Appraisal Institute – Evaluations for Lenders by appraisers
The Appraisal Institute’s “Guide Note 13: Performing Evaluations of Real Property Collateral for Lenders” addresses how appraisers should prepare an evaluation for a lender and comply with the USPAP.
The Guide Note states, “For lending transactions involving real estate, a lender must obtain an appraisal from a state licensed or certified appraiser. There are 12 exemptions from this requirement. For three of these exemptions, in lieu of an appraisal by a licensed or certified appraiser the lender may obtain an evaluation.”
The Appraisal Institute’s Guide Note states that USPAP allows an appraiser to adjust the scope of work for a valuation assignment as long as the resultant value opinion is credible, given the intended use. When preparing an evaluation, the appraiser may consider narrowing the scope of work as appropriate.
According to the interagency guidelines, a lender may obtain an evaluation in lieu of an appraisal when the loan transaction:
– has a transaction value equal to or less than $250,000; …
– or involves an existing extension of credit at the lending institution, provided that: there has been no obvious and material change in market conditions or physical aspects of the property…
“The degree of property inspection, the extent of the data collection process, and the type and level of analysis can vary as needed, as long as the resulting opinions and conclusions are credible in light of the intended use.“
Click here to download the Appraisal Institute’s six-page “Guide Note 13: Performing Evaluations of Real Property Collateral for Lenders.” http://www.appraisalinstitute.org/PPC/downloads/guide-note13.pdf
My comment: This is an old issue, from the FIRREA days of over 20 years ago. There are some proposals for what appraisers can do, but there are not many details. A licensed appraiser is the “Gold Standard” but the appraisal methods used today are not always needed. For example, a tract home in a large conforming tract.
Lots of appraisers seem to forget about the $250,000 deminimus. The only reason licensed appraisers are used by Fannie Mae is that they still require them. Other purchasers and investors in mortgages also require them. I suspect that many commercial loans also require appraisals by licensed appraisers, but some use commercial BPOs.
Who can do the evaluations is not very clear. However, they must have specific requirements. A person with no related education or experience would not qualify. BPOs done by real estate agents are not allowed for loans, only for REOs.
For example: an appraiser uses an inspection prepared by someone else such as a real estate agent and uses an AVM which provides comps and other data. Or, a previous appraisal report is used.
Lenders want to use licensed appraisers for evaluations. Be sure to read this Guide Note, which is well written and useful, especially if you are requested to do evaluations. It includes a list of what is required in the report.
I will be writing about this evolving issue, and what is being proposed by lenders, in an upcoming Appraisal Today paid newsletter.