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Residential Report Writing and Case Studies Chapter 6

Appraisal Other Form Reporting Options

Overview

In this chapter, we will address some of the more common residential report forms produced by Fannie Mae and Freddie Mac. We will also address some USPAP Frequently Asked Questions that relate to appraisal "updates" and appraisal reporting.

Learning Objectives

At the end of this chapter, the student will be able to:

• Identify various Fannie Mae/Freddie Mac appraisal reporting forms and their applications

• Describe differences between the URAR form and other commonly used reporting forms

• Discuss the use of addendum and reinspection forms that are not appraisal report forms

Other Report Forms

When Fannie Mae and Freddie Mac revised the URAR form in 2005, they also revised their entire suite of residential appraisal reporting forms. As a result, most of the Fannie/Freddie appraisal report forms look very similar to the URAR form. In this chapter, we will look at several of these forms; however, rather than going over these forms in detail, we will instead highlight some of the differences among each of these forms and the URAR form.

Exterior-Only Inspection Residential Appraisal Report

Fannie Mae 2055 Form, dated March 2005

Fannie Mae and Freddie Mac consider the level of detail required by the 2055 form to be consistent with the minimum content requirements for an Appraisal Report. This form is designed to report the results of an appraisal of a single-family home (or PUD unit) based on an exterior-only inspection of the subject property. This type of assignment is perhaps more commonly known by appraisers as a "drive-by" or "ride-by" appraisal. The pre-printed scope of work statement on this form specifies that

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the appraiser must perform an exterior inspection of the property, at least from the street. No interior inspection of the home is required.

This form looks very similar to the URAR form -- so similar, in fact, that an appraiser or client may have trouble telling them apart at first glance. The 2055 form even has sections for the cost and income approaches! Below is one of the few differences between the 2055 form and the 1004 form:

The major difference in the report forms is that on the 2055 form, the appraiser must document the source of the information used to determine the subject property's physical characteristics. On a full inspection appraisal, this information is obtained through the appraiser's interior and exterior inspection of the subject property, which usually includes measuring the improvements. Conversely, for an exterior-only inspection appraisal, the appraiser will obtain this information from other sources. To facilitate intended users' understanding of the appraisal process, the appraiser is required to identify the data source(s) used to obtain this information in the report. There is also an additional blank where the appraiser must state the specific source for the gross living area (GLA). Naturally, these information sources must be considered reliable. The appraiser must ascertain that all of the information used in the appraisal process has been collected and verified from reliable public or private sources.

If information regarding the subject property's physical characteristics is not available or cannot be verified as reliable, this type of residential appraisal cannot be completed. The integrity of the appraisal process must not be compromised. The appraisal development must produce a credible opinion of value for the intended use, even though the appraiser did not make an interior inspection of the improvements.

The scope of work section of the report on page 4 also differs slightly from what appears on the 1004 form; this reflects the fact that the appraiser is not required to make an interior inspection of the subject property.

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Manufactured Home Appraisal Report

Fannie Mae Form 1004C, Freddie Mac Form 70B, dated March 2005

As with their other report forms, Fannie Mae and Freddie Mac consider this form to be consistent with the minimum content requirements for an Appraisal Report. This reporting form is used exclusively for the appraisal of a HUD-Code manufactured home, which is a home constructed on a permanent chassis in accordance with the national construction standards enforced by HUD. Both Fannie Mae and Freddie Mac require the appraiser to document certain information that relates specifically to HUD-Code homes. The 1004C form is not intended to be used to report an appraisal on a modular home or a panelized, pre-cut, or "kit" home.

There is a HUD label(s) and a HUD data plate affixed to every HUD-Code home, which includes specific information that is to be included in the report. The HUD label is a metal tag, usually red in color, with three letters and usually six or seven numbers stamped on the label. This label is attached to the exterior siding of the home; if there are multiple sections to the home, there will be a HUD label affixed to each section. The label serves as notice that the individual sections have been constructed to meet the requirements of the National Manufactured Home Construction and Safety Standards Act of 1976, also known as the HUD Code. This code is monitored, updated, and enforced by the Secretary of the U.S. Department of Housing and Urban Development (HUD). No manufactured home may be shipped from the factory unless it complies with the HUD code and receives a HUD certification label from an independent inspector. All manufactured homes constructed in the U.S. today must meet HUD code requirements.

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The HUD data plate (also called the compliance certificate) is found in the interior of the home. The data plate is usually an 8-inch by 10-inch piece of paper which should be affixed to an interior wall. It can appear virtually anywhere inside the home, but is often found inside a closet, inside a kitchen cabinet or under the sink, or on the inside cover of the electric circuit breaker box.

This data plate will contain some very specific information relating to the home's construction process. For example, in addition to the manufacturer's name, the unit's serial number, the date of manufacture, and the HUD label number should be identified. Equally important information will be noted on the plate concerning the amount of insulation that was installed in the home, the roof load capability for the home, and the ability of the side walls to withstand wind velocity. The location where the manufactured home was constructed will determine how it was constructed and the requirements to which it was built. The data plate information is specific to each individual manufactured home.

Special Requirements of the 1004C

On page 1, the form requires the appraiser to report the results of the analysis of the manufacturer's invoice, if the manufactured home is new construction.

Reporting the information found on the manufactured home's data plate is essential in completing the 1004C form. The serial number, the manufacturer's name, the trade/model of the home, and the date of manufacture can only be found on the data plate; this information cannot be found on the red HUD label(s) affixed to the exterior of the home.

The 1004C form also requires the appraiser to answer a very location-specific question: Will the wind, roof load, and thermal zones meet the minimum requirements for the present location of the property? For the appraiser to answer this question, he or she must gather information from the data plate.

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There are other specific questions that are best answered after the appraiser has conducted a visual inspection of the property. These answers require more detail than merely checking the appropriate block. Narrative comments may be required to satisfy the client's need for information relative to the site, access, utilities, and improvements.

On page 2, the form requires more specific information regarding the home and its setup, such as:

• 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?

• Does the dwelling have sufficient gross living area and room dimensions to be acceptable to the market?

These questions are specific to manufactured homes, and as such, do not appear on any other Fannie Mae appraisal reporting form.

In addition to completing the sales comparison approach to value, the cost approach is required by Fannie Mae and Freddie Mac as part of the appraisal process for all manufactured homes. Neither Fannie Mae nor Freddie Mac requires the income approach when appraising manufactured homes, although there is an area on the form for the income approach to be reported.

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Small Residential Income Property Appraisal Report

Fannie Mae Form 1025 & Freddie Mac Form 72, dated March 2005

The 1025 form is sometimes referred to as the SRIPAR form, which stands for Small Residential Income Property Appraisal Report. This form is used to report the appraisal of two-to-four-unit residential properties. The general format is similar to the URAR report, but the required information is tailored specifically to two- to four-unit, income-producing residential properties. As with their other report forms, Fannie and Freddie consider this form to be consistent with the minimum content requirements for an Appraisal Report

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A comparable rental properties grid is included in this form to assist the appraiser in estimating the appropriate market rent for each of the subject's living units. Similar rental properties in the same market area are analyzed for their similarities and amenities relative to the subject property. Analysis

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of market rents will provide the appraiser with the gross monthly rent estimate for the subject property. This information will form part of the basis for an indicated value by the income approach.

Recent comparable sales information, acquired for the sales comparison approach, can be analyzed using the accepted VIM (Value = Income x Multiplier) formula and reconciled to determine an appropriate GRM. This information will be used as part of the income approach criteria to indicate a value conclusion.

In addition to the standard sales comparison adjustment grid, the sales comparison approach section of the 1025 form has an additional component -- units of comparison. Both unadjusted and adjusted units of comparison, including sale price per unit, sale price per room, sale price per bedroom, and sale price per square foot of gross building area, are extracted from the comparable sales. An explanation of the reconciliation of these units of comparison should be included in the appraisal report. We will complete a case study relating to reporting an appraisal using the 1025 form in Chapter 10 of this course.

Individual Condominium Unit Appraisal Report

Fannie Mae Forms 1073 & 1075, Freddie Mac Forms 465 & 466, dated March 2005

There are two condominium appraisal reports: the 1073 is for an interior and exterior inspection; the 1075 is for an exterior-only inspection from at least the street. The appearance of these forms is similar to that found in the URAR report and the 2055 report, but some of the information required on these forms is specific to condominium property ownership. Fannie Mae and Freddie Mac consider the level

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of information on these forms to be consistent with the minimum requirements for an Appraisal Report.

"Condominium" is a specific type of ownership. The condominium property owner owns space within a given unit and also has an undivided interest in the common areas. The outside walls of the building belong to the complex, as do the common amenities such as a tennis court, swimming pool, or recreational building. As such, the GLA of condominium units is measured from inside wall to inside wall. Unlike detached homes, exterior dimensions are not used to calculate gross living area.

The condominium owner has an undivided interest in commonly-owned amenities. The condominium appraisal reports recognize the unique ownership situations, and the appraiser must determine not only the value of an individual unit but also the quality of the management for the common areas. Visual observation and additional research into the management of the common assets is a requirement for proper analysis of the common areas.

Because the condominium project and its amenities are essential to the value of a condominium unit, the 1073 form contains significant information regarding the project, its amenities, and how it is operated.

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We have mentioned the similarities between the two condominium appraisal reports to the URAR and the 2055 forms. The 1073 form is used to report the results of an appraisal of a condominium unit when a complete interior and exterior inspection of the subject condominium unit is made. Comparable condominium sales must be visually inspected from the exterior, at least from the street. These requirements are similar to the URAR form for one-unit (single-family) properties. The additional information mentioned above will be researched and then documented in the report.

The 1075 form is to be used to report the results of an appraisal of a condominium unit when the subject property inspection involves an exterior-only inspection from at least the street. This is similar to how the 2055 form is used for appraisals of single-family homes. The pre-printed scope of work for this type of appraisal requires the appraiser to make exterior-only inspections of all the comparable sales from at least the street.

As stated in the previous chapter, the 1073 and 1075 forms are UAD forms. Appraisals reported on these forms for Fannie Mae and Freddie Mac lenders, as well as HUD/FHA and VA, must comply with the data entry requirements of the Uniform Appraisal Dataset. Appraisals reported on these forms for other types of lenders are not required to be UAD-compliant.

Cooperative Interest Appraisal Report

There are two Fannie Mae Individual Cooperative Interest Appraisal Reports. The forms are #2090 and #2095, both dated March 2005. As with the condominium forms, the cooperative 2090 form involves an interior/exterior inspection of the individual unit by the appraiser, and the 2095 form requires an exterior inspection of the subject individual unit, at least from the street. Comparable cooperative units are viewed from the exterior, at least from the street. Additional research is required to determine the adequacy of the management of common assets. This additional research is very similar to the research required for the condominium appraisal assignments.

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The cooperative 2095 form requires the appraiser to conduct an exterior inspection, at least from the street. The rest of the inspection process and additional research requirements remain the same as that required for the 2090 form.

A cooperative is an ownership of stock in a corporation. Title to the property is held by the corporation. The residents buy stock in the corporation and, in turn, receive a proprietary lease for their individual unit in the building and the rights to use the common areas. When selling their portion of the building, they are actually selling their stock to a new stockholder. The new stockholder receives the transferred proprietary lease and the rights to use the common areas.

Specific information is required for the number of shares issued and/or outstanding for the cooperative corporation. Fannie Mae requires that the sales comparison approach be used to measure the market's perceived value of the cooperative interests and accompanying occupancy rights. Fannie Mae considers the 2090 and 2095 forms to be consistent with the minimum content requirements for an Appraisal Report.

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Appraisal Update and/or Completion Report

Fannie Mae Form 1004D, Freddie Mac Form 442, dated March, 2005

This is a dual-use form. This single-page form can be used as an appraisal update reporting form, and/or as a certificate of completion acknowledgement. The definitions of intended use and Intended User are pre-printed on the form for the appraiser. The pre-printed minimum scope of work has been identified for the appraiser who is using the form as an update appraisal reporting form.

This form is often used to report the results of an appraiser's inspection for completion of new construction, remodeling, or repairs. When the form is used in this way, it is considered to be a recertification of value, which does not change the effective date of the original appraisal. The report merely answers the question, "Have the conditions that were specified in a prior appraisal report been met?" HUD/FHA has also adopted this form for use in reporting repair and compliance inspections.

When the form is being used for the purposes of updating a prior appraisal, the appraiser must remember that this form is labeled as a Summary Appraisal Update Report Summary. (Summary Appraisal Report was the name of the predecessor to the Appraisal Report prior to the 2014-2015 USPAP.) However, this form, by itself, does not contain enough information to meet the

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content requirements for the Appraisal Report option as found in USPAP. The appraiser must either provide additional documentation to support his or her analysis and opinion of value, or incorporate parts of the prior appraisal report by reference or attachment.

Research, verification, and analysis of current market data are necessary before the appraiser can answer the specific question relating to the subject property's current value, as found in the update form: "Has the market value of the subject property declined since the effective date of the original appraisal?" The appraiser must answer "yes" or "no." That is all the form asks the appraiser to do -- just answer yes or no. If the answer is yes, the client must order a new appraisal according to Fannie Mae requirements. If the answer is no, the client will probably make a new loan based on the updated appraisal. Information from the prior report is incorporated into this new report by reference; however, if there is additional information that is necessary for understanding of the appraiser's conclusions, this supporting information should be made a part of this appraisal update report. It is important to note that regardless of whether the appraiser answers "yes" or "no", this is an opinion of value that must be developed in accordance with USPAP STANDARD 1, and reported in compliance with STANDARD 2.

The form calls this type of assignment an "update." As we all remember from our most recent USPAP course, an "update" is not an extension of the prior assignment; it is a new assignment. It requires a signed certification in the report. If the prior assignment was completed by the appraiser within the last three years, the new report must contain a statement in the certification disclosing that the appraiser previously appraised the property.

On the next several pages, we will cover some USPAP Frequently Asked Questions relating to updates of prior assignments.

USPAP FAQ #199

Sometimes clients ask appraisers to tell them if the value of a property has (or has not) not changed from a previous appraisal assignment. Some of these clients will even tell appraisers that this is not an appraisal. USPAP FAQ #199 makes it clear that this type of assignment is an appraisal, and therefore USPAP applies.

199. Appraisal Update With No Change In Value

Question: I was recently contacted by a client for whom I had previously completed an appraisal. The client asked if I could simply tell them whether there have been changes in the market, or not, since the time of my appraisal, and that the value of the property remains the same. Am I permitted to do this under USPAP?

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Response: Yes. However, it must also be understood that an appraiser making a determination that the value of a property has not changed is performing an appraisal as defined in USPAP. The Comment to the USPAP definition of appraisal states:

An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value). (Bold added for emphasis.)

In addition, the appraiser is obligated to comply with the reporting requirements of USPAP. The request from the client should be treated as a new assignment, which could be completed in accordance with Advisory Opinion 3, Update of a Prior Appraisal.1

An appraiser who states "there have been no changes in the market and my previous value conclusion is unchanged" or "the value of the property has not declined since the last appraisal" has performed and reported an appraisal, according to USPAP.

1 The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, Washington, DC.: Appraisal Standards Board, (2016-2017 Edition), USPAP Frequently Asked Questions

USPAP FAQ #203

Even with Advisory Opinion 3 in USPAP providing a definition of the term "recertification of value", clients still often use this term interchangeably with "appraisal update". These terms do not mean the same thing, as per USPAP FAQ #203.

203. Recertification of Value and Appraisal Update

Question: The terms recertification of value and appraisal update are often used interchangeably. Do they have the same meaning?

Response: No; these terms do not have the same meaning. The terms update and recertification of value are discussed in Advisory Opinion 3 (AO-3), Update of a Prior Appraisal.

An update is a new appraisal assignment involving a property that was previously appraised. An update is subject to the same USPAP requirements as any other appraisal assignment.

A recertification of value is performed to confirm whether or not the conditions of a prior assignment have been met. One example of a recertification of value is a final inspection. When an appraiser is asked to complete a final inspection, the appraiser is confirming that conditions established in an assignment have, or have not, been met.

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Final inspections are commonly used in the case of proposed construction where an appraisal is completed subject to completion per plans and specifications.

Consult AO-3 for additional information.1

When an appraiser receives a request from a client for a "recertification of value", the appraiser should make sure that the client is not really asking for an update. Prompt and clear communication with the client is essential in heading off any potential misunderstandings.

1 The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, Washington, DC.: Appraisal Standards Board, (2016-2017 Edition), USPAP Frequently Asked Questions

USPAP FAQ #269

When Fannie Mae/Freddie Mac released the modified 1004D/442 form, many appraisers had questions. The form was intended to be used as an appraisal update report and/or a certification of completion. When using the 1004D/442 form as an appraisal update report, how much information must the appraiser include? USPAP FAQ #269 provides an answer.

269. Fannie Mae Update Report Form 1004D/Freddie Mac form 442

I have been asked to provide an update of a previous appraisal assignment and to report the results on Fannie Mae Form 1004D/Freddie Mac Form 442. The form asks me to check yes or no in response to the question "Has the subject's market value declined since the original appraisal date?" I have the following two questions.

Question: (1.) Does this constitute a new appraisal of the property?

Response: Yes; this is a new appraisal with a new effective date. Additional guidance can be found in Advisory Opinion 3, Update of a Prior Appraisal.

Question: (2.) How much of my analysis must I include in the report?

Response: The analysis will vary from assignment to assignment, so the information required in the report will also vary. In some cases it might be possible to summarize the analysis using the three lines provided on the form itself. If the space provided is insufficient, then the appraiser must supplement the form.

As with any written appraisal report, the appraiser is also required to include a signed certification. For Fannie Mae Form 1004D, which would be used for a real property appraisal assignment, the signed certification must be similar in content to that required in Standards Rule 2-3. If the certification included on the preprinted form does not cover all of the points required in Standards Rule 2-3, the appraiser must supplement the certification.1

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Appraisers are specifically reminded that the USPAP certification requirements were most recently changed with the 2012 USPAP; however the 1004D/442 form has not been updated since 2005. So an appraiser who uses this form to report an appraisal update must be sure to supplement the certification statement so that it is similar in content to the certification that is required by USPAP.

1 The Appraisal Foundation, Uniform Standards of Professional Appraisal Practice, Washington, DC.: Appraisal Standards Board, (2016-2017 Edition), USPAP Frequently Asked Questions

1004MC Market Conditions Addendum

Form 1004MC is actually an addendum to an appraisal report; it is not an appraisal reporting form. Use of the 1004MC addendum form is required for all 1-4 family residential appraisals for loans that are being sold to Fannie Mae or Freddie Mac. Its use is widespread; even HUD/FHA and VA have adopted it.

Appraisers have been using this form for years now; however, they still ask questions regarding this form, and Fannie Mae occasionally issues additional guidance on it as well. We will cover this form briefly in this course.

The 1004MC form was introduced by Fannie Mae Announcement 08-30, issued in November of 2008. In its initial guidance, Fannie stated that they recognize that some of the information requested in the form, like the number of active listings from prior periods, may not be available. If this is the case, the appraiser should just explain the unavailability of the information. Also, the form asks for median listing and sale price information, but this information may only be available as an average (or mean). An average may be used instead of a median, as long as the appraiser notes this on the form.

1004MC - Inventory Analysis Section

Announcement 08-30 provided initial guidance on what Fannie and Freddie expect from appraisers when completing this form. The quotations in italics on the next two pages are from Announcement 08-30:

"The "Inventory Analysis" section assists the appraiser in analyzing important supply and demand factors in order to reach a conclusion regarding housing trends and market conditions. When completing this section, in order to analyze the sales activity and the local housing supply, the appraiser must include the comparable data that reflects the total pool of comparable properties from which a buyer may select a property. One of the tools used to monitor these trends is the absorption rate. The absorption rate is the rate at which properties for sale have been or can be sold (marketed) within a given area. To determine the absorption rate, the appraiser divides the total number of settled sales by the timeframe being analyzed. The months of housing supply is based on the total listings for the applicable period [sic - see below*] divided by the absorption rate.

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Example

Step 1: Calculate the absorption rate. If there were 60 sales during a six-month period (e.g., "Prior 7-12 Months" column), the absorption rate is 10 sales per month (60/6).

Step 2: Calculate the months of housing supply. If there are 240 active listings, there is a 24-month supply of homes on the market (240 active sales/10 sales per month). This may support the appraiser's conclusion that there is an over-supply of homes on the market. Anomalies in the data such as seasonal markets, new construction, or other factors must be addressed in the form."

*In June 2010, Fannie Mae issued Announcement SEL-2010-09 which stated that when filling out the number of available listings for the time periods being analyzed, the appraiser is required to use the number of listings that were available on the most recent day of the period in question, not the cumulative number of listings that were available at any time during the period.

1004MC - Seller Concessions

Fannie Mae Announcement 08-30 also addressed the prevalence of seller concessions reflected on the 1004MC:

"Form 1004MC also provides a section for comments on the prevalence of seller concessions and the trend in seller concessions for the past 12 months. The change in seller concessions within the market provides the lender with additional insight into current market conditions. The appraiser should consider and report on seller-paid (or third-party) costs. Examples of these items include (but are not limited to) mortgage payments, points and fees, and in condominium or cooperative projects, items such as homeowners' association fees and guaranteed rental programs. Seller concessions must be carefully analyzed by the appraiser because excessive concessions often lead to inflated property values."

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Fannie Mae's Announcement SEL 2010-09, issued in June 2010, provided additional guidance for the 1004MC Form and seller concessions, and established other requirements as well. For example, interior photographs are now required for all appraisal reports in which an interior inspection of the property was made by the appraiser.

This Announcement also stated:

"Lenders are reminded that excessive sales concessions can artificially inflate the sales price of a property, which can then lead to an inflated market value. Particular attention should be given to unusual sales or financing concessions to ensure that they are properly accounted for in the appraisal report. Fannie Mae's definition of market value is intended to ensure that appraisals reflect an opinion of market value after adjustments for any special or creative financing or sales concessions have been made, such as interest rate buy-downs or payment of condo or homeowners' association fees."

Form Reports and USPAP

There are many other form type reports available to the appraiser, depending on the individual assignment. The forms presented in this course are the most current standardized forms in use by most financial institutions. These forms have been created by the GSEs and are to be used by the appraiser whenever the assignment involves Fannie Mae or Freddie Mac. Some other clients have their own proprietary forms. State departments of transportation, for example, have their own forms for use in condemnation appraisal work. Some lender clients that do not sell loans on the secondary market still use "outdated" forms, like the 1993 version of the URAR form, or the old 2055 form.

Form-type reports are a convenient and efficient way to report an appraisal, but they do not guarantee the appraiser's compliance with USPAP. Responsibility for USPAP compliance remains with the appraiser. No matter what the form type, an appraiser must meet the minimum content requirements of USPAP Standards Rule 2-2. Furthermore, the report must clearly set forth the appraisal in a manner that will not be misleading, and must contain sufficient information so that the intended users can understand it.

Summary

In this chapter, we explored various reporting form options available for the reporting of appraisals of different property types, including manufactured homes, small income properties, cooperatives, and

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condominiums. We also addressed commonly-used addendum forms and recent updates to these forms.