Determining Assignment Conditions in a Vacuum

I spend some time on social media in appraisal groups reading and commenting on different posts. I often read where the poster is asking if they should call a condition out or require an inspection by a professional on an assignment. Let’s say there is a safety issue noted during the site visit, and the poster is asking the masses how to handle it. Often, these are on FHA assignments, but I also see them on conventional assignments.

It still amazes me that so many ask these questions in appraisal forums just due to the wide variety of responses that are given. Some reply with helpful information while others are just negatively toned. It also amazes me how widely different the answers can be. Take for instance railings on a porch that may be 2.5 to 3 feet high. Some say 30 inches, others say so close it would be a judgement call while others ask what the local code says for railings. Another example is a deck that looks sturdy, but the deck boards have weathered finish with one hole pictured. The comments on this one were fairly steady on calling for an inspection by a qualified professional. It is good to get your peers’ opinions on items, that isn’t the problem.

The issue is that often, the poster will just move forward with making the appraisal subject to an inspection or a repair. For FHA, often those are based on the handbook which requires safety, soundness and security. In conventional financing, however, not all assignments should be completed using guidelines of Fannie or Freddie. So often, the client isn’t selling to the GSEs or another secondary mortgage market participant. It is critical that we complete the problem identification step of the appraisal process to understand the client’s needs. That’s why we identify clients and intended users.

The problem identification portion of an appraisal assignment contains the elements of the assignment. The last of these are assignment conditions which include extraordinary assumptions, hypothetical conditions and jurisdictional exceptions among other things that impact the scope of work. The Scope of Work Rule, under the list of problem identification items, says communication with the client is required to establish most of the information except the relevant characteristics.

That means if an appraiser is going to call out something for repair, subject to completion or subject to a required inspection, the appraiser should be discussing it with the client. It is not acceptable to make that decision in the vacuum of your appraisal office. Assignment results are measured as credible based on the context of the intended use. The intended use is driven by the client, so therefore, to reach credible results, the client must be involved in the conversation.

Federal lending guidelines require the appraisal to be “as-is.” Not all lenders, clients or intended uses want a value that is “subject-to” something. Based on the problem identification in USPAP, use of “subject-to” should be communicated to the client to ensure the scope of work is appropriate for the intended use.

I also see instances where posters are upset about a client that comes back and needs the as-is value and not the “subject -to” value that was provided in the report. This is unfortunate because the decision to make a value “subject-to” a condition or repair was decided by the appraiser only. It also means more time will be spent addressing the revisions when they had the opportunity to get it right the first time by discussing the situation with their client.

I work on complex assignments often and have walked into a house where the owner decided to tear the kitchen out the week before the site visit. So, what did I do? I finished the site visit, took pictures and many notes. I then discussed the timelines with the owner that would assist in my discussion with the client. As soon as I returned to my office, I put a note in the system about the condition of the property. I ended this note with asking them how THEY wanted me to handle the situation. It’s as simple as asking, do you want  this as is or subject to having a kitchen?

Many clients are not selling to the GSEs or going through FHA or VA and can close a loan in a property in this condition. Therefore, it is the appraiser’s responsibility to communicate with the client to ensure that this situation is handled according to what the client needs. This is not only required by USPAP but is also great customer service on the part of the appraiser.