Pro Teck Appraisal Policies and Procedures Manual
Overview
The Appraisal Policy and Procedures Manual is intended to provide general overview of the operating environment, process, purpose and controls that surround daily Appraisal Review Quality Department activities.
Pro-Teck Appraisal Review Charter:
The Pro-Teck Appraisal Review Department’s primary function is to review the submitted appraisal report for reasonableness compliance within guidelines. Ultimately, the purpose of the review is to analyze and reinforce the client’s confidence in the reliability of the appraisal and the conclusion it presents.
By definition, Market Value is:
“The most probable price, as of a specified date, in cash, or in terms equivalent to cash, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under duress” Appraisal Institute, The Appraisal of Real Estate – Twelfth Edition.
The Pro Teck review appraiser will identify and judge the reasoning and logic that underlies an appraiser’s report. The reviewer will also discuss the strengths and deficiencies of the appraisal and determine if any deficiencies noted have had a measurable negative impact on the accuracy of the concluded value estimate.
Pro Teck Quality Review is not to be considered to be USPAP compliant and is not a value validation.
Review Appraisal
All Appraisals are subject to a PRO-TECK appraisal review.
Appraisal
Appraiser Qualifications:
Qualified appraisers must have a General Appraisal License, Certified Residential appraiser’s license or a Certified General appraiser’s license, in good standing. The appraisal license must be issued in the state where the subject property is located. Trainee reports are acceptable only if report is co-signed by a fully licensed supervisory appraiser, and acceptable to our Client.
Errors and Omissions Insurance:
All appraisers must provide proof of adequate E & O coverage.
Disclosure of Information:
The real estate agent or broker must disclose all information that could affect either the marketability of the property, or its market value.
Appraisal Report Form
The appraisal report form used will depend on the type of property being appraised. The appraisal report should be the latest version of one of the following forms:
· Uniform Residential Appraisal Report (Form 1004) for a single family property.
· Small Residential Income Appraisal Report (Form 1025) for a 2-4 unit property.
· Individual Condominium (Form 1073) for a single unit property that is a condominium.
· Drive by (Form 2055). Exterior inspection only.
Report Development
The appraisal must be completed in accordance with the Uniform Standards of Appraisal Practice (USPAP) guidelines. The appraiser must completely provide the legal description as well identify and consider any and all sales concessions that will be paid by the seller or any party with a financial interest in the sale or financing of the subject property.
Additionally, the neighborhood analysis must contain an accurate description of the subject property. Additional narrative and data may be necessary to support area predominant value and current market trends. The report should indicate whether property values in the subject neighborhood are increasing, stable or are declining.
The estimated site value should be included in the appraisal for all detached properties. If the appraiser’s estimate of the site value is one that is not typical for comparable residential properties in the subject property’s market area, the appraisal must include comments on how the variance affects the marketability of the subject property.
In the body of the report the appraiser must identify the specific zoning classification of the subject property and provide a general statement to describe what the zoning allows.
· The subject property should conform to all applicable zoning regulations.
· Where local zoning does not apply, the appraiser must indicate same on report.
· Agricultural zoning is acceptable if the property is not used for farming purposes.
· The appraisal must contain a comment indicating if the improvements on site represent a legal use of the land. Loans secured by properties with improvements that are not legally permissible are not acceptable.
Property zoned legal non-conforming or “grandfathered” may be acceptable provided the property conforms to all applicable codes and the loan contains a 100% Rebuild Letter. A rebuild letter may not be available if the appraiser has confirmed with a local governing body that a 100% rebuild is permitted. The appraiser must be clear and specify which governing body and how this was confirmed.
Site Utilities:
The minimum requirements for water sources, sewers and electricity must be met and are outlined below:
· Water sources and sewers must include public water supply, private wells, shared wells with a recorded agreement, common stock in a private water company with a recorded water stock certificate, private septic system (cesspools) must be typical for the area and supported by comparable sales with similar septic systems.
· Public electricity is the only acceptable form of electricity. Properties relying on solar systems or generators (except as backup systems) are not acceptable.
Well Certifications: If required by Client
A certification is also required whenever specified by the appraiser’s comments. An appraisal reviewer or PRO-TECK collateral auditor may also require a certification.
· The well certification must state that the water meets community standards.
· New construction does not require a well certificate if a Certificate of Occupancy that is less than 12 months old can be provided.
· A previous and recent well certification may be acceptable at reviewer discretion.
Septic Certifications: If required by Client
A certification is also required whenever specified by the appraiser’s comments. An appraisal reviewer or PRO-TECK collateral auditor may also require a certification
· New construction does not require a well certificate if a Certificate of Occupancy that is less than 12 months old can be provided.
· A previous and recent well certification may be acceptable at reviewer discretion.
Soil Reports: If Required by Client
A “soil report” may be required on a property if it is so recommended in the appraisal report, or may be required by PRO-TECK due to other conditions discovered through appraisal or collateral review.
Private Roads:
All private roads or private streets must be well maintained and have easements of record which allow access to and from the subject property to a public street. Such private roads or private streets must be insurable by the Title Insurance Company which will issue the ALTA Policy of Title Insurance.
Approaches to Value
Sales Comparison and Market Data Analysis:
At least three (3) verified closed sales of comparable properties must be analyzed in the appraisal report, with adjustments applied for differences noted in the marketplace.
· Proximity of Comparable Properties to Subject Property. Comparable properties should be located near the subject property and be in the same neighborhood, market area, and/or school district. The comparable properties must have characteristics that are similar to the subject property.
· Age of Comparable Sales. Comparable sales should have a recent date of sale within six (6) months of the date of appraisal.
· Additional Comparables. In certain markets, and at reviewer discretion, additional current data may be requested to assist in arriving at the most accurate estimate and opinion of value
· Properties Located in a Controlled Market. If the subject property is located in a controlled market, such as a new subdivision or an area where the property seller owns a substantial number of units, the comparable sales must include data outside the influence of the developer, builder or property seller.
· Sales and Listing History. The appraiser must supply a minimum of 36-month sale and 12 month listing history for the subject property and a 12-month sales history for all comparable properties used in the appraisal. The data source for all information must be indicated.
Cost Approach Analysis: If requested by Client
The cost approach to value should be considered, but may not need to be developed on every property appraisal. The amount of physical depreciation estimated for older homes may render this approach to value less reliable. The appraiser can explain and provide rationale for consideration of this approach.
If a site value exceeds 50% of the total value, the appraiser should provide comments as to whether this is common for the market area of the subject property.
· External Obsolescence is a negative impact or devaluation of property value due to an undesirable or unnecessary condition outside the property. The appraiser should address the impact that the obsolescence has on the marketability of the subject property. In addition, the appraiser must provide evidence of comparable market sales that are similarly affected.
· Functional Obsolescence is defined as features of a property that have become unfashionable or unnecessary in the eyes of potential purchasers. The appraiser should describe the functional obsolescence and provide similar comparable properties to demonstrate its marketability or provide the cost to cure if applicable.
Income Approach Analysis:
The income approach should be developed on all 2-4 unit properties. The value indicated by the income approach must be derived by the Gross Income Multiplier (GIM) technique which identifies the relationship or ratio between the sale price or value of a property and its gross income from rent and other sources.
Disclosure of Information to the Appraiser
PRO-TECK requires appraiser and/or broker to disclose any and all information on the secured property that could affect marketability of the appraiser’s estimate of value. Information includes complete sales contract with all addendum pages, all charges and fees, discounts to the sales price, interest buy-downs, payment of HOA/PUD fees, credits or refunds, absorption of monthly payments, assignment of rent payments and any personal property included in sale.
Additionally, any environmental hazards, or potential environmental hazards that could have an impact on a property’s value or appeal. In certain instances, a review of escrow instructions may be acceptable in lieu of a purchase agreement.
Reconciliation of Value
The value indicated by each of the applicable approaches, together with the final reconciliation, must support the appraiser’s estimate of market value. This reconciliation is not an averaging technique but rather a process by which the appraiser explains the reasonableness of each approach and its applicability to the final estimate.
Unacceptable Appraisal Practices
The appraisal practices listed below are unacceptable. Evidence in an appraisal report of any of these practices should be considered a breach of the warranty of the professional quality of the appraisal report.
· Inclusion of inaccurate or incomplete data about the subject property, the neighborhood, or any comparable property used in the appraisal report.
· Development of value and marketability conclusions that are not supported by available and most current market data.
· Failure to report and consider any apparent factor that could have an adverse effect on the value and marketability of the subject property.
· Consideration of sex, race, color, religion, national origin, ancestry, citizenship, age, marital status, sexual orientation, medical condition, physical or mental disability, or any other basis prohibited by law, of the prospective or present owners or occupants of the subject property or of the properties in the vicinity of the subject property.
· Consideration of the age or location of a dwelling or the age of the neighborhood or census tract where the dwelling is located in a manner that has a discriminatory effect.
· Use of inordinate adjustments for differences between the subject property and the comparable sales that do not reflect the market’s reaction to such differences, or the failure to make proper adjustments when necessary and appropriate.
· Use of comparable sales in which interested parties to the subject transaction have or had an ownership or financial interest.
· Use of comparable sales data provided by interested parties to the transaction, without verification by a disinterested party.
· Reliance in the valuation analysis on comparable sales that were not personally inspected by the appraiser. A personal inspection requires at least a visual exterior inspection of the comparable sales by the appraiser, signing trainee and/or supervisory appraiser. The use of MLS photos will be accepted, however a personal inspection must have been made of the comparable property at some point prior to development of the appraisal report.
· Reliance in any valuation analysis on inappropriate comparable sales or the failure to use comparable sales that are more physically similar, more geographically proximate and most recent and current in date of sale.
Reporting of Unacceptable Practices
In addition to the established procedures and internal controls for independent appraiser licensing and monitoring, it is incumbent on any user of an appraisal to submit unacceptable reports to Pro-Teck Review Management for proper additional review and evaluation.
Property Located in a Controlled Market
If a subject property is in a controlled market such as a new subdivision or an area where the property seller owns a substantial number of units, the comparable sales must be outside the influence of the developer, builder or property seller.
New Subdivisions
For properties in new subdivisions, the appraiser must compare the subject property to other properties in its general market area, as well as to properties within the subject subdivision.
Leasehold Properties
The leasehold estate and the improvements must constitute real property, be subject to the mortgage lien and be insured by the lender’s title policy.
Leasehold Items of interest
· The term of the lease should be applied for at least five (5) years beyond the maturity date of the mortgage. This would not apply if the leasehold estate converts to a fee simple estate to the borrower at or prior to maturity.
· The leasehold estate must be assignable or transferable.
· The lease must not contain any default provisions allowing for forfeiture or termination, except for nonpayment of lease rents.
· The lease must guarantee the right of the mortgagee to receive notice of any default by the borrower and to cure the default.
· The lease must also include provisions to protect the mortgagee’s interests in the event of property condemnation.