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Real Estate Appraisal Guide for Non-Appraisers

A step-by-step appraisal guide to the standard 1004 Uniform Residential Appraisal Report (URAR). Great for borrowers wanting to understand their appraisal better and for lenders looking for something more specific than a basic appraisal checklist. Learn more about the home appraisal and what to watch for in your appraisal reports!

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Real Estate Appraisal Guide for Non-Appraisers

  1. 1. The Standard (1004) Appraisal
  2. 2. The Subject Section Summarizes the Property Data and Appraisal Purpose. Data Resources Include: Local Tax Assessor, Public Records Databases and Multiple Listing Service.
  3. 3. The Contract Section Confirms Appraiser reviewed data on the Purchase & Sale Data Resources Include: Agreement. Public Records and the Purchase and Sale Agreement provided by the mortgage lender.
  4. 4. The Neighborhood Section Characteristics: Urban, Suburban, and Rural Urban: Most living necessities (grocery store, restaurants, shopping) are within walking distance.
  5. 5. The Neighborhood Section Characteristics: Urban, Suburban, and Rural Suburban: Most living necessities (grocery store, restaurants, shopping) require a vehicle to access, although you would not need to drive far. Also in close proximity to major metropolitan areas.
  6. 6. The Neighborhood Section Characteristics: Urban, Suburban, and Rural Rural: Basic living services (grocery stores, restaurants, shopping) are typically over 5 miles away and the subject is outside of a defined city or town.
  7. 7. The Neighborhood Section ‘Built Up’ Percentages The % Rate: Indicates how much of the neighborhood has been developed.
  8. 8. The Neighborhood Section ‘Built-Up’ Percentages / Red Flags • If checked “Under 25%” the development progress and its impact on property values should be addressed by the appraiser (it could indicate weak price appreciation). A Rural area checked “Over 75%” indicates an inconsistency and should be further investigated to make sure that the comparables and the subject are located in the same market area.
  9. 9. The Neighborhood Section ‘Growth’ Determines the current stage in the property’s life-cycle and neighborhood.
  10. 10. The Neighborhood Section ‘Growth’ Determines the current stage in the property’s life-cycle and neighborhood. Rapid: Generally a new, developing area. Stable: Most, if not all land is developed. Slow: May indicate prices are weakening and market is distressed.
  11. 11. The Neighborhood Section ‘Growth’ Red Flag Determines the current stage in the property’s life-cycle and neighborhood. Rapid: Generally a new, developing area. Stable: Most, if not all land is developed. Slow: May indicate prices are weakening and market is distressed. If checked “Slow” appraiser should provide a detailed explanation as to why or how he/she came to this conclusion.
  12. 12. One-Unit Housing Trends ‘Property Values’ Data Resource: Sales Trends on Local Multiple Listing Service (MLS) Appraiser must indicate if values in the area are Increasing, Stable, or Declining.
  13. 13. One-Unit Housing Trends ‘Property Values’ Red Flag Maximum financing is typically not available if values are “Declining.” Data Resource: Sales Trends on Local Multiple Listing Service (MLS) Appraiser must indicate if values in the area are Increasing, Stable, or Declining.
  14. 14. One-Unit Housing Trends ‘Demand / Supply’ The Demand vs. Supply in a given market is indicated by the local Absorption Rate. ABSORPTION RATE = # HOMES CURRENTLY FOR SALE (AND UNDER CONTRACT) RATE OF SALES FOR A GIVEN PERIOD
  15. 15. One-Unit Housing Trends ‘Demand / Supply’ Shortage: Typically a shortage in the market is indicated when the absorption rate is 4 months or less.
  16. 16. One-Unit Housing Trends ‘Demand / Supply’ In Balance: A housing market is typically “in balance” if the inventory absorption rate averages 4 – 6 months.
  17. 17. One-Unit Housing Trends ‘Demand / Supply’ Over Supply: Excess of supply over demand, indicated by high vacancy rates, sluggish absorption rates, and declining rents. Generally, when there’s more than a 6-month supply of inventory this is considered a “Buyer’s Market.”
  18. 18. One-Unit Housing Trends ‘Demand / Supply’ Red Flag Over Supply: Excess of supply over demand, indicated by high vacancy rates, sluggish absorption rates, and declining rents. Generally, when there’s more than a 6- month supply of inventory this is considered a “Buyer’s Market.” If “Over Supply” is indicated that information can be verified with that presented in the “MC” or Market Conditions Form. If these two contradict then further explanation is needed. Oversupply may result in weakened prices and increased sales incentives.
  19. 19. One-Unit Housing Trends ‘Marketing Time’ “An opinion on the amount of time it may take to sell a real or personal property interest at the concluded market value level during the period immediately after the appraisal’s effective date.” -Appraisal Institute
  20. 20. One-Unit Housing Trends ‘Marketing Time’ Red Flag If Marketing Time is “Over 6 Months” the appraiser should provide an adequate description of the property’s marketability. Longer marketing times can indicate declining values.
  21. 21. One-Unit Housing ‘Price’ Price: “The amount asked, offered, or paid for a property. Once stated, price is a fact, whether publicly exposed or privately detained.” -Appraisal Institute
  22. 22. One-Unit Housing ‘Price’ Price: The appraiser must indicate whether the price is “Low, High, or Predominant” for the market area. The sales price of the comparable sales and the appraised value of the subject property should be close to the “Predominant” value for the neighborhood.
  23. 23. One-Unit Housing ‘Price’ Red Flag Price: The appraiser must indicate whether the price is “Low, High, or Predominant” for the market area. The sales price of the comparable sales and the appraised value of the subject property should be close to the “Predominant” value for the neighborhood. If the conclusion is not “Predominant” then appraiser should explain, as this could indicate that overpriced comparables were used to determine value.
  24. 24. One-Unit Housing ‘One-Unit Housing / Age’ ’ Age: The actual age of the subject property should typically be near or within the age range of other properties in the neighborhood.
  25. 25. One-Unit Housing ‘One-Unit Housing / Age’ Red Flag Age: The actual age of the subject property should typically be near or within the age range of other properties in the neighborhood. If not, this should be explained in the commentary at the end of this section. ’
  26. 26. One-Unit Housing ‘Low / High / Pred.’ This is where the appraiser puts the low and high price range where typical sales in the area occur, as well as the predominant (most frequently occurring) price for the subject area.
  27. 27. One-Unit Housing ‘Present Land Use’ Describes the % of distribution of land use to help determine if the subject property is negatively affected by other land uses (i.e. multi-family, commercial, industrial, etc.
  28. 28. One-Unit Housing ‘Present Land Use’ Red Flag Describes the % of distribution of land use to help determine if the subject property is negatively affected by other land uses (i.e. multi-family, commercial, industrial, etc. All totals combined (One- Unit, 2-4 unit, Multi-Family, Commercial, Other) must add up to 100%
  29. 29. Unit Housing Trends ‘Neighborhood Boundaries’ Should clearly outline the subject neighborhood. Generally neighborhoods are not an entire city, town, etc. so specific boundaries (freeway, creek, railroad, golf course, etc.) should help mark the neighborhood’s borders.
  30. 30. Unit Housing Trends ‘Neighborhood Boundaries’ Red Flag Should clearly outline the subject neighborhood. Generally neighborhoods are not an entire city, town, etc. so specific boundaries (freeway, creek, railroad, golf course, etc.) should help mark the neighborhood’s borders. Comparable sales located outside the neighborhood boundaries are typically NOT ACCEPTABLE without proper commentary.
  31. 31. Unit Housing Trends ‘Neighborhood Description’ Provides info on neighborhood characteristics, identification and marketability. This may include proximity to amenities, schools, and/or adverse environmental influences.
  32. 32. Unit Housing Trends ‘Market Conditions’ Support for neighborhood characteristics. This may include supporting comments for value trends, demand and supply, marketing times and data on comparables.
  33. 33. Unit Housing Trends ‘Market Conditions’ Red Flag Support for neighborhood characteristics. This may include supporting comments for value trends, demand and supply, marketing times and data on comparables. Any indication of weak of falling home prices should warrant further investigation, as it may indicate the property is located in a distressed market.
  34. 34. Provides measurements for the site, typically width and depth (for rectangular lots) and multiple dimensions for irregularly-shaped lots. Site Section ‘Dimensions’
  35. 35. The sum of the site dimensions typically expressed in square feet or acres. (FYI: 43,560 sq. ft. = 1 acre) Site Section ‘Area’ Data Resources Include: Appraiser Calculations, Local Tax Assessor, Public Records Databases and Multiple Listing Service.
  36. 36. Site Section ‘Shape’ The shape of the subject site; typically rectangular but can vary (See Below).
  37. 37. Site Section Certain views such as water, mountains, city, etc. may add value to the home. View attributes are also a line item and, if applicable, will appear on the Sales Comparison Approach on page 2, or may be included within the line item, just above ‘View.’ ‘View’
  38. 38. Site Section ‘View’ Red Flag Certain views such as water, mountains, city, etc. may add value to the home. View attributes are also a line item and, if applicable, will appear on the Sales Comparison Approach on page 2, or may be included within the line item, just above ‘View.’ Views can be tricky to quantify from an appraisal perspective and sometimes difficult to confirm. If an appraiser has missed a view (due to weather circumstances, etc.) try to provide a personal photo of it to confirm.
  39. 39. Site Section ‘Specific Zoning Classification’ The specific site zoning code as dictated by local government. The most commonly used is “R-1 Residential” or just “Residential.” Other residential classifications include: RC-5 = Residential / Conservation District R-2 = Medium-Density Residential R-3 = High Density Residential
  40. 40. Site Section ‘Zoning Description’ This is a general statement to describe what a specific zone permits such as “one-unit” and “two-units” when the appraiser indicates specific zoning (i.e. R-1 or R-2). Description may read “Residential Use, one unit on ½ acre or less.”
  41. 41. Site Section ‘Zoning Description’ Red Flag This is a general statement to describe what a specific zone permits such as “one-unit” and “two-units” when the appraiser indicates specific zoning (i.e. R-1 or R-2). Description may read “Residential Use, one unit on ½ acre or less.” If the zoning description includes a reference to the min. or max. site size, this is an opportunity to cross check and confirm the site size on the sales grid from page 2 within the Sales Comparison Approach.
  42. 42. Site Section ‘Zoning Compliance’ Ideally the 1st checkbox (Legal) is selected, although Legal Nonconforming is acceptable (meaning grandfathered use).
  43. 43. Site Section ‘Zoning Compliance’ Red Flag Ideally the 1st checkbox (Legal) is selected, although Legal Nonconforming is acceptable (meaning grandfathered use). If Zoning Compliance is not a legal, conforming use the appraisal must address the issue and its affect on the marketability and value of the subject. Illegal uses are not insurable and even the smallest violation of the local ordinance calls for the appraiser to check the “Illegal” box. Lack of zoning or no zoning also requires an explanation.
  44. 44. Site Section ‘Zoning Compliance’ Red Flag Ideally the 1st checkbox (Legal) is selected, although Legal Nonconforming is acceptable (meaning grandfathered use). If Zoning Compliance is not a legal, conforming use the appraisal must address the issue and its affect on the marketability and value of the subject. Illegal uses are not insurable and even the smallest violation of the local ordinance calls for the appraiser to check the “Illegal” box. Lack of zoning or no zoning also requires an explanation. Note: Some municipalities and many rural properties may not have any zoning regulations.
  45. 45. Site Section ‘Highest and Best Use’ “Is the highest and best use of the subject as improved (or as proposed per plans and specifications) the present use? Yes No If no, describe.”
  46. 46. Site Section ‘Highest and Best Use’ “Is the highest and best use of the subject as improved (or as proposed per plans and specifications) the present use? Yes No If no, describe.” If the answer is “No” the appraisal should verify that the property is suitable security for a residential loan and describe in detail. In such cases, the GSEs will likely not purchase the mortgage.
  47. 47. Site Section ‘Highest and Best Use’ Red Flag “Is the highest and best use of the subject as improved (or as proposed per plans and specifications) the present use? Yes No If no, describe.” If the answer is “No” the appraisal should verify that the property is suitable security for a residential loan and describe in detail. In such cases, the GSEs will likely not purchase the mortgage. If the subject’s Highest and Best Use is not “residential” then this Uniform Residential Appraisal Report (URAR) form likely won’t be acceptable.
  48. 48. Site Section ‘Utilities’ Public, private or community utilities (Electric, Gas, Water, Sanitary Sewer) must be available and meet community standards. Off-site utilities may be acceptable if the subject parcel has the associated right to access them and if there is a legally binding agreement for their access and maintenance.
  49. 49. Site Section ‘Utilities’ Red Flag Public, private or community utilities (Electric, Gas, Water, Sanitary Sewer) must be available and meet community standards. Off-site utilities may be acceptable if the subject parcel has the associated right to access them and if there is a legally binding agreement for their access and maintenance. If private well water and septic systems are used (ideally) they should be located on the property and commentary should be provided.
  50. 50. Site Section ‘Off-Site Improvements’ Off-Site Improvements usually encompass Street or Alley access and whether or not they are privately or publicly maintained.
  51. 51. Site Section ‘Off-Site Improvements’ Off-Site Improvements usually encompass Street or Alley access and whether or not they are privately or publicly maintained. If the street is marked “Private” access to the property should be deeded and an adequate and legally enforceable agreement for maintenance should be available. The associated maintenance for streets may contribute to increased fees for road maintenance (such as snow plowing, road repairs, or dust control if gravel).
  52. 52. Site Section ‘FEMA’ Is the property located in a “FEMA special flood hazard area” Yes No A “Yes” check will indicate that the property is located in an area that has at least a 1% chance of experiencing a flood event any year within the next 100 years.
  53. 53. Site Section ‘FEMA’ Red Flag Is the property located in a “FEMA special flood hazard area” Yes No A “Yes” check will indicate that the property is located in an area that has at least a 1% chance of experiencing a flood event any year within the next 100 years. A Special Flood Hazard Area (SFHA) designation could indicate an unacceptable location or one that requires special flood insurance.
  54. 54. Site Section ‘FEMA Flood Zone’ This represents the FEMA flood zone code. The following codes usually require flood insurance: A, AE, AH, AO, A1-30, A- 99, V, VE, VO, and V1-30.
  55. 55. Site Section ‘FEMA Flood Zone’ This represents the FEMA flood zone code. The following codes usually require flood insurance: A, AE, AH, AO, A1-30, A- 99, V, VE, VO, and V1-30. You can enter an address at the following website to review flood info: https://msc.fema.gov/portal
  56. 56. Represents most current FEMA map info. This will reflect any updated flood control projects that can impact potential flooding and Flood Zone code classification for the subject line. Site Section ‘FEMA Map Date’
  57. 57. Site Section ‘Utilities and Off-Site Improvements’ “Are the utilities and off-site improvements typical for the market area? Yes No If no, describe. Provides confirmation and or information on utility service and streets and alleyways that provide access to the site.
  58. 58. Site Section ‘Adverse Site Conditions’ “Are there any adverse site conditions or external factors? Yes No If yes, describe. If yes, appraiser should describe any condition specific to the subject site that would affect value or marketability. Examples are: Easements, Encroachments, Illegal Zoning, Slide Areas, High Voltage Power Lines, Cell Phone Towers, and Large Industrial Plants.
  59. 59. Site Section ‘Adverse Site Conditions’ Red Flag “Are there any adverse site conditions or external factors? Yes No If yes, describe. If yes, appraiser should describe any condition specific to the subject site that would affect value or marketability. Examples are: Easements, Encroachments, Illegal Zoning, Slide Areas, High Voltage Power Lines, Cell Phone Towers, and Large Industrial Plants. The existence of any adverse conditions should be taken into consideration and should reappear in the Sales Comparison Approach.
  60. 60. Improvements ‘Summarized’ Improvements to the home should conform to those throughout the neighborhood with regard to type, design, and materials used.
  61. 61. Improvements ‘Summarized’ Red Flag Improvements to the home should conform to those throughout the neighborhood with regard to type, design, and materials used. If a property is considered “unique” and is non-conforming the appraiser must provide adequate info to ensure that the estimate of value is reliable (due to the differences in comparable properties).
  62. 62. Improvements ‘General Description’ The General Description check boxes and questions identify characteristics of the residential improvements. (This section specifically applies to a single-family residence with a possible accessory unit.)
  63. 63. Improvements ‘General Description’ Characteristics include: -Units: 1 or 1 with Accessory Unit # of Stories -Type: Det (Detached) or Att (Attached) or S-Det/ End Unit (Semi- Detached) -Existing or Proposed or Under Construction -Design(Style) -Year Built -Effective Age (in Years) Effective Age: The age of a property based on the amount of observed deterioration and obsolescence sustained. If the home has been well maintained the Effective Age will often be less than the Actual Age.
  64. 64. Improvements ‘General Description - Attic’ Description and use of attic space. Appropriate boxes should be checked indicating the type of access, finish, and heating available.
  65. 65. Improvements ‘General Description - Attic’ Description and use of attic space. Appropriate boxes should be checked indicating the type of access, finish, and heating available. Similar to a finished basement, an attic should NOT be included in the square footage or Gross Livable Area (GLA) or in the room count. Nonetheless, it can still have significant contributory value.
  66. 66. Improvements ‘Foundation’ Summarizes the foundation’s materials and construction techniques. If applicable, it will also include info on the basement.
  67. 67. Improvements ‘Foundation’ Info Provided Includes: -Concrete Slab -Crawl Space -Full Basement -Partial Basement -Basement Area (in SF) -Basement Finish (as a % of the total basement area)
  68. 68. Improvements ‘Foundation’ Red Flags Info Provided Includes: -Concrete Slab -Crawl Space -Full Basement -Partial Basement -Basement Area (in SF) -Basement Finish (as a % of the total basement area) It is possible for the foundation to consist of more than one foundation “type.” The appraisal should identify each applicable type. Foundations that involve wood products and earth contact are generally not acceptable.
  69. 69. Improvements ‘Foundation’ Red Flags Info Provided Includes: -Concrete Slab -Crawl Space -Full Basement -Partial Basement -Basement Area (in SF) -Basement Finish (as a % of the total basement area) It is possible for the foundation to consist of more than one foundation “type.” The appraisal should identify each applicable type. Foundations that involve wood products and earth contact are generally not acceptable.
  70. 70. Improvements ‘Basement’ Some items represent the existence of several basement related categories that may have an impact on value, marketability, and structural integrity of the structure. These include: • Outside Entry / Exit • Sump Pump • Evidence of: Infestation or Dampness or Settlement
  71. 71. Improvements ‘Basement’ Red Flag Some items represent the existence of several basement related categories that may have an impact on value, marketability, and structural integrity of the structure. These include: • Outside Entry / Exit • Sump Pump • Evidence of: Infestation or Dampness or Settlement The existence of a sump pump and / or any signs of dampness and or infestation may require additional inspections by experts in these categories.
  72. 72. Improvements ‘Heating and Cooling’ A series of check box selections precedes the most common heating types such as FWA (forced air), HWBB (hot water base board), Radiant (heat), and other. Cooling systems for the subject, if applicable, can include central air, individually cooled rooms, and other. Central air conditioning is an important feature in most southern locations in the US and can contribute to value.
  73. 73. Improvements ‘Exterior Description’ Provides an overall description of the exterior features of the improvements. In general, the appraiser should provide descriptive comments regarding construction materials and techniques used: • Foundation Walls • Exterior Walls • Roof Surface • Gutter and Downspouts • Window Type and Treatments
  74. 74. Improvements ‘Exterior Description’ Red Flag Provides an overall description of the exterior features of the improvements. In general, the appraiser should provide descriptive comments regarding construction materials and techniques used: • Foundation Walls • Exterior Walls • Roof Surface • Gutter and Downspouts • Window Type and Treatments The information in this section should further identify and confirm the type of structure and the appropriate use with this appraisal form.
  75. 75. Improvements ‘Amenities’ Features in this section add utility and comfort to the home and should be clearly described, as they represent additional costs and may contribute additional value to the property. A series of check boxes complete this section that will identify amenities for the house’s improvements and include: • Fireplace(s) • Patio/Deck • Pool • Woodstove(s) • Fence • Porch • Other
  76. 76. Improvements ‘Amenities’ Red Flag A series of check boxes complete this section that will identify amenities for the house’s improvements and include: • Fireplace(s) • Patio/Deck • Pool • Woodstove(s) • Fence • Porch • Other These amenities, if applicable, may appear in the SALES COMPARISON APPROACH and used to adject comparable properties.
  77. 77. Improvements ‘Amenities’ Red Flag REMEMBER: Cost does not always equal value! Construction quality, materials and methods can vary but should reflect those of the surrounding market. Over-improvements can cause what is called “functional obsolescence and should be valued and adjusted accordingly. Each item should be considered in terms of its market-based contribution to the property’s value.
  78. 78. Improvements ‘Interior’ Describes the home’s interior focusing on construction materials, condition, and overall construction quality. The appraisal should have a clear description of each feature associated with: • Floor Surfaces • Wall Treatments • Trim / Finish • Bathroom Floors and Walls
  79. 79. Improvements ‘Car Storage’ Car storage should be adequate for the property and should meet market demands. Sometimes a garage has been converted to a living area. A series of check boxes completes this section and provides data on various combinations of car storage features and driveways for the property.
  80. 80. Improvements ‘Appliances’ Provides info on the kitchen equipment and appliance items that are “built in” to the property. Range/Ovens are usually considered built-ins.
  81. 81. Improvements ‘Appliances’ Red Flag Provides info on the kitchen equipment and appliance items that are “built in” to the property. Range/Ovens are usually considered built-ins. Range/Ovens are usually considered built-ins; however, Refrigerators, Microwaves, and Washer/Dryers will most often be considered “Personal Property” and will not affect value.
  82. 82. Improvements ‘Finished Area Above Grade’ The “Above Grade” finished area contains the square footage of: • Rooms, • Bedrooms and • Bathrooms These are important for the Cost Approach and Sales Comparison Approach.
  83. 83. Improvements ‘Finished Area Above Grade’ Red Flag The “Above Grade” finished area contains the square footage of: • Rooms, • Bedrooms and • Bathrooms These are important for the Cost Approach and Sales Comparison Approach. Cross-comparison of the Cost Approach and Sales Comparison Approach should be completed when reviewing the appraisal. If the property has an atypical layout the appraisal should identify any market resistance (whether or not the average buyer will like it or not) and make sure the appropriate adjustments are applied in the Sales Comparison Approach section.
  84. 84. Improvements ‘Finished Area Above Grade’ Clarification Rooms, Bedrooms and Baths: To determine is a property’s floor plan is common to the market area the reader should take a look at the room count in conjunction with the attached sketch. Ideally the room count should be similar to those of the comparable sales used.
  85. 85. Improvements ‘Finished Area Above Grade’ Clarification Square Feet of Gross Living Area Above Grade (GLA): Only the finished areas above-grade are used to calculate GLA. Rooms not included as “above-grade” can still add substantial value to the property and can be included separately in the Cost Approach section (if applicable) and the Sales Comparison Approach.
  86. 86. Improvements ‘Finished Area Above Grade’ Clarification Square Feet of Gross Living Area Above Grade (GLA): Only the finished areas above-grade are used to calculate GLA. Rooms not included as “above-grade” can still add substantial value to the property and can be included separately in the Cost Approach section (if applicable) and the Sales Comparison Approach. Square footage is typically based on the measurement of the exterior walls. Note the square feet of the GLA must be consistent throughout the report.
  87. 87. Improvements ‘Finished Area Above Grade’ Clarification Square Feet of Gross Living Area Above Grade (GLA): Only the finished areas above-grade are used to calculate GLA. Rooms not included as “above-grade” can still add substantial value to the property and can be included separately in the Cost Approach section (if applicable) and the Sales Comparison Approach. Square footage is typically based on the measurement of the exterior walls. Note the square feet of the GLA must be consistent throughout the report. Garage, carports, or basement areas (any area below-grade) should NOT be included in the square feet of living estimate.
  88. 88. Improvements ‘Additional Features’ Additional amenities may include special energy efficient items and construction, as well as finish material upgrades. These items affecting value will be addressed in the Valuation Analysis on page 2.
  89. 89. Improvements ‘Additional Features’ Red Flag Additional amenities may include special energy efficient items and construction, as well as finish material upgrades. These items affecting value will be addressed in the Valuation Analysis on page 2. Please don’t assume that just because something has an “energy efficient” label (i.e. a “low-flush” toilet) that it will have an impact on value. Typically energy efficient items impacting value would include: insulation systems, major water efficiency systems, daylighting features, major energy producing items (solar panels) and major appliances.
  90. 90. Improvements ‘Property Condition’ “Describe the condition of the property included needed repairs, deterioration, renovations, remodeling, etc.)” This area includes more commenting on the property’s condition. If applicable, any repairs, renovations, and remodeling should be described as well as how the appraiser approached them in terms of valuation.
  91. 91. Improvements ‘Property Condition’ Red Flag “Describe the condition of the property included needed repairs, deterioration, renovations, remodeling, etc.)” This area includes more commenting on the property’s condition. If applicable, any repairs, renovations, and remodeling should be described as well as how the appraiser approached them in terms of valuation. Any deterioration that may result in the home’s depreciation should be addressed in this section and appear in the Cost Approach (when provided) as well as the Functional Utility and condition line items within the Sales Comparison Approach.
  92. 92. Improvements ‘Physical Deficiencies’ “Are there any physical deficiencies or adverse conditions that affect the livability, soundness, or structural integrity of the property?” If Yes, describe. These conditions MUST be reported even if the conditions are typical for the market area.
  93. 93. Improvements ‘Physical Deficiencies’ “Are there any physical deficiencies or adverse conditions that affect the livability, soundness, or structural integrity of the property?” If Yes, describe. These conditions MUST be reported even if the conditions are typical for the market area. Examples: • Water seepage • Active leaks • Inadequate electrical service • Cracks and settlement of foundations
  94. 94. Improvements ‘Physical Deficiencies’ Red Flag “Are there any physical deficiencies or adverse conditions that affect the livability, soundness, or structural integrity of the property?” If Yes, describe. These conditions MUST be reported even if the conditions are typical for the market area. Examples: • Water seepage • Active leaks • Inadequate electrical service • Cracks and settlement of foundations In some cases a qualified inspector’s report may be required to verify the presence and/or magnitude of these conditions. When analyzing the appraisal consider any influence the condition may have on the value and marketability of the property and look for appropriate value adjustments.
  95. 95. Improvements ‘Conforming to Neighborhood’ “Does the property generally conform to the neighborhood (functional utility, style, condition, use, construction, etc.) If No, describe.” The property should generally conform in terms of age, type, design, and material(s) used.
  96. 96. Improvements ‘Conforming to Neighborhood’ Red Flag “Does the property generally conform to the neighborhood (functional utility, style, condition, use, construction, etc.) If No, describe.” The property should generally conform in terms of age, type, design, and material(s) used. Lack of conformity could affect value and marketability and should be described with comments. Identification and special consideration must be given to properties that represent unique housing for the subject neighborhood.
  97. 97. Sales Comparison Approach (SCA) Summary AKA the Market Data Approach, the SCA is an analysis of the comparable properties (comps) recently sold in the neighborhood or general market area. Comparable sales should show as much similarity to the subject as possible, ideally requiring minimal value adjustments.
  98. 98. Sales Comparison Approach (SCA) Summary Red Flag AKA the Market Data Approach, the SCA is an analysis of the comparable properties (comps) recently sold in the neighborhood or general market area. Comparable sales should show as much similarity to the subject as possible, ideally requiring minimal value adjustments. The description of all features here should be consistent with the data presented in the Property Description (Page 1) and the Cost Approach sections.
  99. 99. Sales Comparison Approach (SCA) ‘Comp Guidelines’ 1. A minimum of 3 comparable sales are required, although additional comps may be requested if the estimate of value doesn’t appear to be supported. 2. The comp’s date of sale typically should have closed within the last 12 months. Fannie Mae no longer requires commenting for sales over 6 months. 3. For properties in established subdivisions or PUDs the appraisal should contain sales from within the same subdivision or PUD. If not, explanation is required.
  100. 100. subdivision or PUD. If not, explanation is required. Sales Comparison Approach (SCA) ‘Comp Guidelines’ 1. New subdivisions: appraisal should have at least 1 sale within the general market area and 1 within the subdivision or project. Ideally the 3rd sale should also be from the subdivision as long as it is an arms-length sale and the builder-developer is not involved. 1. Appraisals of rural properties may include sales located a considerable distance from the subject. The appraiser should define his knowledge of market trends and clarify his comp selection.
  101. 101. Sales Comparison Approach (SCA) ‘Comp Guidelines’ Each comparable sale must be analyzed for differences and appropriately adjusted on the sales grid on Page 2 of the URAR under the following characteristics: • Location • Condition of Sale • Time (passed since sale completed) • Physical Characteristics The subject property is the standard for comparison of all other properties. If the comparable sale has a feature that is superior to the subject a negative (-) dollar adjustment is required. If the comp has a feature that is inferior, a positive (+) adjustment is required.
  102. 102. Sales Comparison Approach (SCA) ‘Comp Guidelines’ Red Flag Each comparable sale must be analyzed for differences and appropriately adjusted on the sales grid on Page 2 of the URAR under the following characteristics: • Location • Condition of Sale • Time (passed since sale completed) • Physical Characteristics The subject property is the standard for comparison of all other properties. If the comparable sale has a feature that is superior to the subject a negative (-) dollar adjustment is required. If the comp has a feature that is inferior, a positive (+) adjustment is required. Adjustments must reflect the value the market will recognize for the feature NOT its actual cost (aka its Market Reaction).
  103. 103. Sales Comparison Approach (SCA) ‘Reading the Grid’ The first two lines require the appraiser to provide both the # and the price ranges for only those properties which are truly comparable to the subject and also within the neighborhood. These include properties currently for sale (listings) and actual closed sales.
  104. 104. Sales Comparison Approach (SCA) ‘Reading the Grid’ ADDRESS: The first line provides the actual physical street addresses for the subject and comparables.
  105. 105. Sales Comparison Approach (SCA) ‘Reading the Grid’ PROXIMITY TO SUBJECT: The reference measured “as the crow flies.” Description should be in terms of a specific distance and direction. Example: 8 Blocks West, 1.00 Miles North. (The UAD requires mileage be recorded with 2 decimal places.) Distance should be reasonable for the subject’s location and within the defined neighborhood or in a competing market area.
  106. 106. Sales Comparison Approach (SCA) ‘Reading the Grid’ Red Flag PROXIMITY TO SUBJECT: The reference measured “as the crow flies.” Description should be in terms of a specific distance and direction. Example: 8 Blocks West, 1.00 Miles North. (The UAD requires mileage be recorded with 2 decimal places.) Distance should be reasonable for the subject’s location and within the defined neighborhood or in a competing market area. Generally an explanation is required for any sale that is considered to be outside these guidelines.
  107. 107. Sales Comparison Approach (SCA) ‘Sale Price’ The sale price of each comparable property should fall within the value range indicated in the Neighborhood Analysis. Ideally comp sales should also bracket the subject’s estimate of value.
  108. 108. Sales Comparison Approach (SCA) ‘Sale Price / Gross Living Area (GLA)’ This “multiplier” is obtained by dividing the sales price for each property by its square footage of gross living area. It also provides a quick check of the relative similarity to the subject property as the subject’s indicated value should also fall inside the range shown for the comparable sales.
  109. 109. Sales Comparison Approach (SCA) ‘Sale Price / Gross Living Area (GLA)’ Red Flag This “multiplier” is obtained by dividing the sales price for each property by its square footage of gross living area. It also provides a quick check of the relative similarity to the subject property as the subject’s indicated value should also fall inside the range shown for the comparable sales. The resulting factor should reflect a narrow range, if good comparable sales have been utilized.
  110. 110. Sales Comparison Approach (SCA) ‘Data / Verification Sources’ The appraiser should use public data sources; however it is acceptable for the appraiser to use private or multiple data sources provided they are disclosed and verifiable.
  111. 111. Sales Comparison Approach (SCA) ‘Value Adjustments’ The descriptive features that allow the plus and minus dollar adjustments for differences between each comparable sale and the subject property.
  112. 112. Sales Comparison Approach (SCA) ‘Value Adjustments’ Red Flag The descriptive features that allow the plus and minus dollar adjustments for differences between each comparable sale and the subject property. Only comparable sales are to be adjusted.
  113. 113. Sales Comparison Approach (SCA) ‘Value Adjustments’ Sales or Financing Concessions Examples of sales concessions include: • Interest rate buydowns • Loan discount points • Unique closing costs • Below market financing • Seller carried 2nd loans, etc.
  114. 114. Sales Comparison Approach (SCA) ‘Value Adjustments’ Financing Concessions Flag Examples of sales concessions include: • Interest rate buydowns • Loan discount points • Unique closing costs • Below market financing • Seller carried 2nd loans, etc. Adjustments should only be made for concessions that are atypical, excessive or outside of general market acceptance and must reflect the difference between what the property would sell for with and without the concession.
  115. 115. Sales Comparison Approach (SCA) ‘Value Adjustments’ Financing Concessions Flag Examples of sales concessions include: • Interest rate buydowns • Loan discount points • Unique closing costs • Below market financing • Seller carried 2nd loans, etc. Adjustments should only be made for concessions that are atypical, excessive or outside of general market acceptance and must reflect the difference between what the property would sell for with and without the concession. Note: Positive dollar adjustments for concessions or other items that are considered “superior” financing are not acceptable.
  116. 116. Sales Comparison Approach (SCA) ‘Value Adjustments’ Date of Sale / Time Reports any change in sales price for similar properties from the date of sale for each comparable and the sate of valuation for the subject. The dollar adjustment should be consistent with the Property Values, Demand/Supply and Marketing Time trends reported on page 1.
  117. 117. Sales Comparison Approach (SCA) ‘Value Adjustments’ Date of Sale / Time Flags Reports any change in sales price for similar properties from the date of sale for each comparable and the sate of valuation for the subject. The dollar adjustment should be consistent with the Property Values, Demand/Supply and Marketing Time trends reported on page 1. If Property Values are declining one would not expect to find positive adjustments for Date of Sale/Time, which would indicate the market is appreciating, without a detailed explanation. If the market is described as “active” it should not be state that comps are difficult to find without sufficient explanation. Similarly, if the comparable sales are all over 6 months old, an explanation should be included address the need for the use of older sales. Sales must be verified and the appraisal should indicate whether the sale date, contract date, or closing date was used.
  118. 118. Sales Comparison Approach (SCA) ‘Value Adjustments’ Date of Sale / Time Flags Note: A common misconception if that the time elapsed since the date of sale for each comp must fall within the Marketing Time indicated on Page 1. For ex: take a comp sale that closed 5 months prior to the valuation date on the appraisal. It may have been marketed for only 2 months prior to the sale; therefore its marketing time would be “under 3 months” even though it is now 5 months old.
  119. 119. Sales Comparison Approach (SCA) ‘Value Adjustments’ Date of Sale / Time Flags Note: A common misconception if that the time elapsed since the date of sale for each comp must fall within the Marketing Time indicated on Page 1. For ex: take a comp sale that closed 5 months prior to the valuation date on the appraisal. It may have been marketed for only 2 months prior to the sale; therefore its marketing time would be “under 3 months” even though it is now 5 months old. Note: The next set of potential value influencing factors can be somewhat subjective and are heavily reliant on the appraiser’s market knowledge. All adjustments should be clearly explained and based directly on market derived info. If a property is overvalued, it is commonly due to the subjective adjustments to value that are made for these features. The appraiser must be consistent with items reported on Page 1 and the reader should understand the basis for all applied adjustments.
  120. 120. Sales Comparison Approach (SCA) ‘Value Adjustments’ Location A property may experience negative or positive influences based on location. If the location is typical and sales are selected from the subject’s neighborhood, no adjustment may be required. Any adjustment should be explained and related to the Property Description data (neighborhood, site, etc.) on Page 1.
  121. 121. Sales Comparison Approach (SCA) ‘Value Adjustments’ Leasehold/Fee Simple This should correspond with the descriptive date on Page 1. The reader should expect the comparable sales to have similar ownership or an explanation of the market’s reaction if they differ.
  122. 122. Sales Comparison Approach (SCA) ‘Value Adjustments’ Site If the subject is typical of neighborhood sites, no adjustment is usually required. Corner sites, size differences, inferior or superior site orientations (water frontage, golf course, etc.) should be appropriately adjusted and explained.
  123. 123. Sales Comparison Approach (SCA) ‘Value Adjustments’ View View may have a significant impact on value. Sites located in the same neighborhood, and even on the same street may have different values due to their orientation and views. Adjustments are often recognized for scenic views (i.e. mountains, valleys, or bodies of water.)
  124. 124. Sales Comparison Approach (SCA) ‘Value Adjustments’ View Flag View may have a significant impact on value. Sites located in the same neighborhood, and even on the same street may have different values due to their orientation and views. Adjustments are often recognized for scenic views (i.e. mountains, valleys, or bodies of water.) All view adjustments must be adequately explained in the appraisal.
  125. 125. Sales Comparison Approach (SCA) ‘Value Adjustments’ NOTE Note: Appraisers may have different approached to their methods of valuating Location, Site, and View attributes. Ex: One appraiser may categorize all 3 of these features into a single Location adjustment for a waterfront property, whereas another appraiser may consider part of the value attributed to Location and part to Site and/or View.
  126. 126. Sales Comparison Approach (SCA) ‘Value Adjustments’ Design (Style) Design or Style adjustments are derived from the market, but are often difficult to verify as neighborhoods typically contain homes or similar design and style and the rarity of a market recognized variation makes extraction by a “Paired Sales Analysis” more difficult. Nonetheless, in some cases some neighborhoods show a preference toward one style of home and the value difference can be very apparent.
  127. 127. Sales Comparison Approach (SCA) ‘Value Adjustments’ Quality of Construction Flag If there is an adjustment for a Design or Style feature make sure there aren’t any unusual comments about the subject in the Improvements section and expect a full explanation for adjustments to the comparable sales. Comps of similar Design and Style to the subject should be used whenever possible. Design or Style adjustments are derived from the market, but are often difficult to verify as neighborhoods typically contain homes or similar design and style and the rarity of a market recognized variation makes extraction by a “Paired Sales Analysis” more difficult. Nonetheless, in some cases some neighborhoods show a preference toward one style of home and the value difference can be very apparent.
  128. 128. Sales Comparison Approach (SCA) ‘Value Adjustments’ Quality of Construction NOTE Note: Cost does not always equal value. An adjustment should reflect only the amount the real estate market in that neighborhood will recognize. This required an informed judgment by the appraiser, and one that must be communicated clearly to the user of the report.
  129. 129. Sales Comparison Approach (SCA) ‘Value Adjustments’ Actual Age Page 1 of the appraisal should state both the actual Year Built and the Effective Age of the subject. Differences can be due to the level of property maintenance, and/or updating made to keep pace with current market trends. On Page 2, the Actual Age should be used for the subject and comps. Adjustments here should only be made for market recognized differences in comparative ages.
  130. 130. Sales Comparison Approach (SCA) ‘Value Adjustments’ Condition Conditional differences can be a result of property maintenance or updating made to keep pace with current market demands. Adjustments should not be based on the cost of repairs or modernization, but on the amount a typical buyer is willing to pay for the difference in condition of the subject and each comparable.
  131. 131. Sales Comparison Approach (SCA) ‘Value Adjustments’ Condition Red Flag Conditional differences can be a result of property maintenance or updating made to keep pace with current market demands. Adjustments should not be based on the cost of repairs or modernization, but on the amount a typical buyer is willing to pay for the difference in condition of the subject and each comparable. The appraiser may choose to combine adjustments for Age and Condition; however they must provide a clear explanation in the appraisal. These adjustments may also be checked against the depreciation estimates in the Cost Approach, if provided, in order to gauge their consistency.
  132. 132. Sales Comparison Approach (SCA) ‘Value Adjustments’ Above-Grade vs. GLA The Above-Grade Room Count and the Gross Living Area (GLA) need to be consistent with the descriptions on Page 1. Only finished above-grade areas are used in calculating GLA. Basements and partial below-grade areas and attics can be included elsewhere in the report and adjusted accordingly.
  133. 133. Sales Comparison Approach (SCA) ‘Value Adjustments’ Above-Grade vs. GLA Flag The Above-Grade Room Count and the Gross Living Area (GLA) need to be consistent with the descriptions on Page 1. Only finished above-grade areas are used in calculating GLA. Basements and partial below-grade areas and attics can be included elsewhere in the report and adjusted accordingly. Remember, ideally the room count for the subject and comp sales should be similar and adjustments made on the basis of market reaction. Room count adjustments are usually applied to differences in baths (and occasionally in bedrooms); otherwise the appraiser should provide an explanation.
  134. 134. Sales Comparison Approach (SCA) ‘Value Adjustments’ Above-Grade vs. GLA NOTE NOTE: Adjustments made for size should be consistent throughout the report. For instance, if the adjustment is $20/SF for size differential on one comp, it should be $20/SF on all other comps. Also remember the general rule: adjustments per square foot of living area usually run between 40% and 75% of the cost per SF to construct new or Dwelling Sq Ft. cost, which may be provided in the optional Cost Approach.
  135. 135. Sales Comparison Approach (SCA) Basement & Finished Rooms Below Grade In some areas finished basements are quite typical and can add significant value to the property. It is important to confirm that these are a typical attribute to the local market and that all adjustments are consistent for build-out, bath, or other room utility and size.
  136. 136. Sales Comparison Approach (SCA) Basement & Finished Rooms Below Grade NOTE In some areas finished basements are quite typical and can add significant value to the property. It is important to confirm that these are a typical attribute to the local market and that all adjustments are consistent for build-out, bath, or other room utility and size. Any valued features should be explained, and if the Cost Approach is provided the reader should compare the appraiser’s adjustment with the estimated cost figure use in the Cost Approach.
  137. 137. Sales Comparison Approach (SCA) ‘Value Adjustments’ Functional Utility Functional utility adjustments should reflect any functional inadequacies mentioned in the Improvements section and adjustments should be consistent with the functional depreciation estimate shown in the Cost Approach (if provided).
  138. 138. Sales Comparison Approach (SCA) ‘Value Adjustments’ Functional Utility Functional utility adjustments should reflect any functional inadequacies mentioned in the Improvements section and adjustments should be consistent with the functional depreciation estimate shown in the Cost Approach (if provided). Functional utility adjustment items include: -Heating / Cooling -Energy Efficient Items -Garage / Carport -Porch / Patio / Deck -Optional Items: Fireplace, Pool, Fence etc. (may be entered on the 3 blank lines)
  139. 139. Sales Comparison Approach (SCA) ‘Value Adjustments’ Functional Utility Flag Functional utility adjustments should reflect any functional inadequacies mentioned in the Improvements section and adjustments should be consistent with the functional depreciation estimate shown in the Cost Approach (if provided). Functional utility adjustment items include: -Heating / Cooling -Energy Efficient Items -Garage / Carport -Porch / Patio / Deck -Optional Items: Fireplace, Pool, Fence etc. (may be entered on the 3 blank lines) The adjustment is for the market’s reaction to the functional loss and it must be supported and clearly explained by the appraiser. Adjustments should NOT be made based directly on their cost.
  140. 140. Sales Comparison Approach (SCA) ‘Value Adjustments’ Net Adjustment (Total) The net adjustment for each comparable sale should be within + or – 15% of its sale price and the gross adjustment (combined total of all adjustment amounts regardless of positive or negative influence) should be within + or – 25% of its sale price.
  141. 141. Sales Comparison Approach (SCA) ‘Value Adjustments’ Net Adjustment FLAG The net adjustment for each comparable sale should be within + or – 15% of its sale price and the gross adjustment (combined total of all adjustment amounts regardless of positive or negative influence) should be within + or – 25% of its sale price. An explanation should be provided if adjustments exceed this range, and the comparable should be given special attention to determine if it is truly comparable to the subject.
  142. 142. Sales Comparison Approach (SCA) NOTE: The following questions are there to help provide the reader with an overview of research, data sources, and sale histories for all the properties on the sales grid. It can be useful to support values and alert the reader to any possible flip activity.
  143. 143. Sales Comparison Approach (SCA) I did / did not research the sale or transfer history of the subject property. Ideally the appraiser checked that he/she HAS done the research. If not, the appraiser must explain due diligence completed in complying with the key (USPAP) requirement.
  144. 144. Sales Comparison Approach (SCA) My research did / did not reveal any prior sales or transfers of the comparable sales for the year prior to the date of sale of the comparable sale. Requires the appraiser to research and provide any sales and transfers of the subject that have occurred in the three years prior to the effective date of the appraisal.
  145. 145. Sales Comparison Approach (SCA) Data Sources Requires the appraiser to provide the source of the sales history data for the subject in enough detail to direct the reader to the source.
  146. 146. Sales Comparison Approach (SCA) My research did / did not reveal any prior sales or transfers of the comparable sales for the year prior to the date of sale of the comparable sales. This question determines if any sales or transfers have taken place within one year of the sale date of the comparable sale used in the appraisal.
  147. 147. Sales Comparison Approach (SCA) Data Sources Requires the appraiser to provide the source of the sales history data for the comparables in enough detail to direct the reader to the source.
  148. 148. Sales Comparison Approach (SCA) Report the results of the research and analysis of the prior sale or transfer history of the subject property and comparable sales (report additional prior sales on page 3). You should see a table just below this question. The input data should represent the subject and all comparables’ sale history features as follows: - Date of prior sale / transfer - Price of prior sale / transfer - Data source(s) - Effective date of data source(s)
  149. 149. Sales Comparison Approach (SCA) Analysis of prior sale or transfer history of the subject property and comparable sales. Requests an analysis of the sale histories of the subject AND comparables. Comments should clarify how these sales affect of relate to the current indicated market value of the subject.
  150. 150. Sales Comparison Approach (SCA) Note Analysis of prior sale or transfer history of the subject property and comparable sales. Requests an analysis of the sale histories of the subject AND comparables. Comments should clarify how these sales affect of relate to the current indicated market value of the subject. NOTE: The information provided in this table section relates to previous sales of the subject and comp sale properties, not the subject’s current sale transaction or the comparable sale transactions reported and analyzed in the Sales Comparison Approach.
  151. 151. Sales Comparison Approach (SCA) Summary of Sales Comparison Approach Provides adequate space for the appraiser to summarize the Sales Comparison Approach and ultimate value in a narrative format.
  152. 152. Sales Comparison Approach (SCA) Indicated Value by Sales Comparison Approach The dollar estimate derived from this Approach should be within the range of the indicated values shown but the final adjusted sales prices of the comparable sales. The value should be reasonable and further justified with detailed comments and explanation so the reader will have a full understanding of the subject’s market and how the final indicated value estimate was determined.
  153. 153. Reconciliation Reconciliation is a process that continues throughout the appraiser’s analysis and results in the final estimate of market value. In the final reconciliation, the appraiser must review the reasonableness and reliability of the data presented in the required Sales Comparison Approach, and if provided, the now optional Cost and Income Approaches to value. The appraiser then fills in the opinion(s) of value for each approach used, then discusses and provides comments for the rationale for which approach(es) were given the most weight. The reader of the report must be assured that the final reconciliation represents a logical analysis and conclusion and not a simple mathematical averaging technique.
  154. 154. Reconciliation If the appraiser has provided sufficient, comprehensive data that is relative to the subject’s neighborhood, site, improvements, and the comparable sales, the reviewer should reach the same conclusion as the appraiser. This should provide the user with the basis for a sound determination as to the adequacy of the property as a security for a mortgage. In most cases the Sales Comparison Approach will be the basis of the reconciled or final estimate.
  155. 155. Reconciliation The next four check boxes on the reconciliation grid reflect the appraised value and relate to either the current condition of the subject or some yet to occur event ranging from being built to repairs.
  156. 156. Page 3 – Cost and Income Approaches and Project Data Section 8: Additional Comments This section is used to provide any additional information or overflow comments that do not fit within the spaces provided on the prior pages of the URAR the appraiser may use this space for any additional research, expanded scope of work, and/or sketches. The Additional Comments section, in most cases will eliminate the need for additional comment addendums and extra pages.
  157. 157. Page 3 – Cost and Income Approaches and Project Data Section 9: Cost Approach This section is not always required, however is an approach to value is considered by the appraiser as being necessary to produce credible results, the approach is not optional, but rather an aspect of the appraisal assignment. In fact, especially for new or recently construction properties, the client would be well served to obtain the Cost Approach to value.
  158. 158. Page 3 – Cost and Income Approaches and Project Data Section 9: Cost Approach (continued) This approach to value is based on the real estate principle of substitution that assumes that a prudent buyer would pay no more for a property than the cost to reproduce or replace it. The Cost Approach will typically set the upper limit of value for a given property and is considered to be much more reliable with newer properties. The reliability tends to decrease as a property ages due to the complexities with estimating accrued depreciation. This approach to value is based on cost of production and required accurate estimated of the Reproduction or Replacement Cost – New of the Improvements, Accrued Depreciation (loss of value from any cause) and Site Value.
  159. 159. Page 3 – Cost and Income Approaches and Project Data Provide adequate information for the lender / client to replicate the cost figures and calculations. The Cost Approach, if provided, will need to be based on published cost services to enable lender / client and the reviewer the opportunity to replicate the cost figures used in the appraisal. This should improve appraiser accountability. There may be some options here, but a detailed explanation is required and the approach still needs to be replicable by lender client.
  160. 160. Page 3 – Cost and Income Approaches and Project Data Support for the opinion of site value (summary of comparable land sales or other methods for estimating site value): This represents an estimate of the value of the site as if vacant and is best derived by comparison to sales of other similar parcels of vacant land.
  161. 161. Page 3 – Cost and Income Approaches and Project Data Flag Support for the opinion of site value (summary of comparable land sales or other methods for estimating site value): This represents an estimate of the value of the site as if vacant and is best derived by comparison to sales of other similar parcels of vacant land. A clear explanation should be provided if the value of the site is not typical for the neighborhood, including a discussion of its impact on value and overall marketability. An explanation should also be provided when the Site Value exceeds 30% to 40% of the estimated total value of an improved property.
  162. 162. Page 3 – Cost and Income Approaches and Project Data Flag 2 Support for the opinion of site value (summary of comparable land sales or other methods for estimating site value): This represents an estimate of the value of the site as if vacant and is best derived by comparison to sales of other similar parcels of vacant land. NOTE: The best approach for supported site value estimates would be a list of addresses, sales, prices and dates, site sizes and distances to the subject and some sort of reconciliation statement. If the appraiser used another method to determine land value, such as extraction or allocation, additional explanations should be provided on the blank spaces that are provided.
  163. 163. Page 3 – Cost and Income Approaches and Project Data Dwelling: This represents the cost on a per square foot basis typically multiplied by the Gross Livable Area (GLA) of the dwelling. If applicable, several additional lines are provided for similar calculations for Garage/Carport and two extra lines for describing other improvements of value, such as a finished basement or attic.
  164. 164. Page 3 – Cost and Income Approaches and Project Data Flag Dwelling: This represents the cost on a per square foot basis typically multiplied by the Gross Livable Area (GLA) of the dwelling. If applicable, several additional lines are provided for similar calculations for Garage/Carport and two extra lines for describing other improvements of value, such as a finished basement or attic. NOTE: The reader should utilize the Dwelling square foot cost as a reference to the Gross Living Area adjustments in the Sales Comparison Approach. As a general rule, 40% to 75% of the cost per square foot will be accepted in the market for differences in the living area of comparable sales. The amount is derived through comparison of sales and similar properties with differences in living area.
  165. 165. Page 3 – Cost and Income Approaches and Project Data Estimated Reproduction or Replacement Cost New These check boxes will indicate if the estimated costs are based on building an exact replica of the subject, or a dwelling of equivalent utility (replacement). Most appraisers will utilize the replacement cost new rather than the reproduction cost.
  166. 166. Page 3 – Cost and Income Approaches and Project Data Quality Rating from Cost Service Provides appraiser’s assessment of the quality of the subject’s improvements and attempts to match predefined ratings from the cost services.
  167. 167. Page 3 – Cost and Income Approaches and Project Data Quality Rating from Cost Service Provides appraiser’s assessment of the quality of the subject’s improvements and attempts to match predefined ratings from the cost services. Effective Date of Cost Data The period, quarter, or date provided would represent the vintage or version of the published cost service data.
  168. 168. Page 3 – Cost and Income Approaches and Project Data Comments on Cost Approach (GLA calculations, depreciation, etc.) These eight blank lines provide space for a variety of items that may help explain and illustrate a replicable Cost Approach.
  169. 169. Page 3 – Cost and Income Approaches and Project Data Comments on Cost Approach (GLA calculations, depreciation, etc.) These eight blank lines provide space for a variety of items that may help explain and illustrate a replicable Cost Approach. Estimated Remaining Economic Life (for HUD and VA) Required for government loan programs.
  170. 170. Page 3 – Cost and Income Approaches and Project Data Estimated Remaining Economic Life (for HUD and VA) Required for government loan programs.
  171. 171. Page 3 – Cost and Income Approaches and Project Data Estimated Remaining Economic Life (for HUD and VA) Required for government loan programs. Dwelling Represents the cost on a per square foot basis typically multiplied by the Gross Livable Area (GLA) of the dwelling. If applicable, several additional lines are provided for similar calculations for Garage / Carport and two extra lines for describing other improvements of value, i.e. finished basement of attic.
  172. 172. Page 3 – Cost and Income Approaches and Project Data Note Estimated Remaining Economic Life (for HUD and VA) Required for government loan programs. Dwelling Represents the cost on a per square foot basis typically multiplied by the Gross Livable Area (GLA) of the dwelling. If applicable, several additional lines are provided for similar calculations for Garage / Carport and two extra lines for describing other improvements of value, i.e. finished basement of attic. NOTE: Readers should use the Dwelling square foot cost as a check to GLA adjustments in the Sales Comparison Approach. As a general rule, 40% to 75% of the cost per square foot will be accepted in the market for differences in the living area of the comparable sales. The amount is derived through comparison of sales of similar properties with differences in living area.
  173. 173. Page 3 – Cost and Income Approaches and Project Data Total Estimate of Cost- New Represents the previous items added together and provides an estimate of the property as a new. Depreciation Appraisal must address all 3 forms of depreciation: Physical, Functional, and Eternal, which are then deducted from the Total Estimate of Cost – New Improvements.
  174. 174. Page 3 – Cost and Income Approaches and Project Data Depreciation (continued) Physical Depreciation: Any loss in value caused by deterioration in the physical condition of the improvements (needed repairs, painting, aging furnaces, etc.) for consistency and accuracy, this estimate should correlated with Effective Age and Condition descriptions in the Improvements Section and the adjustments made in the Sales Comparison Approach. There are several methods to determine this amount. Most typically, the appraiser estimates the remaining economic life of the improvements to determine the percentage of wear and tear that is accruing annually. The effective age and remaining economic life are compared to the actual age and total economic life to determine the loss in value from the estimated cost of new improvements.
  175. 175. Page 3 – Cost and Income Approaches and Project Data NOTE Depreciation (continued) Physical Depreciation: Any loss in value caused by deterioration in the physical condition of the improvements (needed repairs, painting, aging furnaces, etc.) for consistency and accuracy, this estimate should correlated with Effective Age and Condition descriptions in the Improvements Section and the adjustments made in the Sales Comparison Approach. There are several methods to determine this amount. Most typically, the appraiser estimates the remaining economic life of the improvements to determine the percentage of wear and tear that is accruing annually. The effective age and remaining economic life are compared to the actual age and total economic life to determine the loss in value from the estimated cost of new improvements. NOTE: Readers can identify the effective annual rate of physical depreciation by dividing the physical depreciation figure by the total estimated cost new. Divide this percentage by the effective age for the percentage per year. As a guideline, physical depreciation should generally not exceed 1% to 2% per year of effective age.
  176. 176. Page 3 – Cost and Income Approaches and Project Data Depreciation (continued) Functional Depreciation: Often referred to as functional obsolescence, this is typically a loss in value caused by defects in the design of the structure. It can also reflect an over improvement, or the difference between the construction cost and the actual market value of an improvement or feature. An example is the addition of an in-ground swimming pool. In some areas the cost to install could exceed $25,000 while the resale market may only recognize a contribution of $12,000 to the property. In this case, functional depreciation for the pool exists in the amount of $13,000.
  177. 177. Page 3 – Cost and Income Approaches and Project Data NOTE Depreciation (continued) Functional Depreciation: Often referred to as functional obsolescence, this is typically a loss in value caused by defects in the design of the structure. It can also reflect an over improvement, or the difference between the construction cost and the actual market value of an improvement or feature. NOTE: The reader should compare the estimate with the depreciation description in the Improvements section on page 1 for accuracy and look for this adjustment in the Sales Comparison Approach.
  178. 178. Page 3 – Cost and Income Approaches and Project Data Depreciation (continued) External Depreciation: Sometimes referred to as external obsolescence, this is a loss in value caused by adverse influences outside the subject’s site. Like all adjustments to value, the amount of the adjustment is extracted from review of market transactions of similar properties with and without the adverse influence. The reviewer should compare this estimate with the Comments section on Page 1 as well as the comments presented in the Neighborhood Section. This adjustment should also appear in the Location, Site, or View adjustment field in the Sales Comparison Approach.
  179. 179. Page 3 – Cost and Income Approaches and Project Data Depreciated Cost of Improvements. Reflect the costs of all items above minus depreciation.
  180. 180. Page 3 – Cost and Income Approaches and Project Data Depreciated Cost of Improvements. Reflect the costs of all items above minus depreciation. As-Is Value of Site Improvements. This field is often a “catch all” for any remaining site specific improvements (septic systems, fences, wells, driveways, etc.). The term “As-is” assumes that in this field the market value, and not the cost of the feature, will be included.
  181. 181. Page 3 – Cost and Income Approaches and Project Data Section 10: Income Approach Assumes that the market value is driven by the potential stream of rental income a property is capable of producing. This approach is generally appropriate in single family neighborhoods with a substantial number of rental properties. Due to a lack of suitable information in many residential neighborhoods, this approach to value is often not provided by the appraiser. The income approach is rarely used in single-family residential properties and is generally considered optional. It is more typical in areas where homes are purchased and sold for income-producing potential. If it is not completed the appraisal should be marked “N/A.”
  182. 182. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information This last section of Page 3 is only used if the subject is in a Planned Unit Development (PUD) and has the following characteristics: -Individual property membership in the Homeowners’ Association must be required and dollar assessments are mandatory and non-severable. -Has common property ownership -Not in a condo development -Property zoning is not the basis for classification of a project as a PUD.
  183. 183. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) From a developer’s perspective, PUD projects may allow for easier, cheaper and faster governmental approval processed compared to individual units within a traditional subdivision. PUDs also provide owners with fee simple ownership of lots and common ownership of costly items like roads and possibly recreation features that for most owners may be cost prohibited. This section provides descriptive information for the PUD, which is generally obtained from the developer or HOA.
  184. 184. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) An appraisal of an individual unit in a PUD must contain at minimum the following: Is the developer / builder in control of the Homeowner’s Association (HOA)? Yes No and Unit Type(s) Attached Detached. This provides the reviewer with a market appeal gauge, as a newly built project that has rapidly sold out would represent good/strong market acceptance of the project, and the reverse for older projects that are still under developer control. Additionally check boxes that follow indicate whether units are Detached or Attached.
  185. 185. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) The next descriptions would only be required if the developed/builder is still in control of the HOA. Technically the developer will generally be in control until a certain percentage of units or sites (typically 50% or as indicated in the project documents or HOA) are sold.
  186. 186. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) The next descriptions would only be required if the developed/builder is still in control of the HOA. Technically the developer will generally be in control until a certain percentage of units or sites (typically 50% or as indicated in the project documents or HOA) are sold. Provide the following information for PUDS ONLY if the developed/builder is in control of the HOA and subject property is an attached dwelling unit: - Legal name of project - # of phases - # of units - # units sold - # units rented - # units for sale - Data source(s)
  187. 187. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) The next descriptions would only be required if the developed/builder is still in control of the HOA. Technically the developer will generally be in control until a certain percentage of units or sites (typically 50% or as indicated in the project documents or HOA) are sold. Provide the following information for PUDS ONLY if the developed/builder is in control of the HOA and subject property is an attached dwelling unit: - Legal name of project - # of phases - # of units - # units sold - # units rented - # units for sale - Data source(s) These items identify the project and provide an indication of project size, market acceptance, use, and data sources. Some of the sales number may also be helpful in analyzing comparable selection in and out of the subject PUD project.
  188. 188. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) Was the project created by the conversion of an existing building into a PUD? Yes No Provides conversion history and if checked yes, date information.
  189. 189. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) Was the project created by the conversion of an existing building into a PUD? Yes No Provides conversion history and if checked yes, date information. Does the project contain any multi-dwelling units? Yes No Data Source(s) Provides info on any sort of mix of attached and detached units and data sources.
  190. 190. Page 3 – Cost and Income Approaches and Project Data Section 11 – PUD Information (Continued) Are the common elements leased to or by the HOA? Yes No If yes, describe. More common in larger PUDs, as it may impact the value of properties. If a lease is in fact in effect for common areas or amenities, it is important that it is analyzed; especially the term and the potential for lease increases during the term and/or after the lease expiration date. The later situation may allow for large increases in lease amounts for the unit owners. For these reasons it is important that appraisers research this completely. Describe common elements and recreational facilities. May include golf courses, swimming pools, gyms, parks, roads, trails, etc. Any of these items that are subject to lease should be noted.
  191. 191. Pages 4,5,6 – URAR These three pages now include a variety of Instructions and Definitions, Assumptions and Limiting Conditions, Appraiser’s Certifications and finally, the URAR signature sections. For most URAR appraisal assignments, this will limit additional addendums prevalent on previous URAR forms and provide for somewhat more standardized reports. Also indicated on the URAR are some of the penalties, including civil and criminal, that an appraiser may face for intentional or negligent misrepresentation(s) contained in the appraisal report.
  192. 192. Pages 4,5,6 – URAR These three pages include a variety of Instructions and Definitions, Assumptions and Limiting Conditions, Appraiser’s Certifications and finally, the URAR signature sections. For most URAR appraisal assignments, this will limit additional addendums prevalent on previous URAR forms and provide for somewhat more standardized reports. Also indicated on the URAR are some of the penalties, including civil and criminal, that an appraiser may face for intentional or negligent misrepresentation(s) contained in the appraisal report.
  193. 193. Pages 4,5,6 – URAR Note NOTE: The inspecting (lead) appraiser must sign on the signature line of Page 6 or the report is not valid. Electronically generated signatures are acceptable as long as they are signed and contain the same information as a hard copy appraisal. Additionally the lender must represent and warrant that the appraisal report was created by names appraiser and that the appraisal report is authentic, completely unaltered, and contains the unique signature of the appraiser.
  194. 194. THANK YOU FOR READING! That concludes your appraisal tutorial! We hope we helped you better understand what to look for on your appraisal! Have further questions regarding your appraisal or looking for a second opinion? Please contact us! Email: ClientCare@wcci.biz Phone: 800-998-7680 Web: www.WCCI.biz
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  197. 197. Attribution Summarizes the Property Data and Appraisal Purpose. Data Resources Include: Local Tax Assessor, Public Records Databases and Multiple Listing Service. The Dictionary of Real Estate Appraisal The Appraisal Institute (5th Edition) ©2010 The William Craig Company Chief Appraisers & Review Staff PMI Mortgage Insurance Company http://www.pmi-us.com Multiple Listing Services (MLS) FannieMae.com FreddieMac.com

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