Other Forms and Reports

Other Forms and Reports
Chapter 3 Other Forms and Reports 1

Chapter 3: Key Terms Appraisal Review The act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment. Broker Price Opinion (BPO) A method used by lenders and others to determine elements of value and marketability for a property. Recertification of Value A process performed to confirm whether or not the conditions of a prior appraisal have been met. A Recertification of Value does not change the effective date of the value opinion.

Introduction Numerous other reporting forms and formats communicate the appraiser’s opinions and conclusions in various assignments. Some reporting forms used primarily for mortgage lending may be specified by the client and the use agreed to by the appraiser, based on the level of risk perceived by the lender. Other forms are specific to a particular appraisal discipline, such as appraisal review or for a specific type of property, such as manufactured homes, condominiums, etc. Many of the most common appraisal reporting forms will be discussed.

Other Common Appraisal Reporting Forms
Common appraisal forms used to communicate an appraisal of residential real property for a mortgage finance transaction will be reviewed. In most cases, the key differences of the particular form and the Uniform Residential Appraisal Report (URAR) will be discussed.

Exterior-Only Inspection Appraisal Report
Referenced by both Fannie Mae and Freddie Mac as Form 2055. Designed for reporting an exterior-only appraisal of a single-family dwelling, including planned unit developments (PUDs), but not manufactured homes. May not be used for condominiums or cooperative units.

Form 2055: Scope of Work Required during development process when Form 2055 is being used for reporting. Very similar to that required for the URAR. Form spells out that the appraiser must, at a minimum: Perform a visual inspection of the exterior areas of the subject property from the street. Inspect the neighborhood. Inspect each of the comparable sales from the street. Research, verify, and analyze data from reliable public and/or private sources. Report the analysis, opinions, and conclusions in the appraisal report.

Form 2055: Scope of Work (cont.)
Scope of work integral with Form 2055 indicates appraiser is only inspecting the exterior of the subject property from the street. Additional instruction, unique to Form 2055, specifies requirements for the appraiser in performing an appraisal utilizing the form.

"The appraiser must be able to obtain adequate information about the physical characteristics (including, but not limited to, condition, room count, gross living area, etc.) of the subject property from the exterior-only inspection and from reliable public and/or private sources to perform this appraisal. The appraiser should use the same type of data sources that he or she uses for comparable sales such as, but not limited to, multiple listing services, tax and assessment records, prior inspections, appraisal files, information provided by the property owner, etc."

Since the integrity and accuracy of the data obtained from most of these sources are believed to reflect the actual state of the portions of the property that the appraiser cannot see first hand, but is not certain, the use of an extraordinary assumption would be appropriate. As discussed in Chapter 1, when an appraiser employs an extraordinary assumption in the development process, its use must be appropriately disclosed in the appraisal report, per Standards Rule 2-2 (a), (b), and (c)(x).

UAD Requirements of Form 2055
Key differences regarding the UAD requirements for completing Form 2055 mirror those of the URAR form with the exception of the requirement to provide information regarding any material work done to the kitchen or bathrooms in the prior 15 years, the level or work completed, and the timeframe for work completed to those areas.

Form 2055: Statement of Assumptions and Limiting Conditions
This section of Form 2055 is very similar to the corresponding section in the URAR. All assumptions and conditions are the same, except that Form 2055 removes the statement regarding the sketch. The appraiser is not required to provide a sketch for the dimensions of the improvement, since the appraiser did not enter the premises to determine the exact layout of the property.

Form 2055: Statement of Assumptions and Limiting Conditions (cont.)
As with the URAR, the appraiser is not held responsible for legal matters affecting the property, nor is the appraiser expected to give testimony in court about the appraisal unless arrangements are made beforehand.

Appraiser certifies that he or she has examined available flood maps and noted in the appraisal any adverse conditions that may affect the property. Aside from those things noted in the appraisal report, the appraiser makes the assumption there are no hidden or unapparent deficiencies present that would lower the property's value.

If any repairs are noted or required, the appraiser assumes they will be performed in a professional manner. Appraiser does not make any guarantees about the property, nor does the appraiser assume any liability for items that are unknown at the time of the appraisal or could only be discovered by a person with specific expertise in a given discipline.

Form 2055: Appraiser’s Certification
Certification is very similar to the corresponding section in the URAR. The appraiser's certifications (and the supervisory appraiser's certifications) are the same, except Form 2055 removes any statements that refer to inspecting the interior of the subject property. Like the URAR, the certifications detail actions that the appraiser performed in developing an opinion of value for the subject property.

Form 2055: Appraiser’s Certification (cont.)
As noted with the URAR form in Chapter 2, the appraiser is not permitted to modify or delete any part of the certifications. Appraiser may only add additional certifications that do not materially alter the appraisal report, such as state-specific requirements— those statements that must be added due to requirements of a trade organization of which the appraiser is a member.

Form 2055: Exhibits Required
Exhibit requirements are less than those for the URAR. Appraiser must attach a street map that shows the location of the subject property and all of the comparable sales used in the sales comparison approach. Appraiser must also include a photograph of the front of the subject property. Appraiser must attach as an exhibit any other data deemed necessary to support the value opinions and conclusions found in the appraisal report.

Individual Condominium Unit Appraisal Report
Used for the appraisal of an individual unit in a condominium project, including a condominium that is part of a PUD. Not designed for valuing cooperative units or for manufactured homes that are part of a project or complex. Appraiser performs most of the same steps as in a regular appraisal.

Individual Condominium Unit Appraisal Report (cont.)
Some additional project data needed, so Fannie Mae and Freddie Mac developed the individual condominium unit appraisal report to ensure that all necessary information is presented in the appraisal report to the lender-client. Fannie Mae designates this form as Form 1073 and Freddie Mac designates the report form as Form 465.

Similar to the URAR (Form 1004) discussed in Chapter 2, but has additional sections requiring the reporting of details of entire condominium project. One important difference is there is no cost approach reported (or developed) for condominium units.

Because of their co-ownership structure, condominium units have unique appraisal requirements. Fannie Mae and Freddie Mac recognize this. Condominiums are properties developed for co-ownership, where each co-owner has a separate interest in an individual unit and an undivided interest in the common areas (grounds, lobby, hallways, etc.,) of the property.

Condominium residents must follow the declarations and bylaws set forth by the founder of the condominium. These bylaws are maintained and enforced by the owners' association. Most condominiums are designed for residential use.

Typical condominiums look like apartments, but residents usually have exclusive ownership of their units. A condominium is a legal concept rather than a design concept, so condominiums could also be free standing units. Condominiums should not be confused with PUDs or cooperatives.

Planned Unit Developments (PUDs)
PUDs are special subdivisions that do not have to comply with standard zoning and subdivision regulations. Residential and non-residential buildings are often combined in the overall plan, and common areas may be owned by the homeowners' association for the benefit of all residents. Since no co-ownership is involved, a PUD is appraised using the standard URAR form, with the "Project Information for PUDs" section filled in.

Cooperatives Cooperatives are buildings owned by corporations, with the residents as shareholders who each receive a proprietary lease on an individual unit and the right to use common areas. Title to the cooperative building is held by a corporation formed for that purpose. A person who wants to live in the building buys shares in the corporation and is given a proprietary lease for a unit in the building. Proprietary leases have longer terms than ordinary leases and give the shareholder more rights than an ordinary tenant.

Cooperatives (cont.) To transfer a cooperative interest, a shareholder conveys his or her stock and assigns the proprietary lease to the new shareholder. The value of a cooperative is determined by the estimated market value of the cooperative interest and accompanying occupancy rights. Reporting the appraisal of a cooperative unit uses a different form, which is not discussed in this text.

Condominiums If the condominium unit is free-standing and no common areas are co-owned, the URAR form is used. In this case, the appraiser must include comments and information about the homeowners' association, condominium fees, and quality of maintenance. Most condominiums have common ownership of some areas. Because of this and the shared external maintenance, the appraiser must report the characteristics of the entire condominium project as a whole, in addition to reporting specific information applicable to subject unit.

Form 1073/465: Scope of Work Similar to that required for the URAR.
The appraiser must, at a minimum: Perform a complete visual inspection of the interior and exterior areas of the subject unit. Inspect and analyze the condominium project. Inspect the neighborhood. Inspect each of the comparable sales from the street. Research, verify, and analyze data from reliable public and/or private sources. Report his or her analysis, opinions, and conclusions in the appraisal report.

Form 1073/465: UAD Requirements
For the most part, the UAD reporting requirements somewhat mirror those of the URAR form with several exceptions. Specific fields must be UAD compliant for reporting. (continues)

Form 1073/465: UAD Requirements (cont.)
Unit # Project Name Project Description General Description Developer/Builder in Control of HOA Any Commercial Space in the Project Condominium Unit Housing Trends # of Levels

Form 1073/465: UAD Requirements (cont.)
No field for reporting site area as the concept is not consistent with the definition of a condominium. Design or style also is not a required reporting element. Other fields appear in the URAR which may be reported in a slightly different manner in the condominium report, such as heating/cooling sources. Some fields common to both forms may be included under different sections of the respective report.

Form 1073/465: Statement of Assumptions and Limiting Conditions
Significantly the same as the URAR. Appraiser is not held responsible for legal matters affecting the property and is not expected to give testimony in court about the appraisal unless arrangements are made beforehand. Appraiser certifies that he or she has examined available flood maps and has noted any adverse conditions that may affect the property.

Form 1073/465: Statement of Assumptions and Limiting Conditions (cont
Aside from those things noted in the appraisal report, appraiser makes the assumption that no hidden or unapparent deficiencies that would adversely affect the property's value are present. Appraiser assumes any repairs noted will be performed in a professional manner. Appraiser is not making any guarantees about the property, nor is the appraiser assuming any liability for unknown items.

Form 1073/465: Project Information
In addition to specific information about the condominium unit, the appraisal report requires information relating to the project or complex in which the unit is located. Since the desirability of the unit is also associated with the appeal of the complex, there is an entire section in the appraisal form for clearly reporting sufficient data so that the lender-client may understand the subject’s project and its characteristics.

Form 1073/465: Project Information (cont.)
Reporting fields are specific to two categories: condition and ownership. Fields regarding condition address desirability of the subject's condominium project compared to other competing condominium projects in the same market area. Was the project created by converting existing buildings into condominiums? Are the units, common elements, and recreation facilities complete? Is there any commercial space in the project? Describe the condition of the project and quality of construction. Describe the common elements and recreation facilities.

Reporting fields specific to ownership provide the appraiser the opportunity to describe additional measures of desirability within the condominium project. Includes source of fees and likelihood that they will rise, as well as the owner-occupancy level of the complex. Is the developer/builder in control of the homeowners’ association? Does any single entity (individual, investor group, corporation, etc.,) own more than 10% of the total number of units in the project? Are any common elements leased to or by the homeowners’ association? Is the project subject to ground rent?

Fannie Mae and others will not approve mortgages in condominium complexes where owner-occupancy falls below a specified level. Details must be reported regarding the current primary occupancy and number of units in various stages of completion for all phases of the condominium project. Fees paid by unit owners are an important aspect of desirability of a condominium.

Poor management and budgetary planning or insufficient reserves can lead to sudden fee increases in the future. A major concern of most lender-clients is the soundness of the condominium project's management company and that there are enough funds available for future repairs.

Form 1073/465: Appraiser’s Certification
Certifications are the same as the URAR. They detail actions that the appraiser performed in reaching a conclusion of value for the subject property, including research and verification of data to give the client confidence in the results as well as other required disclosures.

Form 1073/465: Exhibits Required
Addenda for Form 1073 are similar to those for the URAR. Appraiser must attach a street map showing the location of the subject property and comparable sales used in the sales comparison approach. For a condominium unit in a complex, appraiser must include an interior sketch of the unit, including calculations for gross living area. As an alternative, appraiser may attach a copy of the building plat to the appraisal report instead of a floor plan sketch.

Form 1073/465: Exhibits Required
Appraiser must also include clear and descriptive photographs that show the front and rear of the subject unit, as well as a street scene. Pictures of each comp used must show the front of the property and may be copied from other sources. Appraiser must attach as an exhibit any other data deemed necessary to support the value opinions and conclusions found in the appraisal report.

Manufactured Home Appraisal Report Form
Also known as Fannie Mae Form 1004C or for Freddie Mac, Form 70B. Form is designed for the appraisal of a one-unit manufactured home. Includes a unit located in a planned unit development (PUD). If manufactured home is part of a condominium project or cooperative, additional information about the project must be supplied on a separate form and attached as an addendum to the reporting form.

Manufactured Home Appraisal Report Form (cont.)
Fannie Mae defines manufactured housing units as single-width or multi-width units constructed off-site and transported to the permanent site. There, they are completed and/or attached to the foundation. Under this definition, the dwelling is built to HUD specifications with a HUD certification label attached and recognized as a manufactured home.

Manufactured Home Appraisal Report Form (cont.)
No UAD reporting requirements. Scope of Work section as well as the Statement of Assumptions and Limiting Conditions are consistent with other forms that have been discussed, as is the Appraiser’s Certification. Required exhibits also are mirrored.

Form 1004C: Unique Reporting Fields
Several reporting fields are unique. These fields require relatively brief yes or no responses or explanations, but may have required the appraiser to conduct additional research or investigation during the development process of the appraisal. Most of these fields address improvements and are focused at reporting the permanence of the structure on the site.

Form 1004C: Unique Reporting Fields (cont.)
These required fields include: Is the manufactured home attached to a permanent foundation system? Have the towing hitch, wheels, and axles been removed? Is the manufactured home permanently connected to a septic tank or sewage system and other utilities? Appraiser is also asked to describe any additions or modifications to the structure (e.g., a deck), and to rate the quality of construction based on objective criteria.

Most significant reporting section of the form is the HUD data plate section. Purpose of this section is to report data significant to compliance with HUD and local requirements. HUD data plate or compliance certificate is located on the interior of the subject, and the HUD certification label is located on the exterior of each section of the home. Both of these contain much of the information needed to complete this section of the form.

These required fields include: Is the manufactured home attached to a permanent foundation system? Have the towing hitch, wheels, and axles been removed? Is the manufactured home permanently connected to a septic tank or sewage system and other utilities? Appraiser is also asked to describe any additions or modifications to the structure (e.g., a deck), and to rate the quality of construction based on objective criteria.

One section of Form 1004C that varies from the standard URAR is the Cost section. In calculating costs of the structure, there is a breakdown of the subject's dimensions by modular section of the home. Calculations can be performed for each section of single-width or multi-width units independently, with the results added together at the end. Cost field for entering the amount needed for delivery, installation, and setup of the manufactured units. Ensures that all potential replacement costs are considered.

Small Residential Income Property Appraisal Report
Fannie Mae Form 1025/Freddie Mac Form 72, is the most common reporting form used for reporting the appraisal of a two- to four-family property for use by a lender client. Form is a seven-page report and provides an orderly and systematic flow of information and commentary. Full form can be found in the Appendix.

Small Residential Income Property Appraisal Report (cont.)
Adopted for use by other lending entities such as the FHA and VA and other lenders. Although some clients and intended users might have guidelines and requirements that are different than Fannie Mae, most of Fannie Mae’s guidelines and requirements represent at least a minimum level of expectations by all lenders.

Small Residential Income Property Appraisal Report (cont.)
Scope of Work section, as well as the Statement of Assumptions and Limiting Conditions is consistent with other forms that have been discussed, as is the Appraiser’s Certification. Required exhibits also are mirrored, with the exception that an Operating Income Statement must be attached to the report when form 1025/72 is being used. No UAD reporting requirements applicable to the Small Residential Income Property Appraisal Report. Several differences when using Form 1025/72 when compared to other appraisal forms.

Form 1025/72: Occupancy For owner-occupied two- to four-family properties, more than one checkmark box may need to be checked. Same holds true for properties where one or more units might be vacant on the effective date of the appraisal. In such case, further discussion should be included in the comments section or in the addenda.

Form 1025/72: 2-4 Unit Housing Age/Price
Appraisal report must indicate the age range and predominant age of properties in the subject neighborhood. Age range must reflect the oldest and newest ages for similar types of properties. Appraiser can state the predominant age as a single figure or as a range, if more appropriate, and should select properties that represent the age range and predominant age, rather than merely relying on the same properties used to illustrate the price range and predominant price.

Form 1025/72: 2-4 Unit Housing Age/Price (cont.)
Age of a property should be within the general age range of the neighborhood. Normally, neighborhoods are developed over a relatively narrow span of time so that most dwelling units will fall within a particular age range. A property that has an age outside of the general age range must receive special consideration. Unless there is strong evidence of long-term neighborhood stability, a new dwelling in an old neighborhood will carry some marginal risk. Conversely, an old dwelling in a newly developed area is generally acceptable if renovation will result in its conforming to the neighborhood.

Form 1025/72: General Description
Appraiser indicates if the property contains two, three, or four units and if any are considered accessory units. An accessory unit is defined as a habitable living unit added to, created within, or detached from another dwelling that provides the basic requirements for living, sleeping, eating, cooking, and sanitation. Accessory units are commonly recognized as a separate additional living unit, including separate kitchen, sleeping, and bathroom facilities attached or detached from the primary residential unit on the same lot.

Form 1025/72: General Description (cont.)
Attached units contained within a single-family home, such as a mother-in-law apartment and garage loft apartment, are common types of accessory dwelling units. Accessory units often involve the conversion of a garage, basement, or small addition to a single-family home.

Form 1025/72: General Description (cont.)
A special concern of the appraiser (and lender) is the legality of such accessory units. Some accessory units may predate the adoption of local zoning regulations and may be classified as legal nonconforming units. Therefore, expanded discussion of the subject’s zoning and compliance is warranted in the report. The remainder of the information in the section contains reporting elements similar to other residential appraisal forms.

Form 1025/72: Foundation More than one selection might be required, which will cause the appraiser to further expand on the provisions in separate commentary. In some areas, basement living units are common. Therefore, depending on the particular market, the presence of finished below-grade units could be viewed differently than finished below-grade areas in single-family dwellings. In these cases, the below grade area is included in the gross building area (GBA)—the total area of a building measured from the exterior walls that include common areas (e.g., hallways, entryways, common laundry rooms).

Form 1025/72: Foundation (cont.)
An outside entry/exit in a small residential property could be the only, or an additional, means of ingress/egress; a walk-out provision to a patio from the lower level of a particular living unit; or the primary means of entry/exit for a below-grade living unit. Appraiser should include an explanation of how the provision affects value, its commonality to the market, and if the provision is compliant with local building code.

Form 1025/72: Appliances Appliances included with the property and provided to tenants are noted along with the total number of each type. Appraiser should note if appliances are built-in or considered personal property, but included in the real property appraisal. In some cases, appliances can prove significant to value while in other cases, they may not be.

Form 1025/72: Description of Units
This section of the 1025/72 form is handled much the same by the appraiser as in other common report types, except this section breaks down the rooms per unit. It should be noted here that where other areas of the reporting form (such as comparable rentals and the sales comparison approach) require the appraiser to report gross building area (GBA), this section of the form requires the reporting of gross living area (GLA). The total area derived from these two methods may not be equal.

Form 1025/72: Subject Rent Schedule
Includes appraiser’s opinion of market rent for the subject that is supported from market level comparable rental data. Also in the schedule is the reporting of other sources of income for the subject property in addition to rental income from the living units. Commentary area of this section allows the appraiser to discuss his logic and reasoning used in forming his opinion of market rent for the subject property.

Form 1025/72: Sales Comparison Approach
The section for reporting the sales comparison approach may seem somewhat similar to that found in the URAR reporting form for single-family properties There are some distinctive differences as the appraiser must state the sales price in units of comparison and also identify a market level rent for the property and derive a GRM from the data.

Form 1025/72: Sale Price and Rent for Subject and Comparable Sales
This section is significantly different from the URAR reporting form. Here, the sale price of the subject (if applicable) is identified by a unit of comparison of sale price per: Square foot of GBA Unit Room Bedroom

Form 1025/72: Sale Price and Rent for Subject and Comparable Sales (cont.)
In addition, the appraiser states the gross monthly market rent as well as a gross rent multiplier (GRM) derived from the data, using the VIM technique. Value (Sale Price) ÷ Gross Monthly Market Rent = Multiplier The appraiser will also report if any rent controls are in place for the subject property or the comparables.

Form 1025/72: Sale Price and Rent for Subject and Comparable Sales (cont.)
Other notable unique elements of the 1025/72 form are the reporting of gross building area (GBA) and the breakdown of the subject property and the comparable sales by total number of rooms, bedrooms, and baths for each unit. Final adjusted price of the comparable sales is then stated per unit, per room, and per bedroom. Appraiser’s value indication is then reconciled and stated based upon per unit, per room, per square foot of GBA, and per bedroom by using the quantity of each element present in the subject, multiplied by the unit indication produced through analysis of the comparable data.

Operating Income Statement
Fannie Mae Form 216/Freddie Mac Form 998, is a required exhibit to accompany the 1025/72 Small Residential Income Property Appraisal Report for a two- to four-unit income property. Here, we will discuss the completion of the form.

Form 216/998: General Instructions and Rent Summary
General instructions state that completion of the form is a joint effort of the loan applicant, appraiser, and lender’s underwriter. Rental is based on an unfurnished unit. Even though the borrower is permitted to complete the form, most often the appraiser will prepare the form, considering information provided by the borrower, and then have it reviewed by the lender’s underwriter. Note: Lender must ensure the appraiser has operating statements; expense statements related to mortgage insurance premiums, homeowners’ association dues, leasehold payments, or subordinate financing payments; and any other pertinent information related to the property.

Form 216/998: General Instructions and Rent Summary (cont.)
If borrower prepares the form, appraiser must review the form and comment on the reasonableness of the projected operating income. Rent schedule included with this section is straightforward, stating which units are currently rented, expiration date of any lease agreement, contract and market rent, as well as the party responsible for payment of specified utility expenses.

Form 216/998: Annual Income and Expense Projection for Next 12 Months
Real estate taxes and hazard insurance are not included in the expenses on the Operating Income Statement. These expenses are handled a little differently in the 216/998 form as they are later included in the owner’s monthly housing expense.

Form 216/998: Annual Income and Expense Projection for Next 12 Months (cont.)
Fannie Mae offers the following from their website regarding expenses: Any income or operating expenses that relate to an owner-occupied unit in a two- to four-family property should not be included. Heating, Cooking, Hot Water If any of these items are provided by the applicant as part of the rent for a unit, the projected cost and type of fuel used should be included. When the costs for heating relate to public areas only, an appropriate notation should be made.

Electricity This should include only those projected expenses that will be incurred by the applicant over and above any similar expense for heating, cooking, or hot water already taken into account. If the expense relates to the cost of electricity for public areas only, an appropriate notation should be made. Water/Sewer These projected expenses should not be included when they are part of the real estate tax bill or when the units are serviced by an on-site private system.

Casual Labor This includes the costs for public area cleaning, snow removal, etc., even though the applicant may not elect to contract for such services. Interior Paint/Decorating This includes the costs of contract labor and materials that are required to maintain the interiors of the living units.

General Repairs/Maintenance This includes the costs of contract labor and materials that are required to maintain the public corridors, stairways, roofs, mechanical systems, grounds, etc. Management Expenses These are the customary expenses that a professional management company would charge to manage the property. Supplies This includes the costs of items like light bulbs, janitorial supplies, etc.

Total Replacement Reserves This represents the total average yearly reserves that were computed in the "Replacement Reserve Schedule" portion of the form. Generally, all equipment that has a remaining life of more than one year—such as refrigerators, stoves, clothes washers/dryers, trash compactors, etc.—should be expensed on a replacement cost basis--even if actual reserves are not provided for in the operating statement or are not customary in the local market.

It is important to note when completing this section of the form, income and expenses for owner-occupied units are not included. Also, the amount entered for total replacement reserves is the total indicated by the Replacement Reserve Schedule which is found on Page 2 of the form.

Form 216/998: Replacement Reserve Schedule
General instructions from Fannie Mae for completing this section state that replacement reserves must be calculated regardless of whether actual reserves are provided for on the owner’s operating statements or are customary in the local market. Replacement reserve calculations reflect the estimated cost of the component that has a remaining life of more than one year, designated on a single unit basis (with the exception of roof and carpeting) and then multiplied by the number of units.

Form 216/998: Replacement Reserve Schedule (cont.)
Example: A four-unit apartment building has appliances furnished by the landlord. If refrigerators in the four units are three years old, and refrigerators typically last ten years, the refrigerators have a remaining life of seven years. Anticipated replacement cost at that time is $800 per refrigerator. Replacement reserve for refrigerators on the 216/998 form would be reported as: $800 (each) ÷ 7 (years) x 4 (units) = $ (annual reserve for refrigerators)

Form 216/998: Operating Income Reconciliation
The final operating income reconciliation, with the exception of monthly housing expense, is a summary of the conclusions reached thus far in the analysis. The section has two lines with two separate analyses.

Form 216/998: Operating Income Reconciliation (cont.)
The first analysis addresses monthly operating income of the property, based on annual income and expense projection from Page 1 of the form. Here, effective gross income from the projection is entered and total operating expenses are subtracted to arrive at annual operating income. Annual operating income is then divided by 12 to conclude at a monthly operating income.

Example: Annual income and expense projection indicates a property has an effective gross income of $34,200 and operating expenses of $11,970, annually. The analysis reported on the first line of the form would be reported like this: $34,200 (EGI) - $11,970 (Total Operating Expenses) = $22,230 (Annual Operating Income) ÷ 12 = $1, (Monthly Operating Income)

The second analysis in the operating income reconciliation concludes on a net monthly cash flow for the property by subtracting monthly housing expense from monthly operating income. Monthly housing expense is the sum of principal and interest; hazard, flood, and mortgage insurance premiums (as applicable); real estate taxes; special assessments; homeowners’ association dues; leasehold payments; and any subordinate financing payments on mortgages secured by the subject property (e.g., second mortgage).

Appraiser must communicate with the client regarding the treatment of this analysis. Amount to be entered on the form for monthly housing expense will need to be supplied by the client, and often at least some of this information is not furnished at the time the assignment is accepted. If necessary information is not furnished or available to the appraiser, the analysis should not be performed by the appraiser, but rather left to the underwriter to complete.

Example: Continuing with the previous example, the appraiser has been furnished a total monthly housing expense by the client of $1, Analysis would be reported as: $1, (Monthly Operating Income) - $ (Monthly Housing Expense) = -$ (Net Cash Flow) It can be seen here that the cash flow is negative in this case.

This may not be at all uncommon in some assignments, and would be especially true when one of the property’s units is owner-occupied. In this circumstance, the borrower must have sufficient income to off-set the negative cash flow, which is part of the underwriting decision.

Appraisal Reviews, Updates, and Broker Price Opinions
In this section, various forms and reporting methods will be discussed which, while not labeled as an appraisal report, may include development of a value opinion by an appraiser. Included in the discussion at the end of this section is an overview of Broker Price Opinions (BPO), which may actually be an appraisal when performed by an appraiser within appraisal practice.

Appraisal Reviews In an appraisal review, the review appraiser is developing an opinion of the quality of another appraiser’s work that was part of an appraisal or appraisal review assignment. There are a number of reasons a lender or client may order a review appraisal. One reason could be as simple as a standard diligence for quality control, or the client could be concerned about a specific appraiser’s work.

Appraisal Reviews (cont.)
Some larger lenders have standard policies requiring a review appraisal for loans above a certain loan-to-value ratio, above a certain mortgage amount, or on a certain percentage of completed appraisals. Many times, scope of work in an assignment may extend to the review appraiser going beyond an opinion of quality of another appraiser’s work and include the review appraiser developing their own opinion of value. Whether the review appraiser agrees or disagrees with the value opinion found in the work being reviewed, that opinion is an appraisal. Thus, the review assignment is two-fold—both a review and an appraisal.

USPAP Appraisal Review Obligations
USPAP devotes all of STANDARD 3 to detailing the appraiser’s obligations in developing appraisal review opinions and reporting the results. USPAP defines appraisal review as: the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.

USPAP Appraisal Review Obligations (cont.)
Standards Rules 3-4 through 3-7 address the performance requirements related to appraisal review reporting. Most of the reviewer’s specific obligations are cited in Standards Rules 3-4 and 3-5, which are presented here.

A. Standards Rule 3-4 presents general requirements for reporting that apply to an appraisal review assignment. Each written or oral Appraisal Review Report must be separate from the work under review and must: (a) clearly and accurately set forth the appraisal review in a manner that will not be misleading;

(b) contain sufficient information to enable the intended users of the appraisal review to understand the report properly; and (c) clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.

The Comment to Standards Rule 3-4 clarifies the purpose of an Appraisal Review Report and elaborates that the report level and content is specific to the needs of the client and intended users, the intended use, and other requirements applicable to the assignment: Comment: An Appraisal Review Report communicates the results of an appraisal review, which can have as its subject another appraiser’s work in an appraisal or appraisal review assignment.

The report content and level of information in the Appraisal Review Report is specific to the needs of the client, other intended users, the intended use, and requirements applicable to the assignment. The reporting requirements set forth in this Standard are the minimum for an Appraisal Review Report.

Standards Rule 3-5 expands on the requirements of the minimum report content, which is similar to the reporting requirements of other Standards: The content of an Appraisal Review Report must be consistent with the intended use of the appraisal review and, at a minimum: (a) state the identity of the client and any intended users, by name or type; (b) state the intended use of the appraisal review; (c) state the purpose of the appraisal review

(d) state information sufficient to identify: (i) the work under review, including any ownership interest in the property that is the subject of the work under review; (ii) the date of the work under review; (iii) the effective date of the opinions or conclusions in the work under review; and (iv) the appraiser(s) who completed the work under review, unless the identity is withheld by the client.

Comment: If the identity of the appraiser(s) in the work under review is withheld by the client, that fact must be stated in the appraisal review report. (e) state the effective date of the appraisal review; (f) clearly and conspicuously: state all extraordinary assumptions and hypothetical conditions; and state that their use might have affected the assignment results. (g) state the scope of work used to develop the appraisal review;

Comment: Because intended users’ reliance on an appraisal review may be affected by the scope of work, the appraisal review report must enable them to be properly informed and not misled. Sufficient information includes disclosure of research and analyses performed and might also include disclosure of research and analyses not performed.

When any portion of the work involves significant appraisal, appraisal review, or appraisal consulting assistance, the reviewer must state the extent of that assistance. The signing reviewer must also state the name(s) of those providing the significant assistance in the certification, in accordance with Standards Rule 3-6.

(h) state the reviewer’s opinions and conclusions about the work under review, including the reasons for any disagreement; Comment: The report must provide sufficient information to enable the client and intended users to understand the rationale for the reviewer’s opinions and conclusions.

The remainder of the discussion of Standards Rule 3-5 is applicable whenever the scope of work in the review assignment includes reviewer’s development of value opinion, review opinion, or appraisal consulting conclusion for the subject of the review assignment: (i) when the scope of work includes the reviewer’s development of an opinion of value or review opinion related to the work under review, the reviewer must:

(i) state which information, analyses, opinions, and conclusions in the work under review that the reviewer accepted as credible and used in developing the reviewer’s opinion and conclusions; (ii) at a minimum, summarize any additional information relied on and the reasoning for the reviewer’s opinion of value or review opinion related to the work under review;

(iii) clearly and conspicuously: state all extraordinary assumptions and hypothetical conditions connected with the reviewer’s opinion of value or review opinion related to the work under review; and state that their use might have affected the assignment results.

Comment: The reviewer may include his or her own opinion of value or review opinion related to the work under review within the appraisal review report itself without preparing a separate report. However, data and analyses provided by the reviewer to support a different opinion or conclusion must match, at a minimum, except for the certification requirements, the reporting requirements for an Appraisal Report for a real property appraisal (Standards Rule 2-2(a)).

Note: Reports for other asset types and appraisal disciplines must match, at a minimum, the reporting obligations of that particular reporting standard.

Standards Rule 3-6 addresses the appraiser’s certification in an appraisal review report, which is mostly similar to that found in a real property appraisal report. Standards Rule 3-7 addresses an oral appraisal review report. Advisory Opinion 20, Section D provides significant illustration of reporting obligations when the reviewer’s scope of work includes developing his own opinions or conclusions.

Key points found in the illustration: A reviewer should carefully compose the particular language stating his or her opinions and conclusions to avoid misleading the user of the appraisal review report as to the scope of work completed in the assignment and the meaning of the reviewer’s stated opinions and conclusions.

A reviewer must note any additional information relied upon and the reasoning and basis for the reviewer’s opinion of value must be summarized, in contrast to the other requirements in this section that must only be stated. Changes to the report content by the reviewer to support a different value conclusion must match, at a minimum, the reporting requirements for an Appraisal Report.

Advisory Opinion 20 provides illustration of sample language that may be used when the reviewer is only developing an opinion of another appraiser’s work. The particular language used should be consistent with the scope of work.

The following are examples of language that might be used in an appraisal review report that does not express an opinion of value and thus does not constitute evidence of an appraisal by the reviewer: “the value opinion stated in the appraisal report is (or is not) adequately supported” “the value conclusion is (or is not) appropriate and reasonable given the data and analyses presented”

“the value opinion stated in the report under review was (or was not) developed in compliance with applicable standards and requirements” “the content, analyses, and conclusions stated in the report under review are (or are not) in compliance with applicable standards and requirements” “I reject the value conclusion as lacking credibility due to the errors and/or inconsistencies found”

“the value conclusion is not appropriate due to (for example) a significant math error in the Sales Comparison Approach—if calculated properly, the value conclusion would change to $XXX; however, the reader is cautioned that this solely represents a recalculation and not a different opinion of value by the reviewer” “I accept (or approve) the appraisal report for use by XYZ bank (or agency).”

Advisory Opinion 20 also provides illustration of sample language that may be used when the reviewer’s scope of work includes developing their own opinions and conclusions. Again, the particular language used should be consistent with the scope of work.

The following are examples of language that signify a value opinion (i.e., either by concurrence or by indication of a numeric point, a range, or a relationship to a numeric benchmark). These examples DO constitute evidence of a value opinion (i.e., appraisal) by the reviewer, thereby making the appraisal review one that includes an appraisal. “I concur (or do not concur) with the value”

“I agree (or disagree) with the value” “in my opinion, the value is (the same)” “in my opinion, the value is incorrect and should be $XXX” “in my opinion, the value is too high (or too low)”

One-Unit Residential Appraisal Field Review Report Form
Many appraisal review assignments are of the field review variety, which includes an exterior inspection of the subject property, within the review, from the street. The field review form for one-unit residential properties is the One-Unit Residential Appraisal Field Review Report (Fannie Mae Form 2000/Freddie Mac Form 1032). A copy of the form can be found in the Appendix.

One-Unit Residential Appraisal Field Review Report Form (cont.)
The first page of the form is basically a series of general responses. After completing the information at the top, including the effective date of the original appraisal under review, the appraiser assesses the quality of the original appraisal by filling out Section I on the first page of the review appraisal form.

This section consists of a series of “Yes” or “No” responses about the completeness and accuracy of each item on the original appraisal report. Section I must be completed for all review assignments. Many of the "Yes" responses also ask for a brief summary and the "No" responses require an explanation.

There are many reasons a review appraiser might not agree with all or part of the original appraisal. For example, the reviewer may determine that some descriptions are not clear or some calculations are wrong. In particular, the last field poses the question, "Is the opinion of market value in the appraisal report under review accurate as of the effective date of the appraisal report?"

Answering "No" to this question requires the reviewer to complete Section II. At this point, the review becomes a two-part assignment, as the appraiser must now develop an opinion of value for the property. The field review report form is also used for reviewing appraisals of one-unit condos, PUDs, cooperatives, and manufactured homes. A different review report form is used for multi-family properties.

Appraisal Updates Often, appraisers are requested to update or recertify the value from an appraisal report that was previously completed. Appraisers should be aware that these concepts are considered to be very different within the context of USPAP. Appraisal updates and recertification of value are discussed in USPAP Advisory Opinion 3.

Appraisal Updates (cont.)
An excerpt from the Advisory Opinion describes the differences: The term “Recertification of Value” is often mistakenly used by some clients in lieu of the term “Update.” A Recertification of Value is performed to confirm whether or not the conditions of a prior appraisal have been met. A Recertification of Value does not change the effective date of the value opinion. If a client uses this term in an assignment request that includes an updated value opinion, then it constitutes a new appraisal assignment that must be completed as discussed…(in Advisory Opinion 3).

In other words, a recertification of value might be most commonly seen during the final completion inspection performed for a property that was appraised “subject to completion,” or for repairs that have now been completed which were only proposed at the time of the appraisal. In an updated appraisal, the value opinion found in the prior appraisal must either be affirmed or a new value opinion is developed. In such case (for real property) the appraiser’s opinion that the value is the same or something different must be developed in accordance with STANDARD 1.

In most cases, what client’s are asking for when using the terms “recertification” or “update” is an updated appraisal as of a more recent effective date. In other words, the value has or has not changed, and if the value has changed, what is it? USPAP Advisory Opinion 3 specifies three options for providing an update appraisal. Provide a new report by starting from scratch. Provide a new report by attaching portions of the previous appraisal. Provide a new report by referencing portions of the previous appraisal.

For most residential appraisal updates for lender clients, a standard industry form known as the Appraisal Update and/or Completion Report is utilized. Fannie Mae refers to the form as Form 1004D; Freddie Mac refers to it as Form 442. There is a sample of the form in the Appendix.

Appraisal Update and/or Completion Report
The Appraisal Update and/or Completion Report is intended to provide the lender or client with an update of a previously completed appraisal and or to provide a certificate of completion related to a previous appraisal. There are a number of situations for which this form is appropriate. Sometimes, this is due to a delayed closing.

Appraisal Update and/or Completion Report (cont.)
If a significant amount of time has passed between the effective date of the appraisal and a proposed transaction, the lender or client may require an update to reaffirm the opinion of value presented in the report. There is no set amount of time for this and time limits often vary from one lender to the next.

Another instance where an update appraisal might be provided, instead of a full appraisal, is recurring valuations. For example, if a lender extends a line of credit based on the value of real estate, a periodic update appraisal may be required as a condition for keeping the line of credit open.

This update would be used in lieu of a new appraisal, provided the opinion of value is the same as the original value or falls within a range determined by the lender or client. If the value is thought to have changed significantly, the lender or client might order a new appraisal.

Appraiser performing an appraisal update must complete the information at the top of the form, including the property address, legal description, borrower name, and contract information. Form must also include data referencing the original appraisal report: effective date, original appraised value, original appraiser, and original lender or client.

Scope of work preprinted in the report form states that the appraiser must, at a minimum: Concur with the original appraisal. Perform an exterior inspection of the subject property from the street. Research, verify, and analyze the current market to determine if the property has declined in value since the effective date of the original appraisal.

The simple act of checking the “Yes or "No" box, in response to any decline in value of the subject property, is the result of the development process in compliance with STANDARD 1. This Certificate of Completion section of the report provides for the appraiser to confirm that any requirements or conditions stated in the original appraisal report have been met.

Note that the certification statements state the appraiser has performed a "visual inspection" of the property—interior or exterior is not specified, as that depends on the conditions in the original appraisal. Photographs are required addenda for new construction and may be appropriate in other circumstances.

Broker Price Opinions A Broker Price Opinion, or BPO as it is generally called, is a method used by lenders and others to determine elements of value and marketability for a property. State laws vary regarding who can do what kind of valuation. Before accepting any valuation assignment, agents must determine whether a BPO is a legal practice for a real estate sales agent in their area.

Broker Price Opinions (cont.)
Some states have regulations which prohibit real estate agents from completing BPOs for payment. Some states simply do not allow agents to perform a BPO at all, with or without a fee. Some states restrict agents to performing a CMA or BPO in cases where they are either pricing the home for a potential listing, or assisting a buyer client in determining an asking price.

There are various reasons why an appraiser might want to educate themselves with BPOs and BPO reporting. For some appraisers, the concept is considered as competition to an appraisal. For other appraisers, they could provide a BPO (depending on the jurisdiction) as an appraiser or in some other capacity, such as a real estate broker or agent. In such case, appraisers must carefully consider their role when performing a BPO.

Consider this scenario, which is similarly addressed in USPAP Advisory Opinion 21, Illustration #1: An individual who provides both real estate brokerage and appraisal services, is often requested to perform a BPO by certain entities. Does the individual have any obligations to USPAP when performing a BPO?

The individual must first recognize if the state in which he is practicing has any specific laws or regulations for appraisers who are also credentialed as real estate brokers (or agents). If there is no regulatory prohibition affecting him from performing a BPO, USPAP provides flexibility for individuals who have multiple roles and professional capacities, such as an individual who is both a real estate broker and an appraiser.

If the individual was contacted by the entity to perform the BPO and he is signing the BPO as a real estate broker (or agent), his only obligation is to not misrepresent his role. However, if the individual was contacted to perform the BPO due to being an appraiser and is signing the BPO as an appraiser, USPAP would apply. If an individual acting as an appraiser in compliance with USPAP provides an opinion of value, it is an appraisal that must comply with Standards 1 and 2.

BPOs also became popular for lenders when a borrower wanted to refinance, remove PMI, or apply for a home equity loan (when permissible by law or regulation). It was less expensive than hiring an appraiser, and real estate agents were considered to be knowledgeable about property values in their area. Appraisers generally resented this incursion into their business by real estate agents, and justifiably noted that not all agents performing BPOs were competent to do so.

The Dodd-Frank Act recognizes BPOs for certain uses, such as loan modifications and certain foreclosure actions, but prohibits the use of BPOs for loan origination. Financial institutions are prohibited by Dodd-Frank from using BPOs in lieu of an appraisal for purchase money loan origination purposes. Fannie Mae and Freddie Mac, prior to Dodd-Frank, declared that they would not use BPOs for loan origination purposes.

Legislation was passed in Nevada, as an example, that clearly describes the broad range of situations in which agents or brokers may deliver BPOs (generally, for most purposes other than as the sole basis for a lending decision). In addition, the FDIC has recognized the use of BPOs to establish loan-to-value ratios as part of its Loss Sharing Proposal to Promote Affordable Loan Modifications.

The Federal Reserve Board has adopted BPOs as part of its Homeownership Preservation Policy for Residential Mortgage Assets. Further, Title XI of FIRREA, as well as the proposed Interagency Appraisal and Evaluation Guidelines, both make clear that BPOs are appropriate in a wide range of circumstances.

Entitles desiring a BPO frequently hire a middleman, often known as an Asset Management Company, or a similar label. Asset management companies offer services from pre-foreclosure to the end of the foreclosure process when the property is sold. They are also in charge of ordering BPOs. These companies are contracted by lenders to handle the process of pricing and selling the property.

This process includes obtaining an opinion of value for a property. The valuation manager is in charge of finding a qualified individual in the area where the property is located to perform the BPO. Often, an appraisal is also ordered as well. Some companies exclusively use BPOs.

Types of BPO Assignments
Basically three types of BPO Assignments: Desktop BPO Assignments Exterior BPO Assignments Interior BPO Assignments

Types of BPO Assignments (cont.)
Desktop BPO Assignments are performed by utilizing property information from tax records and from the MLS, if the property is or has been on the market. This is a “sight unseen” type of order, since no direct exterior observation takes place.

Exterior BPO Assignments, require the individual undertaking the BPO to drive by the property and take specific pictures of the exterior. These pictures should be taken without the agent contacting the occupant or owner. This type of order generally requires three sold comps and three active listing comps.

Individuals performing an exterior BPO Assignment are required by BPO companies to take their own color pictures and personally observe anything in the neighborhood that might affect value, such as: The neighboring properties. The types of housing represented (e.g., single family, two-unit, etc.).

How the properties are maintained in the neighborhood. The proximity of the subject property to amenities such as major roads, schools, shopping, and public transportation.

Since location tremendously affects property value, the individual undertaking a BPO should know how the neighborhood compares to other neighborhoods on the market as well as the property condition and the overall curb appeal of the home.

Interior BPO Assignments are performed on vacant properties and sometimes, occupied properties. Contact information will be given on the order for gaining access to the property. Pictures are required of the exterior, each room of the interior, and any damages to the property.

It is also a good practice to take pictures of the basement, the furnace, electrical system, and any other mechanicals, even if these may not be required. These pictures can be helpful as a reference, especially if repairs or replacement is needed.

Frequently, properties will have personal belongings that the owners or tenants have left behind. If the property has been cleaned out, it is a good idea to take pictures of the contents in the rooms and on the exterior of the property to help justify an estimate on the report for a “trash-out.”

Most asset management companies budget for a trash out; however, removing the trash does not impact value. Generally, the asset management company will have companies they work with that will come to the area for the trash-out, or the task will be assigned to the future listing agents to procure estimates from local companies for the cost.

BPO Reports The BPO report includes comments regarding local market conditions, neighborhood characteristics, subject property condition and characteristics, as well as information on listings and recent sold comparables. Most reports require three listed and three sold comparables. Some will require less or even more, depending on the requirements of the client. Information regarding the owner in the report is generally limited to answering the question, “Is the property owner-occupied?”

BPO Reports (cont.) BPO forms may be set up in various formats, specific for each BPO company. While many of the forms share fundamental similarities, there is no particular uniform industry form. Some electronic forms will have drop-down boxes for answer choices, as well as blank boxes to fill in the requested information. Many of these boxes are required fields that must be filled out, or the form cannot be submitted.

BPO Reports (cont.) If a drop-down box does not have the specific choice needed, the nearest correct response should be chosen. For example, if the subject style is a Cape Cod, but the choices are 1 story, 1.5 stories, or 2 stories, then the nearest correct response would be 1.5 story.

BPO Reports (cont.) Typical BPO forms include text boxes for explanations on why a comp is superior or inferior to subject. The form may also include a section for listing comps, similar to the form for the sold comparables. Listed comps will usually also ask for the original list date and original list price. Some forms might require the date of the most recent price reduction.

BPO Reports (cont.) Most MLS services provide this in a history file.
The history file contains information on the list price and dates and any updated price and date changes. Information regarding the days on the market (DOM) is also shown in the history file. If the property has been listed several times, the total days that the property has been on the market should be included.

BPO Reports (cont.) BPO forms will also vary with respect to information required. Some will request additional information such as Design and appeal Seller concessions REO or fair market If the property is investor owned Finished basement rooms

BPO Reports (cont.) All BPO forms require general property information on the subject and the comparables, such as the address, square footage, rooms, garage, distance, days on market, condition, etc. There are a few BPO orders from companies that request a more detailed breakdown of square footage. For example, the report might for the total above ground square footage, then the main floor square footage, and finish with the second floor square footage.

Reporting Market Conditions and Neighborhood Characteristics
BPO forms have various sections to address general market conditions or neighborhood characteristics. Examples of these sections include: Market stability (e.g., depressed, slow, or improving) Percentage of change in the last month or year Employment situation (e.g., declining, stable, increased) Number of sales in the neighborhood Number of competing listings in the neighborhood Number of competing listings that are REOs Competing listings (e.g., normal supply, shortage, or oversupply) Estimated percentages of owner vs. tenants in neighborhood Normal marketing time for the area

Reporting Subject Marketability
Typical BPO reporting fields addressing the subject property’s marketability is similar to that reported in an appraisal. Example fields include: Price range of listings in the neighborhood (e.g., a low to high value) Is the subject an over improvement, under improvement, or appropriate for the neighborhood? Normal marketing time in the area Types of financing for which the subject qualifies. Type of property (e.g., single family detached, single family attached, mobile home, condo, townhouse) Homeowners association fees ($____ monthly $____ yearly)

Reporting Subject Marketability (cont.)
The individual performing a BPO should also be aware of general market characteristics that are present in the particular market, such as: Population changes Economic changes (such as a change in the workforce) National influences, such as interest rates Incentives to buyers (such as first time buyer tax incentives) Unemployment

Reporting Marketing History
Many of these reporting elements may differ somewhat from the type and extent of information typically reported in an appraisal. BPO reporting fields typically include: Is subject currently listed? Name of listing brokerage Listing brokerage contact number MLS number of the property Has the subject been listed in the last 12 Months? Last date of sale and the sale price

Reporting Marketing History (cont.)
Some forms will have an area for comments or explanation relating to any perceived limitations or anticipated resell obstacles, as well any negative or positive property noted.

Reporting Property Characteristics
The next section on the form commonly includes information regarding the subject property, using fill-in-the-blanks or drop-down boxes that will list a series of choices. For example, when the form asks for the number of rooms, a drop-down menu appears and the number of rooms in the subject property is selected. Depending on the form, this information will either be in its own section, or on the left of the comp information, so that it is visible when filling in the comp information.

Reporting Property Characteristics (cont.)
If the assignment is a desktop or exterior inspection variety, characteristics of the subject can be taken from tax records, information from the MLS, if the subject was previously on the market or is currently listed. Information for listed and sold comps will generally come from the MLS; however, when the sale is privately transacted, the information will come from public records.

Reporting Property Characteristics (cont.)
If the property is not in a public records state, the agent will have to use MLS sales, unless the details of a private sale can be verified. The form will not ask for personal information about the owner of sold or listed comps. It is useful for the agent to have the names of the grantor (seller), grantee (buyer), and the parcel number of the property in the property file. This information is generally property- or market-specific.

BPO Repair Worksheet Section
Most BPO reports will have a repair worksheet section. The section will have a blank table for insertion of recommended repairs. This section is followed by a column where the repair costs can be estimated. When all of the repair amounts have been entered, most forms automatically populate the total repair costs. Keep in mind that the repair costs will depend on the area, since the cost of supplies and labor are not standard.

BPO Repair Worksheet Section (cont.)
The repair section of the form has a list of property exterior items with a column to add in a dollar amount estimation of what the repair would cost. If the form is not set up this manner, the repair section may have a write-in area to type in the repairs needed and the estimated repair amount. A similar practice is followed for an interior BPO.

It is important to note that the repair amount will need to be added into the value conclusion for the “as repaired” value. Some lenders are now making repairs to make the properties more marketable. This will vary, depending on the quality, price range, location, and standard practice of the lender.

Sometimes just a few low cost repairs or improvements can result in a higher sale price. However, many REO lenders offer properties “as is, where is.” As well, many will not turn on the utilities; instead, if a buyer wishes to have the utilities on for an inspection, he must pay to have them turned on.

There may also be a section asking for an opinion on what inspections should be completed on the property, such as plumbing or heating, well and septic, environmental, or termite inspection. Some counties require point of sale inspections before a property can transfer ownership. If this is not the case in the particular area, any potential issues should be further inspected by a professional.

Reporting Adjustments
Depending on the client and the details requested, some BPOs will request monetary adjustments for differences when the comps are inferior or superior to the subject. This adjustment process will vary by client requirements. Some forms will have a box out to the right of an item, for example square footage. In the box, the following initials will be requested: I=inferior, S=superior or E=equal.

Reporting Adjustments (cont.)
This method is called coded adjustments. At the bottom of the comp, there may be a line for a monetary adjustment to bring the comp in line with the value for the subject or there will simply be an explanation box as to the rationale that the comp is superior, inferior, or equal to the subject. The second type of adjustment form will require a monetary amount to address the difference in the item. This process is similar to that in traditional sales comparison reporting in an appraisal.

Reporting Conclusions in a BPO
Most often, entities receiving a BPO are requesting the conclusion to reflect “the most probable price at which a property would sell for, taking into consideration listing time and price.” Understand that limiting the listing time means that the value indicated may be less than market value when exposed for a typical marketing period. In other words, if typical marketing time is 120 days, but a 30-day opinion is specified, the price will have to be discounted in order for the property to sell quickly.

Reporting Conclusions in a BPO (cont.)
In addition to a “Suggested List Price,” most BPO reports specify an “As Is” and “As Repaired” value for the following marketing times: 0-30 Days 0-90 Days Days 120+ Days

“Suggested List Price” is a value that would be low enough to attract buyers, yet high enough to leave room for negotiations. “As Is” is the value of the property without completing repairs or updates. This value is determined by deducting the repair costs that would have made the subject and comp values equal. “As Repaired” is a value determined by adding in the repair costs to bring the subject to similar condition as a comp in good condition.

The client will use the value opinions and list price suggestions within these marketing times to determine what they will ultimately list the property for. Each company will vary depending on how quickly the property needs to be sold.

Chapter 3: Summary The Exterior-Only Inspection Appraisal Report is referenced by both Fannie Mae and Freddie Mac as Form The report form is designed for reporting an exterior-only appraisal of a single-family dwelling, including planned unit developments (PUDs), but not manufactured homes. The form may not be used for condominiums or cooperative units.

Chapter 3: Summary The Individual Condominium Unit Appraisal Report form is used for the appraisal of an individual unit in a condominium project, including a condominium that is part of a PUD. This form is not designed for valuing cooperative units or for manufactured homes that are part of a project or complex. Fannie Mae labels this form as Form 1073 and Freddie Mac designates the report form as Form 465.

Chapter 3: Summary The Manufactured Home Appraisal Report Form is also known as Fannie Mae Form 1004C or for Freddie Mac, Form 70B. The appraisal reporting form is designed for the appraisal of a one-unit manufactured home. This would include a unit located in a planned unit development (PUD).

Chapter 3: Summary The Small Residential Income Property Appraisal Report (Fannie Mae Form 1025/Freddie Mac Form 72) is the most common reporting form used for reporting the appraisal of a two- to four-family property for use by a lender client. While the 1025/72 form was developed for use by Fannie Mae and Freddie Mac, it has been adopted for use by other lending entities such as the FHA and VA and other lenders.

Chapter 3: Summary The Operating Income Statement (Fannie Mae Form 216/Freddie Mac Form 998) is a required exhibit to accompany the 1025/72 Small Residential Income Property Appraisal Report for a two- to four-unit income property.

Chapter 3: Summary In an appraisal review, the review appraiser is developing an opinion of the quality of another appraiser’s work. The One-Unit Residential Appraisal Field Review Report is referred to as Fannie Mae Form Freddie Mac calls this Form 1032.

Chapter 3: Summary For most residential appraisal updates, the Appraisal Update and/or Completion Report is utilized. Fannie Mae refers to the form as Form 1004D; Freddie Mac refers to it as Form 442.

Chapter 3: Summary BPO report forms may be set up in various formats, specific for each BPO company. While many of the forms share fundamental similarities, there is no particular uniform industry form.

Chapter 3: Quiz Which would be an example of a property for which the Exterior-Only Inspection Appraisal Report, Form 2055 could be used? condominium unit cooperative unit manufactured home single-family home in a PUD

Chapter 3: Quiz All are required to accompany the Exterior-Only Inspection Appraisal Report, Form 2055, EXCEPT for a(n) exhibit of other additional data to support the value conclusion. exterior sketch of the subject improvement. front view picture of the subject. street map showing the subject and comparable used.

Chapter 3: Quiz Regarding two- to four-family properties in which one of the units is owner-occupied, which statement is TRUE? Income and expenses for owner-occupied units are not included. Operating expenses for the unit are included but income is not. The Operating Income Statement is not included in such case with the 1025/72 report. Potential income from the unit is estimated and used in determining effective gross income.

Chapter 3: Quiz A mother-in-law unit created by converting the detached garage of a primary dwelling could not be reported on the 1025/72 reporting form. is an example of an accessory unit. is never permitted by Fannie Mae. is not considered a separate living unit.

Chapter 3: Quiz Within an appraisal review, changes to the report content by the reviewer to support a different value conclusion must match, at a minimum, the reporting requirements for a(n) Appraisal Report. Appraisal Update Report. Restricted Appraisal Report. Two-stage Appraisal Report.

Chapter 3: Quiz A recertification of value is a(n)
component of an appraisal review. confirmation that prior appraisal conditions have been satisfied. form of an appraisal update. specific type of value opinion.

Chapter 3: Quiz An appraiser’s conclusion that the value is the same or different within a real property appraisal review must be developed in accordance with STANDARD 1 2 3 4

Chapter 3: Quiz Which is NOT commonly a permitted use of a BPO?
determining marketability loan modifications loan origination PMI removal

Chapter 3: Quiz Which is emphasized and discussed in BPO reports more so than is typically elaborated upon in many appraisal reports? comparable sales competing listings legal characteristics of the property subject property features

Chapter 3: Quiz Which appraisal reporting form must comply with UAD requirements? Appraisal Update and/or Completion Report Individual Condominium Unit Appraisal Report Manufactured Home Appraisal Report Small Residential Income Property Appraisal Report

Chapter 3: Quiz Which must be attached to the Small Residential Income Property Appraisal Report? current lease agreements for the property Operating Income Statement plot plan showing the site and the improvements three-month’s receipts for all expenses

Chapter 3: Quiz When performing an assignment using only an exterior inspection, conclusions regarding property characteristics not personally observed by an appraiser would typically require the use and disclosure of a(n) extraordinary assumption. jurisdictional exception. statutory guideline. unsupported conclusion.

Chapter 3: Quiz Which is NOT a reporting field common to only the Manufactured Home Appraisal Report? Are utilities permanently connected to the home? Have the hitch, wheels, and axles been removed? Is the home on a permanent foundation? Were any adverse site conditions observed?

Chapter 3: Quiz In what case would an individual who is both a real estate broker and an appraiser NOT be obligated to comply with USPAP when performing a BPO? BPO was performed, and the report was signed, by the individual who is acting as a real estate broker. Client was not aware the individual was an appraiser, but BPO was signed by the individual as an appraiser. Expectation of the client for the individual to perform the BPO as an appraiser. Individual was hired due to his real estate expertise and signed the BPO report as an appraiser.

Chapter 3: Quiz If the subject property has an annual effective gross income of $26,040 and annual expenses of $10,416, what is the monthly cash flow reported on the Operating Income Statement if monthly housing expense is $937? $234 $365 $401 $552

Other Forms and Reports

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Other Forms and Reports

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