes Description of Improvements Sales History of the Subject Property; this would include any Leases 20 Page 530 © 2015 OnCourse Learning

ANALYSES AND CONCLUSIONS Highest and Best Use Explanation of and Support for the Exclusion of Any Value Approaches Estimate of Land or Site Value Analysis of Data by the Value Approaches Reconciliation and Final Conclusion of Value Certification, with the Signature of the Appraiser(s) 21 Page 526 © 2015 OnCourse Learning

SALES CHART IN A NARRATIVE REPORT 22 Page 535 © 2015 OnCourse Learning

ADDENDA OR SUPPORTING MATERIAL Location and Plat Maps Plot Plan of the Subject Property Legal Description Floor Plan of the Improvements Additional Photographs of Subject Property Sales Data Sheets, Sales Photographs and Sale Location Map Relevant Cost, Income & Market Study Exhibits Qualifications of All Appraisers Signing Report 23 Page 538 © 2015 OnCourse Learning

SAMPLE ADDENDA ITEM 24 Page 539 © 2015 OnCourse Learning

CHAPTER SUMMARY The written appraisal report is a formal business communication from the appraiser to the client. Minimum requirements as to the form and content of appraisal reports are defined by the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP permits two Reporting Options – the Appraisal Report and the Restricted Appraisal Report. 25 Page 539 © 2015 OnCourse Learning

CHAPTER SUMMARY (Con’t) In practice, appraisal reports tend to mix the features of the three basic formats for written reports; the Letter Report, Form Report, and the Narrative Report. For 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 financial institutions of the federal government. 26 Page 539 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS Appraisal ReportLimiting Conditions AssumptionsMarket Conditions Addendum CertificationNarrative Appraisal Report Fannie Mae Form 1004Professional Appraisal Standards Fannie Mae Form 2055Qualifications of the Appraiser Fannie Mae Form 2075Restricted Appraisal Report Form Appraisal ReportSales History Freddie Mac Form 70Uniform Appraisal Dataset (UAD) Letter of TransmittalURAR 27 Page 542 © 2015 OnCourse Learning